As filed with the Securities and Exchange Commission on August 24, 2018July 12, 2019
Registration No. 333-333-228906
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1 to
Form S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
I-AM CAPITAL ACQUISITIONSIMPLICITY ESPORTS AND GAMING COMPANY
(Exact name of registrant as specified in its charter)
Delaware | 6770 | 82-1231127 | ||
(State or other jurisdiction of incorporation or organization) | (Primary Standard Industrial Classification Code Number) | (I.R.S. Employer Identification Number) |
1345 Avenue of the Americas, 11thFloor7000 W. Palmetto Park Rd., Suite 210
New York, NY 10105
Boca Raton, FL 33433
Telephone: (212) 878-3684
(855) 345-9467
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Jed Kaplan
F. Jacob Cherian
Chief Executive Officer1345 Avenue of the Americas, 11th FloorNew York, New York 10105
625 N. Flagler Drive, Suite 600
West Palm Beach, FL 33401
Telephone: (212) 878-3684
(855) 345-9467
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
Laura Anthony, Esq. Craig D. Linder, Esq. Anthony L.G., PLLC 625 N. Flagler Drive, Suite 600 West Palm Beach, FL 33401 Telephone: (561) 514-0936
|
Approximate date of commencement of proposed sale to the public:As soon as practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. ☐[X]
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐[ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐[ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐[ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | [ ] | Accelerated filer |
Non-accelerated filer | [X] | Smaller reporting company |
Emerging growth company |
If an emerging growth company, indicate by check market if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐[ ]
CALCULATION OF REGISTRATION FEE
Title of Each Class of Security Being Registered | Amount Being Registered | Proposed Maximum Offering Price per Security(1) | Proposed Maximum Aggregate Offering Price (1) | Amount of Registration Fee | ||||||||||
Shares of common stock | 600,000 | $ | 10.19 | $ | 6,114,000 | $ | 761.19 | |||||||
(1) Estimated solely for the purpose of calculating the registration fee. Pursuant to Rule 457(c) under the Securities Act, the proposed maximum offering price per share is based on the average of the high and low sale prices of the registrant’s common stock on the Nasdaq Capital Market on August 21, 2018.
Title of each class of securities to be registered | Amount to be registered | Proposed maximum offering price per share of common stock | Proposed maximum aggregate offering price | Amount of registration fee | ||||||||||||
Common Stock, par value $0.0001 per share | 5,461,500 | (1) | $ | 11.50 | (2) | $ | 62,807,250.00 | $ | 7,612.24 | |||||||
Common Stock, par value $0.0001 per share | 987,500 | (3) | $ | 4.00 | (4) | $ | 3,950,000.00 | $ | 478.74 | |||||||
Common Stock, par value $0.0001 per share | 6,360,617 | (5) | $ | 2.00 | (6) | $ | 12,721,234.00 | $ | 1,541.81 | |||||||
Warrants to purchase Common Stock | 261,500 | (7) | — | (8) | — | 0 | ||||||||||
TOTAL | $ | 9,632.79 | (9) |
(1) | Represents the issuance by the registrant of (i) 5,200,000 shares of its common stock, par value $0.0001 per share (“Common Stock”), that may be issued upon the exercise of 5,200,000 warrants (the “Public Warrants”) originally sold as part of units in the registrant’s initial public offering (the “IPO”), and (ii) 261,500 shares of Common Stock that may be issued upon the exercise of the 261,500 warrants (the “Private Placement Warrants” and together with the Public Warrants, the “Warrants”) originally sold as part of private placement units in a private placement that closed simultaneously with the consummation of the IPO. Pursuant to Rule 416 under the Securities Act of 1933, as amended (the “Securities Act”), there are also being registered such indeterminable additional shares of Common Stock as may be issued to prevent dilution as a result of stock splits, stock dividends or similar transactions, and the resale of such shares of Common Stock. | |
(2) | Based on the $11.50 exercise price of a Warrant in accordance with Rule 457(g) under the Securities Act. | |
(3) | Represents the issuance by the registrant of 987,500 shares of its Common Stock that may be issued upon the exercise of 987,500 warrants (the “2019 Warrants”) originally sold as part of private placement units in a private placement commenced in March 2019. Pursuant to Rule 416 under the Securities Act, there are also being registered such indeterminable additional shares of Common Stock as may be issued to prevent dilution as a result of stock splits, stock dividends or similar transactions, and the resale of such shares of Common Stock. | |
(4) | Based on the $4.00 exercise price of a 2019 Warrant in accordance with Rule 457(g) under the Securities Act. | |
(5) | Represents the resale of 6,360,617 shares of Common Stock by the selling securityholders named in the prospectus that forms a part of this registration statement on Form S-1. Pursuant to Rule 416 under the Securities Act, there are also being registered such indeterminable additional shares of Common Stock as may be issued to prevent dilution as a result of stock splits, stock dividends or similar transactions, and the resale of such shares of Common Stock. | |
(6) | Represents the fixed price at which the selling stockholders will sell their shares of Common Stock registered for resale in this prospectus for the duration of this offering. | |
(7) | Represents the resale of the Private Placement Warrants. | |
(8) | No fee pursuant to Rule 457(g) under the Securities Act. | |
(9) | Previously paid $8,035.48. |
The Registrantregistrant hereby amends this Registration Statementregistration statement on such date or dates as may be necessary to delay its effective date until the Registrantregistrant shall file a further amendment whichthat specifically states that this Registration Statementregistration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statementregistration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
EXPLANATORY NOTE
The proxy statement/prospectus that forms a part of this Registration Statement consists of (i) a proxy statement relating to the special meeting in lieu of an annual meeting of stockholders (the “special meeting”) of I-AM Capital Acquisition Company (“I-AM Capital”) to be held to approve the proposed business combination with Smaaash Entertainment Private Limited (“Smaaash”) and (ii) a prospectus relating to the offer and sale of 600,000 shares of common stock of I-AM Capital to be issued as dividend on all shares of I-AM Capital common stock that are outstanding at the end of the day immediately prior to the closing of the business combination with Smaaash.
The information in this preliminary proxy statement/prospectus is not complete and may be changed. WeThese securities may not sell these securitiesbe sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary proxy statement/prospectus is not an offer to sell these securities, and it is not soliciting an offer to buy these securities, in any jurisdiction where the offer or sale is not permitted.
PRELIMINARY |
I-AM CAPITAL ACQUISITION
SIMPLICITY ESPORTS AND GAMING COMPANY
600,000
6,449,000 Shares of Common Stock Underlying Warrants
6,360,617 Shares of Common Stock for Resale by Selling Securityholders
261,500 Warrants to Purchase Common Stock for Resale by Selling Securityholders
This is an offeringprospectus relates to the issuance by us of 600,000up to 6,449,000 shares of our common stock, par value $0.0001 per share (“Common Stock”), which consist of I-AM Capital Acquisition Company (“I-AM Capital” or “we”) to(a) 5,200,000 shares of Common Stock that may be issued upon the exercise of 5,200,000 warrants (the “Public Warrants”) originally sold as a dividend (“Special Dividend”) on all sharespart of I-AM Capital common stock that are outstanding at the end of the day immediately prior to the closing of the proposed business combination with Smaaash Entertainment Private Limited (“Smaaash”), as more fully described hereinafter. I-AM Capital Partners LLC, the sponsor of I-AM Capital, Maxim Group LLC, the underwriter of I-AM Capital’sunits in our initial public offering (“Maxim”(the “IPO”) and which entitle the holder to purchase Common Stock at an exercise price of $11.50 per share of Common Stock, (b) 261,500 shares of Common Stock that may be issued upon the exercise of 261,500 warrants (the “Private Placement Warrants”) underlying units originally issued in a private placement that closed simultaneously with the consummation of the IPO (the “Private Placement Units”), which entitle the holder to purchase Common Stock at an exercise price of $11.50 per share of Common Stock, and (c) 987,500 shares of our Common Stock, which represent shares of Common Stock that may be issued upon the exercise of 987,500 warrants (the “2019 Warrants”, 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 connectiontogether with the Special Dividend,Public Warrants and Private Placement Warrants, the Sponsor has agreed“Warrants”) originally sold as part of units in a private placement that commenced on March 27, 2019 (the “2019 Private Placement”) and which entitle the holder to cancel a numberpurchase Common Stock at an exercise price of founder shares equal to the aggregate number$4.00 per share of shares issued in the dividend.Common Stock.
This proxy statement/In addition, this prospectus containsrelates to the proposals submittedresale from time to time of 6,360,617 shares of Common Stock and 261,500 Private Placement Warrants by the selling securityholders named in this prospectus or their permitted transferees (the “Selling Securityholders”).
We will receive the proceeds from the exercise of the Warrants for cash, but not from the resale of the Private Placement Warrants or the shares of Common Stock underlying the Warrants.
The Selling Securityholders will sell their shares registered for resale in this prospectus at a fixed price of $2.00per share for the approvalduration of this offering. See “Determination of Offering Price” and “Plan of Distribution.”We will not receive any of the stockholdersproceeds from the sale of I-AM Capitalthe securities owned by the Selling Securityholders. See “Use of Proceeds” beginning on page 40 of this prospectus. We will bear all costs, expenses and fees in connection with the proposed business combinationregistration of these securities, including with regard to compliance with state securities or “blue sky” laws. The Selling Securityholders will bear all commissions and includes a proposal, which is referreddiscounts, if any, attributable to as the Business Combination Proposal, to consider and approve a share subscription agreement, dated May 3, 2018, by and among Smaaash, I-AM Capital and the other parties thereto, as amended, pursuant to which I-AM Capital will invest in Smaaash the funds held in the trust account that holds the proceedstheir sale 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, in exchange for equity sharessecurities. See “Plan of Smaaash (the “Transaction”). For more informationDistribution” beginning on the Business Combination Proposal and other proposals, see “Special Meetingpage 77 of I-AM Capital Stockholders.”this prospectus.
Our common stock, rightsCommon Stock and warrantsPublic Warrants are currently quoted on the Nasdaq CapitalOTCQB tier of the OTC Market Group, Inc. under the symbols “IAM,” “IAMXR”“WINR” and “IAMXW,“WINRW,” respectively. On July 10, 2019, the closing price of our Common Stock and Public Warrants were $1.72 and $0.33, respectively. As of July 12, 2019, we had 6,952,195 shares of Common Stock and 5,200,000 Public Warrants issued and outstanding.
Our principal executive offices are located at 7000 W. Palmetto Park Road, Suite 210, Boca Raton, Florida 33433, and our telephone number is (855) 345-9467.
We are an “emerging growth company” under applicable federal securities laws and are subject to reduced public company reporting requirements. Investing in our securities involves a high degree of risk.
See “Risk Factors” beginning on page 1218 for a discussion of information that should be considered in connection with the Transaction and ownership of our securities.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this proxy statement/prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The date of the proxy statement/prospectus is ____________ , 20182019
TABLE OF CONTENTS
You should rely only on the information contained in this prospectus or a supplement to this prospectus. We have not authorized anyone to provide you with different information. This prospectus is not an offer to sell securities, and it is not soliciting an offer to buy securities, in any jurisdiction where the offer or sale is not permitted. You should not assume that the information contained in this prospectus or any supplement to this prospectus is accurate as of any date other than the date on the front cover of those documents.
I-AM CAPITAL ACQUISITION COMPANYCautionary Note Regarding Forward-Looking Statements1345 Avenue of the Americas, 11th Floor
New York, New York 10105
DearThis prospectus contains forward-looking statements. Specifically, forward-looking statements may include statements relating to:
● | our future financial performance; | |
● | changes in the market for our products and services; | |
● | our 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 as of the date of this prospectus and current expectations, forecasts and assumptions, and involve a number of judgments, risks and uncertainties. Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date, and we do not undertake 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.
As a result of a number of known and unknown risks and uncertainties, our 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 level of demand for our products and services; | |
● | competition in our markets; | |
● | our ability to grow and manage growth profitably; | |
● | our ability to access additional capital; | |
● | changes in applicable laws or regulations; | |
● | our ability to attract and retain qualified personnel; | |
● | the possibility that we may be adversely affected by other economic, business, and/or competitive factors; and | |
● | other risks and uncertainties indicated in this prospectus, including those under “Risk Factors.” |
We are responsible for the disclosure in this prospectus. However, this prospectus includes industry data that we obtained from internal surveys, market research, publicly available information and industry publications. The market research, publicly available information and industry publications that we use generally state that the information contained therein has been obtained from sources believed to be reliable. The information therein represents the most recently available data from the relevant sources and publications and we believe remains reliable. We did not fund and are not otherwise affiliated with any of the sources cited in this prospectus. Forward-looking information obtained from these sources is subject to the same qualifications and additional uncertainties regarding the other forward-looking statements in this prospectus.
We own or have rights to trademarks or trade names that we use in connection with the operation of our business, including our corporate names, logos and website names. In addition, we own or have the rights to copyrights, trade secrets and other proprietary rights that protect the content of our products and the formulations for such products. This prospectus may also contain trademarks, service marks and trade names of other companies, which are the property of their respective owners. Our use or display of third parties’ trademarks, service marks, trade names or products in this prospectus is not intended to, and should not be read to, imply a relationship with or endorsement or sponsorship of us. Solely for convenience, some of the copyrights, trade names and trademarks referred to in this prospectus are listed without their ©, ® and ™ symbols, but we will assert, to the fullest extent under applicable law, our rights to our copyrights, trade names and trademarks. All other trademarks are the property of their respective owners.
This summary only highlights the more detailed information appearing elsewhere in this prospectus. As this is a summary, it does not contain all of the information that you should consider in making an investment decision. You should read this entire prospectus carefully, including the information under “Risk Factors” and our financial statements and the related notes included elsewhere in this prospectus, before investing.
Unless the context otherwise requires, “we,” “us,” or “the Company” refers to (i) “Simplicity Esports and Gaming Company” after the consummation of the Acquisition of Simplicity Esports, LLC, (ii) “Smaaash Entertainment Inc.” before the consummation of the Acquisition of Simplicity Esports, LLC but after the closing of the Transactions with Smaaash Entertainment Private Limited, and (iii) I-AM Capital Acquisition Company Stockholders:prior to the closing of the Transactions with Smaaash Entertainment Private Limited.“Simplicity Esports LLC” means Simplicity Esports, LLC, a Florida limited liability company, and its consolidated subsidiaries. “Smaaash Private” means Smaaash Entertainment Private Limited, a private limited company incorporated under the laws of India, and its consolidated subsidiaries.
Overview
You
We are cordially inviteda North American esports organization. We have implemented a unique approach to attendensure the special meetingultimate fan friendly experience. Our intention is to have gamers involved at the grassroots level and feel a sense of unity as we compete with top class talent. Utilizing the vast resources from within the ownership group, we have already established an impressive management team and roster. Our management and players are well known influencers within the esports community and we plan to use their skills to create a seamless content creation plan to help gamers feel closer to our brand than any other in lieuthe industry. We intend to create a platform that will help grow esports for generations of gamers.
For the fiscal year ended May 31, 2018 and the period from April 17, 2017 (date of inception) to May 31, 2017, we did not generate any revenues and reported net losses of $8,862 and $672, respectively, and negative cash flow from operating activities of $470,153 and $672, respectively. For the nine months ended February 28, 2019, we generated revenues of $14,070, reported a net loss of $3,095,960, and had negative cash flow from operating activities of $823,847. As noted in our consolidated financial statements, we had an annual meetingaccumulated deficit of stockholdersapproximately $3,105,494. We anticipate that we will continue to report losses and negative cash flow. Our auditors have raised substantial doubt regarding our ability to continue as a going concern as a result of our historical recurring losses and negative cash flows from operations as well as our dependence on private equity and financings. See “Risk Factors—We have a history of operating losses and our auditors have indicated that there is a substantial doubt about our ability to continue as a going concern.”
Acquisition of Simplicity Esports, LLC
On January 4, 2019, the Company consummated the transactions contemplated by that certain share exchange agreement, dated December 21, 2018 (as amended by Amendment No. 1 to Share Exchange Agreement, dated December 28, 2018 and by Amendment No. 2 to Share Exchange Agreement, dated December 30, 2018, the “Share Exchange Agreement”) by and among the Company, Simplicity Esports, LLC, a Florida limited liability company (“Simplicity Esports LLC”), each of the equity holders of Simplicity Esports LLC (“Simplicity Owners”) and Jed Kaplan, in the capacity as the representative of the Simplicity Owners (the “special meeting”“Representative”). Pursuant to the Share Exchange Agreement the Simplicity Owners transferred all the issued and outstanding equity interests of Simplicity Esports LLC to the Company in exchange for newly issued shares of common stock of the Company (the “Acquisition”).
Background of Simplicity Esports, LLC
Founded in 2017, Simplicity Esports LLC is committed to growing and enhancing the esports industry, fostering the development of amateurs to compete professionally, and partnering with established professional gamers to support their paths to greater success. Esports (also known as electronic sports, e-sports, or eSports) is a form of competition using video games. Most commonly, esports takes the form of organized, multiplayer video game competitions, particularly between professional players, individually or as teams. Our continued accomplishments in various games is a driving force behind the growth of our fan base, including viewership of our content.
As of January 4, 2019, upon the completion of the acquisition of Simplicity Esports LLC, the business of Simplicity Esports LLC has now become the primary business of the Company. Simplicity Esports LLC is an established brand in the esports industry with an engaged fan base competing in popular games across different genres, including Apex Legends, PUBG, Gears of War, SMITE, and NHL 19. The Simplicity Esports LLC stream team encompasses over 50 casters, influencers and personalities who connect to a dedicated fan base. Simplicity Esports LLC’s notoriety in the industry is evidenced by its audience that views millions of minutes of Simplicity Esports LLC content monthly, via various social media outlets, including YouTube, Twitter and Twitch.
The acquisition of Simplicity Esports LLC creates a pure play esports team and entertainment platform opportunity, which we believe will increase shareholder value and boost our growth strategy as we continue the build out of our brick and mortar esports centers. Through Simplicity Esports LLC, the Company has begun to implement a unique approach to ensure the ultimate fan friendly esports experience. Our intention is to have gamers involved at the grassroots level and feel a sense of unity as we compete with top class talent. Our management and players are known within the esports community and we plan to use their skills to create a seamless content creation plan, helping gamers feel closer to our brand than any other in the industry. We plan to open and operate corporate-owned retail esports gaming centers (“Gaming Centers”), as well as to franchise Gaming Centers that will provide the public an opportunity to experience and enjoy gaming and esports in a social setting, regardless of skill or experience.
Brick & Mortar Gaming Centers
Our business plan encompasses a brick and click physical and digital approach to further recognize revenue from all verticals. As a professional esports organization, we will strive to be the first to market with the aforementioned business model. The physical Gaming Centers will compliment our esports team, lifestyle brand and marketing campaign offer opportunities for additional revenue via strategic partnerships with both endemic and non-endemic brands. Our ultimate goal is to further engage a diverse fan base with a 360 degree approach driving traffic to both our digital and physical real estate, ultimately monetizing these relationships. In addition to the presented information, we have proprietary intellectual capital, fan engagement strategies and brand development blueprints which complement our publicly available information.
We intend to open and operate 15 Gaming Centers by the end of 2019 and a total of 50 throughout the United States over the next 24 months. These Gaming Centers will be funded by us as well as a combination of tenant improvement allowances from landlords and sponsorships. Our first Gaming Center opened in Boca Raton, Florida in May 2019. Due to unsolicited interest from potential franchisees, we have launched a franchising program to accelerate the expansion of our planned nationwide footprint. Furthermore, we have engaged a national tenant representation real estate broker to assist in the strategic planning and negotiations for our future Gaming Center locations.
Optimally, our Gaming Centers will measure between 1,200 and 2,500 square feet, thereby representing a national footprint unlike any esports organization. The team Simplicity branded Gaming Centers will feature cutting edge technology, a futuristic décor aesthetic and the most dynamic current high speed gaming equipment. We believe our brick-and-click strategy will present attractive opportunities for sponsors and advertisers to connect with our audience, creating an intriguing monetization opportunity.
Creating content that engages fans, promotes our brand as well as sponsors and developers is one of our primary goals. Our talented team will continue to produce unique in depth content which showcases aspects of esports which fans rarely see. We seek to reach a broad demographic encompassing the casual, amateur and professional gaming community. Our philosophy is to enhance our footprint for both endemic and non-endemic partnerships. We are keen to the markets and understand the new age of branding while maintaining authenticity.
Simplicity Stream Team
We are proud to support and present a diverse group of gamers as we engage fans across a multiple of esports genres. Represented below are a few members of our talented stream team. Our electric group of live personalities represent our organization to the fullest with their own unique style. Our Twitch affiliation has enabled our stream team influences to reach a broad fan base. Additionally, we have created several niches within the streaming community which has enabled us to engage fans within certain titles on a 24/7 basis.
Potential Revenue Capacity
The following table shows our potential revenue capacity, per location, from game play.
We also expect opportunities for revenue from parties, tournaments, classes, gaming gear, apparel, advertising and sponsorship sales.
ANNUAL REVENUE CAPACITY FROM GAME PLAY PER ESPORTS GAMING CENTER*
20% | $157,248 |
40% | $314,496 |
60% | $471,744 |
80% | $628,992 |
*Assumes 2,808 operational hours, 28 gaming stations, $10/hour price. Represents capacity only, and is not an indication of expected future revenues. There can be no assurance that we will operate at any of the indicated levels of capacity, or at all.
Corporate History
Formation
We were initially a blank check company organized under the laws of the State of Delaware on April 17, 2017 under the name I-AM Capital Acquisition Company. We were 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 we were not limited to a particular industry or geographic region for purposes of consummating a business combination, we focused on businesses with a connection to India. On November 20, 2018, we changed our name from I-AM Capital Acquisition Company to Smaaash Entertainment, Inc. On January 2, 2019, we changed our name from Smaaash Entertainment, Inc. to Simplicity Esports and Gaming Company.
We are authorized to issue 21,000,000 shares of capital stock, consisting of (i) 20,000,000 shares of common stock, with a par value of $0.0001 per share (“Common Stock”), and (ii) 1,000,000 shares of preferred stock, with a par value of $0.0001 per share. As of July 12, 2019, there were 6,952,195 shares of Common Stock issued and outstanding and there were no shares of preferred stock issued or outstanding.
Founder Shares
On May 31, 2017, we issued 1,437,500 shares of Common Stock (the “Founder Shares”) to I-AM Capital on September [ ], 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 amendedPartners LLC, our sponsor (the “Subscription Agreement”). If the Business Combination Proposal is approved and I-AM Capital consummates the transactions contemplated thereby, which we refer to collectively as the “Transaction,“Sponsor” 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 sharesa capital contribution of Smaaash. We estimate that$25,000. Upon 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%partial exercise of the issued share capitalunderwriters’ over-allotment option on September 13, 2017, 137,500 Founder Shares were forfeited by the Sponsor, for a balance of Smaaash, provided that such percentage shall decrease proportionately depending on the number of shares redeemed1,300,000 Founder Shares held 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.our Sponsor.
Copies of the Subscription Agreement, the Master Distribution Agreement, the Master Franchise AgreementInitial Public Offering and the Shareholders’ Agreement are attached to the accompanying proxy statement/prospectus asAnnex APrivate Placement,Annex B, Annex C andAnnex D, respectively.
I-AM Capital stockholders will also be askedOn August 22, 2017, we sold 5,000,000 units at a purchase price of $10.00 per unit in our initial public offering (“IPO”) of public units (“Public Units”), generating gross proceeds of $50.0 million. Each Public Unit consisted of one share of our Common Stock (“Public Shares”), one right to considerreceive one-tenth of one share our Common Stock upon consummation of an initial business combination (“Public Right”), and vote uponone redeemable warrant (“Public Warrants”). Each warrant entitled the following proposals:
ii
Eachholder to purchase one share of these proposals is more fully described in the accompanying proxy statement/prospectus.common stock at an exercise price of $11.50 per share, subject to adjustment.
Under the Subscription Agreement,Concurrently with the closing of the Transaction is subject toIPO on August 22, 2017, the Sponsor purchased an aggregate of 254,500 units (“Private Placement Units”) at $10.00 per unit, generating gross proceeds of $2,545,000 in a number of conditions, including that I-AM Capital’s stockholders approve the Business Combination Proposal. If these conditionsprivate placement. The Private Placement Units (including their component securities) are not satisfied, then Smaaash will not be required to consummatetransferable, assignable or salable until 30 days after the Transaction.completion of the initial business combination and the warrants included in the Private Placement Units are non-redeemable so long as they are held by the Sponsor or their permitted transferees.
I-AM Capital’s common stock, rightsOn August 22, 2017, we issued 50,000 shares of Common Stock to Maxim in connection with its services as underwriter for the IPO.
Contained in the underwriting agreement for the IPO was an over-allotment option allowing the underwriters to purchase from the Company up to an additional 750,000 Public Units (the “Over-Allotment Units”) and, warrants are currently quotedin addition, the Company received a commitment from the Sponsor to purchase up to an additional 26,250 Private Placement Units.
On September 13, 2017, the underwriters partially exercised their option and purchased 200,000 Over-Allotment Units, which were sold at an offering price of $10.00 per unit, generating gross proceeds of $2,000,000.
On September 13, 2017, simultaneously with the sale of the Over-Allotment Units, the Company consummated the sale of an additional 7,000 Private Placement Units (the “Over-Allotment Placement Units”), generating gross proceeds of $70,000.
On September 13, 2017, we issued Maxim an additional 2,000 shares of our Common Stock upon partial exercise of the over-allotment.
On October 9, 2017, we commenced trading our Public Shares of Common Stock, Public Rights, and Public Warrants on the NASDAQNasdaq 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 [ ], 2018 (two (2) business days before the special meeting) may elect to redeem their shares whether or not they are holders as of the 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 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 at the end of the day 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/prospectus 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/prospectus 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/prospectus and our Annual Report on Form 10-K carefully. Please pay particular attentionThe Founder Shares are identical to the section entitled “Risk Factors,"which begins on page12.
After careful consideration, I-AM Capital’s boardPublic Shares and holders 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 by completing, signing, dating and returning the enclosed 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. 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, willFounder Shares have the same effectstockholder rights 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.
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This proxy statement/prospectus 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 COMPANY1345 Avenue of the Americas, 11th FloorNew York, New York 10105
NOTICE OF SPECIAL MEETING IN LIEU OF AN ANNUAL MEETING OF STOCKHOLDERSOF I-AM CAPITAL ACQUISITION COMPANYTO BE HELD ON SEPTEMBER [ ], 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 [ ], 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/prospectus 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/prospectus 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 accompanying proxy statement/prospectus (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/prospectus 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/prospectus, 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 [ ], 2018 (two (2) business days before the special meeting) may elect to redeem their shares whether or not they are holders as of the 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 at the end of the day 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/prospectus 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 the proxy statement/prospectus and the accompanying Annual Report on Form 10-K for the fiscal year ended May 31, 2018.
This notice was mailed on or about _______, 2018.
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TABLE OF CONTENTS
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ANNEXES
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CONVENTIONS WHICH APPLY TO THIS PROXY STATEMENT/PROSPECTUS
In this proxy statement/prospectus, unless otherwise specified or the context otherwise requires:
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/prospectus as “IFRS.”
Smaaash refers in various places within this proxy statement/prospectus 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/prospectus, 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 included in the private placement units, each of which is exercisable for 1/10 of a share of I-AM Capital common stock, in accordance with its terms.
“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, includingPublic Shares (“Public Stockholders”) which include our initial stockholderstockholders, including the holders of our Founder Shares prior to the IPO (“initial stockholders”) and members of our management team, including our executive officers and directors (“management” and “management team”), to the extent our initial stockholderstockholders and/or members of our management team purchase public shares,purchased 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 Shares), except that the Founder Shares and the shares of Common Stock (“Private Placement Shares”) forming part of the Private Placement Units are subject to certain transfer restrictions.
“public units” means the units sold in I-AM Capital’s initial public offering.Consummation of Transactions with Smaaash Entertainment Private Limited
On November 20, 2018 (the “public warrants” meansClosing Date”), 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, byCompany 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 organizedincorporated 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 dated May 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” meansIndia, consummated the transactions (the “Transactions” or the “Business Combination”) contemplated by the share subscription agreement (as amended, the “Subscription Agreement.
“trust account” meansAgreement”), following 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 presentedapproval at the special meeting in lieu of the stockholders of the Company held on November 9, 2018 (the “Special Meeting”).
At the Special Meeting, holders of 4,448,260 Public Shares exercised their right to redeem those shares for cash at a price of $10.2187363 per share, for an annual meetingaggregate of stockholders (the“special meeting”), including with respectapproximately $45,455,596. Immediately after giving effect 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/prospectus, 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.
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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/prospectus 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/prospectus 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.
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 at the endresult of the day immediately prior toredemptions described above) the closingissuance 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 of2,000,000 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 numberSmaaash founders, the issuance of shares issued in the Special Dividend. To the extent you transfer or redeem your520,000 shares of I-AM Capital common stock prior to the closingupon conversion of the Transaction, you will not receivePublic Rights at the Special Dividend.Closing and the issuance of 208,000 shares of common stock to Chardan Capital Markets, LLC (“Chardan”) as consideration for services), there were 5,119,390 shares of common stock and warrants to purchase approximately.
Your vote is important. You are encouraged to submit your proxy as soon as possible after carefully reviewing this proxy statement/prospectus and its annexes.
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 sharesBusiness Combination with the opportunity to have their public shares redeemed upon the consummation of the Transaction.
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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 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.
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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 at the end of the day 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 bePrivate, we issued in the Special Dividend for each outstanding share shall be equal to 600,000 divided by the number of26,150 shares of common stock eligible to receive such dividend. In connection withunderlying the Special Dividend, the Sponsor has agreed to cancel a number of founder shares equalPrivate Placement Rights 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 closingholders of the Transaction, you will not receive the Special Dividend.
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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.
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.
These interests may influence I-AM Capital’s directors in making their recommendation that you vote in favor of the approval of the Transaction.
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?”.
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, which has been extended to November 21, 2018 (or May 21, 2019, if we further 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. Private Placement Rights.
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.
For a description of the conditions to the completion of the Transaction, see the section entitled“Proposal No. 1 —The Business Combination Proposal.”
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Suhel KanugaI-AM Capital Acquisition Company1345 Avenue of the Americas, 11th FloorNew York, New York 10105Tel: (212) 878-3684Email: sk@i-amcapital.comYou may also contact I-AM Capital’s proxy solicitor at:
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 September [ ], 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 CompanyOne State Street Plaza, 30th FloorNew York, New York 10004Attn: Mark ZimkindE-mail:mZimkind@continentalstock.com
8
SUMMARY OF THE PROXY STATEMENT/PROSPECTUS
This summary highlights selected information from this proxy statement/prospectus 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/prospectus 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 intothe purchase price of $150,000 was paid by the Company to 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 ProposalPrivate in exchange for 294,360 newly issued equity shares of Smaaash. I-AM Capital estimates thatSmaaash Private at the equity shares issued to it by Smaaash, assuming an Investment Amount of $49.0 million, will constitute up to approximately 27.53%closing 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.Transactions (the “Closing”).
In connectionaddition, AHA Holdings Private Limited (“AHA Holdings”) and Shripal Morakhia (together with AHA Holdings, 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/prospectus as“Annex 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 the Closing Date, they shallwould transfer all of their ownership interest in Smaaash Private (representing 33.6% of the share capital of Smaaash Private on a fully diluted basis as of June 22, 2018 and which will represent 24.34% of2018) (the “Additional Smaaash Shares”) to the share capital of Smaaash on a fully diluted basis immediately after the Investment) to I-AM CapitalCompany in exchange for newly issued shares of common stock of I-AM Capitalour Common Stock (the “Transferred Company Shares”) in an amount which would enable the Smaaash Founders to retain their 24.34% post-Investment33.6% ownership interest in Smaaash Private indirectly through their interest in I-AM Capital. You should read “Proposal No. 1 — The Business Combination Proposal” for further information.
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 TransactionCompany.
Assuming all current board members up for re-electionAt the Closing, the Company issued an aggregate of 2,000,000 shares of its common stock to the Smaaash Founders as an upfront portion of the Transferred Company Shares (the “Upfront Company Shares”). In connection with the issuance of the Upfront Company Shares, the Company and the director nominee standing for election atSmaaash Founders entered into an escrow agreement pursuant to which 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.Upfront Company Shares would be held in escrow 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 electedeither, (i) if the Business Combination Proposal is approved. SeeAdditional Smaaash Shares are not transferred in full to the sections entitled “Proposal No. 1 — The Business Combination Proposal”, “Proposal No. 3 — The Director Election Proposal”Company within the designated six-month period, cancelled, or (ii) if the Additional Smaaash Shares are transferred in full to the Company within the designated six-month period, released from escrow and“Management after the Transaction” for additional information.number of Upfront Company Shares will be deducted from the Transferred Company Shares that will be issued to the Smaaash Founders upon the delivery of the Additional Smaaash Shares.
Accounting Treatment
For accounting purposes I-AM Capital will treatOn November 16, 2018, Smaaash Private and the TransactionSmaaash Founders executed a letter of undertaking, pursuant to which they agreed to transfer 4,000,000 additional equity shares of Smaaash Private to the Company in consideration for 200,000 shares of our Common Stock, simultaneously with the issuance of the 300,000 equity shares of Smaaash Private to the Company on or prior to November 30, 2018, as an equity investment in Smaaash.permitted by the laws of India. Such additional shares of Smaaash Private have not yet been delivered to the Company.
Appraisal Rights
Appraisal rights are not available to I-AM Capital stockholders inIn connection with the Transaction. ExercisingClosing, the right to redeemCompany changed its name from I-AM Capital shares isAcquisition Company to Smaaash Entertainment Inc., changed its stock symbols for its Common Stock, Public Rights, and Public Warrants to “IAM,” “IAMXR” and “IAMXW,” respectively, and entered into a master franchise agreement (“Master Franchise Agreement”) and a master license and distribution agreement (“Master Distribution Agreement”) with Smaaash Private. Prior to the only remedy forClosing, the Company was a public stockholder.
Reasons for the Transaction
I-AM Capital was organized for the purpose of effectingshell company with no operations, formed as a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, or similarvehicle to effect a business combination with one or more operating businesses. I-AM Capital has sought to capitalize onAfter the substantial deal sourcing, investingClosing, the Company’s primary assets consisted of shares in Smaaash Private and operating expertise of its management team to identify, acquirethe rights granted under the Master Franchise Agreement and operate a business with a connection to India, although I-AM Capital is not limited to a particular industry or sector.the Master Distribution Agreement.
In particular, I-AM Capital’s board consideredPursuant to the following positive factors, althoughterms of the escrow agreement, the Upfront Company Shares have been cancelled because the Additional Smaaash Shares were not weighted ortransferred in any order of significance:
full to the Company in the designated six-month period.
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.Master Franchise Agreement
ExperiencedFranchise and motivated management team.license rightSmaaash’s founder is a visionary entrepreneur with a proven ability. Under the Master Franchise Agreement, Smaaash Private has granted to build value for investors,the Company 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 track record of success.
I-AM Capital’s board also consideredlicense to use 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 inproducts and other services developed by Smaaash and, as a result, may not have effective control over the operations of Smaaash.
Possibility of becoming an investment company pursuantPrivate with respect to the Investment Company ActSmaaash Centers, in the territories of 1940North America and South America (“Territory”). Following the Transaction, I-AM Capital may become subjectFurther, Smaaash Private has granted to the requirementsCompany the limited license to use the Trademarks of Smaaash Private (as set out in 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 presentMaster Franchise Agreement) for the purposes of establishing a quorum.and operating the Smaaash Centers in the Territory. The Master Franchise Agreement has been executed on an arms’ length basis between Smaaash Private and the Company.
UnderObligations of the rulesCompany. The Company will not directly or indirectly engage or be concerned with any business which competes with Smaaash Private’s business in the Territory during the term of various nationalthe Master Franchise Agreement. The Company will market, promote and regional securities exchanges your broker, bankpublicize the Smaaash Centers in the Territory. The Company or nominee cannot vote your sharesthird party sub-franchisees shall be under an obligation to set up at least six Smaaash Centers during the first calendar year.
Obligations of Smaaash Private. Smaaash Private 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 will be entitled to receive the revenue generated from each of the Smaaash Centers. In connection with respectthe operations of the Smaaash Centers by sub-franchisees, the Company shall be entitled to non-discretionary matters unless you provide instructionsreceive (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 howan annual basis; and (iii) a 15% markup of the products sold to votethe sub-franchisee. Smaaash Private will not receive any portion of the revenue or other fees in connection with the Master Franchise Agreement.
Ownership of Smaaash Marks. Smaaash Private will be the sole owner of all intellectual property related to the Smaaash Centers. All future rights, goodwill and reputation of the Smaaash Marks shall inure to the benefit of Smaaash.
Term of the Agreement. The Master Franchise Agreement will commence from its execution date and continue until the agreement is terminated 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.Master Franchise Agreement.
RecommendationTermination. The Master Franchise Agreement may be terminated (i) by the mutual written agreement of parties or (ii) by Smaaash Private if the Company fails to I-AM Capital Stockholders
I-AM Capital’s board of directors believes that eachmake 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’ notice 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:
You should carefully consider the following risk factors, together with all of the other information included in this proxy statement/prospectus, before you decide whether to vote or instruct your vote to be cast to approve the Business Combination Proposal.
Risks Related to Smaaashfailure.
Smaaash has significant indebtedness and the imposition of certain restrictive covenants in Smaaash debt financing arrangements may increase Smaaash’s susceptibilityAddendum to interest rate fluctuations, adversely impact Smaaash’s financial condition and results of operations, as well as restrict Smaaash’s operational flexibility.Master Franchise Agreement
On November 29, 2018, the Company and Smaaash Private executed an addendum to the Master Franchise Agreement (the “Amendment”). Pursuant to the Amendment, Smaaash Private grants the Company the exclusive rights to set up family and entertainment centers under the name “Total Sports Center” in the United States (“Total Sports Centers”) in which 51% of the investment will be borne by the Company and 49% by Smaaash Private. Smaaash Private will be responsible for identifying the locations for setting up, managing and controlling the Total Sports Centers and will carry out all the fit out requirements for such centers. Smaaash Private will also appoint the management team for the centers. Smaaash Private will be entitled to 3% of the net revenue of each center, subject to conditions to be confirmed by the parties.
Master License and Distribution Agreement
Grant of license and distribution rights. Under the Master Distribution Agreement, Smaaash Private has granted to the Company an exclusive right to purchase from Smaaash Private specialized equipment and products related to sports and recreational activities (“Products”) in the territory under the brand name of Smaaash Private and sell them with a 15% markup to the customers which will be the sub-franchisees of the Company who will operate the Smaaash Centers, as specified in the Master Franchise Agreement.
Pricing. The Company may sell the Products further to any third party franchisees at a minimum of 15% margin over and above the price at which Smaaash Private sold the Products to the Company.
Grant of license in Smaaash Marks.Smaaash Private has also granted the Company a license to use the Trademarks (as set out in the Master Distribution 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 Private will be the sole owner of any intellectual property rights relating to the Products and all the goodwill relating thereto.
Term.The Master Distribution Agreement will 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 Private if the Company 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 the Company for any reason upon 120 days’ notice.
Overview of Smaaash Entertainment Private Limited
Smaaash Private operates 40 state-of-the-art games and entertainment centers (“Smaaash Centers”), including 39 Smaaash Centers in India and one international Smaaash 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 Private’s core concept is to offer an interactive, immersive and fun experience to customers at its Smaaash Centers, blending Augmented Reality (“AR”) and Virtual Reality (“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 corporate customers, families, friends and children. Smaaash Private’s game concepts are supported by its in-house technology, value engineering and systems integration capabilities.
Following the January 2019 acquisition of Simplicity Esports LLC, we determined to shift our current primary focus to the Simplicity Esports LLC business. Accordingly, we do not anticipate generating any material revenues from Smaaash in 2019. The Master Franchise Agreement, as amended, and the Master Distribution Agreement continue in full force and effect, however, and we may now or in the future pursue Smaaash Private business opportunities.
Settlement Agreement
On November 20, 2018, the Company entered into a settlement and release agreement (“Settlement Agreement”) with Maxim Group LLC, the underwriter for the Company’s IPO (“Maxim”). Pursuant to the Settlement Agreement, the Company made a cash payment of $20,000 to Maxim and issued a demand secured promissory note in favor of Maxim in the amount of $1.8 million (the “Note”) to settle the payment obligations of the Company under the underwriting agreement dated August 16, 2017, by and between the Company and Maxim. The Company also agreed to remove the restrictive legends on an aggregate of 52,000 shares of its common stock held by Maxim and its affiliate.
The Note accrues interest at 8% per annum from the date of the Note through and including May 20, 2019 and 12% per annum from and including May 21, 2019 through and including August 20, 2019 and 15% per annum from and including August 21, 2019 through and including November 20, 2019. If a late payment occurs and is continuing, the interest rate will be increased to 12% per annum and if from the date of the Note through and including August 20, 2019 and 18% per annum and if from after August 21, 2019. If a late payment remains outstanding for over 48 hours, Maxim may require the Company to redeem all or any part of the Note (“Alternate Payment Amount”) at a redemption price equal to 125% of the Alternate Payment Amount.
The principal and interest of the Note will be payable upon demand by Maxim or from time to time, in accordance the following schedule:
(i) one third of the principal, accrued and unpaid interest and any late charges on May 20, 2019;
(ii) one third of the principal, accrued and unpaid interest and any late charges on August 20, 2019; and
(iii) one third of the principal, accrued and unpaid interest and any late charges on November 20, 2019.
The Note is secured by a first priority security interest in all personal property and assets of the Company excluding the assets held in escrow with respect to (i) that certain stock purchase agreement with Polar Asset Management Partners Inc. (“Polar”), pursuant to which Polar agreed to sell up to 490,000 shares of the Company’s common stock to the Company thirty days after the consummation of the Transactions and (ii) that certain stock purchase agreement with K2 Principal Fund L.P. (“K2”), pursuant to which K2 agreed to sell up to 220,000 shares of the Company’s common stock to the Company thirty days after the consummation of the Transactions.
The amount payable under the Note may be paid in shares of our Common Stock or securities convertible or exercisable into shares of our Common Stock (the “Alternate Equity Payment”) if and only if the Company and Maxim mutually agree on both the purchase price and, if applicable, the conversion and/or exercise price of each security of the Company issued in such Alternate Equity Payment. Otherwise the payment should be made in cash only.
So long as any amount under the Note is outstanding, all cash proceeds received by the Company from any sales of its securities will be used to repay this Note.
Convertible Note Payable
On December 20, 2018, the Company entered into a securities exchange agreement (“Exchange Agreement”) with Maxim Group LLC (the “Holder”). Pursuant to the terms of the Exchange Agreement, the Holder agreed to surrender and exchange the Note in the amount of $1.8 million which was issued to Maxim pursuant to the Settlement Agreement (discussed immediately above). In exchange, the Company issued to the Holder a Series A-1 Exchange Convertible Note in the principal amount of $500,000 (the “Series A-1 Note”) and a Series A-2 Exchange Convertible Note in the principal amount of $1,000,000 (the “Series A-2 Note,” and collectively with Series A-1 Note, the “Exchange Notes”).
The Series A-1 Note bears interest at 2.67% per annum, payable quarterly and has a maturity date of the earlier of the closing date of the Acquisition (as defined below) or June 20, 2020 (the “Maturity Date”). The Company may pay the interest in cash or at its sole discretion, in shares of its common stock or a combination of cash and common stock. However, the Company may only pay the interest in shares of its common stock if (i) all the equity conditions specified in the note (“Equity Conditions”) have been met (unless waived by the Holder in writing) during the 20 trading days immediately prior to the interest payment date (“Interest Notice Period”), (ii) the Company has provided proper notice pursuant to the terms of the note and (iii) the Company has delivered to the Holder’s account certain number of shares of its common stock to be applied against such interest payment prior to (but no more than five trading days before) the Interest Notice Period.
The Series A-1 Note is convertible into shares of the Company’s common stock (“Conversion Shares”) at an initial conversion price of $1.93 per share, subject to adjustment for any stock dividends and splits, rights offerings, distributions, combinations or similar transactions. Upon the closing of the Acquisition, the conversion price will be automatically adjusted to equal the arithmetic average of the volume weighted average price (“VWAP”) of the Company’s common stock in the five trading days prior to the closing date of the Acquisition. The Holder may convert the Series A-1 Note at any time, in whole or in part, provided that upon receipt of a notice of conversion from the Holder, the Company has the right to repay all or any portion of the Series A-1 Note included in the notice of conversion.
Additionally, the Series A-1 Note will automatically convert into shares of the Company’s common stock on the earlier of the Maturity Date or the closing date of the Acquisition provided that (i) no event of default then exists, and (ii) solely if such automatic conversion date is also the Maturity Date, each of the Equity Conditions have been met (unless waived in writing by the Holder) on each trading day during the 20 trading day period ending on the trading day immediately prior to the automatic conversation date.
At any time prior to the Maturity Date, the Company may also elect to redeem some or all of the outstanding principal amount for cash in an amount (the “Optional Redemption Amount”) equal to the sum of (a) 100% of the then outstanding principal amount of the note, (b) accrued but unpaid interest and (c) all liquidated damages and other amounts due in respect of the note (the “Optional Redemption”). The Company may only effect an Optional Redemption if each of the Equity Conditions have been met (unless waived in writing by the Holder) on each trading day during the period commencing on the date when the notice of the Optional Redemption is delivered to the date of the Optional Redemption and through and including the date payment of the Optional Redemption Amount is actually made in full.
Except as otherwise provided in the Series A-1 Note, including, without limitation, an Optional Redemption, the Company may not prepay any portion of the principal amount of the note without the prior written consent of the Holder.
The Company is not permitted to convert any portion of the Series A-1 Note if doing so results in the Holder beneficially owning more than 4.99% of the outstanding common stock of the Company after giving effect to such conversion, provided that on 61 days’ prior written notice from the Holder to the Company, that percentage may increase to 9.99%. However, if there is an automatic conversion, and the conversion would result in the Company issuing a number of shares in excess of the beneficial ownership limitation, then any such shares in excess of the beneficial ownership limitation will be held in abeyance for the benefit of the Holder until such time or times, if ever, as its right thereto would not result in the Holder exceeding the beneficial ownership limitation, at which time or times the Holder will be issued such shares to the same extent as if there had been no such limitation.
The Series A-1 Note contains restrictive covenants which, among other things, restrict the Company’s ability to repay or repurchase any indebtedness, make distributions on or repurchase its common stock or enter into transactions with its affiliates.
The Series A-2 Note has terms substantially similar to those of the Series A-1 Note except that the Series A-2 Note has a maturity date of June 20, 2020 and an initial conversion price of $1.93 which will be automatically adjusted to the lower of (i) the conversion price then in effect and (ii) the greater of the arithmetic average of the VWAP of the Company’s common stock in the five trading days prior to the notice of conversion and $0.50.
As of December 31, 2018, upon the closing of the Acquisition, the Series A-1 Note automatically converted into 193,648 shares of the Company’s common stock.
Amendments to Forward Purchase Agreements and Warrants
On December 20, 2018, the Company, Polar, K2 and the Escrow Agent, entered into an Amendment (the “Amendment”), pursuant to which, among other things, the stock purchase agreements with Polar and K2 were amended to (x) reduce the purchase price per share payable by the Company at the closing of the Stock Sales from $11.23 per share to (1) first $6.00 per share up to 20% of the original number of Shares (as defined in the respective Purchase Agreement), (2) then $5.00 per remaining share up to 20% of the original number of Shares, (3) then $4.00 per remaining share up to 20% of the original number of Shares, (4) then $3.00 per remaining Share up to 20% of the original number of Shares, and (5) then $2.00 per remaining Share up to 20% of the original number of Shares, (y) to extend the outside date of the closing of the Stock Sales until January 18, 2019, and (z) to authorize the issuance of $3,542,700 and $1,590,600 from the Escrow Account to Polar and K2, respectively, as partial payment for the Shares prior to the final closing of the Stock Sales.
In addition, pursuant to the terms of the Amendment, the Company agreed to amend its outstanding Public Warrants and Private Placement Warrants (1) to reduce the exercise price of the warrants from $11.50 per share to $4.00 per share, subject to adjustment (the “Exercise Price Adjustment”) and (2) to revise the redemption provisions of the warrants to provide that the Company may only redeem each warrant in whole at a price of $0.1 per warrant upon a minimum of 30 days’ written notice of redemption if, and only if, the last sale price of the Company’s common stock equals or exceeds $7.00 per share (as opposed to the current $21.00 per share) for any 20 trading days within a 30-trading day period (the “Redemption Threshold Adjustment”); provided, however, that the Exercise Price Adjustment and the Redemption Threshold Adjustment shall only be effective upon the approval of the requisite number of warrant holders, as required by law.
Acquisition of Simplicity Esports, LLC
On January 4, 2019, the Simplicity Owners received an aggregate of 300,000 shares of common stock at the closing of the Acquisition and an additional aggregate of 700,000 shares of common stock on January 7, 2019. The Simplicity Owners are entitled to receive an additional 2,000,000 shares upon the Company’s receipt of the approval of its stockholders to such issuance. This provision was removed as the stockholder approval was only necessary due to the Company’s stock being listed on NASDAQ. Upon completion of the Simplicity Esports LLC acquisition, the Company decided that moving off the NASDAQ was appropriate and, the 2,000,000 shares are included on the balance sheet as common stock issuable to Simplicity Owners at February 28, 2019.
In connection with the acquisition of Simplicity Esports LLC, on January 2, 2019, the Company filed a Certificate of Amendment to the Company’s Third Amended and Restated Certificate of Incorporation (the “Certificate Amendment”) with the Delaware Secretary of State to change the Company’s name from “Smaaash Entertainment, Inc.” to “Simplicity Esports and Gaming Company”. In addition, the Company changed the ticker symbols of its common stock and public warrants to “WINR” and “WINRW,” respectively, and commenced trading of its common stock and public warrants under such new ticker symbols on the OTCQB on January 10, 2019.
Nasdaq Delisting
On December 10, 2018, the Company received a written notice (the “Notice”) from the Listing Qualifications Division of The Nasdaq Stock Market LLC (“Nasdaq”) indicating that the Company has not complied with the requirements of IM-5101-2 of the listing rules of Nasdaq (the “Listing Rules”).
The Notice stated that after its Business Combination, the Company had not demonstrated that its common stock met Listing Rule 5505(b)(1) that requires a market value of publicly held shares of at least $15 million. Additionally, the Company has not provided evidence that its common stock has at least 300 round lot holders as required by Listing Rule 5505(a)(3) and that its public warrant has at least 400 round lot holders as required by Listing Rule 5515(a)(4). Finally, the Company does not comply with Listing Rule 5515(a)(2) which requires that for initial listing of a warrant the underlying security must be listed on Nasdaq.
On January 7, 2019, the Company received a second written notice from Nasdaq informing it that the Company failed to comply with Listing Rule 5250(e)(2) which requires companies listed on Nasdaq to timely file notification forms for the Listing of Additional Shares (the “LAS Notification”).
The Company was required to submit the LAS Notification 15 days prior to the issuance of the securities, however, the Company filed the LAS Notification for the issuance of the Series A-1 Note and Series A-2 Note and for the share exchange under our Share Exchange Agreement after such 15-day periods. Nasdaq notified the Company that each of these matters serves as an additional and separate basis for delisting the Company’s securities and that the review panel will consider these matters in rendering a determination regarding the Company’s continued listing on Nasdaq.
Management of Simplicity Esports and Gamily Company has decided that moving from The Nasdaq Stock Market (“Nasdaq”) to the OTCQB is more appropriate for the Company at this time, while the Company builds out its planned network of retail esport centers.
On April 1, 2019, the Company was notified by Nasdaq that it would delist the Company’s common stock and public warrants. The Company’s common stock and public warrants were previously suspended from trading on Nasdaq, effective January 25, 2019.
On April 2, 2019, Nasdaq filed a Notification of Removal from Listing and/or Registration under Section 12(b) of the Securities and Exchange Act of 1934 on Form 25 with the Securities and Exchange Commission relating to the Company’s common stock and public warrants. As a result, the Company’s common stock and public warrants were delisted from Nasdaq effective April 2, 2019.
The Company’s common stock and public warrants currently have been quoted on the OTCQB under the symbols “WINR” and “WINRW,” respectively.
Recent Developments
Private Unit Offering
In 2019, the Company sold an aggregate of 987,500 units (the “Units”) at a purchase price of $2.00 per Unit to 12 accredited investors in exchange for receipt of $1,975,000. Each unit consists of (i) one share of common stock, and (ii) a 5-year warrant to purchase one share of common stock at a purchase price of $4.00.
Settlement Agreement
In March of 2019, the Company entered into a settlement agreement with its prior attorney. As of July 12, 2019, the Company owes this attorney approximately $725,000. The settlement agreement called for $200,000 to be paid upon signing the settlement agreement and then another approximate $725,000 to be paid over time.
Restricted Stock Award
On March 27, 2019, pursuant to a Restricted Stock Award, we granted Jed Kaplan, our Chief Executive Officer and interim Chief Financial Officer and a member of our board of directors, 120,000 shares of our restricted Common Stock.Such shares vest over a nine month period. As of July 12, 2019, 50,000 of such shares have vested.
On March 27, 2019, pursuant to a Restricted Stock Award, we granted Roman Franklin, our President and a member of our board of directors, 36,000 shares of our restricted Common Stock. Such shares vest over a nine month period. As of July 12, 2019, 15,000 of such shares have vested.
On March 27, 2019, pursuant to a Restricted Stock Award, we granted Steve Grossman, President of Simplicity Esports, LLC, a wholly owned subsidiary of our company, 24,000 shares of our restricted Common Stock.Such shares vest over a nine month period. As of July 12, 2019, 10,000 of such shares have vested.
Each of the Restricted Stock Awards was entered into in connection with entry into employment agreements with each of Messrs. Kaplan, Franklin and Grossman on December 31, 2017, Smaaash’s outstanding indebtedness on2018.
Debt Conversion
On May 31, 2019, we issued 100,000 shares of Common Stock to affiliates of Polar in exchange for Polar’s forgiveness of $143,476 owed by us to Polar under that that certain Stock Purchase Agreement, dated as of November 2, 2018, between Polar and us.
Special Public Warrant Holder Meeting
On June 5, 2019, we filed a consolidated basis aggregatedpreliminary proxy statement with the SEC in connection with a planned special meeting of public warrant holders to $44.10 million,authorize our board of directors to seek public warrant holder approval of the following amendments to the publicly and privately issued warrants under the Warrant Agreement: (1) reducing the exercise price of the warrants from $11.50 per share to $4.00 per share, subject to adjustment (the “Exercise Price Adjustment”) and (2) revising the redemption provisions of the warrants to provide that we may only redeem each warrant in whole at a price of $0.1 per warrant upon a minimum of 30 days’ written notice of redemption if, and only if, the last sale price of our common stock equals or exceeds $7.00 per share (as opposed to the current $21.00 per share) for any 20 trading days within a 30-trading day period (the “Redemption Threshold Adjustment”).
Summary Risk Factors
Our business is subject to numerous risks and uncertainties, including $44.05 million of secured debt and $0.05 million of unsecured debt, Smaaash may incur additional indebtednessthose in the future.
Smaaash’s significant indebtednesssection entitled “Risk Factors” and the imposition of certain restrictive covenantselsewhere 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 maythis prospectus. These risks include, but are not limited to, the following:
our history of losses; | ||
● | our inability to attract sufficient demand for our services and products; |
● | our ability to successfully execute our growth and acquisition strategy and manage effectively our growth; | |
● | changes in the competitive environment in our industry and the markets we serve, and our ability to compete effectively; | |
● | our dependence on a | |
● | our cash needs and the adequacy of | |
● | our ability to access additional capital; | |
● | our dependence upon our executive officers, founders and key employees; | |
● | our ability to attract and retain qualified personnel; | |
● | our reliance on our technology systems, the impact of technological changes and cybersecurity risks; | |
● | changes in applicable laws or regulations; | |
● | our ability to protect our trademarks or other intellectual property rights; | |
● | potential litigation from competitors or customers; and | |
● | the possibility that we may be |
In addition, our auditors have raised substantial doubt regarding our ability to continue as a going concern as a result of our historical recurring losses from operations and negative cash flows from operations as well as our dependence on private equity and financings in Note 2 of our unaudited consolidated financial statements for the nine-months ended February 28, 2019.
Corporate Information
Our principal executive offices are located at 7000 W. Palmetto Park Road, Suite 210, Boca Raton, Florida 33433, and our telephone number at that location is (855) 345-9467.
We are registering (i) the issuance by us of up to 6,449,000 shares of our Common Stock which may be issued upon the exercise of the Warrants, and (ii) the resale from time to time by the Selling Securityholders of 6,360,617 shares of Common Stock and 261,500 warrants (“Private Placement Warrants”) forming part of the Private Placement Units.“Warrants”means our redeemable warrants, which includes all of our warrants sold as part of the Public Units as well as the Private Placement Warrants and 2019 Warrants to the extent they are no longer held by the initial purchasers of the Private Placement Warrants, 2019 Warrants or their permitted transferees.
Common Stock and Warrants Held by Selling Securityholders
Securities Outstanding Prior to This Registration | 6,952,195 shares of |
Securities Outstanding After This Registration | 13,401,195shares of our Common Stock, which assumes the exercise of all Warrants. The number of outstanding shares of Common Stock that will |
Common Stock Held by the Selling Securityholders | We are registering 6,360,617 shares of Common Stock held by the Selling Securityholders named herein. |
Private Placement Warrants offered by certain Selling Securityholders | We are registering 261,500 Private Placement Warrants to be offered from time to time by certain Selling Securityholders. Each Private Placement Warrant entitles the holder to purchase Common Stock at an exercise price of $11.50 per share of Common Stock, subject to adjustment as set forth in the warrant agreement between Continental Stock Transfer & Trust Company, as warrant agent, and us. |
Warrants Held by the Selling Securityholders | Each Public Warrant and Private Placement Warrant entitles the holder to purchase one share of our Common Stock at an exercise price of $11.50 per share. Each 2019 Warrant entitles the holder to purchase one share of our Common Stock at an exercise price of $4.00 per share. Each Public Warrant and Private Placement Warrant may be exercised at any time commencing on December 20, 2018 until November 19, 2023, or earlier upon redemption or liquidation. The Private Placement Warrants may also be exercised on a cashless basis pursuant to the terms of such warrants. |
Terms of Offering | The Selling Securityholders will determine when and how they will dispose of the Common Stock and Private Placement Warrants registered under this prospectus for resale, as well as any shares of Common Stock issued by the Company in a registered issuance under this prospectus upon exercise of any Warrants. |
Use of Proceeds | We will not receive any of the proceeds from the sale of shares of Common Stock or Private Placement Warrants by the Selling Securityholders. However, we will receive proceeds from the cash exercise of Warrants if they are exercised by the Selling Securityholders, provided that the Private Placement Warrants may be exercised on a cashless basis. We intend to |
Trading Market and Ticker Symbol |
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.Issuance of Warrant Shares Underlying the Warrants
Warrant Shares to be Issued upon Exercise of Warrants | 6,449,000shares of Common Stock underlying the Warrants. |
Shares Outstanding Prior to Exercise of Warrants | 6,952,195shares of Common Stock as of July 12, 2019. |
Shares to be Outstanding Assuming Exercise of All Warrants | 13,401,195shares of Common Stock. |
Terms of Warrants | Each Public Warrant and Private Placement Warrant entitles the holder to purchase one share of our Common Stock at an exercise price of $11.50 per share. Each 2019 Warrant entitles the holder to purchase one share of our Common Stock at an exercise price of $4.00 per share. Each Public Warrant and Private Placement Warrant may be exercised at any time commencing on December 20, 2018 until November 19, 2023, or earlier upon redemption or liquidation. |
Use of Proceeds | We expect to receive approximately $66,757,250 in gross proceeds assuming the cash exercise of all of the (i) Public Warrants and Private Placement Warrants at an exercise price of $11.50 per share of Common Stock and (ii) 2019 Warrants at an exercise price of $4.00 per share of Common Stock. However, the Private Placement Warrants may be exercised on a cashless basis, in which case we would expect to receive $63,750,000 in gross proceeds from the cash exercise of the Public Warrants and 2019 Warrants. We intend to use any net proceeds from the cash exercise of the Warrants for working capital and general corporate purposes. |
Trading Market | Our Public Warrants are currently quoted on the OTCQB tier of the OTC Market Group, Inc. under the symbols “WINRW.” |
Smaaash is
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table presents our selected historical consolidated financial data for the periods indicated. The selected historical consolidated financial data for the year ended May 31, 2018 and for the period from April 17, 2017 (inception) to May 31, 2017 and the balance sheet data as of May 31, 2018 and 2017 are derived from the audited financial statements. The selected historical financial data for the nine months ended February 28, 2019 and 2018 and the balance sheet data as of February 28, 2019 and 2018 are derived from our unaudited financial statements.
Historical results are included for illustrative and informational purposes only and are not necessarily indicative of results we expect in future periods, and results of interim periods are not necessarily indicative of results for the entire year.The data presented below should be read in conjunction with, and are qualified in their entirety by reference to, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the notes thereto included elsewhere in this prospectus.
Year Ended May 31, 2018 | For the period from April 17, 2017 (Inception) to May 31, 2017 | Nine Months Ended February 28, 2019 | Nine Months Ended February 28, 2018 | |||||||||||||
(unaudited) | ||||||||||||||||
Statement of Operations Data | ||||||||||||||||
Total revenues | $ | 0 | $ | 0 | $ | 14,070 | $ | 0 | ||||||||
Total operating expenses | 530,564 | 672 | 3,811,612 | 305,690 | ||||||||||||
Loss from operations | (530,564 | ) | (672 | ) | (3,797,542 | ) | (305,690 | ) | ||||||||
Total other income | 521,702 | 0 | 701,582 | 312,000 | ||||||||||||
Loss before provision for taxes | (8,862 | ) | (672 | ) | (3,095,960 | ) | 6,310 | ) | ||||||||
Income tax provisions | 0 | 0 | 0 | 2,145 | ||||||||||||
Net income (loss) | $ | (8,862 | ) | $ | (672 | ) | $ | (3,095,960 | ) | $ | 4,165 | |||||
Basic and diluted net loss per share | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.87 | ) | $ | 0.00 | |||||
Balance Sheet Data (at period end) | ||||||||||||||||
Cash and cash equivalents | $ | 458,062 | $ | 30,000 | $ | 1,245,666 | $ | 483,867 | ||||||||
Working capital (deficit) (1) | $ | 216,034 | $ | 24,328 | $ | (1,710,836 | ) | $ | 250,354 | |||||||
Total assets | $ | 53,356,883 | $ | 55,000 | $ | 7,367,438 | $ | 53,358,226 | ||||||||
Total liabilities | $ | 2,065,197 | $ | 30,672 | $ | 2,956,556 | $ | 2,053,513 | ||||||||
Commitments | $ | 46,291,685 | $ | 0 | $ | 0 | $ | 46,304,712 | ||||||||
Stockholders’ equity | $ | 5,550,098 | $ | 24,328 | $ | 4,410,882 | $ | 5,000,001 |
(1) Working capital (deficit) represents total current assets less total current liabilities.
17 |
An investment in our securities carries a significant degree of risk. You should carefully consider the following risks, as well as the other information contained in this prospectus, including our historical financial statements and related notes included elsewhere in this prospectus, before you decide to purchase our securities. Any one of these risks and uncertainties has the potential to cause material adverse effects on our business, prospects, financial condition and operating results which could cause actual results to differ materially from any forward-looking statements expressed by us and a significant decrease in the processvalue of expansionour common shares and warrants. Refer to “Cautionary Statement Regarding Forward-Looking Statements”.
We may neednot be successful in preventing the material adverse effects that any of the following risks and uncertainties may cause. These potential risks and uncertainties may not be a complete list of the risks and uncertainties facing us. There may be additional capital despiterisks and uncertainties that we are presently unaware of, or presently consider immaterial, that may become material in the fact that it hasfuture and have a material adverse effect on us. You could lose all or a significant portion of debt on its books. Due, in part,your investment due to Smaaash’s significant debt there are various reasons for it not being ableany of these risks and uncertainties.
Risks Related 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.Our Business
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,We 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 ablelimited revenues to sustain Smaaash’s growth levels in the future.date and thus are subject to risks of business development and you have no basis on which to evaluate our ability to achieve our business objective.
Smaaash commenced commercial operations at Smaaash’s first Center in Mumbai in November 2012, and all of Smaaash’s other CentersBecause we 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 hasa relatively limited operating experience, particularly, overseas,history and may encounter challengeslimited revenues to date, you should consider and evaluate our operating prospects 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 inlight of 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:frequently encountered by early-stage operating companies in rapidly evolving markets. These risks include:
● | that fluctuations in our operating results will be significant relative to |
Smaaash’s inabilityOur future growth will depend substantially on our ability 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 officeaddress these 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,other risks described 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 ofthis section. If we do not successfully address 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 Centersrisks, our business 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.harmed.
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,We have a history of operating losses and does notour auditors have long term purchase contracts with its vendors,indicated that there is a substantial doubt about our ability to continue 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.going concern.
Smaaash’s cost of raw materials accounted for 20% of Smaaash’s total expenditure, during fiscal year 2017. As Smaaash incursTo date, we have not been profitable and have incurred significant raw material costs, including import costs,losses 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. Duringcash flow deficits. For the fiscal year ended May 31, 2018 and the period from April 17, 2017 and during the nine-month period ended December(inception) to May 31, 2017, Smaaash’s international operations contributed 24%we reported net losses of $8,862 and 18%,$672, respectively, to Smaaash’s total revenueand negative cash flow from operations including product sales. The markets in which Smaaash operates are diverseoperating activities of $470,153 and fragmented, with varying levels$672, respectively. For the nine months ended February 28, 2019 and 2018, we reported a net loss of economic$3,095,960 and infrastructure developmentnet income of $4,165, respectively, and distinct legalnegative cash flow from operating activities of $823,847 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$38,299, respectively. As of February 28, 2019, we had an aggregate accumulated deficit of approximately $3,105,494. We anticipate that international saleswe will continue to account for a significant portion of Smaaash’s total revenuesreport losses 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:
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 andnegative 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.flow. As a result of these net losses and other factors, Smaaash would needcash flow deficits as well as our dependence on private equity and financings, our independent auditors have indicated that there is a substantial doubt about our ability to exercise constant vigilance to assess changing trends and customer response, and to devotecontinue as a going concern in Note 2 of our unaudited consolidated financial management and other resources towards adapting appropriately to such changes. If Smaaash is unable,statements 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.the nine-months ended February 28, 2019.
Our consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. These adjustments would likely include substantial impairment of the carrying amount of our assets and potential contingent liabilities that may arise if we are unable to fulfill various operational commitments. In addition, the value of our securities, including common stock issued in this offering, would be greatly impaired. Our ability to continue as a going concern is dependent upon generating sufficient cash flow from operations and obtaining additional capital and financing, including funds to be raised in this offering. If our ability to generate cash flow from operations is delayed or reduced and we are unable to raise additional funding from other sources, we may be unable to continue in business even if this offering is successful. For further discussion about our ability to continue as a going concern and our plan for future liquidity, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Ability to Continue as a Going Concern.”
Any future risks arising from any joint ventures or acquisitions or other strategic business alliances or initiatives could adversely impact Smaaash’s operations.
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We are a holding company and depend upon our subsidiaries for our cash flows.
AsWe are a partholding company. All of Smaaash’sour operations are conducted, and almost all of our assets are owned, by our subsidiaries. Consequently, our cash flows and our ability to meet our obligations depend upon the cash flows of our subsidiaries and the payment of funds by these subsidiaries to us in the form of dividends, distributions or otherwise. The ability of our subsidiaries to make any payments to us depends on their earnings, the terms of their indebtedness, including the terms of any credit facilities and legal restrictions. Any failure to receive dividends or distributions from our subsidiaries when needed could have a material adverse effect on our business, strategy, Smaaash intends to explore opportunities for overseas expansion, including through joint venturesresults of operations or acquisitions. Similarly, Smaaash may engage in corporate reorganizations, where there are operational benefits expected to arise from such initiativesfinancial condition.
Future acquisitions or strategic investments could disrupt our business and opportunities.harm our business, results of operations or financial condition.
Smaaash has entered,We may in the future explore potential acquisitions of companies or strategic investments to strengthen our business. Even if we identify an appropriate acquisition candidate, we may not be successful in negotiating the terms or financing of the acquisition, and our due diligence may enter into, discussions regarding a wide arrayfail to identify all of potential strategic transactions, including corporate reorganization, acquisitions, investments, joint venturesthe problems, liabilities or other business collaborations, divestments,shortcomings or continuing operations following such strategic transactions.challenges of an acquired business.
TheAcquisitions involve numerous risks, that Smaaash may face in connection with these transactions may include the following:any of which could harm our business, including:
● | anticipated benefits may not |
● | diversion of management time and focus from operating our business to | |
● | retention of employees from the |
● | integration of the acquired company’s accounting, management information, human resources and | |
● | the need to implement or improve controls, procedures and |
IfFailure to appropriately mitigate these risks or other issues related to such strategic investments and acquisitions could result in reducing or completely eliminating any anticipated benefits of transactions, and harm our business generally. Future acquisitions could also result in dilutive issuances of our equity securities, the incurrence of debt, contingent liabilities, amortization expenses or the impairment of goodwill, any of the foregoing risks materialize, theywhich could have ana material adverse effect on Smaaash’s business, financial condition, results of operations or financial condition.
We may require additional funding for our growth plans, and prospects. Moreover, acquisitions, mergerssuch funding may result in a dilution of your investment.
We attempted to estimate our funding requirements in order to implement our growth plans. If the costs of implementing such plans should exceed these estimates significantly or if we come across opportunities to grow through expansion plans which cannot be predicted at this time, 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 Indiaour funds generated from our operations prove insufficient for such purposes, we may need to raise additional funds to meet these funding requirements.
These additional funds may be subject to remedial measures proposedraised by the CCI. Smaaashissuing equity or debt securities or by borrowing from banks or other resources. We cannot assure you that Smaaashwe will be able to obtain approval for any such future transactionsadditional financing on satisfactory terms that are acceptable to us, or at all.
If Smaaash is unablewe fail to retain key members of Smaaash’s senior management, or if Smaaash is unableobtain additional financing on terms that are acceptable 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 Smaaashus, we 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,implement such plans fully if at all. Such financing even if obtained, 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 infringementaccompanied 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 improvementsconditions 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/prospectus.
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:
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/prospectus 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’slimit our 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 asrequire us to the amounts of such future dividend payments. The declaration andseek lenders’ consent for payment of dividends, if any, will be recommendedor restrict our freedom to operate our business 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 arequiring lender’s consent for certain time period as may be agreed with lenders.corporate actions.
Further, if we raise additional funds by way of a rights offering or through the issuance of new shares, any shareholders who are unable or unwilling to participate in such an additional round of fund raising may suffer dilution in their investment.
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 CapitalWe may become subject to the requirements of the Investment Company Act, which would limit I-AM Capital’sour business operations and require itus to spend significant resources to comply with such act.
The Investment Company Act of 1940, as amended (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 servingoperating a global virtual reality gaming and fully integrated esports platform, operating corporate owned as the sole distributor for Smaaash games andwell as the master franchisee for Smaaash centersfranchising Simplicity Esports Gaming Centers in North and South AmericaUnited States, and making acquisitions in the active entertainment industry in the United States, the composition of our assets after the Transaction,Acquisition and Transactions, including our ownership of Smaaash equity shares in Simplicity Esports LLC and Smaaash Private, 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, which has been extended to November 21, 2018 (unless further 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/prospectus 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, which has been extended to November 21, 2018 (unless further 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.
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, which has been extended to November 21, 2018 (or May 21, 2019, if we further 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 September [ ], 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 private placement rights and public 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/prospectus 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:
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 CapitalWe may not have sufficient capital to fund itsour ongoing operations, effectively pursue itsour strategy or sustain itsour growth initiatives.
After the consummation of the Transaction, I-AM Capital’sacquisition of Simplicity Esports LLC, our remaining liquidity and capital resources may not be sufficient to allow itus to fund itsour ongoing operations, effectively pursue itsour strategy or sustain itsour 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 payableIf 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.Furthermore, 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 an 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 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 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 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 requiresrequire additional capital resources, and is unable to obtain such funds under the Smaaash line of credit, itwe may seek such funds directly from third party sources; however, itwe may not be able to obtain sufficient equity capital and/or debt financing from third parties to allow itus to fund itsour expected ongoing operations or itwe 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 Capitalus on acceptable terms and conditions include:
● | ||
● | the collateral availability of |
● | the market’s, investors and lenders’ view of | |
● | the perception in the equity and debt markets of | |
● | the price, volatility and trading volume and history of |
If I-AM Capital iswe are unable to obtain the equity capital or debt financing necessary to fund itsour ongoing operations, pursue itsour strategy and sustain itsour growth initiatives, itwe may be forced to scale back itsour operations or itsour expansion initiatives, and itsour business and operating results will be materially adversely affected.
I-AM Capital’sOur growth strategy depends on the availability of suitable locations for itsour Simplicity Esports Gaming Centers and itsour ability to open new Simplicity Esports Gaming Centers and operate them profitably.
A key element of I-AM Capital’sour growth strategy is to extend the Smaaashour brand by opening additionalcorporate owned as well as franchising retail Simplicity Esports Gaming Centers in locations in North and South Americathe United States that it believeswe believe will provide attractive returns on investment. I-AM Capital hasWe have initially identified sixfive sites for potential Simplicity Esports Gaming Centers, in the United States, for potential Centers, however, desirable locations for additional Simplicity Esports Gaming Center openings may not be available at an acceptable cost when I-AM Capital identifieswe identify a particular opportunity for a new Simplicity Esports Gaming Center.
In addition,I-AM Capital’sour ability to open new Simplicity Esports Gaming Centers on a timely and cost-effective basis, or at all, is dependent on a number of factors, many of which are beyond itsour control, including itsour 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 Simplicity Esports Gaming Center. |
If I-AM Capital succeedswe succeed in opening new Simplicity Esports Gaming Centers on a timely and cost-effective basis, itwe may nonetheless be unable to attract enough customers to the new Simplicity Esports Gaming Centers because potential customers may be unfamiliar with itsour Simplicity Esports Gaming Centers or concept,concepts, or itsour entertainment and menu options might not appeal to them. I-AM Capital’sOur new Simplicity Esports Gaming Centers may not meet or exceed I-AM Capital’sour performance targets, including target cash-on-cash returns. New Simplicity Esports Gaming Centers may even operate at a loss, which could have a significant adverse effect on I-AM Capital’sour overall operating results.
I-AM CapitalOur operations of Simplicity Esports Gaming Centers are significantly dependent on changes in public and customer tastes and discretionary spending patterns. Our inability to successfully anticipate customer preferences or to gain popularity for such Simplicity Esports Gaming Centers games may negatively impact our profitability.
Our success depends significantly on public and customer tastes and preferences, which can be unpredictable. If we are unable to successfully anticipate customer preferences or increase the popularity of the games offered at the Simplicity Esports Gaming Centers, the per capita revenue and overall customer expenditures at the Simplicity Esports Gaming Centers may decrease, and thereby negatively impact our profitability. In response to such developments, we may need to increase our marketing and product development efforts and expenditures, adjust our game or product sale pricing, modify the games themselves, or take other actions, which may further erode our profit margins, or otherwise adversely affect our results of operations and financial condition. In particular, we 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 Simplicity stream team’s casters, influencers and personalities among Simplicity Esports LLC’s dedicated fan base.
While we may incur significant expenditures of this nature, including in the future as we continue to expand our operations, there can be no assurance that any such expenditures or investments by us will yield expected or commensurate returns or results, within a reasonable or anticipated time, or at all.
The nature of our business exposes us to negative publicity or customer complaints, including in relation to, among other things, accidents, injuries or thefts at the Simplicity Esports Gaming Centers, or health and safety concerns arising from improper use of our game equipment or at our food and beverage venues.
Our business inherently exposes us 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 our 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 the Simplicity Esports Gaming Centers. Even isolated or sporadic incidents or accidents may have a negative impact on our brand image and reputation, and the Simplicity Esports Gaming Centers’ or games’ or our own popularity with customers. The considerable expansion of social media in recent years has compounded the effect of any potential negative publicity.
We cannot guarantee that its employee training, internal controls and other precautions will be sufficient to prevent any such occurrence at the Simplicity Esports Gaming Centers, in relation to our Simplicity global virtual reality gaming and fully integrated esports platform, or to control or mitigate any negative consequences. In addition, we or our franchisees rely on third-party security and housekeeping staff for certain non-core functions, as well as certain technology vendors and partners. Although we monitors vendors and partners and, in certain cases, may have a contractual indemnity or recourse in case of any default on their part, our ability to assure a safe and satisfactory experience to our customers is necessarily limited to the extent of our or our franchisees’, dependence on third parties, from time to time. Moreover, we may not be able to compete favorably indistance or insulate ourselves from any adverse publicity or reputational damage arising from any act, omission or negligence on the highly competitive out-of-home and home-based entertainment and restaurant market in North and South America,part of a vendor or other third party, which could havemay negatively affect 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’ 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. Manycustomer’s experience at any 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’sSimplicity Esports Gaming 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 CapitalWe or our franchisees may not be able to operate its Centers in North America and South America,the United States, 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’sour business, results of operations or financial condition.
Each Simplicity Esports Gaming 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 Simplicity Esports Gaming Center is located. In North America,the United States, each Simplicity Esports Gaming 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 Simplicity Esports Gaming Center may lead to the loss of licenses at all Simplicity Esports Gaming 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 Simplicity Esports Gaming 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. TheOur failure of I-AM Capital or a failure by a franchisee in obtaining and maintaining the required licenses, permits and approvals at any one Simplicity Esports Gaming Center could impact the continuing operations of existing Simplicity Esports Gaming Centers, or delay or prevent the opening of new Simplicity Esports Gaming Centers. Although I-AM Capital doeswe do 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 itsour 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’sthe Simplicity Esports Gaming Centers in North and South Americathe United States are subject to amusement licensing and regulation by the countries, states, provinces, counties and municipalities in which itsour Simplicity Esports Gaming 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 Capitalus to modify itsour business operations or alter the mix of redemption games and simulators it offers.we offer. 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’sour redemption games and regulators may create new licensing requirements, taxes or fees, or restrictions on the various types of redemption games it offers.we offer. 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 haswe have established a Simplicity Esports Gaming 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 itwe may offer or terminate the use of specific games, any of which could adversely affect itsour operations.
I-AM Capital is
We are also subject to laws and regulations governing itsour relationship with itsour 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.non-discrimination. Additionally, changes in federal labor laws, including card verification regulations, could result in portions of I-AM Capitalour workforce being subjected to greater organized labor influence, which could result in an increase to itsour labor costs. A significant portion of Simplicity Esports Gaming 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 isWe are 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 Capitalwe 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 CapitalWe shall endeavor to make sure that any franchise disclosure document it provides,we provide, 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 Capitalwe and itsour franchisees fail to comply with such laws and regulations, itwe may be subject to various sanctions and/or penalties and fines or may be required to cease operations until it achieveswe achieve compliance, which could have an adverse effect on itsour business and itsour financial results.
Our growth through franchising may not occur as rapidly as we currently anticipate and may be subject to additional risks.
I-AM Capital’s success depends upon its
As part of our growth strategy, we will continue to seek franchisees to operate Simplicity Esports Gaming Centers in certain strategic domestic locations or venues. We believe that our 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 numbercontract with qualified franchisees will be increasingly important to our operations as we expand. Our franchisees are dependent upon the availability of qualified management, culinary professionals and operating personneladequate sources of financing 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 itsmeet their development obligations. Such financing may not be available to our 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 andor only available upon disadvantageous terms. Our franchise strategy may not enhance our results of operations.
I-AM Capital’s senior management team has limited experience in establishing, operating, licensing rightsExpanding through franchising exposes our business and brand to risks because the quality of the franchised operations will be beyond our immediate control, including risks associated with our confidential information, intellectual properties (including trademarks) and franchising entertainment centersbrand reputation. Even if we have contractual remedies to cause franchisees to maintain operational standards, enforcing those remedies may require litigation and related products.therefore our image and reputation may suffer, unless and until such litigation is successfully concluded.
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 CapitalWe could face liability from or as a result of itsour franchisees.
Various state and federal laws will govern the relationship between I-AM Capitalus and our franchisees and the potential sale of a franchise. If I-AM Capital failswe fail to comply with these laws, itwe could be liable for damages to franchisees and fines or other penalties. A franchisee or government agency may bring legal action against I-AM Capitalus based on the franchisee/franchisor relationship. Also, under the franchise business model, I-AM Capitalwe 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 itsour franchisees or government agencies that could adversely affect both I-AM Capital’s profitsour profit and itsour important relations with itsour 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.our profit.
We may not be able to compete favorably in the highly competitive out-of-home and home-based entertainment market in the United States, which could have a material adverse effect on our business, results of operations or financial condition.
The out-of-home entertainment market in the United States is highly competitive. Simplicity Esports Gaming Centers that we or our franchisees operate will compete for 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 Simplicity Esports Gaming Centers are planned to be located. As a result, they may be able to invest greater resources than we can in attracting customers and succeed in attracting customers who would otherwise come to the Simplicity Esports Gaming Centers we or our franchisees operate. In the United States, the legalization of casino gambling in geographic areas near any future Simplicity Esports Gaming Center would create the possibility for adult entertainment alternatives, which could have a material adverse effect on our business and financial condition. We will also face competition from local, regional and national establishments that offer entertainment experiences similar to us. Simplicity Esports Gaming Centers we or our franchisees operate 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 we fail to compete favorably in the competitive out-of-home and home-based entertainment markets it could have a material adverse effect on our business, results of operations and financial condition.
Our senior management team has limited experience in establishing, operating, licensing rights to and franchising entertainment centers and related products.
The members of our senior management team have extensive backgrounds in finance and the management of financial services businesses, however, they have limited prior experience in establishing, operating, licensing rights to and franchising entertainment centers. We will need to expand our management team, to include individuals with expertise in establishing and operating entertainment centers as well as individuals with expertise in product licensing and franchise operations. If we are unable to recruit professionals with acceptable backgrounds in establishing and operating entertainment centers and with backgrounds in product licensing and financing, we may not be able to pursue our growth strategy which could have a material adverse effect on our business and results of operations.
Our success depends upon our ability to recruit and retain qualified management and operating personnel at Simplicity Esports Gaming Centers.
We and our franchisees must attract, retain and motivate a sufficient number of qualified management and operating personnel in order to maintain consistency in our service, hospitality, quality and atmosphere of our Simplicity Esports Gaming Centers. Qualified management and operating personnel are typically in high demand. If we and our franchisees are unable to attract and retain a satisfactory number of qualified management and operating personnel, labor shortages could delay the planned openings of new Simplicity Esports Gaming Centers which could have a material adverse effect on our business and results of operations.
Our business and operations are subject to various risks relating to the acquisitions of target companies. Our inability to complete and successfully integrate the future acquisition targets may affect our growth strategy, market share, profitability or competitive position.
We plan to expand through future acquisitions of companies along with organic growth. There can be no assurance that we will be able to successfully integrate the acquired businesses into our existing operations as planned. We may be adversely impacted by liabilities that we assume from these acquisitions, including known and unknown obligations, intellectual property or other assets, terminated employees, current or former clients, or other third parties, and we 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 our business.
Our insurance coverage may not adequately protect us against all future risks, which may adversely affect our business and prospects.
We maintain 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 we maintain insurance in amounts that we consider reasonably sufficient for a business of our nature and scale, with insurers that we consider reliable and credit worthy, we may face losses and liabilities that are uninsurable by their nature, or that are not covered, fully or at all, under our 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 us may not be honored by our insurers in full, or at all. In addition, our premium payments under our insurance policies may require a significant investment by us.
To the extent that we suffers loss or damage for which we did not obtain insurance, that is not covered by insurance or that exceeds our insurance coverage, the loss will have to be borne by us and our business, cash flow, financial condition, results of operations and prospects may be adversely affected.
Changes in laws or regulations, or a failure to comply with any laws and regulations, may adversely affect our business, investments and results of operations.
We are subject to laws and regulations enacted by national, regional and local governments. In particular, we will be required to comply with certain SEC and other legal requirements. Compliance with, and monitoring of, applicable laws and regulations may be difficult, time consuming and costly. Those laws and regulations and their interpretation and application may also change from time to time and those changes could have a material adverse effect on our business, investments and results of operations. In addition, a failure to comply with applicable laws or regulations, as interpreted and applied, could have a material adverse effect on our business and results of operations.
We are dependent upon our executive officers and directors and their departure could adversely affect our ability to operate.
Our operations are dependent upon a relatively small group of individuals and, in particular, our executive officers and directors. We believe that our success depends on the continued service of our executive officers and directors. In addition, our executive officers and directors are not required to commit any specified amount of time to our affairs and, accordingly, will have conflicts of interest in allocating management time among various business activities, including identifying potential business combinations and monitoring the related due diligence. We do not have an employment agreement with, or key-man insurance on the life of, any of our directors or executive officers. The unexpected loss of the services of one or more of our directors or executive officers could have a detrimental effect on us.
Our executive officers, directors, security holders and their respective affiliates may have competitive pecuniary interests that conflict with our interests.
We have not adopted a policy that expressly prohibits our directors, executive officers, security holders or affiliates from having a direct or indirect pecuniary or financial interest in any investment to be acquired or disposed of by us or in any transaction to which we are a party or have an interest. Nor do we have a policy that expressly prohibits any such persons from engaging for their own account in business activities of the types conducted by us. Accordingly, such persons or entities may have a conflict between their interests and ours.
We are an emerging growth company within the meaning of the Securities Act, and if we take advantage of certain exemptions from disclosure requirements available to emerging growth companies, this could make our securities less attractive to investors and may make it more difficult to compare our performance with other public companies.
We are an “emerging growth company” within the meaning of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor internal controls attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. As a result, our stockholders may not have access to certain information they may deem important. We could be an emerging growth company for up to five years, although circumstances could cause us to lose that status earlier, including if the market value of our Common Stock held by non-affiliates exceeds $700 million as of any June 30 before that time, in which case we would no longer be an emerging growth company as of the following December 31. We cannot predict whether investors will find our securities less attractive because we will rely on these exemptions. If some investors find our securities less attractive as a result of our reliance on these exemptions, the trading prices of our securities may be lower than they otherwise would be, there may be a less active trading market for our securities and the trading prices of our securities may be more volatile.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. We have elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of our financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
Compliance obligations under the Sarbanes-Oxley Act may require substantial financial and management resources.
Section 404 of the Sarbanes-Oxley Act requires that we evaluate and report on our system of internal controls beginning with our Annual Report on Form 10-K for the year ended May 31, 2019. As long as we remain an emerging growth company, we will not be required to comply with the independent registered public accounting firm attestation requirement on our internal control over financial reporting.
Provisions in our third amended and restated certificate of incorporation, as amended, and Delaware law may inhibit a takeover of us, which could limit the price investors might be willing to pay in the future for our Common Stock and could entrench management.
Our third amended and restated certificate of incorporation, as amended, contains provisions that may discourage unsolicited takeover proposals that stockholders may consider to be in their best interests. These provisions include a staggered board of directors and the ability of the board of directors to designate the terms of and issue new series of preferred shares, which may make more difficult the removal of management and may discourage transactions that otherwise could involve payment of a premium over prevailing market prices for our securities.
If we fail to keep pace with changing industry technology and consumer preferences, we will be at a competitive disadvantage.
The Simplicity products and services 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, we need to respond quickly to technological changes and to understand their impact on customers’ preferences. We may take significant time and resources to respond to these technological changes and changes in consumer preferences. Our business and results of operations may be negatively impacted if our products and services fail to keep pace with these changes.
A failure or unanticipated delay in securing any necessary or desired certification for SmaaashSimplicity Esports LLC’s products from government or regulatory organizations could impair distribution of SmaaashSimplicity Esports LLC’s products and materially and adversely affect I-AM Capital’sour results of operations and financial condition.
In order for certain SmaaashSimplicity Esports LLC’s 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 SmaaashSimplicity Esports LLC’s products could impair sales of SmaaashSimplicity Esports LLC’s products and materially and adversely affect I-AM Capital’sour 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’ 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 SmaaashSimplicity Esports LLC’s products may adversely affect I-AM Capital’sour business, results of operations and financial condition.
I-AM Capital’sOur distribution of SmaaashSimplicity Esports LLC’s 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 CapitalWe and itsour 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 SmaaashSimplicity Esports LLC’s products, resulting in the rejection of the products by I-AM Capital’sour franchisees, lost sales, increased customer service and support costs, and costly litigation.
Risks Associated with DoingRelating to Our Esports Business in South America
ToOur esports business faces intense and wide-ranging competition, which may have a material negative effect on our business and results of operations.
The success of an esports business, like the esports business of Simplicity Esports LLC, is dependent upon the performance and/or popularity of its teams. Simplicity Esports LLC’s teams compete, in varying respects and degrees, with other live sporting events, and with sporting events delivered over television networks, radio, the Internet and online services, mobile applications and other alternative sources. For example, our esports teams compete for attendance, viewership and advertising with a wide range of alternatives available in major metropolitan areas. During some or all of the esports season, our teams face competition, in varying respects and degrees, from professional and collegiate basketball, hockey, baseball, football, and soccer, among others.
As a result of the large number of options available, we face strong competition for the sports and gaming fan. We must compete with other esports teams, traditional sports teams and sporting events, in varying respects and degrees, including on the basis of the quality of the teams we field, their success in the leagues, tournaments and genres in which they compete, our ability to provide an entertaining environment at any esports games that we host at our centers, prices charged for tickets and the viewing availability of our teams on multiple media alternatives. Given the nature of esports and sports in general, there can be no assurance that we will be able to compete effectively, including with companies that may have greater resources than we have, and as a consequence, our business and results of operations may be materially negatively affected by competition.
Our businesses are substantially dependent on the continued popularity and/or competitive success of Simplicity Esports LLC’s teams, which cannot be assured.
Our future financial results will be dependent on the Simplicity teams becoming and remaining popular with our fan base and, in varying degrees, on the team achieving in-game success, which can generate fan enthusiasm, resulting in sustained ticket and merchandise sales during the season. Furthermore, success in the regular season at certain tournaments may qualify one or more of our esports teams for participation in post-season playoffs, which provides us with additional revenue from prize money by increasing the number of games played by our sports teams and, more importantly, by generating increased excitement and interest in our esports teams, which can improve attendance in subsequent seasons. There can be no assurance that any of our esports teams, will develop a significant fan base, maintain continued popularity or compete in post-season play in the future.
The actions of the various esports leagues and tournaments may have a material negative effect on our business and results of operations.
The governing bodies of the various esports leagues and tournaments, under certain circumstances, can take actions that they deem to be in the best interests of their respective leagues or tournaments, which may not necessarily be consistent with maximizing our results of operations and which could affect our esports teams in ways that are different than the impact on other esports teams. For example they can take actions relating to the rights to telecast the games of league members or tournament participants, including the Simplicity team, licensing of the rights to produce and sell merchandise bearing the logos and/or other intellectual property of our esports teams and the leagues or tournaments, and the internet-based activities of our esports teams. Certain of these decisions by the esports leagues and tournaments could have a material negative effect on our business and results of operations. From time to time, we may disagree with or challenge actions that the leagues or tournaments take or the power and authority they assert.
We may be unable to effectively manage the growth in the scope and complexity of our business, including our expansion into the esports business which is untested and into adjacent business opportunities.
Our future success depends, in part, on our ability to manage our expanded business, including through the acquisition of Simplicity, and our aspirations for continued expansion. We intend to dedicate resources to a new business model that is largely untested, as is the case with esports. We do not know to what extent I-AM Capital startsour future expansions will be successful. Further, even if successful, the growth of our business could create significant challenges for our management, operational, and financial resources, and could increase existing strain on, and divert focus from, our core businesses. If not managed effectively, this growth could result in the over-extension of our operating infrastructure, and our management systems, information technology systems, and internal controls and procedures may not be adequate to support this growth. Failure to adequately manage our growth in any of these ways may cause damage to our brand, damage our reputation or otherwise negatively impact our business.
Our industry is subject to rapid technological change, and if we do not adapt to, and appropriately allocate our resources among, emerging technologies and business models, our business may be negatively impacted.
Technology changes rapidly in the interactive entertainment industry. We must continually anticipate and adapt our products, services and business models to emerging technologies and delivery platforms in order to stay competitive. Forecasting our revenues and profitability for these new products, services and business models is inherently uncertain and volatile, and if we invest in the development of interactive entertainment products or services incorporating a new technology or for a new platform that does not achieve significant commercial success, whether because of competition or otherwise, we may not recover the often substantial “up front” costs of developing and marketing those products and services, or recover the opportunity cost of diverting management and financial resources away from other products or services. Further, our competitors may adapt to an emerging technology or business model more quickly or effectively than we do, creating products that are technologically superior to ours, more appealing to consumers, or both.
If, on the other hand, we elect not to pursue the development of products or services incorporating a new technology or for new platforms, or otherwise elect not to pursue new business models, that achieve significant commercial success, it may have adverse consequences. It may take significant time and resources to shift product development resources to that technology, platform or business model, as the case may be, and may be more difficult to compete against existing products and services incorporating that technology or for that platform or against companies using that business model.
We may encounter difficulties in integrating Simplicity Esports LLC’s esports businesses or otherwise realizing the anticipated benefits of the transaction.
As part of our business strategy, from time to time, we acquire, make investments in, or enter into strategic alliances and joint ventures with, complementary businesses, such as the acquisition of the Simplicity esports business. The acquisition of Simplicity Esports LLC involves significant risks and uncertainties, including: (i) the potential for Simplicity Esports LLC’s business to underperform relative to our expectations and the acquisition price, (ii) the potential for Simplicity Esports LLC’s business to cause our financial results to differ from expectations in any given period, or over the longer-term, (iii) unexpected tax consequences from the acquisition, or the tax treatment of Simplicity Esports LLC’s business’s operations going forward, giving rise to incremental tax liabilities that are difficult to predict, (iv) difficulty in integrating Simplicity Esports LLC’s business, its operations and its employees in an efficient and effective manner, (v) any unknown liabilities or internal control deficiencies assumed as part of the acquisition, and (vi) the potential loss of key employees of Simplicity Esports LLC’s businesses. Further, the transaction may involve the risk that our senior management’s attention will be excessively diverted from our other operations, the risk that the gaming industry does not evolve as anticipated and that any intellectual property or personnel skills acquired do not prove to be those needed for our future success, and the risk that our strategic objectives, cost savings or other anticipated benefits are otherwise not achieved.
Our business may be harmed if our licensing partners, or other third parties with whom we do business, act in ways that put our brand at risk.
We anticipate that our business partners shall be given access to sensitive and proprietary information or control over our intellectual property in order to provide services and support to our teams. These third parties may misappropriate our information or intellectual property and engage in unauthorized use of it or otherwise act in a way that places our brand at risk. The failure of these third parties to provide adequate services and technologies, the failure of third parties to adequately maintain or update their services and technologies or the misappropriation or misuse of this information or intellectual property could result in a disruption to our business operations or an adverse effect on our reputation, and may negatively impact our business.
Our business is highly dependent on the success and availability of video game platforms manufactured by third parties.
We expect to derive a substantial portion of our revenues from esports games played on game platforms manufactured by third parties, such as Sony’s PS4, Microsoft’s Xbox One, and Nintendo’s Wii U and Switch, and PCs. The success of our business will be driven in large part by our ability to accurately predict which platforms will be successful in the marketplace. We also rely on the availability of an adequate supply of these video game consoles and the continued support for these consoles by their manufacturers. We may be required to commit significant resources well in advance of the anticipated introduction of a new platform. If increased costs are not offset by higher revenues and other cost efficiencies, our business could be negatively impacted. If the platforms for which we invested resources do not attain significant market acceptance, we may not be able to recover our costs, which could be significant.
The games we support are subject to scrutiny regarding the appropriateness of their content. If the publishers and distributors we partner with fail to receive their target ratings for certain titles, or if retailers refuse to sell such titles due to what they perceive to be objectionable content, it could have a negative impact on our business.
Console and PC games are subject to ratings by the Entertainment Software Rating Board (the “ESRB”), a self-regulatory body based in the U.S. that provides U.S. and Canadian consumers of interactive entertainment software with ratings information, including information on the content in such software, such as violence, nudity or sexual content, along with an assessment of the suitability of the content for certain age groups. Certain other countries have also established content rating systems as prerequisites for product sales in those countries. In addition, certain stores use other ratings systems, such as Apple’s use of its proprietary “App Rating System” and Google Play’s use of the International Age Rating Coalition (IARC) rating system. If the software publishers that supply our games are unable to obtain the ratings they have targeted for their products, it could have a negative impact on our business. In some instances, the software publishers and developers may be required to modify their products to comply with the requirements of the rating systems, which could delay or disrupt the release of any given product, or may prevent its sale altogether in certain territories, which would limited its availability for use in the games that our teams play.
We will depend on servers to operate our games with online features. If we were to lose server functionality for any reason, our business may be negatively impacted.
Our business at our game centers will rely on the continuous operation of servers, some of which are owned and operated by third parties. Although we shall strive to maintain more than sufficient server capacity, and provide for active redundancy in the event of limited hardware failure, any broad-based catastrophic server malfunction, a significant service-disrupting attack or intrusion by hackers that circumvents security measures, a failure of disaster recovery service or the failure of a company on which we are relying for server capacity to provide that capacity for whatever reason would likely degrade or interrupt the functionality of our games with online features, and could prevent the operation of such games altogether, any of which could result in the loss of sales for, or in, such games.
We also rely on networks operated by third parties, such as the PlayStation Network, Xbox Live and Steam, for the functionality of the games we use which have online features. An extended interruption to any of these services could adversely affect our ability to operate our games with online features, negatively impacting our business.
Further, insufficient server capacity could also negatively impact our business. Conversely, if we overestimate the amount of server capacity required by our business, we may incur unnecessary additional operating costs.
Risks Related to Smaaash Private
Smaaash Private has significant indebtedness and the imposition of certain restrictive covenants in Smaaash Private debt financing arrangements may increase Smaaash Private’s susceptibility to interest rate fluctuations, adversely impact Smaaash Private’s financial condition and results of operations, as well as restrict Smaaash Private’s operational flexibility.
As on December 31, 2017, Smaaash Private’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 Private may incur additional indebtedness in the future.
Smaaash Private’s significant indebtedness and the imposition of certain restrictive covenants in Smaaash Private’s debt financing arrangements may increase Smaaash Private’s susceptibility to interest rate fluctuations, adversely impact Smaaash Private’s financial condition and results of operations, as well as restricting Smaaash Private’s operational flexibility.
The possible implications of Smaaash Private’s significant indebtedness may include, but are not limited to, the following:
– | a portion of Smaaash Private’s cash flows may be used towards repayment of Smaaash Private’s existing debt, which will reduce the availability of cash to fund Smaaash Private’s working capital requirements, capital expenditures, planned expansions or acquisitions or other strategic objectives, and general corporate purposes; | |
– | Smaaash Private’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 Private’s borrowings, as Smaaash Private’s loans are, currently as well as typically, at variable interest rates; | |
– | Smaaash Private’s ability to declare dividends, while any actual payments are due under the terms of Smaaash Private’s borrowings; | |
– | Smaaash Private may be more vulnerable to economic downturns; | |
– | Smaaash Private’s ability to withstand competitive pressures may be limited; | |
– | Smaaash Private may have reduced operational flexibility in responding to business, regulatory and economic conditions and developments; and | |
– | Smaaash Private’s requirement to obtain lenders’ consents for various activities, including, but not limited to, any change in control or ownership of Smaaash Private. |
Smaaash Private is continually expanding and so may need to continually raise capital. If Smaaash Private is unable to raise capital on commercially favorable terms, including due to Smaaash Private’s high debt-equity ratio, Smaaash Private’s growth trajectory might be affected.
Smaaash Private 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 Private’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 debt to equity ratio, (ii) trends in global capital and credit markets, and (iii) existing debt terms. Smaaash Private’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 Private’s expansion strategy requirements could adversely affect Smaaash Private’s growth trajectory.
The high fixed cost structure of Smaaash Private’s operations can result in significantly lower margins if Smaaash Private’s revenues should decline, which may adversely affect Smaaash Private’s business, financial condition, results of operations and prospects.
Smaaash Private’s total aggregate expenditure was $18.9 million for fiscal year 2017, the most recent year for which data is available to us. A large proportion of Smaaash Private’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 Centers. These expenses may continue to increase, in the aggregate, from year to year, particularly as Smaaash Private continue to expand its network of Smaaash Centers in the future. In the event that Smaaash Private’s expenses increase at a faster rate than Smaaash Private’s revenues and if Smaaash Private is unable to rationalize Smaaash Private’s costs or realize efficiencies of scale, Smaaash Private may not be able to pass on such costs to Smaaash Private’s customers or offset its expenses. In such case, Smaaash Private 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 Private has significant capital expenditure requirements, and inability to raise adequate financing on commercially acceptable terms may limit Smaaash Private’s strategic initiatives and growth prospects.
Smaaash Private’s business is inherently capital intensive. Smaaash Private’s total capital expenditure was $19.23 million in fiscal year 2017, the most recent year for which data is available to us. Smaaash Private 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 Private opens new Smaaash Centers. In addition, Smaaash Private must incur expenditures to maintain and improve supporting or complementary infrastructure and services at Smaaash Centers, including Smaaash Private’s food and beverage venues, parking and other facilities. The actual amounts and timing of Smaaash Private’s future capital expenditure may differ from Smaaash Private’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 Private had estimated, fluctuations in currency exchange rates or commodity prices, unforeseen delays or cost overruns on Smaaash Private’s part or on the part of any of Smaaash Private’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 Private’s payments from corporate customers in Smaaash Private’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 Private operate. Smaaash Private’s capital expenditures and investments may rise in the future, given Smaaash Private’s expansion plans as well as the scope of Smaaash Private’s existing operations. The financing required by Smaaash Private for such capital expenditures and investments may not be available to it on commercially acceptable terms or at all, or Smaaash Private’s ability to seek additional financing in the future may be restricted due to the terms of Smaaash Private’s existing or future borrowings, or regulatory constraints on equity or debt capital raising, or a range of macroeconomic factors, including interest rates.
Smaaash Private’s inability to raise adequate financing on commercially acceptable terms, or at all, in the future may limit Smaaash Private’s strategic initiatives and growth prospects. In addition, there can be no assurance that Smaaash Private’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 Private’s business, financial condition, results of operations and prospects may be adversely affected.
Smaaash Private, 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 Private’s ability to manage its debt service obligations.
Smaaash Private, as well as Smaaash Private’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 Private’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 Private’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 Private’s business, financial condition, results of operation and prospects.
Smaaash Private has a relatively limited operating history and may not be able to sustain Smaaash Private’s growth levels in the future.
Smaaash Private commenced commercial operations at Smaaash Private’s first Smaaash Center in Mumbai in November 2012, and all of Smaaash Private’s other Smaaash Centers have commenced commercial operations within the last three fiscal years. Smaaash Private’s first international Smaaash Center, in Souththe Mall of America, in Minnesota, U.S.A. was opened in December 2016. Consequently, Smaaash Private 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 Private’s past performance and prospects. Smaaash Private may not be able to sustain any historical growth rates in the future, and may not be able to leverage its experience in its existing markets in order to grow Smaaash Private’s business in new markets.
Smaaash Private has entered, and may continue to enter, into certain related party transactions. There can be no assurance that Smaaash Private could not have achieved more favorable terms, if such transactions had not been entered into with related parties, or that Smaaash Private 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 Private has entered into various transactions with related parties. While Smaaash Private believes that all such transactions have been conducted on an arm’s length basis and contain commercially reasonable terms, Smaaash Private may have been able to achieve more favorable terms had such transactions been entered into with unrelated parties. It is also likely that Smaaash Private may enter into related party transactions in the future. Although all material related party transactions that Smaaash Private 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 Private’s financial condition and results of operations or that Smaaash Private 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 Private’s minority shareholders and will not have an adverse effect on Smaaash Private’s business, results of operations, financial condition and cash flows
Since a majority of Smaaash Private’s directors, officers and assets reside or are located outside of the United States, we may have difficulty enforcing judgments against Smaaash Private, its directors and officers.
Smaaash Private is incorporated under the laws of India. Further, Smaaash Private 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 Private’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 Private or those persons, or to recover against Smaaash Private 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 Private 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 court may impose civil liability, including the possibility of monetary damages, on Smaaash Private 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 Private 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 Private 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 Private or its directors and officers or some experts named in this proxy statement/prospectus 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 Our Ownership of Smaaash Private’s Share Equity
Smaaash Private’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.
Shripal Morakhia and AHA Holdings Private Limited, his affiliated entity, and FW Metis, Smaaash Private’s principal shareholders, beneficially own approximately 24.34% and 21.23%, respectively, of Smaaash Private’s share equity after the Transactions. 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 Smaaash Private’s interests. The concentration in ownership may have the effect of delaying, preventing or deterring a change in control of Smaaash Private and deprive Smaaash Private’s shareholders of an opportunity to receive a premium for their equity shares as part of a sale of Smaaash Private.
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 we received in the Transaction and no public trading market is expected to develop in the foreseeable future. Therefore, we may not be able to readily sell or transfer the Smaaash Private equity shares that we own.
Risk Factors Relating to Our Securities and Capital Structure
We have not paid dividends on our Common Stock in the past and do not expect to pay dividends on our Common Stock in the future. Any return on investment in our common stock may be limited to the value of our Common Stock.
We have never paid cash dividends on our Common Stock and do not anticipate paying cash dividends on our Common Stock in the foreseeable future. The payment of dividends on our Common Stock would depend on earnings, financial condition, and other business and economic factors affecting us at such time as our board of directors may consider relevant. If we do not pay dividends on our Common Stock, our Common Stock may be less valuable because a return on your investment will only occur if its stock price appreciates.
Trading on the OTC Markets is volatile and sporadic, which could depress the market price of our common stock and make it difficult for our security holders to resell their common stock and/or warrants.
Our Common Stock and Public Warrants are quoted on the OTCQB tier of the OTC Markets Group, Inc. (“OTC Markets”). Trading in securities quoted on the OTC Markets is often thin and characterized by wide fluctuations in trading prices, due to many factors, some of which may have little to do with our operations or business prospects. This volatility could depress the market price of our common stock for reasons unrelated to operating performance. Moreover, the OTC Markets is not a stock exchange, and trading of securities on the OTC Markets is often more sporadic than the trading of securities listed on a quotation system like Nasdaq Capital Market or a stock exchange like the NYSE American. These factors may result in investors having difficulty reselling any shares of our common stock.
Our stock price is likely to be highly volatile because of several factors, including a limited public float.
The market price of our Common Stock and Public Warrants have been volatile in the past and the market price of our Common Stock and Public Warrants and Private Placement Warrants are likely to be highly volatile in the future. You may not be able to resell shares of our Common Stock and/or Private Placement Warrants following periods of volatility because of the market’s adverse reaction to volatility.
Other factors that could cause such volatility may include, among other things:
● | actual or anticipated fluctuations in our operating results; | |
● | we may have a low trading volume for a number of reasons, including that a large portion of our stock is closely held; | |
● | overall stock market fluctuations; | |
● | announcements concerning our business or those of our competitors; | |
● | actual or perceived limitations on our ability to raise capital when we require it, and to raise such capital on favorable terms; |
● | conditions or trends in the industry; | |
● | litigation; | |
● | changes in market valuations of other similar companies; | |
● | future sales of common stock; | |
● | departure of key personnel or failure to hire key personnel; and | |
● | general market conditions. |
Any of these factors could have a significant and adverse impact on the market price of our Common Stock and/or Private Placement Warrants . In addition, the stock market in general has at times experienced extreme volatility and rapid decline that has often been unrelated or disproportionate to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our Common Stock and/or Private Placement Warrants, regardless of our actual operating performance.
If securities or industry analysts do not publish or cease publishing research or reports about the Company, its business, or its market, or if they change their recommendations regarding our securities adversely, the price and trading volume of our securities could decline.
The trading market for our securities will be influenced by the research and reports that industry or securities analysts may publish about us, our business, our market, or our competitors. Securities and industry analysts do not currently, and may never, publish research on the Company. If no securities or industry analysts commence coverage of the Company, our stock price and trading volume would likely be negatively impacted. If any of the analysts who may cover the Company change their recommendation regarding our securities adversely, or provide more favorable relative recommendations about our competitors, the price of our securities would likely decline. If any analyst who may cover the Company were to cease coverage of the Company or fail to regularly publish reports on it, we could lose visibility in the financial markets, which could cause our stock price or trading volume to decline.
Our common stock has in the past been a “penny stock” under SEC rules, and our warrants may be subject to the “penny stock” rules. It may be more difficult to resell securities classified as “penny stock.”
In the past, our common stock was a “penny stock” under applicable SEC rules (generally defined as non-exchange traded stock with a per-share price below $5.00). Unless we successfully list our common stock and our warrants on a national stock exchange, or maintain a per-share price above $5.00, these rules impose additional sales practice requirements on broker-dealers that recommend the purchase or sale of penny stocks to persons other than those who qualify as “established customers” or “accredited investors.” For example, broker-dealers must determine the appropriateness for non-qualifying persons of investments in penny stocks. Broker-dealers must also provide, prior to a transaction in a penny stock not otherwise exempt from the rules, a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, disclose the compensation of the broker-dealer and its salesperson in the transaction, furnish monthly account statements showing the market value of each penny stock held in the customer’s account, provide a special written determination that the penny stock is a suitable investment for the purchaser, and receive the purchaser’s written agreement to the transaction.
Legal remedies available to an investor in “penny stocks” may include the following:
● | If a “penny stock” is sold to the investor in violation of the requirements listed above, or other federal or states securities laws, the investor may be able to cancel the purchase and receive a refund of the investment. | |
● | If a “penny stock” is sold to the investor in a fraudulent manner, the investor may be able to sue the persons and firms that committed the fraud for damages. |
However, investors who have signed arbitration agreements may have to pursue their claims through arbitration.
These requirements may have the effect of reducing the level of trading activity, if any, in the secondary market for a security that becomes subject to the penny stock rules. The additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers from effecting transactions in our securities, which could severely limit the market price and liquidity of our securities. These requirements may restrict the ability of broker-dealers to sell our common stock or our Private Placement Warrants and may affect your ability to resell our common stock and our Private Placement Warrants.
Many brokerage firms will discourage or refrain from recommending investments in penny stocks. Most institutional investors will not invest in penny stocks. In addition, many individual investors will not invest in penny stocks due, among other reasons, to the increased financial risk generally associated with doing business in South America.these investments.
For these reasons, penny stocks may have a limited market and, consequently, limited liquidity. We can give no assurance at what time, if ever, our common stock or our Private Placement Warrants will not be classified as a “penny stock” in the future.
Political
A sale of a substantial number of shares of our Common Stock may cause the price of the Common Stock to decline.
If our stockholders sell substantial amounts of our Common Stock in the public market, the market price of our Common Stock could fall. These sales also may make it more difficult for us to sell our equity or economic instabilityequity-related securities in South Americathe future at a time and price that we deem reasonable or appropriate. This risk is significant because of concentrated positions of our Common Stock held by a small group of investors.
Because certain of our stockholders control a significant number of shares of our Common Stock, they may have effective control over actions requiring stockholder approval.
Our directors, executive officers and principal stockholders, and their respective affiliates, beneficially own approximately 59.2% of our outstanding shares of Common Stock. Accordingly, our executive officers, directors and principal stockholders, and their respective affiliates, will have significant influence on the ability to control the Company and the outcome of issues submitted to our stockholders.
If the benefits of any proposed acquisition of do not meet the expectations of investors, stockholders or financial analysts, the market price of our Common Stock may decline.
If the benefits of any proposed acquisition of do not meet the expectations of investors or securities analysts, the market price of our Common Stock prior to the closing of the proposed acquisition may decline. The market values of our Common Stock at the time of the proposed acquisition may vary significantly from their prices on the date the acquisition target was identified.
In addition, broad market and industry factors may materially harm the market price of our Common Stock irrespective of our operating performance. The stock market in general has experienced price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the particular companies affected. The trading prices and valuations of these stocks, and of our securities, may not be predictable. A loss of investor confidence in the market for retail stocks or the stocks of other companies which investors perceive to be similar to us could depress our stock price regardless of our business, prospects, financial conditions or results of operations. A decline in the market price of our securities also could adversely affect our ability to issue additional securities and our ability to obtain additional financing in the future.
Changes in accounting principles and guidance, or their interpretation, could result in unfavorable accounting charges or effects, including changes to our previously filed financial statements, which could cause our stock price to decline.
We prepare our consolidated financial statements in accordance with GAAP. These principles are subject to interpretation by the SEC and various bodies formed to interpret and create appropriate accounting principles and guidance. A change in these principles or guidance, or in their interpretations, may have a significant effect on our reported results and retroactively affect previously reported results.
Being a public company results in additional expenses, diverts management’s attention and could also adversely affect our ability to attract and retain qualified directors.
As a public reporting company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These requirements generate significant accounting, legal and financial compliance costs and make some activities more difficult, time consuming or costly and may place significant strain on our personnel and resources. The Exchange Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. In order to establish the requisite disclosure controls and procedures and internal control over financial reporting, significant resources and management oversight are required.
As a result, management’s attention may be diverted from other business concerns, which could have an adverse impactand even material effect on I-AM Capital’sour business, financial condition and results of operations dueoperations. These rules and regulations may also make it more difficult and expensive for us to diminished revenues.obtain director and officer liability insurance. If we are unable to obtain appropriate director and officer insurance, our ability to recruit and retain qualified officers and directors, especially those directors who may be deemed independent, could be adversely impacted.
I-AM Capital plansWe are an “emerging growth company” and our election to set up and operate Smaaash Centersdelay adoption of new or revised accounting standards applicable to public companies may result in South America. To the extent it starts operations in South America, it may deriveour financial statements not being comparable to those of some other public companies. As a portionresult 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, licensingthis and other legalreduced disclosure requirements applicable to emerging growth companies, our securities may be less attractive to investors.
As a public reporting company with less than $1,070,000,000 in revenue during our last fiscal year, we qualify as an “emerging growth company” under the Jumpstart our Business Startups Act of 2012 (the “JOBS Act”). An emerging growth company may take advantage of certain reduced reporting requirements and local tax issues.is relieved of certain other significant requirements that are otherwise generally applicable to public companies. In particular, as an emerging growth company we:
● | are not required to obtain an attestation and report from our auditors on our management’s assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002; | |
● | are not required to provide a detailed narrative disclosure discussing our compensation principles, objectives and elements and analyzing how those elements fit with our principles and objectives (commonly referred to as “compensation discussion and analysis”); | |
● | are not required to obtain a non-binding advisory vote from our stockholders on executive compensation or golden parachute arrangements (commonly referred to as the “say-on-pay,” “say-on-frequency” and “say-on-golden-parachute” votes); | |
● | are exempt from certain executive compensation disclosure provisions requiring a pay-for-performance graph and CEO pay ratio disclosure; | |
● | may present only two years of audited financial statements and only two years of related Management’s Discussion & Analysis of Financial Condition and Results of Operations (“MD&A”); and | |
● | are eligible to claim longer phase-in periods for the adoption of new or revised financial accounting standards under §107 of the JOBS Act. |
We intend to take advantage of all of these reduced reporting requirements and exemptions, including the longer phase-in periods for the adoption of new or revised financial accounting standards under §107 of the JOBS Act. Our election to use the phase-in periods may make it difficult to compare our financial statements to those of non-emerging growth companies and other emerging growth companies that have opted out of the phase-in periods under §107 of the JOBS Act.
Fluctuations in local currency exchange rates could negatively affect I-AM Capital’s performance.
Unanticipated exchange rate fluctuations in the local currencies could leadCertain of these reduced reporting requirements and exemptions were already available to lower reported consolidated results of operationsus due to the translationfact that we also qualify as a “smaller reporting company” under SEC rules. For instance, smaller reporting companies are not required to obtain an auditor attestation and report regarding management’s assessment of internal control over financial reporting; are not required to provide a compensation discussion and analysis; are not required to provide a pay-for-performance graph or Chief Executive Officer pay ratio disclosure; and may present only two years of audited financial statements and related MD&A disclosure.
Under the JOBS Act, we may take advantage of the above-described reduced reporting requirements and exemptions for up to five years after our initial sale of common equity pursuant to a registration statement declared effective under the Securities Act of 1933, as amended (the “Securities Act”), or such earlier time that we no longer meet the definition of an emerging growth company. In this regard, the JOBS Act provides that we would cease to be an “emerging growth company” if we have more than $1,070,000,000 in annual revenues, have more than $700 million in market value of our Common Stock held by non-affiliates, or issue more than $1.0 billion in principal amount of non-convertible debt over a three-year period. Further, under current SEC rules we will continue to qualify as a “smaller reporting company” for so long as we have a public float (i.e., the market value of common equity held by non-affiliates) of less than $75 million as of the last business day of our most recently completed second fiscal quarter.
We cannot predict if investors will find our securities less attractive due to our reliance on these currencies into U.S. dollars when I-AM Capital consolidates itsexemptions.
Failure to establish and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and stock price.
We are required to comply with the SEC’s rules implementing Sections 302 and 404 of the Sarbanes-Oxley Act, which require management to certify financial resultsand other information in our quarterly and annual reports and provide an annual management report on the effectiveness of controls over financial reporting. Though we are required to disclose changes made in our internal controls and procedures on a quarterly basis, we will not be required to make our first annual assessment of our internal control over financial reporting pursuant to Section 404 until year-end 2017. However, as an emerging growth company, our independent registered public accounting firm will not be required to formally attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 until the end of the fiscal year for any subsidiarieswhich our second annual report is due or the date we are no longer an emerging growth company. At such time, our independent registered public accounting firm may issue a report that it established in South America. A decreaseis adverse in the valueevent it is not satisfied with the level at which our controls are documented, designed or operating.
To comply with the requirements of the U.S. dollar in relationbeing a public company, we have undertaken various actions, and may need to take additional actions, such as implementing new internal controls and procedures and hiring additional accounting or internal audit staff. Testing and maintaining internal control can divert our management’s attention from other matters that are important to the operation of our business. Additionally, when evaluating our internal control over financial reporting, we may identify material weaknesses that we may not be able to remediate in time to meet the applicable local currency could increase I-AM Capital’s costdeadline imposed upon us for compliance with the requirements of doing businessSection 404. If we identify any material weaknesses in our internal control over financial reporting or are unable to comply with the requirements of Section 404 in a timely manner or assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting once we are no longer an emerging growth company, investors may lose confidence in the relevant jurisdiction.accuracy and completeness of our financial reports and the market price of our Common Stock could be negatively affected, and we could become subject to investigations by the Financial Industry Regulatory Agency, the SEC or other regulatory authorities, which could require additional financial and management resources.
Anti-takeover provisions contained in our certificate of incorporation and bylaws, as well as provisions of Delaware law, could impair a takeover attempt.
Governmental policiesThe Company’s certificate of incorporation and bylaws contain provisions that could have the effect of delaying or preventing changes in control or changes in our management without 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,consent of our board of directors. These provisions include:
● |
● | the |
● | the |
● | ||
● | controlling the procedures for the conduct and scheduling of stockholder meetings; | |
● | providing that directors may be removed prior to the expiration of their terms by stockholders only for cause; and | |
● | advance notice procedures that stockholders must comply with in order to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting, which |
These provisions, alone or together, could delay hostile takeovers and changes in control of the Company or changes in our board of directors and management.
Any provision of our certificate of incorporation or bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our security holders to receive a premium for their securities and could also affect the price that some investors are willing to pay for our securities.
In the event that our common stock price does not exceed the exercise price of the Private Placement Warrants during the period when the Private Placement Warrants are exercisable, the Private Placement Warrants may not have any value.
The warrants will be immediately exercisable and expire on the fifth anniversary of the date of issuance. The Private Placement Warrants will have an initial exercise price per share equal to $11.50. In the event that our common stock price does not exceed the exercise price of the Private Placement Warrants during the period when the Private Placement Warrants are exercisable, the Private Placement Warrants may not have any value.
There is no established trading market for the Private Placement Warrants to be sold in this offering, and the market for the Private Placement Warrants may be highly volatile or may decline regardless of our operating performance. We do not intend to list the Private Placement Warrants, nor do we expect the Private Placement Warrants to be quoted, on any securities exchange.
There must be a current registration statement in order for you to exercise the Private Placement Warrants.
Holders of Private Placement Warrants will be able to exercise the Private Placement Warrants only if a current registration statement relating to the common stock underlying the Private Placement Warrants is then in effect. Although we will attempt to maintain the effectiveness of a current registration statement covering the common stock underlying the Private Placement Warrants, there can be no assurance that we will be able to do so. If the registration statement covering the shares issuable upon exercise of the Private Placement Warrants is no longer effective, the Private Placement Warrants may only be exercised on a “cashless” basis and will be issued with restrictive legends unless such shares are eligible for sale under Rule 144 of the Securities Act of 1933, as amended.
Holders of our Private Placement Warrants will have no rights as a common stockholder until they acquire our common stock.
Until you acquire shares of our common stock upon exercise of your Private Placement Warrants, you will have no rights with respect to our common stock. Upon exercise of your Private Placement Warrants, you will be entitled to exercise the rights of a common stockholder only as to matters for which the record date occurs after the exercise date.
SELECTED HISTORICAL FINANCIAL INFORMATIONUSE OF SMAAASHPROCEEDS
All of the shares of Common Stock offered by the Selling Securityholders pursuant to this prospectus will be sold by the Selling Securityholders for their respective accounts. We will not receive any of the proceeds from these sales. We will receive up to an aggregate of approximately $66,757,250.00 from the exercise of Warrants, assuming the exercise in full of all of the Warrants for cash. We expect to use the net proceeds from the exercise of the Warrants for general corporate purposes.
The following table sets forth selected historical financial information derived from Smaaash’s audited financial statements included elsewhere in this proxy statement/prospectusour cash and cash equivalents and capitalization 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 toFebruary 28, 2019 on an actual basis.
This table should be expected in any future period. You should read the following selected financial information in conjunction with the section entitled ”Smaaash Management’sinformation contained in this prospectus, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations”Operations” and Smaaash’sour financial statements and the related notes thereto appearing elsewhere in this proxy statement/prospectus.
As of February 28, 2019 | ||||
Actual | ||||
(unaudited) | ||||
Cash and cash equivalents | $ | 1,245,666 | ||
Stockholders’ equity: | ||||
Preferred stock - $0.0001 par value, 1,000,000 shares authorized; no shares issued and outstanding on an actual basis | - | |||
Common stock - $0.0001 par value; 20,000,000 shares authorized; 6,313,038 shares issued and outstanding on an actual basis | 632 | |||
Common stock issuable - 2,030,000 shares on an actual basis | 203 | |||
Additional paid-in capital | 7,515,541 | |||
Accumulated deficit | (3,105,494 | ) | ||
Total stockholders’ equity | 4,410,882 | |||
Total capitalization | $ | 7,367,438 |
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 |
Determination of Offering PRice
EXCHANGE RATESResale of Common Stock by Selling Securityholders
Our Common Stock is quoted on the OTCQB under the symbol “WINR.” The sharesregistered for resale in this prospectus being offered by the Selling Securityholders will be sold at a fixed price of $2.00 for the duration of this offering. The offering price of the shares bears no relation to book value, assets, earnings, or any other objective criteria of value. It has been arbitrarily determined by the Selling Securityholders.
Resale of Private Placement Warrants by Selling Securityholders
Our Public Warrants are quoted on the OTCQB under the symbol “WINRW.” The actual offering price by the Selling Securityholders of the Private Placement Warrants covered by this prospectus will be determined by prevailing market prices at the time of sale, by private transactions negotiated by the Selling Securityholders or as otherwise described in the section entitled “Plan of Distribution.” The exercise price of the Private Placement Warrants as well as the Public Warrants is established based on the terms of the Warrant Agreement and bears no relationship to the book value, assets or earnings of our company or any other recognized criteria of value.
Issuance of Shares of Common Stock Underlying Warrants
The following tables show, forprice of the periods indicated, information concerningshares of Common Stock underlying the exchange rate betweenWarrants registered hereby is determined by reference to the U.S. dollarexercise price of the Warrants, such that each (i) Public Warrant and Private Placement Warrant entitles the holder to purchase one share of our Common Stock at an exercise price of $11.50 per share and (ii) 2019 Warrant entitles the holder to purchase one share of our Common Stock at an exercise price of $4.00 per share.
PRice range of securities and dividends
Price Range of Securities
Our Common Stock and Public Warrants are currently quoted on the OTCQB under the symbols “WINR” and “WINRW”, respectively. On October 9, 2017, our Common Stock and Public Warrants commenced public trading on the NASDAQ Capital Market under the symbols “IAM” and “IAMXW”, respectively. On November 20, 2018, we changed the symbols of our Common Stock and Public Warrants to “SMSH” and “SMSHW”, respectively, in conjunction with our name change from “I-AM Capital Acquisition Company” to “Smaaash Entertainment, Inc.” On January 10, 2019, we changed the symbols of our Common Stock and Public Warrants to “WINR” and “WINRW”, respectively, in conjunction with our name change from “Smaaash Entertainment, Inc.” to “Simplicity Esports and Gaming Company.” However, on January 25, 2019, the NASDAQ suspended our Common Stock and Public Warrants from trading on the NASDAQ Capital Market and the rupee. This information is provided solelyOTCQB commenced the quotation of our Common Stock and Public Warrants. On April 2, 2019, the NASDAQ Capital Market filed a Form 25 for your convenience,our Common Stock 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/prospectus.
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 August 17, 2018, the most recent practicable day prior to the date of this proxy statement/prospectus, the exchange rate was $1 = Rs. 70.09. (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 |
High | Low | |||||||
(Indian Rupees per US Dollar) | ||||||||
Recent Monthly Data | ||||||||
February 2018 | 65.20 | 63.93 | ||||||
March 2018 | 65.24 | 64.83 | ||||||
April 2018 | 66.92 | 64.92 | ||||||
May 2018 | 68.38 | 66.52 | ||||||
June 2018 | 68.81 | 66.87 | ||||||
July 2018 | 69.01 | 68.42 |
COMPARATIVE SHARE INFORMATIONPublic Warrants, which became effective ten days thereafter.
The following table sets forth historical comparative share informationincludes the high and low bids for Smaaashour Common Stock and unaudited pro forma share information after giving effect toPublic Warrants for the Transaction, assuming (i) underperiods presented, since the minimum scenario that no holdersconsummation 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/prospectus and the historical financial statements of Smaaash included elsewhere in this proxy statement/prospectus.our IPO on August 22, 2017.
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 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 | ) |
Common Stock(1) | PublicWarrants(2) | |||||||||||||||
High | Low | High | Low | |||||||||||||
Fiscal Year 2019 | ||||||||||||||||
March 1 to July 10, 2019 | $ | 2.20 | 0.56 | 0.70 | 0.04 | |||||||||||
December 1, 2018 to February 28, 2019 | $ | 6.62 | 1.23 | 0.52 | 0.06 | |||||||||||
September 1 to November 30, 2018 | $ | 11.05 | 3.15 | 0.46 | 0.17 | |||||||||||
June 1 to August 31, 2018 | $ | 11.05 | 9.86 | 0.50 | 0.20 | |||||||||||
Fiscal Year 2018 | ||||||||||||||||
March 1 to May 31, 2018 | $ | 10.52 | 9.90 | 0.50 | 0.34 | |||||||||||
December 1, 2017 to February 28, 2018 | $ | 10.02 | 9.80 | 0.60 | 0.21 | |||||||||||
September 1 to November 30, 2017 | $ | 9.98 | 9.80 | 0.34 | 0.26 | |||||||||||
August 16 to August 31, 2017 (3) | $ | N/A | N/A | N/A | N/A |
(1) | |
(2) | Our Public Warrants began separate trading on NASDAQ on October 9, 2017. |
(3) | Our Common Stock and Public Warrants did not trade separately from the |
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTSOn July 10, 2019, the closing price of our Common Stock and Public Warrants were $1.72 and $0.33, respectively. As of July 12, 2019, we had 6,952,195 shares of Common Stock and 5,200,000 Public Warrants.
Smaaash and I-AM Capital make forward-looking statements in this proxy statement/prospectus. 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:
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/prospectus, 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.Holders
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/prospectus. 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:
SPECIAL MEETING OF I-AM CAPITAL STOCKHOLDERS
General
I-AM Capital is furnishing this proxy statement/prospectus 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 [ ], 2018, and at any adjournment or postponement thereof. This proxy statement/prospectus is first being furnished to I-AM Capital stockholders on or about _____________, 2018. This proxy statement/prospectus 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 [ ], 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,12, 2019, there were 6,813,500 sharesapproximately 108 holders of I-AM Capital common stock outstanding, consistingrecord of 5,200,000 public shares, 1,561,500 founder shares,our Common Stock and 52,000 shares held by the underwriters59 holders of I-AM Capital’s initial public offering.record of our Public Warrants.
Vote of I-AM Capital Sponsor
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.Dividends
The Sponsor, executive officersCompany has not paid any dividends on its Common Stock to date. It is the present intention of the Company to retain any earnings for use in its business operations and, accordingly, the Company does not anticipate the board of directors have waiveddeclaring any redemption rights, including with respect to shares of common stock purchased in I-AM Capital’s initial public offering ordividends in the aftermarket,foreseeable future on our Common Stock. Consequently, you will only realize an economic gain on your investment in connection with Transaction. The founder shares held byour Common Stock if the Sponsor have no redemption rights upon I-AM Capital’s liquidationprice appreciates. You should not purchase our Common Stock expecting to receive cash dividends. Since we do not anticipate paying dividends, and will be worthless if no business combination is effected by I-AM Capital prior to by August 21, 2018,which has been extended to November 21, 2018 (or May 21, 2019, if we further extendare not successful in establishing an orderly public trading market for our shares, then you may not have any manner to liquidate or receive any payment on your investment. Therefore, our failure to pay dividends may cause you to not see any return on your investment even if we are successful in our business operations. In addition, because we may not pay dividends in the periodforeseeable future, we may have trouble raising additional funds which could affect our ability to consummate aexpand our business combination).operations.
QuorumUnless the context otherwise requires, “we,” “us,” or “the Company” refers to (i) “Simplicity Esports 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:
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:
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:
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 $600,000Acquisition 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 toSimplicity Esports, LLC, (ii) “Smaaash Entertainment Inc.” before the consummation of the Transaction, including interest, divided byAcquisition of Simplicity Esports, LLC but after the numberclosing 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 September [ ], 2018 (two business days before the special meeting), both:
Continental Stock Transfer & Trust CompanyOne State Street Plaza, 30th FloorNew York, New York 10004Attn: Mark ZimkindE-mail: mZimkind@continentalstock.com
and
Any demand for redemption, once made, may be withdrawn at any time until the deadline for exercising redemption requestsTransactions with Smaaash Entertainment Private Limited, 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(iii) 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 immediatelyAcquisition Company 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,closing of 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 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,which has been extended to November 21, 2018 (unless such date is further extended), I-AM Capital will be required to dissolve and liquidateTransactions with Smaaash Entertainment Private Limited.“Simplicity Esports LLC” means Simplicity Esports, LLC, a Florida limited liability company, and its warrants will expire worthless.consolidated subsidiaries “Smaaash Private” means Smaaash Entertainment Private Limited, a private limited company incorporated under the laws of India, and its consolidated subsidiaries
Appraisal RightsOverview
Appraisal rightsWe are not availablea North American esports organization. We have implemented a unique approach to holdersensure the ultimate fan friendly experience. Our intention is to have gamers involved at the grassroots level and feel a sense of sharesunity as we compete with top class talent. Utilizing the vast resources from within the ownership group, we have already established an impressive management team and roster. Our management and players are well known influencers within the esports community and we plan to use their skill to create a seamless content creation pan to help gamers feel closer to our brand that any other in the scene. Our organization intends to take the opportunity to create a platform that will help grow the sports for generations of I-AM Capital common stock in connection with the Transaction.
PROPOSAL NO. 1 —THE BUSINESS COMBINATION PROPOSALgamers.
I-AM Capital is asking its stockholders to approve the subscription for equity sharesAcquisition 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/prospectus in its entirety for more detailed information concerning the Transaction and the Subscription Agreement, which is attached asAnnex A to this proxy statement/prospectus 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.Simplicity Esports, LLC
Because I-AM Capital is holding a stockholder vote onOn January 4, 2019, 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/prospectus 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/prospectus 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/prospectus and is incorporated into this proxy statement/prospectus 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/prospectus 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 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 causeCompany consummated the transactions contemplated by that certain share exchange agreement, dated December 21, 2018 (as amended by Amendment No. 1 to Share Exchange Agreement, dated December 28, 2018 and by Amendment No. 2 to Share Exchange Agreement, dated December 30, 2018, the Subscription“Share Exchange Agreement including obtaining all Approvals of Governmental Authorities”) by and other Persons as may be necessary or required by I-AM Capital and its nominees in order to achieveamong the objectivesCompany, Simplicity Esports, LLC, a Florida limited liability company (“Simplicity Esports LLC”), each of the Subscription Agreement.
In addition,equity holders of Simplicity Esports LLC (“Simplicity Owners”) and Jed Kaplan, in the Parties agreed that I-AM Capital shall invest any and all monies it receives, (i) pursuantcapacity as the representative of the Simplicity Owners (the “Representative”). Pursuant to the exerciseShare Exchange Agreement the Simplicity Owners transferred all the issued and outstanding equity interests of outstanding warrants for its capital stock and (ii) from capital raises of additional funds outside of India whether fromSimplicity Esports LLC to 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 I-AM Capital, either (i) transfer such number of equity shares of Smaaash constituting 5% (five percent) of the share capital of Smaaash, as of June 22, 2018, as held by the Smaaash Founders in Smaaash, to I-AM Capital, or (ii) dilute their shareholding in I-AM Capital (if any, as on that date) by 5% (five percent) or more (as may be agreed between the Smaaash Founders and I-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 and which will represent 24.34% of the share capital of Smaaash on a fully diluted basis immediately after the Investment) to I-AM CapitalCompany in exchange for newly issued shares of common stock of the Company (the “Acquisition”).
Background of Simplicity Esports, LLC
Founded in 2017, Simplicity Esports LLC is committed to growing and enhancing the Esports industry, fostering the development of amateurs to compete professionally, and partnering with established professional gamers to support their paths to greater success. Esports (also known as electronic sports, e-sports, or eSports) is a form of competition using video games. Most commonly, esports takes the form of organized, multiplayer video game competitions, particularly between professional players, individually or as teams. Our continued accomplishments in various games is a driving force behind the growth of our fan base including viewership of our content.
As of January 4, 2019, upon the completion of the acquisition of Simplicity Esports LLC, the business of Simplicity Esports LLC has now become the primary business of the Company. Simplicity Esports LLC is an established brand in the Esports industry with an engaged fan base competing in popular games across different genres, including Apex Legends, PUBG, Gears of War, SMITE, and NHL 19. The Simplicity Esports LLC stream team encompasses over 50 casters, influencers and personalities who connect to a dedicated fan base. Simplicity Esports LLC’s notoriety in the industry is evidenced by its audience that views millions of minutes of Simplicity Esports LLC content monthly, via various social media outlets including YouTube, Twitter and Twitch.
The acquisition of Simplicity Esports LLC creates a pure play esports team and entertainment platform opportunity, which we believe will increase shareholder value and boost our growth strategy as we endeavor the build out of our brick and mortar esports centers. Through Simplicity Esports LLC, the Company has begun to implement a unique approach to ensure the ultimate fan friendly esports experience. Our intention is to have gamers involved at the grassroots level and feel a sense of unity as we compete with top class talent. Our management and players are known within the esports community and we plan to use their skills to create a seamless content creation plan helping gamers feel closer to our brand than any other in the industry. Simplicity Esports LLC also plans to open and operate corporate-owned retail esports gaming centers (“Simplicity Esports Gaming Centers”) as well as to franchise Simplicity Esports Gaming Centers that will provide the public an opportunity to experience and enjoy gaming and Esports in a social setting, regardless of skill or experience.
Brick & Mortar Esports Gaming Locations
Our business plan encompasses a brick and click physical and digital approach to further recognize revenue from all verticals. As a professional esports organization, we will strive to be the first to market with the aforementioned business model. The physical centers complimented with our esports team, lifestyle brand and marketing campaign offer opportunities for additional revenue via strategic partnerships with both endemic and non-endemic brands. Our ultimate goal is to further engage a diverse fan base with a 360 degree approach driving traffic to both our digital and physical real estate ultimately monetizing these relationships. In addition to the presented information, we have proprietary intellectual capital, fan engagement strategies and brand development blueprints which complement our publicly available information.
We intend to open and operate 15 centers by the end of 2019 and a total of 50 throughout the United States over the next 24 months. These centers are funded by us as well as a combination of tenant improvement allowances from landlords and sponsorships. Our first center was opened May, 3 2019. Due to unsolicited interest from potential franchisees we have launched a franchising program to accelerate the expansion of our planned nationwide footprint. Furthermore, we have engaged a national tenant representation real estate broker to assist in the strategic planning and negotiations for our future gaming center locations.
Optimally, our gaming centers will measure between 1200 and 2500 square feet thereby representing a national footprint unlike any esports organization. The team Simplicity branded centers will feature cutting edge technology, futuristic aesthetic décor and the most dynamic current high speed gaming equipment. We believe our brick-and-click strategy will present attractive opportunities for sponsor and advertisers to connect with our audience, creating an intriguing monetization opportunity.
Creating content that engages fans, promotes our brand as well as sponsors and developers is one of our primary goals. Our talented team will continue to produce unique in depth content which showcases aspects of esports which fans rarely see. We seek to reach a broad demographic encompassing the casual, amateur and professional gaming community. Our philosophy is to enhance our footprint for both endemic and non-endemic partnerships. We are keen to the markets and understand the new age of branding while maintaining authenticity.
Simplicity Stream Team
We are proud to support and present a diverse group of gamers as we engage fans across a multiple of esports genres. Represented below are a few members of our talented stream team. Our electric group of live personalities represent our organization to the fullest with their own unique style. Our Twitch affiliation has enabled our stream team influences to reach a broad fan base. Additionally, we have created several niches within the streaming community which has enabled us to engage fans within certain titles on a 24/7 basis.
Potential Revenue Capacity
The following table shows our potential revenue capacity, per location, from game play.
We also expect opportunities for revenue from parties, tournaments, classes, gaming gear, apparel, advertising and sponsorship sales.
ANNUAL REVENUE CAPACITY FROM GAME PLAY PER ESPORTS GAMING CENTER*
20 | % | $ | 157,248 | ||
40 | % | $ | 314,496 | ||
60 | % | $ | 471,744 | ||
80 | % | $ | 628,992 |
*Assumes 2,808 operational hours, 28 gaming stations, $10/hour price. Represents capacity only, and is not an indication of expected future revenues. There can be no assurance that we will operate at any of the indicated levels of capacity, or at all.
Corporate History
Formation
We were initially a blank check company organized under the laws of the State of Delaware on April 17, 2017 under the name I-AM Capital Acquisition Company. We were 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 we were not limited to a particular industry or geographic region for purposes of consummating a business combination, we focused on businesses with a connection to India. On November 20, 2018, we changed our name from I-AM Capital Acquisition Company to Smaaash Entertainment, Inc. On January 2, 2019, we changed our name from Smaaash Entertainment, Inc. to Simplicity Esports and Gaming Company.
We are authorized to issue 21,000,000 shares of capital stock, consisting of (i) 20,000,000 shares of common stock, with a par value of $0.0001 per share (“Common Stock”), and (ii) 1,000,000 shares of preferred stock, with a par value of $0.0001 per share. As of July 12, 2019, there were 6,952,195 shares of Common Stock issued and outstanding and there were no shares of preferred stock issued or outstanding.
Founder Shares
On May 31, 2017, we issued 1,437,500 shares of Common Stock (the “Founder Shares”) to I-AM Capital Partners LLC, our sponsor (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, for a balance of 1,300,000 Founder Shares held by our Sponsor.
Initial Public Offering and Private Placement
On August 22, 2017, we sold 5,000,000 units at a purchase price of $10.00 per unit in our initial public offering (“IPO”) of public units (“Public Units”), generating gross proceeds of $50.0 million. Each Public Unit consisted of one share of our Common Stock (“Public Shares”), one right to receive one-tenth of one share our Common Stock upon consummation of an initial business combination (“Public Right”), and one redeemable warrant (“Public Warrants”). Each warrant entitled the holder to purchase one share of common stock at an exercise price of $11.50 per share, subject to adjustment.
Concurrently with the closing of the IPO on August 22, 2017, the Sponsor purchased an aggregate of 254,500 units (“Private Placement Units”) at $10.00 per unit, generating gross proceeds of $2,545,000 in a private placement. The Private Placement Units (including their component securities) are not transferable, assignable or salable until 30 days after the completion of the initial business combination and the warrants included in the Private Placement Units are non-redeemable so long as they are held by the Sponsor or their permitted transferees.
On August 22, 2017, we issued 50,000 shares of Common Stock to Maxim in connection with its services as underwriter for the IPO.
Contained in the underwriting agreement for the IPO was an over-allotment option allowing the underwriters to purchase from the Company up to an additional 750,000 Public Units (the “Over-Allotment Units”) and, in addition, the Company received a commitment from the Sponsor to purchase up to an additional 26,250 Private Placement Units.
On September 13, 2017, the underwriters partially exercised their option and purchased 200,000 Over-Allotment Units, which were sold at an offering price of $10.00 per unit, generating gross proceeds of $2,000,000.
On September 13, 2017, simultaneously with the sale of the Over-Allotment Units, the Company consummated the sale of an additional 7,000 Private Placement Units (the “Over-Allotment Placement Units”), generating gross proceeds of $70,000.
On September 13, 2017, we issued Maxim an additional 2,000 shares of our Common Stock upon partial exercise of the over-allotment.
On October 9, 2017, we commenced trading our Public Shares of Common Stock, Public Rights, and Public Warrants on the Nasdaq Capital Market under the symbols “IAM,” “IAMXR” and “IAMXW,” respectively.
The Founder Shares are identical to the Public Shares and holders of Founder Shares have the same stockholder rights as the holders of our Public Shares (“Public Stockholders”) which include our initial stockholders, including the holders of our Founder Shares prior to the IPO (“initial stockholders”) and members of our management team, including our executive officers and directors (“management” and “management team”), to the extent our initial stockholders and/or members of our management team purchased 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), except that the Founder Shares and the shares of Common Stock (“Private Placement Shares”) forming part of the Private Placement Units are subject to certain transfer restrictions.
Consummation of Transactions with Smaaash Entertainment Private Limited
On November 20, 2018 (the “Closing Date”), the Company and Smaaash Entertainment Private Limited, a private limited company incorporated under the laws of India, consummated the transactions (the “Transactions” or the “Business Combination”) contemplated by the share subscription agreement (as amended, the “Subscription Agreement”), following the approval at the special meeting of the stockholders of the Company held on November 9, 2018 (the “Special Meeting”).
At the Special Meeting, holders of 4,448,260 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 initial 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 Public Rights at the Closing and the issuance of 208,000 shares of common stock to Chardan as consideration for services), there were 5,119,390 shares of common stock and warrants to purchase approximately.
On November 20, 2018, upon the consummation of the Business Combination with Smaaash Private, we issued 26,150 shares of common stock underlying the Private Placement Rights to the holders of the Private Placement Rights.
Pursuant to the Subscription Agreement, the purchase price of $150,000 was paid by the Company to Smaaash Private in exchange for 294,360 newly issued equity shares of Smaaash Private at the closing of the Transactions (the “Closing”).
In addition, AHA Holdings Private Limited (“AHA Holdings”) and Shripal Morakhia (together with AHA Holdings, the “Smaaash Founders”) agreed that within six months following the Closing Date, they would transfer all of their ownership interest in Smaaash Private (representing 33.6% of the share capital of Smaaash Private on a fully diluted basis as of June 22, 2018) (the “Additional Smaaash Shares”) to the Company in exchange for newly issued shares of our Common Stock (the “Transferred Company Shares”) in an amount which would enable the Smaaash Founders to retain their 24.34% post-Investment33.6% ownership interest in Smaaash Private indirectly throughtheir interest in I-AM Capital. the Company.
Smaaash agreed that onAt the Closing, Date it shall make a lump sum paymentthe Company issued an aggregate of $250,0002,000,000 shares of its common stock to I-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 I-AM Capital under applicable Indian law in an amount of up to $2,000,000, which amount is subject to review from time to time by the board of directors of Smaaash and I-AM Capital, until such time as the revenue that I-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 ownershipas an upfront portion of the sharesTransferred Company Shares (the “Upfront Company Shares”). In connection with the issuance of Smaaash. In addition, Smaaashthe Upfront Company Shares, the Company and the Smaaash Founders jointlyentered into an escrow agreement pursuant to which the Upfront Company Shares would be held in escrow and severally also make representationswill be either, (i) if the Additional Smaaash Shares are not transferred in full to the Company within the designated six-month period, cancelled, or (ii) if the Additional Smaaash Shares are transferred in full to the Company within the designated six-month period, released from escrow and warranties relatingthe number of Upfront Company Shares will be deducted from the Transferred Company Shares that will be issued to financial statements and financial matters, business and its operations, taxation, assets and properties, commercial matters, employees, litigation, insolvency, completenessthe Smaaash Founders upon the delivery of statements and environment related matters.the Additional Smaaash Shares.
On November 16, 2018, Smaaash Private 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-violationexecuted a letter 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,undertaking, pursuant to which I-AM Capital is named a party.
The indemnity is meantthey agreed 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.
Governing Law
The governing law shall be the laws of India.
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 issuetransfer 4,000,000 additional equity shares of Smaaash Private to I-AM Capital, at no additional amounts or at the lowest price required to be paid under applicable law,Company in accordanceconsideration for 200,000 shares of our Common Stock, simultaneously 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 transferissuance of the 300,000 equity 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 offerSmaaash Private 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 CapitalCompany on or prior to the Final Deadline Date, then I-AM Capital may require SmaaashNovember 30, 2018, as permitted 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 outSuch additional shares of Smaaash Private have not yet been delivered to the Company.
In connection with the Closing, the Company changed its name from I-AM Capital Acquisition Company to Smaaash Entertainment Inc., changed its stock symbols for its Common Stock, Public Rights, and Public Warrants to “IAM,” “IAMXR” and “IAMXW,” respectively, and entered into a master franchise agreement (“Master Franchise Agreement”) and a master license and distribution agreement (“Master Distribution Agreement”) with Smaaash Private. Prior to the Closing, the Company 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 Private and the rights granted under the Master Franchise Agreement and the Master Distribution Agreement.
Pursuant to the terms of the Shareholders Agreement shall be resolved by arbitration, by a single arbitrator, which shall be governed byescrow agreement, the rules of Singapore International Arbitration Centre.Upfront Company Shares have been cancelled because the Additional Smaaash Shares were not transferred in full to the Company in the designated six-month period.
Master Franchise Agreement
Franchise and license right. Under the Master Franchise Agreement, Smaaash Private has granted to I-AM Capitalthe Company 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 Private with respect to the Smaaash Centers, in the territories of North America and South America (“Territory”Territory”). Further, Smaaash Private has granted to I-AM Capitalthe Company the limited license to use the Trademarks of Smaaash Private (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 Private and I-AM Capital.the Company.
Obligations of I-AM Capitalthe Company. All future rights, goodwill and reputation of the Smaaash Marks shall inure to the benefit of Smaaash. I-AM Capital shallThe Company will not directly or indirectly engage or be concerned with any business which competes with Smaaash’sSmaaash Private’s business in the Territory during the term of the Master Franchise Agreement. I-AM Capital shallThe Company will market, promote and publicize the Smaaash Centers in the Territory. I-AMThe Company 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 Private. Smaaash Private 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 shallwill 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 Capitalthe Company 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 Private will not receive any portion of the revenue or other fees in connection with the Master Franchise Agreement.
Ownership of Smaaash Marks. Smaaash shallPrivate will be the sole owner of all intellectual property related to the Smaaash Centers. All future rights, goodwill and reputation of the Smaaash Marks shall inure to the benefit of Smaaash.
Term of the Agreement. The Master Franchise Agreement shallwill 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 Private if I-AM Capitalthe Company 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 lawsAddendum to Master Franchise Agreement
On November 29, 2018, the Company and jurisdiction of courts. The governing law ofSmaaash Private executed an addendum to the Master Franchise Agreement shall be laws of(the “Amendment”). Pursuant to the State of New YorkAmendment, Smaaash Private grants the Company the exclusive rights to set up family and New York State Supreme Court, County of New York orentertainment centers under the name “Total Sports Center” in the United States District Court(“Total Sports Centers”) in which 51% of the investment will be borne by the Company and 49% by Smaaash Private. Smaaash Private will be responsible for identifying the locations for setting up, managing and controlling the Total Sports Centers and will carry out all the fit out requirements for such centers. Smaaash Private will also appoint the management team for the Southern District of New York shall have exclusive jurisdiction with respectcenters. Smaaash Private will be entitled to matters arising out3% of the Master Franchise Agreement.net revenue of each center, subject to conditions to be confirmed by the parties.
Master License and Distribution Agreement
Grant of license and distribution rights. Under the Master Distribution Agreement, Smaaash Private has granted to I-AM Capitalthe Company an exclusive right to purchase from Smaaash Private specialized equipment and products related to sports and recreational activities (“Products”Products”) in the territory under the brand name of Smaaash Private and sell them with a 15% markup to the customers which shallwill be the sub-franchisees of I-AM Capitalthe Company who shallwill operate the Smaaash Centers, as specified in the Master Franchise Agreement.
Pricing. The pricingCompany may sell the Products further to any third party franchisees at a minimum of 15% margin over and above the sale ofprice at which Smaaash Private sold 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.Company.
Grant of license in Smaaash Marks.Smaaash Private has also granted the Company a license I-AM Capital to use the Trademarks (as set out in the Master Distribution 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 shallPrivate will be the sole owner of any intellectual property rights relating to the Products and all the goodwill relating thereto.
Term.The Master Distribution Agreement shallwill 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 Private if I-AM Capitalthe Company 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 Capitalthe Company for any reason upon 120 days’ notice.
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Settlement Agreement
Governing lawsOn November 20, 2018, the Company entered into a settlement and jurisdictionrelease agreement (“Settlement Agreement”) with Maxim Group LLC, the underwriter for the Company’s IPO (“Maxim”). Pursuant to the Settlement Agreement, the Company made a cash payment of courts.$20,000 to Maxim and issued a demand secured promissory note in favor of Maxim in the amount of $1.8 million (the “Note”) to settle the payment obligations of the Company under the underwriting agreement dated August 16, 2017, by and between the Company and Maxim. The governing lawCompany also agreed to remove the restrictive legends on an aggregate of 52,000 shares of its common stock held by Maxim and its affiliate.
The Note accrues interest at 8% per annum from the date of the Note through and including May 20, 2019 and 12% per annum from and including May 21, 2019 through and including August 20, 2019 and 15% per annum from and including August 21, 2019 through and including November 20, 2019. If a late payment occurs and is continuing, the interest rate will be increased to 12% per annum and if from the date of the Note through and including August 20, 2019 and 18% per annum and if from after August 21, 2019. If a late payment remains outstanding for over 48 hours, Maxim may require the Company to redeem all or any part of the Note (“Alternate Payment Amount”) at a redemption price equal to 125% of the Alternate Payment Amount.
The principal and interest of the Note will be payable upon demand by Maxim or from time to time, in accordance the following schedule:
(i) one third of the principal, accrued and unpaid interest and any late charges on May 20, 2019;
(ii) one third of the principal, accrued and unpaid interest and any late charges on August 20, 2019; and
(iii) one third of the principal, accrued and unpaid interest and any late charges on November 20, 2019.
The Note is secured by a first priority security interest in all personal property and assets of the Company excluding the assets held in escrow with respect to (i) that certain stock purchase agreement with Polar, pursuant to which Polar agreed to sell up to 490,000 shares of the Company’s common stock to the Company thirty days after the consummation of the Transactions and (ii) that certain stock purchase agreement with K2 Principal Fund L.P. (“K2”), pursuant to which K2 agreed to sell up to 220,000 shares of the Company’s common stock to the Company thirty days after the consummation of the Transactions.
The amount payable under the Note may be paid in shares of our Common Stock or securities convertible or exercisable into shares of our Common Stock (the “Alternate Equity Payment”) if and only if the Company and Maxim mutually agree on both the purchase price and, if applicable, the conversion and/or exercise price of each security of the Company issued in such Alternate Equity Payment. Otherwise the payment should be made in cash only.
So long as any amount under the Note is outstanding, all cash proceeds received by the Company from any sales of its securities will be used to repay this Note.
Convertible Note Payable
On December 20, 2018, the Company entered into a securities exchange agreement (“Exchange Agreement”) with Maxim Group LLC (the “Holder”). Pursuant to the terms of the Exchange Agreement, the Holder agreed to surrender and exchange the Note in the amount of $1.8 million which was issued to Maxim pursuant to the Settlement Agreement (discussed immediately above). In exchange, the Company issued to the Holder a Series A-1 Exchange Convertible Note in the principal amount of $500,000 (the “Series A-1 Note”) and a Series A-2 Exchange Convertible Note in the principal amount of $1,000,000 (the “Series A-2 Note,” and collectively with Series A-1 Note, the “Exchange Notes”).
The Series A-1 Note bears interest at 2.67% per annum, payable quarterly and has a maturity date of the earlier of the closing date of the Acquisition (as defined below) or June 20, 2020 (the “Maturity Date”). The Company may pay the interest in cash or at its sole discretion, in shares of its common stock or a combination of cash and common stock. However, the Company may only pay the interest in shares of its common stock if (i) all the equity conditions specified in the note (“Equity Conditions”) have been met (unless waived by the Holder in writing) during the 20 trading days immediately prior to the interest payment date (“Interest Notice Period”), (ii) the Company has provided proper notice pursuant to the terms of the note and (iii) the Company has delivered to the Holder’s account certain number of shares of its common stock to be applied against such interest payment prior to (but no more than five trading days before) the Interest Notice Period.
The Series A-1 Note is convertible into shares of the Company’s common stock (“Conversion Shares”) at an initial conversion price of $1.93 per share, subject to adjustment for any stock dividends and splits, rights offerings, distributions, combinations or similar transactions. Upon the closing of the Acquisition, the conversion price will be automatically adjusted to equal the arithmetic average of the volume weighted average price (“VWAP”) of the Company’s common stock in the five trading days prior to the closing date of the Acquisition. The Holder may convert the Series A-1 Note at any time, in whole or in part, provided that upon receipt of a notice of conversion from the Holder, the Company has the right to repay all or any portion of the Series A-1 Note included in the notice of conversion.
Additionally, the Series A-1 Note will automatically convert into shares of the Company’s common stock on the earlier of the Maturity Date or the closing date of the Acquisition provided that (i) no event of default then exists, and (ii) solely if such automatic conversion date is also the Maturity Date, each of the Equity Conditions have been met (unless waived in writing by the Holder) on each trading day during the 20 trading day period ending on the trading day immediately prior to the automatic conversation date.
At any time prior to the Maturity Date, the Company may also elect to redeem some or all of the outstanding principal amount for cash in an amount (the “Optional Redemption Amount”) equal to the sum of (a) 100% of the then outstanding principal amount of the note, (b) accrued but unpaid interest and (c) all liquidated damages and other amounts due in respect of the note (the “Optional Redemption”). The Company may only effect an Optional Redemption if each of the Equity Conditions have been met (unless waived in writing by the Holder) on each trading day during the period commencing on the date when the notice of the Optional Redemption is delivered to the date of the Optil Redemption and through and including the date payment of the Optional Redemption Amount is actually made in full.
Except as otherwise provided in the Series A-1 Note, including, without limitation, an Option Redemption, the Company may not prepay any portion of the principal amount of the note without the prior written consent of the Holder.
The Company is not permitted to convert any portion of the Series A-1 Note if doing so results in the Holder beneficially owning more than 4.99% of the outstanding common stock of the Company after giving effect to such conversion, provided that on 61 days’ prior written notice from the Holder to the Company, that percentage may increase to 9.99%. However, if there is an automatic conversion, and the conversion would result in the Company issuing a number of shares in excess of the beneficial ownership limitation, then any such shares in excess of the beneficial ownership limitation will be held in abeyance for the benefit of the Holder until such time or times, if ever, as its right thereto would not result in the Holder exceeding the beneficial ownership limitation, at which time or times the Holder will be issued such shares to the same extent as if there had been no such limitation.
The Series A-1 Note contains restrictive covenants which, among other things, restrict the Company’s ability to repay or repurchase any indebtedness, make distributions on or repurchase its common stock or enter into transactions with its affiliates.
The Series A-2 Note has terms substantially similar to those of the Series A-1 Note except that the Series A-2 Note has a maturity date of June 20, 2020 and an initial conversion price of $1.93 which will be automatically adjusted to the lower of (i) the conversion price then in effect and (ii) the greater of the arithmetic average of the VWAP of the Company’s common stock in the five trading days prior to the notice of conversion and $0.50.
As of December 31, 2018, upon the closing of the Acquisition, the Series A-1 Note automatically converted into 193,648 shares of the Company’s common stock.
Amendments to Forward Purchase Agreements and Warrants
On December 20, 2018, the Company, Polar, K2 and the Escrow Agent, entered into an Amendment (the “Amendment”), pursuant to which, among other things, the stock purchase agreements with Polar and K2 were amended to (x) reduce the purchase price per share payable by the Company at the closing of the Stock Sales from $11.23 per share to (1) first $6.00 per share up to 20% of the original number of Shares (as defined in the respective Purchase Agreement), (2) then $5.00 per remaining share up to 20% of the original number of Shares, (3) then $4.00 per remaining share up to 20% of the original number of Shares, (4) then $3.00 per remaining Share up to 20% of the original number of Shares, and (5) then $2.00 per remaining Share up to 20% of the original number of Shares, (y) to extend the outside date of the closing of the Stock Sales until January 18, 2019, and (z) to authorize the issuance of $3,542,700 and $1,590,600 from the Escrow Account to Polar and K2, respectively, as partial payment for the Shares prior to the final closing of the Stock Sales.
In addition, pursuant to the terms of the Amendment, the Company agreed to amend its outstanding Public Warrants and Private Placement Warrants (1) to reduce the exercise price of the warrants from $11.50 per share to $4.00 per share, subject to adjustment (the “Exercise Price Adjustment”) and (2) to revise the redemption provisions of the warrants to provide that the Company may only redeem each warrant in whole at a price of $0.1 per warrant upon a minimum of 30 days’ written notice of redemption if, and only if, the last sale price of the Company’s common stock equals or exceeds $7.00 per share (as opposed to the current $21.00 per share) for any 20 trading days within a 30-trading day period (the “Redemption Threshold Adjustment”); provided, however, that the Exercise Price Adjustment and the Redemption Threshold Adjustment shall only be effective upon the approval of the requisite number of warrant holders, as required by law.
Acquisition of Simplicity Esports, LLC
On January 4, 2019, the Simplicity Owners received an aggregate of 300,000 shares of common stock at the closing of the Acquisition and an additional aggregate of 700,000 shares of common stock on January 7, 2019. The Simplicity Owners are entitled to receive an additional 2,000,000 shares upon the Company’s receipt of the approval of its stockholders to such issuance. This provision was removed as the stockholder approval was only necessary due to the Company’s stock being listed on NASDAQ. Upon completion of the Simplicity Esports LLC acquisition, the Company decided that moving off the NASDAQ was appropriate and, the 2,000,000 shares are included on the balance sheet as common stock issuable to Simplicity Owners at February 28, 2019.
In connection with the acquisition of Simplicity Esports LLC, on January 2, 2019, the Company filed a Certificate of Amendment to the Company’s Third Amended and Restated Certificate of Incorporation (the “Certificate Amendment”) with the Delaware Secretary of State to change the Company’s name from “Smaaash Entertainment, Inc.” to “Simplicity Esports and Gaming Company”. In addition, the Company changed the ticker symbols of its common stock and public warrants to “WINR” and “WINRW,” respectively, and commenced trading of its common stock and public warrants under such new ticker symbols on the OTCQB on January 10, 2019.
Nasdaq Delisting
On December 10, 2018, the Company received a written notice (the “Notice”) from the Listing Qualifications Division of The Nasdaq Stock Market LLC (“Nasdaq”) indicating that the Company has not complied with the requirements of IM-5101-2 of the listing rules of Nasdaq (the “Listing Rules”).
The Notice stated that after its Business Combination, the Company had not demonstrated that its common stock met Listing Rule 5505(b)(1) that requires a market value of publicly held shares of at least $15 million. Additionally, the Company has not provided evidence that its common stock has at least 300 round lot holders as required by Listing Rule 5505(a)(3) and that its warrant has at least 400 round lot holders as required by Listing Rule 5515(a)(4). Finally, the Company does not comply with Listing Rule 5515(a)(2) which requires that for initial listing of a warrant the underlying security must be listed on Nasdaq.
On January 7, 2019, the Company received a second written notice from Nasdaq informing it that the Company failed to comply with Listing Rule 5250(e)(2) which requires companies listed on Nasdaq to timely file notification forms for the Listing of Additional Shares (the “LAS Notification”).
The Company was required to submit the LAS Notification 15 days prior to the issuance of the securities, however, the Company filed the LAS Notification for the issuance of the Series A-1 Note and Series A-2 Note and for the share exchange under our Share Exchange Agreement after such 15-day periods. Nasdaq notified the Company that each of these matters serves as an additional and separate basis for delisting the Company’s securities and that the review panel will consider these matters in rendering a determination regarding the Company’s continued listing on Nasdaq.
Management of Simplicity Esports and Gamily Company has decided that moving from The Nasdaq Stock Market (“Nasdaq”) to the OTCQB is more appropriate for the Company at this time, while the Company builds out its planned network of retail esport centers.
On April 1, 2019, the Company was notified by Nasdaq that it would delist the Company’s common stock and public warrants. The Company’s common stock and public warrants were previously suspended from trading on Nasdaq, effective January 25, 2019.
On April 2, 2019, Nasdaq filed a Notification of Removal from Listing and/or Registration under Section 12(b) of the Securities and Exchange Act of 1934 on Form 25 with the Securities and Exchange Commission relating to the Company’s common stock and public warrants. As a result, the Company’s common stock and public warrants were delisted from Nasdaq effective April 2, 2019.
The Company’s common stock and public warrants currently have been quoted on the OTCQB under the symbols “WINR” and “WINRW,” respectively.
Recent Developments
Private Unit Offering
In2019, the Company sold an aggregate of 987,500 units (the “Units”) at a purchase price of $2.00 per Unit to 12 accredited investors in exchange for receipt of $1,975,000. Each unit consists of (i) one share of common stock, and (ii) a 5-year warrant to purchase one share of common stock at a purchase price of $4.00.
Settlement Agreement
In March 2019, the Company entered into a settlement agreement with its prior attorney. As of July 12, 2019, the Company owed this attorney approximately $725,000. The settlement agreement called for $200,000 to be paid upon signing the settlement agreement and then another approximate $525,000 to be paid over time.
Restricted Stock Award
On March 27, 2019, pursuant to a Restricted Stock Award, we granted Jed Kaplan, our Chief Executive Officer and interim Chief Financial Officer and a member of our board of directors, 120,000 shares of our restricted Common Stock.Such shares vest over a nine month period. As of July 12, 2019, 50,000 of such shares have vested.
On March 27, 2019, pursuant to a Restricted Stock Award, we granted Roman Franklin, our President and a member of our board of directors, 36,000 shares of our restricted Common Stock. Such shares vest over a nine month period. As of July 12, 2019, 15,000 of such shares have vested.
On March 27, 2019, pursuant to a Restricted Stock Award, we granted Steve Grossman, President of Simplicity Esports, LLC, a wholly owned subsidiary of our company, 24,000 shares of our restricted Common Stock.Such shares vest over a nine month period. As of July 12, 2019, 10,000 of such shares have vested.
Each of the Restricted Stock Awards was entered into in connection with entry into employment agreements with each of Messrs. Kaplan, Franklin and Grossman on December 31, 2018.
Debt Conversion
On May 31, 2019, we issued 100,000 shares of Common Stock to affiliates of Polar in exchange for Polar’s forgiveness of $143,476 owed by us to Polar under that that certain Stock Purchase Agreement, dated as of November 2, 2018, between Polar and us.
Special Public Warrant Holder Meeting
On June 5, 2019, we filed a preliminary proxy statement with the SEC in connection with a planned special meeting of public warrant holders to authorize our board of directors to seek public warrant holder approval of the following amendments to the publicly and privately issued warrants under the Warrant Agreement: (1) reducing the exercise price of the warrants from $11.50 per share to $4.00 per share, subject to adjustment (the “Exercise Price Adjustment”) and (2) revising the redemption provisions of the warrants to provide that we may only redeem each warrant in whole at a price of $0.1 per warrant upon a minimum of 30 days’ written notice of redemption if, and only if, the last sale price of our common stock equals or exceeds $7.00 per share (as opposed to the current $21.00 per share) for any 20 trading days within a 30-trading day period (the “Redemption Threshold Adjustment”).
Overview of Smaaash Entertainment Private Limited
Smaaash Private operates 40 state-of-the-art games and entertainment centers (“Smaaash Centers”), including 39 Smaaash Centers in India and one international Smaaash 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 Private’s core concept is to offer an interactive, immersive and fun experience to customers at its Smaaash Centers, blending Augmented Reality (“AR”) and Virtual Reality (“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 corporate customers, families, friends and children. Smaaash Private’s game concepts are supported by its in-house technology, value engineering and systems integration capabilities.
Smaaash Private’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 Centers and doing away with the requirement for families to make alternative childcare arrangements for the duration of their visits to Smaaash Centers; and indoor game viewing areas. |
Smaaash Private’s game offerings are complemented by its in-house food & beverage services.
Smaaash Private launched its flagship Smaaash Center in November 2012, at Kamala Mills in Lower Parel, Mumbai, with a proprietary cricket game (obtained by Smaaash Private 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 Private 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 the Smaaash Centers. Among other marketing initiatives, from time to time, Smaaash Private 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 Private launched its first international Smaaash Center in December 2016, at the Mall of America in Minnesota, USA. Its star attraction in its U.S. Smaaash Center is a multi-level go-karting track and games developed and launched specifically for this Smaaash 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 Private acquired PVR bluO and SVM’s bowling and gaming assets to expand its footprint across India. The acquisitions added 20 Smaaash Centers to Smaaash Private’s portfolio.
Following the January 2019 acquisition of Simplicity Esports LLC, we determined to shift our current primary focus to the Simplicity Esports LLC business. Accordingly, we do not anticipate generating any material revenues from Smaaash in 2019. The Master Franchise Agreement, as amended, and the Master Distribution Agreement shall be laws of the State of New Yorkcontinue in full force and New York State Supreme Court, County of New Yorkeffect, however, and we may now or in the United States District Courtfuture pursue Smaaash business opportunities.
Employees
As of July 12, 2019, we had three full-time employees and no part-time employees. None of our employees is represented by a union. We consider our relations with our employees to be good.
Legal Proceedings
From time to time, we are involved in various claims and legal actions arising in the ordinary course of business. To the knowledge of our management, there are no legal proceedings currently pending against us which we believe would have a material effect on our business, financial position or results of operations and, to the best of our knowledge, there are no such legal proceedings contemplated or threatened.
Properties
We lease approximately 250 rentable square feet of office space from an unaffiliated third party for the Southern District of New York shall have exclusive jurisdiction with respect to matters arising outour corporate office located at 7000 W. Palmetto Park Road, Suite 507, Boca Raton, Florida 33433. This lease expires on June 1, 2022. Terms of the Master Distribution Agreement.office lease provide for a base rent payment of $800 per month. We also lease approximately 1,200 rentable square feet of retail space from an unaffiliated third party for our Boca Raton Esports Gaming Center. This lease expires in 2024. Terms of the office lease provide for a base rent payment of $2,200 per month and a share of the buildings operating expenses such as taxes and maintenance of $760 per month. We believe that these facilities are adequate for our current and near-term future needs.
Plan of OperationsMANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
UnderReferences in this prospectus to “we,” “us” or the “Company” refer to Simplicity Esports and Gaming Company, formerly known as Smaaash Entertainment Inc. and prior to that as I-AM Capital Acquisition Company. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this prospectus.
Overview
We are a North American esports organization. We have implemented a unique approach to ensure the ultimate fan friendly experience. Our intention is to have gamer’s involved at the grassroots level and feel a sense of unity as we compete with top class talent. Utilizing the vast resources from within the ownership group, we have already established an impressive management team and roster. Our management and players are well known influencers within the esports community and we plan to use their skill to create a seamless content creation pan to help gamers feel closer to our brand that any other in the scene. Our organization intends to take the opportunity to create a platform that will help grow the sports for generations of gamers.
For the fiscal year ended May 31, 2018 and the period from April 17, 2017 (date of inception) to May 31, 2017, we did not generate any revenues and reported net losses of $8,862 and $672, respectively, and negative cash flow from operating activities of $470,153 and $672, respectively. For the nine months ended February 28, 2019, we generated revenues of $14,070 and reported a net loss of $3,095,960, and negative cash flow from operating activities of $823,847. As noted in our consolidated financial statements, we had an accumulated deficit of approximately $3,105,494. We anticipate that we will continue to report losses and negative cash flow. Our auditors have raised substantial doubt regarding our ability to continue as a going concern as a result of our historical recurring losses and negative cash flows from operations as well as our dependence on private equity and financings. See “Risk Factors” - We have a history of operating losses and our auditors have indicated that there is a substantial doubt about our ability to continue as a going concern.”
Consummation of Transactions with Smaaash Entertainment Private Limited
On November 20, 2018 (the “Closing Date”), the Company and Smaaash Entertainment Private Limited, a private limited company incorporated under the laws of India, consummated the transactions (the “Transactions” or the “Business Combination”) contemplated by the share subscription agreement (as amended, the “Subscription Agreement”), following the approval at the special meeting of the stockholders of the Company held on November 9, 2018 (the “Special Meeting”).
Pursuant to the Subscription Agreement, the purchase price of $150,000 was paid by the Company to Smaaash Private in exchange for 294,360 newly issued equity shares of Smaaash Private at the closing of the Transactions (the “Closing”).
In addition, AHA Holdings Private Limited (“AHA Holdings”) and Shripal Morakhia (together with AHA Holdings, the “Smaaash Founders”) agreed that within six months following the Closing Date, they would transfer all of their ownership interest in Smaaash Private (representing 33.6% of the share capital of Smaaash Private on a fully diluted basis as of June 22, 2018) (the “Additional Smaaash Shares”) to the Company in exchange for newly issued shares of our Common Stock (the “Transferred Company Shares”) in an amount which would enable the Smaaash Founders to retain their 33.6% ownership interest in Smaaash Private indirectly through their interest in the Company.
At the Closing, the Company issued an aggregate of 2,000,000 shares of its common stock to the Smaaash Founders as an upfront portion of the Transferred Company Shares (the “Upfront Company Shares”). In connection with the issuance of the Upfront Company Shares, the Company and the Smaaash Founders entered into an escrow agreement pursuant to which the Upfront Company Shares would be held in escrow and will be either, (i) if the Additional Smaaash Shares are not transferred in full to the Company within the designated six-month period, cancelled, or (ii) if the Additional Smaaash Shares are transferred in full to the Company within the designated six-month period, released from escrow and the number of Upfront Company Shares will be deducted from the Transferred Company Shares that will be issued to the Smaaash Founders upon the delivery of the Additional Smaaash Shares.
On November 16, 2018, Smaaash Private and the Smaaash Founders executed a letter of undertaking, pursuant to which they agreed to transfer 4,000,000 additional equity shares of Smaaash Private to the Company in consideration for 200,000 shares of our Common Stock, simultaneously with the issuance of the 300,000 equity shares of Smaaash Private to the Company on or prior to November 30, 2018, as permitted by the laws of India. Such additional shares of Smaaash Private have not yet been delivered to the Company.
In connection with the Closing, the Company changed its name from I-AM Capital Acquisition Company to Smaaash Entertainment Inc., changed its stock symbols for its Common Stock, Public Rights, and Public Warrants to “IAM,” “IAMXR” and “IAMXW,” respectively, and entered into a master franchise agreement (“Master Franchise Agreement”) and a master license and distribution agreement (“Master Distribution Agreement”) with Smaaash Private. Prior to the Closing, the Company 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 Private and the rights granted 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.Agreement.
Smaaash Centers
I-AM Capital will work with SmaaashPursuant 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’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 areescrow agreement, the resultUpfront Company Shares have been cancelled because the Additional Smaaash Shares were not transferred in full to the Company in the designated six-month period.
Following the January 2019 acquisition of negotiations betweenSimplicity Esports LLC described below, we determined to shift our current primary focus to the representativesSimplicity Esports LLC business. Accordingly, we do not anticipate generating any material revenues from Smaaash in 2019. The Master Franchise Agreement, as amended, and the Master Distribution Agreement continue in full force and effect, however, and we may now or in the future pursue Smaaash Private business opportunities.
Acquisition of I-AM CapitalSimplicity Esports, LLC
On January 4, 2019, the Company consummated the transactions contemplated by that certain share exchange agreement, dated December 21, 2018 (as amended by Amendment No. 1 to Share Exchange Agreement, dated December 28, 2018 and Smaaash. The following isby Amendment No. 2 to Share Exchange Agreement, dated December 30, 2018, the “Share Exchange Agreement”) by and among the Company, Simplicity Esports, LLC, a brief descriptionFlorida limited liability company (“Simplicity Esports LLC”), each of the backgroundequity holders of these negotiationsSimplicity Esports LLC (“Simplicity Owners”) and Jed Kaplan, in the resulting Transaction.
I-AM Capital is a blank check company organized undercapacity as the lawsrepresentative 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 stockSimplicity Owners (the “Representative”). Pursuant to the SponsorShare Exchange Agreement the Simplicity Owners transferred all the issued and outstanding equity interests of Simplicity Esports LLC to the Company 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 thenewly issued shares of common stock includedof the Company (the “Acquisition”).
Background of Simplicity Esports, LLC
Founded in 2017, Simplicity Esports LLC is committed to growing and enhancing the Esports industry, fostering the development of amateurs to compete professionally, and partnering with established professional gamers to support their paths to greater success. Esports (also known as electronic sports, e-sports, or eSports) is a form of competition using video games. Most commonly, esports takes the form of organized, multiplayer video game competitions, particularly between professional players, individually or as teams. Our continued accomplishments in various games is a driving force behind the growth of our fan base including viewership of our content.
As of January 4, 2019, upon the completion of the acquisition of Simplicity Esports LLC, the business of Simplicity Esports LLC has now become the primary business of the Company. Simplicity Esports LLC is an established brand in the unitsEsports industry with an engaged fan base competing in popular games across different genres, including Apex Legends, PUBG, Gears of War, SMITE, and holdersNHL 19. The Simplicity Esports LLC stream team encompasses over 50 casters, influencers and personalities who connect to a dedicated fan base. Simplicity Esports LLC’s notoriety in the industry is evidenced by its audience that views millions of founder sharesminutes of Simplicity Esports LLC content monthly, via various social media outlets including YouTube, Twitter and Twitch.
The acquisition of Simplicity Esports LLC creates a pure play esports team and entertainment platform opportunity, which we believe will increase shareholder value and boost our growth strategy as we endeavor the build out of our brick and mortar esports centers. Through Simplicity Esports LLC, the Company has begun to implement a unique approach to ensure the ultimate fan friendly esports experience. Our intention is to have gamers involved at the same stockholder rightsgrassroots level and feel a sense of unity as we compete with top class talent. Our management and players are known within the esports community and we plan to use their skills to create a seamless content creation plan helping gamers feel closer to our brand than any other in the industry. Simplicity Esports LLC also plans to open and operate corporate-owned retail esports gaming centers (“Simplicity Esports Gaming Centers”) as well as to franchise Simplicity Esports Gaming Centers that will provide the public stockholders, except that (i)an opportunity to experience and enjoy gaming and Esports in a social setting, regardless of skill or experience.
Results of Operations
Our only activities from April 17, 2017 (date of inception) through November 20, 2018 were organizational activities, those necessary to prepare for the founder sharesIPO, which was consummated on August 22, 2017, and identifying a target company for a business combination. Following the IPO through and after our business combination, we had not generated any operating revenues.
Following the acquisition of Simplicity Esports and Gaming, LLC, the Company began generating revenue and incurring additional expenses.
Summary of Statement of Operations for the Three Months Ended February 28, 2019 and 2018:
Other Income
We have generated $164 of non-operating income in the form of interest income for the three months ended February 28, 2019 as compared to $158,712 for the three months ended February 28, 2018. The change is attributable to the decrease in the cash held in trust account.
For the three months ended February 28, 2019, the Company had debt forgiveness income of $300,000 due to the exchange notes with Maxim. The original Maxim promissory note was $1,800,000 and this was exchanged for two convertible notes totaling $1,500,000. Also, in December 2018, one of the convertible notes was converted into 193,648 shares of common stock underlyingstock.
Revenue
The Company’s revenue for the private units are subject to certain transfer restrictions, and (ii)three months ended February 28, 2019 was $14,070, a 100% increase over the Sponsor has entered into a letter agreement, pursuant to which it has agreed (A) to waive its redemption rights with respectFebruary 28, 2018 revenue of $-0-. This increase is due to the founder shares,acquisition of Simplicity Esports, LLC.
General and Administrative Expenses
General and administrative expenses for the three months ended February 28, 2019 was $430,011 as compared to $114,465 for the three months ended February 28, 2018 and increase of $315,546 or approximately 276%. The change is primarily attributable to the acquisition of Simplicity Esports, LLC. The selling, general and administrative expenses of this new acquisition consist primarily of payroll and related costs, stock based compensation and professional services.
Net Loss
Net loss for the three months ended February 28, 2019 was $115,776, as compared to net income of $29,203, for the three months ended February 28, 2018.
Summary of Statement of Operations for the Nine Months Ended February 28, 2019 and 2018:
Other Income
We have generated $401,582 of non-operating income in the form of interest income for the nine months ended February 28, 2019 as compared to $312,000 for the three months ended February 28, 2018.
For the nine months ended February 28, 2019, the Company had debt forgiveness income of $300,000 due to the exchange notes with Maxim. The original Maxim promissory note was $1,800,000 and this was exchanged for two convertible notes totaling $1,500,000. Also, in December of 2018 one of the convertible notes was converted into 193,648 shares of common stock underlyingstock.
Revenue
The Company’s revenue for the private units andnine months ended February 28, 2019 was $14,070, a 100% increase over the public units in connection with the completionFebruary 28, 2018 revenue of a business combination and (B) to waive its rights to liquidating distributions from the trust account with respect$-0-. This increase is due to the founder shares and the sharesacquisition 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).Simplicity Esports, LLC.
On August 22, 2017, I-AM Capital sold 5,000,000 public units at a purchase priceGeneral and Administrative Expenses
General and administrative expenses for the nine months ended February 28, 2019 was $3,811,613 as compared to $305,690 for the nine months ended February 28, 2018 and increase of $10.00 per public unit in its initial public offering, generating gross proceeds$3,505,923. The change is primarily attributable to two events, first the acquisition of $50.0 million. I-AM Capital incurred offeringSimplicity Esports, LLC. The selling, general and administrative expenses of this new acquisition consist primarily of payroll and related 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,based compensation 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. No fractional shares will be issued as a result ofprofessional services. Second the issuance of shares for rights,services in November of 2018.
Net Loss
Net loss for the nine months ended February 28, 2019 was $3,095,960, as compared to net income of $4,165, for the nine months ended February 28, 2018.
Summary of Statement of Operations for the Period from April 17, 2017 (date of inception) through May 31, 2018:
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 Transactions. Following the IPO through May 31, 2018 (after our business combination on August 22, 2017), we had not generated any rightoperating revenues.
Other Income
We 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 fractional share (after aggregating all rightsresult of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses.
Net Loss
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 by such holder) will be rounded up toin the nearest whole share. 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. trust account.
Liquidity and Capital Resources
The warrants will become exercisable on the later of (i) 30 days after the completion of the initial business combinationIPO and (ii) 12 months from the closingsimultaneous Private Placement, inclusive of the initial public offering, and will expire five years after the completionunderwriters’ exercise of the initial business combination or earlier upon redemption or liquidation. There will be no redemption rights or liquidating distributions with respecttheir over-allotment option, generated gross proceeds to the warrantsCompany 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 was held in the Trust Account) and rights, which will expire worthless if I-AM Capital fails to complete it business combination within$478,000 of Initial Public Offering costs.
Following the above specified period. The Company grantedIPO and 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 uponunderwriter’s partial exercise of the over-allotment.over-allotment option, a total of $52,780,000 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.
ConcurrentlyOn November 20, 2018, in connection with the closing of the initial public offering,Transactions, 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 includedfunds 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 networksAccount were used 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") 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 meetamong 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"). 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 United States as well as lack of profitability which could hinder growth without sufficient capital. 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 indicated that they were not open to a premium valuation, as U.S. investors expected an upside. Accordingly, Yes Securities recommended keeping the valuation 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. The founder of Smaaash indicated Smaaash had raised a substantial amount of capital from credible institutional and high net worth investors in the most recent round of financing, and he would not be able to offer a valuation lower 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 Messrs. 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 corporate governance was of paramount importance to U.S. investors, and asked for at least two Board seats 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 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 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:
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, includingthings, the following:
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In considering the Transaction, I-AM Capital’s boardAs of directors concluded that Smaaash substantially satisfied the above criteria.
Certain Benefits of I-AM Capital’s DirectorsFebruary 28, 2019, we had no cash and Officers and Othersmarketable securities held 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:
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.Trust Account.
As of February 28, 2019, we had cash of $1,245,666 held outside the Trust Account, which is available for use by us to cover the costs associated with due diligence procedures and other general corporate purposes. In addition, as of February 28, 2019, we had accrued expenses of $871,315.
For the nine months ended February 28, 2019, cash used in operating activities amounted to $823,847, mainly resulting from net loss of $3,095,960, offset by stock issued for services of $2,169,143. Changes in our operating liabilities and assets generated cash of $654,552.
For the period from April 17, 2017 (date of inception) through 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 will need to raise additional funds in order to meet the expenditures required for operating our business.
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.
Going Concern
The Company’s consolidated financial statements have been prepared assuming that it will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.
As reflected in the consolidated financial statements, the Company has an accumulated deficit at February 28, 2019, a net loss and net cash used in operating activities for the reporting period then ended. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
The Company is attempting to commence operations and generate sufficient revenue; however, the Company’s cash position may not be sufficient to support the Company’s daily operations. Management intends to raise additional funds by way of a private or public offering. While the Company believes in the viability of its strategy to commence operations and generate sufficient revenue and in its ability to raise additional funds, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to further implement its business plan and generate sufficient revenue and its ability to raise additional funds by way of a public or private offering.
The consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Contractual obligations
We do not have any long-term capital lease obligations, operating lease obligations or long-term liabilities, except as follows:
On November 20, 2018, the Company entered into a settlement and release agreement with Maxim Group, LLC, the underwriter for the IPO. Pursuant to the Settlement Agreement, the Company made a cash payment of $20,000 to Maxim and issued a demand secured promissory note in favor of Maxim in the amount of $1.8 million to settle the payment obligations of the Company under the underwriting agreement dated August 16, 2017, by and between the Company and Maxim. The Company also agreed to remove the restrictive legends on an aggregate of 52,000 shares of its common stock held by Maxim and its affiliate.
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 this proxy statement/prospectus, no agreements with respect to the private purchase of public shares by I-AM Capital orfinancial statements, and income and expenses during 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.periods reported. Actual results could materially differ from those estimates.
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 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 RightsRevenue Recognition “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 January 1, 2018, the record date, our Sponsor has agreedCompany adopted Revenue from Contracts with Customers (Topic 606) (“ASC 606”). The new guidance sets forth a new five-step revenue recognition model which replaces the prior revenue recognition guidance in its entirety and is intended to vote its founder shares and any public shares purchased during or after the initial public offeringeliminate numerous industry-specific pieces of revenue recognition guidance that have historically existed in favorU.S. GAAP. The underlying principle of the Business Combination Proposalnew standard is that a business or other organization will recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects what it expects to receive in exchange for the goods or services. The standard also requires more detailed disclosures and our executive officersprovides additional guidance for transactions that were not addressed completely in the prior accounting guidance. The Company adopted the standard using the modified retrospective method and directorsthe adoption did not have also agreeda material impact on its financial statements.
The Company recognizes revenue when performance obligations under the terms of a contract with the customer are satisfied. Product sales occur once control is transferred upon delivery to vote any public shares purchased during or after the initial public offeringcustomer. Revenue is measured as the amount of consideration the Company expects to receive in favorexchange for transferring goods and services. Our revenue is derived from two sources, the first is from the sale of the Business Combination Proposal.rights to our players to third parties and second from participation and prize money awarded at gaming tournaments.
RecommendationGoodwill
Goodwill is the excess of our purchase cost over the fair value of the Boardnet assets of acquired businesses. We do not amortize goodwill, but we assess our goodwill for impairment at least annually. Our assessment date was January 31, 2019 and qualitative considerations indicated no impairment.
I-AM CAPITAL’S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT OURSTOCKHOLDERS 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.MANAGEMENT
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
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:
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 asregarding 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/prospectus.
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 July 23, 2018, the audit committee of the board of directors appointed the firm of Prager 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 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/prospectus.
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.
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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/prospectus titled “Risk Factors.”
The following table sets forth the unaudited pro forma balance sheet of I-AM Capital as of May 31, 2018, giving effect to the proposed Transaction as if it had occurred on May 31, 2018.
I-AM CAPITAL ACQUSITION COMPANYPRO FORMABALANCE SHEET
(Unaudited)
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:
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 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:
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:
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’ 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’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. No fractional shares will be issued as a result of the issuance of shares for rights, and any right to a fractional share (after aggregating all rights held by such holder) will be rounded up to the nearest whole share. 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’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).
On August 21, 2018, I-AM Capital deposited an aggregate of $303,610, representing $0.058 per public share, into its trust account, in order to extend the period of time I-AM Capital has to complete its initial business combination for an additional three month period from August 21, 2018 to November 21, 2018.
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/prospectus 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 at the end of the day 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 November 21, 2018 (or May 21, 2019, if we further 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:
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:officers:
Name | Age | Position | ||
Chief Executive Officer, interim Chief Financial Officer, and Class II Director | ||||
Donald R. Caldwell | 71 | Chairman and Class I Director of the Company | ||
Roman Franklin | President and Class I Director of the Company | |||
Steven Grossman | 45 | President of Simplicity Esports, LLC | ||
F. Jacob Cherian | 54 | Class | ||
Suhel Kanuga | 43 | Class II Director of the Company | ||
Max Hooper | 71 | Class II Director of the Company | ||
Frank Leavy | 65 | Class I Director of the Company | ||
Edward Leonard Jaroski | 71 | Class I Director of the Company | ||
William H. Herrmann, Jr. | 72 | Class II Director of the Company |
F. Jacob Cherian,Jed Kaplan has served as our Chief Executive Officer and, has been a member of our board of directors since inception.December 31, 2018 and our sole Chief Executive Officer and interim Chief Financial Officer since February 8, 2019. From December 31, 2018 to February 8, 2019, Mr. Kaplan served as our co-Chief Executive Officer.He has served as the Chief Executive Officer of Shearson Financial Services, a FINRA registered broker dealer, since May 1995. Mr. Kaplan has extensive sports management experience with various professional sports organizations. Mr. Kaplan graduated from City University of New York in 1989 with a Bachelor of Business Administration degree.
The Company believes Mr. Kaplan’s strong expertise in the financial services and sports management industries qualifies him to serve on its board of directors.
F. Jacob Cherian, has been a member of our board of directors since April 17, 2017 (date of inception). From December 31, 2018 to February 8, 2019, Mr. Cherian served as our co-Chief Executive Officer. From April 17, 2017 to December 31, 2018, Mr. Cherian served as our sole Chief Executive Officer. He is also one of the managing members of our SponsorSponsor. 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.April 17, 2017 (date of inception). From April 17, 2017 to February 8, 2019, Mr. Kanuga served as our Chief Financial Officer and Secretary. He 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 directora member of our board of directors since August 16, 2017.2017 and our President since December 31, 2018. 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.
Steven Grossman,has served as the President of our wholly-owned subsidiary Simplicity Esports, LLC since January 2018. Mr. Grossman has been employed by Shearson Financial Services, a FINRA registered broker dealer, since February 2001 and has served as its President since January 2010. Mr. Grossman graduated from Towson University in 1995 with a Bachelor of Science degree.
Max Hooper, who has been an independent directormember of our board of directors 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 directormember of our board of directors 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 directormember of our board of directors 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 from1987. 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 directormember of our board of directors 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 itits 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.
Mr. Kaplan is Mr. Grossman’s brother-in-law, there are no other family relationships among any of the Company’s directors or executive officers.
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
Since we are currently quoted on the OTCQB tier of the OTC Markets Group, we are not required to comply with the corporate governance rules of a national exchange, such as the NYSE American (“NYSE”), or national quotation system, such as the NASDAQ listingCapital Market (the “NASDAQ”), and instead may comply with less stringent corporate governance standards of the OTCQB. The OTCQB does not require any of its members to establish any committees comprised of members of our board of directors, including an Audit Committee, a Compensation Committee or a Nominating Committee, any committee performing a similar function. Instead, the functions of those committees may be undertaken by the board of directors as a whole. Unlike the requirements of the NYSE or NASDAQ, the OTCQB does not require that a majority of our board members be independent and does not require that all or any portion of our board of directors be independent.include “independent” directors, nor are we currently required to establish or maintain an Audit Committee or other committee of our board of directors. Although we may comply with less stringent corporate governance standards while listed on the OTCQB, we have elected to voluntarily comply with the corporate governance rules of the NASDAQ in order to provide the same protections afforded to stockholders of companies that are subject to all of the corporate governance rules of the NASDAQ.
The NASDAQ standards relating to corporate governance, require, among other things, that:
● A majority of our board of directors to consist of “independent directors.” 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. present;
Executive Officer and Director Compensation
Prior to the Transaction, none● The compensation of our executive officers directorsto be determined, 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. Priorrecommended to the Transaction our Sponsor, executive officers andboard of directors for determination, by independent directors constituting a majority of the independent directors of the Board in a vote in which only independent directors participate or anyby a Compensation Committee comprised solely of their respective affiliates, were entitledindependent directors;
● Director nominees to be reimbursedselected, or recommended to the board of directors 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. Ourselection, by independent directors will review onconstituting a quarterly basis all payments that were made to our Sponsor, officers,majority of the independent directors of the Board in a vote in which only independent directors participate or their affiliates.by a nomination committee comprised solely of independent directors; and
After the completion● An audit committee with at least three independent directors as well as composed entirely of independent directors be established and maintained, where at least one of the Transaction,independent 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. qualifies as an audit committee financial expert under SEC rules and as a financially sophisticated audit committee member under the applicable Exchange rules.
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 FranklinLeavy 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 iswe are required to have three members of the audit committee, all of whom must be independent. Messrs. Caldwell, and RomanLeavy 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 FranklinJaroski and Dr. Hooper. Mr. Caldwell serves as chairman of the compensation committee. I-AM Capital hasWe have 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 EthicsRecent Developments
I-AM Capital has adoptedPrivate Unit Offering
In 2019, the Company sold an aggregate of 987,500 units (the “Units”) at a Codepurchase price of Ethics applicable$2.00 per Unit to our directors, officers12 accredited investors in exchange for receipt of $1,975,000. Each unit consists of (i) one share of common stock, and employees. I-AM Capital has previously filed(ii) a copy5-year warrant to purchase one share of our formcommon stock at a purchase price of Code$4.00.
Settlement Agreement
In March of Ethics as an exhibit2019, the Company entered into a settlement agreement with its prior attorney. As of July 12, 2019, the Company owes this attorney approximately $725,000. The settlement agreement called for $200,000 to our registration statement on Form S-1 (File 333-219251). You will be ablepaid upon signing the settlement agreement and then another approximate $725,000 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.”paid over time.
Restricted Stock Award
Section 16(a) Beneficial Ownership Reporting ComplianceOn March 27, 2019, pursuant to a Restricted Stock Award, we granted Jed Kaplan, our Chief Executive Officer and interim Chief Financial Officer and a member of our board of directors, 120,000 shares of our restricted Common Stock.Such shares vest over a nine month period. As of July 12, 2019, 50,000 of such shares have vested.
Section 16(a)On March 27, 2019, pursuant to a Restricted Stock Award, we granted Roman Franklin, our President and a member of our board of directors, 36,000 shares of our restricted Common Stock. Such shares vest over a nine month period. As of July 12, 2019, 15,000 of such shares have vested.
On March 27, 2019, pursuant to a Restricted Stock Award, we granted Steve Grossman, President of Simplicity Esports, LLC, a wholly owned subsidiary of our company, 24,000 shares of our restricted Common Stock.Such shares vest over a nine month period. As of July 12, 2019, 10,000 of such shares have vested.
Each of the Exchange Act, requiresRestricted Stock Awards was entered into in connection with entry into employment agreements with each of Messrs. Kaplan, Franklin and Grossman on December 31, 2018.
Debt Conversion
On May 31, 2019, we issued 100,000 shares of Common Stock to affiliates of Polar in exchange for Polar’s forgiveness of $143,476 owed by us to Polar under that that certain Stock Purchase Agreement, dated as of November 2, 2018, between Polar and us.
Special Public Warrant Holder Meeting
On June 5, 2019, we filed a preliminary proxy statement with the SEC in connection with a planned special meeting of public warrant holders to authorize our officers,board of directors to seek public warrant holder approval of the following amendments to the publicly and persons who beneficially own more than ten percentprivately issued warrants under the Warrant Agreement: (1) reducing the exercise price of the warrants from $11.50 per share to $4.00 per share, subject to adjustment (the “Exercise Price Adjustment”) and (2) revising the redemption provisions of the warrants to provide that we may only redeem each warrant in whole at a price of $0.1 per warrant upon a minimum of 30 days’ written notice of redemption if, and only if, the last sale price 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 appointmentequals or exceeds $7.00 per share (as opposed to the board of directors. Based solely uponcurrent $21.00 per share) for any 20 trading days within 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.30-trading day period (the “Redemption Threshold Adjustment”).
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 DirectorsSummary Risk Factors
Our Restated Certificate provides that our officersbusiness is subject to numerous risks and directors will be indemnified by usuncertainties, including those in the section entitled “Risk Factors” and elsewhere in this prospectus. These risks include, but are not limited 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:following:
● |
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.
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 | % |
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● | our ability to successfully execute our growth and acquisition strategy and manage effectively our growth; | |
● | our cash needs and the adequacy of our cash flows and earnings; | |
● | our ability to | |
● | our dependence upon our executive officers, founders and key employees; | |
● | our ability to attract and retain qualified personnel; | |
● | our reliance on our technology systems, the | |
● | changes in applicable laws or regulations; | |
● | our ability to protect our trademarks or other intellectual property rights; | |
● | potential litigation from competitors or customers; and | |
● | the possibility that we may be adversely affected by other economic, business, and/or competitive factors. |
In addition, our auditors have raised substantial doubt regarding our ability to continue as a going concern as a result of our historical recurring losses from operations and negative cash flows from operations as well as our dependence on private equity and financings in Note 2 of our unaudited consolidated financial statements for the nine-months ended February 28, 2019.
Corporate Information
Our principal executive offices are located at 7000 W. Palmetto Park Road, Suite 210, Boca Raton, Florida 33433, and our telephone number at that location is (855) 345-9467.
We are registering (i) the issuance by us of up to 6,449,000 shares of our Common Stock which may be issued upon the exercise of the Warrants, and (ii) the resale from time to time by the Selling Securityholders of 6,360,617 shares of Common Stock and 261,500 warrants (“Private Placement Warrants”) forming part of the Private Placement Units.“Warrants”means our redeemable warrants, which includes all of our warrants sold as part of the Public Units as well as the Private Placement Warrants and 2019 Warrants to the extent they are no longer held by the initial purchasers of the Private Placement Warrants, 2019 Warrants or their permitted transferees.
Common Stock and Warrants Held by Selling Securityholders
Securities Outstanding Prior to This Registration | 6,952,195 shares of |
Securities Outstanding After This Registration | 13,401,195shares of our Common Stock, which assumes the exercise of all Warrants. The number of outstanding shares of Common Stock that will be outstanding after this offering excludes 500,000 shares of Common Stock reserved and |
Common Stock Held by the Selling Securityholders | We are registering 6,360,617 shares of Common Stock held by the Selling Securityholders named herein. |
Private Placement Warrants offered by certain Selling Securityholders | We are registering 261,500 Private Placement Warrants to be offered from time to time by certain Selling Securityholders. Each Private Placement Warrant entitles the holder to purchase Common Stock at an exercise price of $11.50 per share of Common Stock, subject to adjustment as set forth in the warrant agreement between Continental Stock Transfer & Trust Company, as warrant agent, and us. |
Warrants Held by the Selling Securityholders | Each Public Warrant and Private Placement Warrant entitles the holder to purchase one share of our Common Stock at an exercise price of $11.50 per share. Each 2019 Warrant entitles the holder to purchase one share of our Common Stock at an exercise price of $4.00 per share. Each Public Warrant and Private Placement Warrant may be exercised at any time commencing on December 20, 2018 until November 19, 2023, or earlier upon redemption or liquidation. The Private Placement Warrants may also be exercised on a cashless basis pursuant to the terms of such warrants. |
Terms of Offering | The Selling Securityholders will determine when and how they will dispose of the |
Use of | We will not receive any of the |
Trading Market and Ticker Symbol | The Company’s Common Stock and Public Warrants currently have been quoted on the OTCQB under the symbols “WINR” and “WINRW,” respectively. |
Issuance of Warrant Shares Underlying the Warrants
Warrant Shares to be Issued upon Exercise of Warrants | 6,449,000shares of Common Stock underlying the Warrants. |
Shares Outstanding Prior to Exercise of Warrants | 6,952,195shares of Common Stock as of July 12, 2019. |
Shares to be Outstanding Assuming Exercise of All Warrants | 13,401,195shares of Common Stock. |
Terms of Warrants | Each Public Warrant and Private Placement Warrant entitles the holder to purchase one share of our Common Stock at an exercise price of $11.50 per share. Each 2019 Warrant entitles the holder to purchase one share of our Common Stock at an exercise price of $4.00 per share. Each Public Warrant and Private Placement Warrant may be exercised at any time commencing on December 20, 2018 until November 19, 2023, or earlier upon redemption or liquidation. |
Use of Proceeds | We expect to receive approximately $66,757,250 in gross proceeds assuming the cash exercise of all of the (i) Public Warrants and Private Placement Warrants at an exercise price of $11.50 per share of Common Stock and (ii) 2019 Warrants at an exercise price of $4.00 per share of Common Stock. However, the Private Placement Warrants may be exercised on a cashless basis, in which case we would expect to receive $63,750,000 in gross proceeds from the cash exercise of the Public Warrants and 2019 Warrants. We intend to use any net proceeds from the cash exercise of the Warrants for working capital and general corporate purposes. |
Trading Market | Our Public Warrants are currently quoted on the OTCQB tier of the OTC Market Group, Inc. under the symbols “WINRW.” |
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table presents our selected historical consolidated financial data for the periods indicated. The selected historical consolidated financial data for the year ended May 31, 2018 and for the period from April 17, 2017 (inception) to May 31, 2017 and the balance sheet data as of May 31, 2018 and 2017 are derived from the audited financial statements. The selected historical financial data for the nine months ended February 28, 2019 and 2018 and the balance sheet data as of February 28, 2019 and 2018 are derived from our unaudited financial statements.
Historical results are included for illustrative and informational purposes only and are not necessarily indicative of results we expect in future periods, and results of interim periods are not necessarily indicative of results for the entire year.The data presented below should be read in conjunction with, and are qualified in their entirety by reference to, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the notes thereto included elsewhere in this prospectus.
Year Ended May 31, 2018 | For the period from April 17, 2017 (Inception) to May 31, 2017 | Nine Months Ended February 28, 2019 | Nine Months Ended February 28, 2018 | |||||||||||||
(unaudited) | ||||||||||||||||
Statement of Operations Data | ||||||||||||||||
Total revenues | $ | 0 | $ | 0 | $ | 14,070 | $ | 0 | ||||||||
Total operating expenses | 530,564 | 672 | 3,811,612 | 305,690 | ||||||||||||
Loss from operations | (530,564 | ) | (672 | ) | (3,797,542 | ) | (305,690 | ) | ||||||||
Total other income | 521,702 | 0 | 701,582 | 312,000 | ||||||||||||
Loss before provision for taxes | (8,862 | ) | (672 | ) | (3,095,960 | ) | 6,310 | ) | ||||||||
Income tax provisions | 0 | 0 | 0 | 2,145 | ||||||||||||
Net income (loss) | $ | (8,862 | ) | $ | (672 | ) | $ | (3,095,960 | ) | $ | 4,165 | |||||
Basic and diluted net loss per share | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.87 | ) | $ | 0.00 | |||||
Balance Sheet Data (at period end) | ||||||||||||||||
Cash and cash equivalents | $ | 458,062 | $ | 30,000 | $ | 1,245,666 | $ | 483,867 | ||||||||
Working capital (deficit) (1) | $ | 216,034 | $ | 24,328 | $ | (1,710,836 | ) | $ | 250,354 | |||||||
Total assets | $ | 53,356,883 | $ | 55,000 | $ | 7,367,438 | $ | 53,358,226 | ||||||||
Total liabilities | $ | 2,065,197 | $ | 30,672 | $ | 2,956,556 | $ | 2,053,513 | ||||||||
Commitments | $ | 46,291,685 | $ | 0 | $ | 0 | $ | 46,304,712 | ||||||||
Stockholders’ equity | $ | 5,550,098 | $ | 24,328 | $ | 4,410,882 | $ | 5,000,001 |
(1) Working capital (deficit) represents total current assets less total current liabilities.
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An investment in our securities carries a significant degree of risk. You should carefully consider the following risks, as well as the other information contained in this prospectus, including our historical financial statements and related notes included elsewhere in this prospectus, before you decide to purchase our securities. Any one of these risks and uncertainties has the potential to cause material adverse effects on our business, prospects, financial condition and operating results which could cause actual results to differ materially from any forward-looking statements expressed by us and a significant decrease in the value of our common shares and warrants. Refer to “Cautionary Statement Regarding Forward-Looking Statements”.
We may not be successful in preventing the material adverse effects that any of the following risks and uncertainties may cause. These potential risks and uncertainties may not be a complete list of the risks and uncertainties facing us. There may be additional risks and uncertainties that we are presently unaware of, or presently consider immaterial, that may become material in the future and have a material adverse effect on us. You could lose all or a significant portion of your investment due to any of these risks and uncertainties.
Risks Related to Our Business
We have a relatively limited operating history and limited revenues to date and thus are subject to risks of business development and you have no basis on which to evaluate our ability to achieve our business objective.
Because we have a relatively limited operating history and limited revenues to date, you should consider and evaluate our operating prospects in light of the risks and uncertainties frequently encountered by early-stage operating companies in rapidly evolving markets. These risks include:
● | that we may not develop our product and service offerings in a manner that enables us to be profitable and meet our customers’ requirements; | |
● | that our growth strategy may not be successful; and | |
● | that fluctuations in our operating results will be significant relative to our revenues. |
Our future growth will depend substantially on our 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.
We have a history of operating losses and our auditors have indicated that there is a substantial doubt about our ability to continue as a going concern.
To date, we have not been profitable and have incurred significant losses and cash flow deficits. For the fiscal year ended May 31, 2018 and the period from April 17, 2017 (inception) to May 31, 2017, we reported net losses of $8,862 and $672, respectively, and negative cash flow from operating activities of $470,153 and $672, respectively. For the nine months ended February 28, 2019 and 2018, we reported a net loss of $3,095,960 and net income of $4,165, respectively, and negative cash flow from operating activities of $823,847 and $38,299, respectively. As of February 28, 2019, we had an aggregate accumulated deficit of approximately $3,105,494. We anticipate that we will continue to report losses and negative cash flow. As a result of these net losses and cash flow deficits as well as our dependence on private equity and financings, our independent auditors have indicated that there is a substantial doubt about our ability to continue as a going concern in Note 2 of our unaudited consolidated financial statements for the nine-months ended February 28, 2019.
Our consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. These adjustments would likely include substantial impairment of the carrying amount of our assets and potential contingent liabilities that may arise if we are unable to fulfill various operational commitments. In addition, the value of our securities, including common stock issued in this offering, would be greatly impaired. Our ability to continue as a going concern is dependent upon generating sufficient cash flow from operations and obtaining additional capital and financing, including funds to be raised in this offering. If our ability to generate cash flow from operations is delayed or reduced and we are unable to raise additional funding from other sources, we may be unable to continue in business even if this offering is successful. For further discussion about our ability to continue as a going concern and our plan for future liquidity, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Ability to Continue as a Going Concern.”
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We are a holding company and depend upon our subsidiaries for our cash flows.
We are a holding company. All of our operations are conducted, and almost all of our assets are owned, by our subsidiaries. Consequently, our cash flows and our ability to meet our obligations depend upon the cash flows of our subsidiaries and the payment of funds by these subsidiaries to us in the form of dividends, distributions or otherwise. The ability of our subsidiaries to make any payments to us depends on their earnings, the terms of their indebtedness, including the terms of any credit facilities and legal restrictions. Any failure to receive dividends or distributions from our subsidiaries when needed could have a material adverse effect on our business, results of operations or financial condition.
Future acquisitions or strategic investments could disrupt our business and harm our business, results of operations or financial condition.
We may in the future explore potential acquisitions of companies or strategic investments to strengthen our business. Even if we identify an appropriate acquisition candidate, we may not be successful in negotiating the terms or financing of the acquisition, and our due diligence may fail to identify all of the problems, liabilities or other shortcomings or challenges of an acquired business.
Acquisitions involve numerous risks, any of which could harm our business, including:
● | straining our financial resources to acquire a company; | |
● | anticipated benefits may not materialize as rapidly as we expect, or at all; | |
● | diversion of management time and focus from operating our business to address acquisition integration challenges; | |
● | retention of employees from the | |
● | cultural challenges associated with integrating employees from the | |
● | integration of the | |
● | the need to implement or improve controls, procedures and policies at a business that prior to the acquisition may have lacked effective controls, procedures and policies; and | |
● | litigation or other claims in connection with the acquired company, including claims from terminated employees, former stockholders or other third parties. |
Failure to appropriately mitigate these risks or other issues related to such strategic investments and acquisitions could result in reducing or completely eliminating any anticipated benefits of transactions, and harm our business generally. Future acquisitions could also result in dilutive issuances of our equity securities, the incurrence of debt, contingent liabilities, amortization expenses or the impairment of goodwill, any of which could have a material adverse effect on business, results of operations or financial condition.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF I-AM CAPITALWe may require additional funding for our growth plans, and such funding may result in a dilution of your investment.
We attempted to estimate our funding requirements in order to implement our growth plans. If the costs of implementing such plans should exceed these estimates significantly or if we come across opportunities to grow through expansion plans which cannot be predicted at this time, and our funds generated from our operations prove insufficient for such purposes, we may need to raise additional funds to meet these funding requirements.
These additional funds may be raised by issuing equity or debt securities or by borrowing from banks or other resources. We cannot assure you that we will be able to obtain any additional financing on terms that are acceptable to us, or at all. If we fail to obtain additional financing on terms that are acceptable to us, we will not be able to implement such plans fully if at all. Such financing even if obtained, may be accompanied by conditions that limit our ability to pay dividends or require us to seek lenders’ consent for payment of dividends, or restrict our freedom to operate our business by requiring lender’s consent for certain corporate actions.
Further, if we raise additional funds by way of a rights offering or through the issuance of new shares, any shareholders who are unable or unwilling to participate in such an additional round of fund raising may suffer dilution in their investment.
We may become subject to the requirements of the Investment Company Act, which would limit our business operations and require us to spend significant resources to comply with such act.
The following discussionInvestment Company Act of 1940, as amended (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 analysisowns 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 operating a global virtual reality gaming and fully integrated esports platform, operating corporate owned as well as franchising Simplicity Esports Gaming Centers in United States, and making acquisitions in the active entertainment industry in the United States, the composition of our assets after the Acquisition and Transactions, including our ownership of equity shares in Simplicity Esports LLC and Smaaash Private, 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.
We may not have sufficient capital to fund our ongoing operations, effectively pursue our strategy or sustain our growth initiatives.
After the consummation of the acquisition of Simplicity Esports LLC, our remaining liquidity and capital resources may not be sufficient to allow us to fund our ongoing operations, effectively pursue our strategy or sustain our growth initiatives. If we require additional capital resources, we may seek such funds directly from third party sources; however, we may not be able to obtain sufficient equity capital and/or debt financing from third parties to allow us to fund our expected ongoing operations or we 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 us on acceptable terms and conditions include:
● | Our current and future financial results and position; | |
● | the collateral availability of our otherwise unsecured assets; | |
● | the market’s, investors and lenders’ view of our industry and products; | |
● | the perception in the equity and debt markets of our ability to execute our business plan or achieve our operating results expectations; and | |
● | the price, volatility and trading volume and history of our Common Stock. |
If we are unable to obtain the equity capital or debt financing necessary to fund our ongoing operations, pursue our strategy and sustain our growth initiatives, we may be forced to scale back our operations or our expansion initiatives, and our business and operating results will be materially adversely affected.
Our growth strategy depends on the availability of suitable locations for our Simplicity Esports Gaming Centers and our ability to open new Simplicity Esports Gaming Centers and operate them profitably.
A key element of our growth strategy is to extend our brand by opening corporate owned as well as franchising retail Simplicity Esports Gaming Centers in locations in the United States that we believe will provide attractive returns on investment. We have initially identified five sites for potential Simplicity Esports Gaming Centers, in the United States, however, desirable locations for additional Simplicity Esports Gaming Center openings may not be available at an acceptable cost when we identify a particular opportunity for a new Simplicity Esports Gaming Center.
In addition,our ability to open new Simplicity Esports Gaming Centers on a timely and cost-effective basis, or at all, is dependent on a number of factors, many of which are beyond our control, including our 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 Simplicity Esports Gaming Center. |
If we succeed in opening new Simplicity Esports Gaming Centers on a timely and cost-effective basis, we may nonetheless be unable to attract enough customers to the new Simplicity Esports Gaming Centers because potential customers may be unfamiliar with our Simplicity Esports Gaming Centers or concepts, or our entertainment and menu options might not appeal to them. Our new Simplicity Esports Gaming Centers may not meet or exceed our performance targets, including target cash-on-cash returns. New Simplicity Esports Gaming Centers may even operate at a loss, which could have a significant adverse effect on our overall operating results.
Our operations of Simplicity Esports Gaming Centers are significantly dependent on changes in public and customer tastes and discretionary spending patterns. Our inability to successfully anticipate customer preferences or to gain popularity for such Simplicity Esports Gaming Centers games may negatively impact our profitability.
Our success depends significantly on public and customer tastes and preferences, which can be unpredictable. If we are unable to successfully anticipate customer preferences or increase the popularity of the games offered at the Simplicity Esports Gaming Centers, the per capita revenue and overall customer expenditures at the Simplicity Esports Gaming Centers may decrease, and thereby negatively impact our profitability. In response to such developments, we may need to increase our marketing and product development efforts and expenditures, adjust our game or product sale pricing, modify the games themselves, or take other actions, which may further erode our profit margins, or otherwise adversely affect our results of operations and financial condition. In particular, we 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 Simplicity stream team’s casters, influencers and personalities among Simplicity Esports LLC’s dedicated fan base.
While we may incur significant expenditures of this nature, including in the future as we continue to expand our operations, there can be no assurance that any such expenditures or investments by us will yield expected or commensurate returns or results, within a reasonable or anticipated time, or at all.
The nature of our business exposes us to negative publicity or customer complaints, including in relation to, among other things, accidents, injuries or thefts at the Simplicity Esports Gaming Centers, or health and safety concerns arising from improper use of our game equipment or at our food and beverage venues.
Our business inherently exposes us 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 our 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 the Simplicity Esports Gaming Centers. Even isolated or sporadic incidents or accidents may have a negative impact on our brand image and reputation, and the Simplicity Esports Gaming Centers’ or games’ or our own popularity with customers. The considerable expansion of social media in recent years has compounded the effect of any potential negative publicity.
We cannot guarantee that its employee training, internal controls and other precautions will be sufficient to prevent any such occurrence at the Simplicity Esports Gaming Centers, in relation to our Simplicity global virtual reality gaming and fully integrated esports platform, or to control or mitigate any negative consequences. In addition, we or our franchisees rely on third-party security and housekeeping staff for certain non-core functions, as well as certain technology vendors and partners. Although we monitors vendors and partners and, in certain cases, may have a contractual indemnity or recourse in case of any default on their part, our ability to assure a safe and satisfactory experience to our customers is necessarily limited to the extent of our or our franchisees’, dependence on third parties, from time to time. Moreover, we 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 the Simplicity Esports Gaming Centers.
We or our franchisees may not be able to operate in the United States, or obtain and maintain licenses and permits necessary for such operation, in compliance with laws, regulations and other requirements, which could adversely affect our business, results of operations or financial condition.
Each Simplicity Esports Gaming Center 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 Simplicity Esports Gaming Center is located. In the United States, each Simplicity Esports Gaming 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 Simplicity Esports Gaming Center may lead to the loss of licenses at all Simplicity Esports Gaming 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 Simplicity Esports Gaming 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. Our failure or a failure by a franchisee in obtaining and maintaining the required licenses, permits and approvals at any one Simplicity Esports Gaming Center could impact the continuing operations of existing Simplicity Esports Gaming Centers, or delay or prevent the opening of new Simplicity Esports Gaming Centers. Although we do 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 our 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, the Simplicity Esports Gaming Centers in the United States are subject to amusement licensing and regulation by the countries, states, provinces, counties and municipalities in which our Simplicity Esports Gaming Centers are located. These laws and regulations can vary significantly by country, state, province, county, and municipality and, in some jurisdictions, may require us to modify our business operations or alter the mix of redemption games and simulators we offer. Moreover, as more states in the United States and local communities implement legalized gambling, the laws and corresponding enabling regulations may also be applicable to our redemption games and regulators may create new licensing requirements, taxes or fees, or restrictions on the various types of redemption games we offer. 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 we have established a Simplicity Esports Gaming Center in the jurisdiction could require the existing center in these jurisdictions to alter the mix of games, modify certain games, change the mix of prizes that we may offer or terminate the use of specific games, any of which could adversely affect our operations.
We are also subject to laws and regulations governing our relationship with our 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 our workforce being subjected to greater organized labor influence, which could result in an increase to our labor costs. A significant portion of Simplicity Esports Gaming 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.
We are 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 we 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. We shall endeavor to make sure that any franchise disclosure document we provide, 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 we and our franchisees fail to comply with such laws and regulations, we may be subject to various sanctions and/or penalties and fines or may be required to cease operations until we achieve compliance, which could have an adverse effect on our business and our financial results.
Our growth through franchising may not occur as rapidly as we currently anticipate and may be subject to additional risks.
As part of our growth strategy, we will continue to seek franchisees to operate Simplicity Esports Gaming Centers in certain strategic domestic locations or venues. We believe that our ability to recruit, retain and contract with qualified franchisees will be increasingly important to our operations as we expand. Our franchisees are dependent upon the availability of adequate sources of financing in order to meet their development obligations. Such financing may not be available to our franchisees, or only available upon disadvantageous terms. Our franchise strategy may not enhance our results of operations.
Expanding through franchising exposes our business and brand to risks because the quality of the franchised operations will be beyond our immediate control, including risks associated with our confidential information, intellectual properties (including trademarks) and brand reputation. Even if we have contractual remedies to cause franchisees to maintain operational standards, enforcing those remedies may require litigation and therefore our image and reputation may suffer, unless and until such litigation is successfully concluded.
We could face liability from or as a result of our franchisees.
Various state and federal laws will govern the relationship between us and our franchisees and the potential sale of a franchise. If we fail to comply with these laws, we could be liable for damages to franchisees and fines or other penalties. A franchisee or government agency may bring legal action against us based on the franchisee/franchisor relationship. Also, under the franchise business model, we 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 our franchisees or government agencies that could adversely affect both our profit and our important relations with our 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, our profit.
We may not be able to compete favorably in the highly competitive out-of-home and home-based entertainment market in the United States, which could have a material adverse effect on our business, results of operations or financial condition.
The out-of-home entertainment market in the United States is highly competitive. Simplicity Esports Gaming Centers that we or our franchisees operate will compete for 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 Simplicity Esports Gaming Centers are planned to be located. As a result, they may be able to invest greater resources than we can in attracting customers and succeed in attracting customers who would otherwise come to the Simplicity Esports Gaming Centers we or our franchisees operate. In the United States, the legalization of casino gambling in geographic areas near any future Simplicity Esports Gaming Center would create the possibility for adult entertainment alternatives, which could have a material adverse effect on our business and financial condition. We will also face competition from local, regional and national establishments that offer entertainment experiences similar to us. Simplicity Esports Gaming Centers we or our franchisees operate 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 we fail to compete favorably in the competitive out-of-home and home-based entertainment markets it could have a material adverse effect on our business, results of operations and financial condition.
Our senior management team has limited experience in establishing, operating, licensing rights to and franchising entertainment centers and related products.
The members of our senior management team have extensive backgrounds in finance and the management of financial services businesses, however, they have limited prior experience in establishing, operating, licensing rights to and franchising entertainment centers. We will need to expand our management team, to include individuals with expertise in establishing and operating entertainment centers as well as individuals with expertise in product licensing and franchise operations. If we are unable to recruit professionals with acceptable backgrounds in establishing and operating entertainment centers and with backgrounds in product licensing and financing, we may not be able to pursue our growth strategy which could have a material adverse effect on our business and results of operations.
Our success depends upon our ability to recruit and retain qualified management and operating personnel at Simplicity Esports Gaming Centers.
We and our franchisees must attract, retain and motivate a sufficient number of qualified management and operating personnel in order to maintain consistency in our service, hospitality, quality and atmosphere of our Simplicity Esports Gaming Centers. Qualified management and operating personnel are typically in high demand. If we and our franchisees are unable to attract and retain a satisfactory number of qualified management and operating personnel, labor shortages could delay the planned openings of new Simplicity Esports Gaming Centers which could have a material adverse effect on our business and results of operations.
Our business and operations are subject to various risks relating to the acquisitions of target companies. Our inability to complete and successfully integrate the future acquisition targets may affect our growth strategy, market share, profitability or competitive position.
We plan to expand through future acquisitions of companies along with organic growth. There can be no assurance that we will be able to successfully integrate the acquired businesses into our existing operations as planned. We may be adversely impacted by liabilities that we assume from these acquisitions, including known and unknown obligations, intellectual property or other assets, terminated employees, current or former clients, or other third parties, and we 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 our business.
Our insurance coverage may not adequately protect us against all future risks, which may adversely affect our business and prospects.
We maintain 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 we maintain insurance in amounts that we consider reasonably sufficient for a business of our nature and scale, with insurers that we consider reliable and credit worthy, we may face losses and liabilities that are uninsurable by their nature, or that are not covered, fully or at all, under our 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 us may not be honored by our insurers in full, or at all. In addition, our premium payments under our insurance policies may require a significant investment by us.
To the extent that we suffers loss or damage for which we did not obtain insurance, that is not covered by insurance or that exceeds our insurance coverage, the loss will have to be borne by us and our business, cash flow, financial condition, results of operations and prospects may be adversely affected.
Changes in laws or regulations, or a failure to comply with any laws and regulations, may adversely affect our business, investments and results of operations.
We are subject to laws and regulations enacted by national, regional and local governments. In particular, we will be required to comply with certain SEC and other legal requirements. Compliance with, and monitoring of, applicable laws and regulations may be difficult, time consuming and costly. Those laws and regulations and their interpretation and application may also change from time to time and those changes could have a material adverse effect on our business, investments and results of operations. In addition, a failure to comply with applicable laws or regulations, as interpreted and applied, could have a material adverse effect on our business and results of operations.
We are dependent upon our executive officers and directors and their departure could adversely affect our ability to operate.
Our operations are dependent upon a relatively small group of individuals and, in particular, our executive officers and directors. We believe that our success depends on the continued service of our executive officers and directors. In addition, our executive officers and directors are not required to commit any specified amount of time to our affairs and, accordingly, will have conflicts of interest in allocating management time among various business activities, including identifying potential business combinations and monitoring the related due diligence. We do not have an employment agreement with, or key-man insurance on the life of, any of our directors or executive officers. The unexpected loss of the services of one or more of our directors or executive officers could have a detrimental effect on us.
Our executive officers, directors, security holders and their respective affiliates may have competitive pecuniary interests that conflict with our interests.
We have not adopted a policy that expressly prohibits our directors, executive officers, security holders or affiliates from having a direct or indirect pecuniary or financial interest in any investment to be acquired or disposed of by us or in any transaction to which we are a party or have an interest. Nor do we have a policy that expressly prohibits any such persons from engaging for their own account in business activities of the types conducted by us. Accordingly, such persons or entities may have a conflict between their interests and ours.
We are an emerging growth company within the meaning of the Securities Act, and if we take advantage of certain exemptions from disclosure requirements available to emerging growth companies, this could make our securities less attractive to investors and may make it more difficult to compare our performance with other public companies.
We are an “emerging growth company” within the meaning of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor internal controls attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. As a result, our stockholders may not have access to certain information they may deem important. We could be an emerging growth company for up to five years, although circumstances could cause us to lose that status earlier, including if the market value of our Common Stock held by non-affiliates exceeds $700 million as of any June 30 before that time, in which case we would no longer be an emerging growth company as of the following December 31. We cannot predict whether investors will find our securities less attractive because we will rely on these exemptions. If some investors find our securities less attractive as a result of our reliance on these exemptions, the trading prices of our securities may be lower than they otherwise would be, there may be a less active trading market for our securities and the trading prices of our securities may be more volatile.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. We have elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of our financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
Compliance obligations under the Sarbanes-Oxley Act may require substantial financial and management resources.
Section 404 of the Sarbanes-Oxley Act requires that we evaluate and report on our system of internal controls beginning with our Annual Report on Form 10-K for the year ended May 31, 2019. As long as we remain an emerging growth company, we will not be required to comply with the independent registered public accounting firm attestation requirement on our internal control over financial reporting.
Provisions in our third amended and restated certificate of incorporation, as amended, and Delaware law may inhibit a takeover of us, which could limit the price investors might be willing to pay in the future for our Common Stock and could entrench management.
Our third amended and restated certificate of incorporation, as amended, contains provisions that may discourage unsolicited takeover proposals that stockholders may consider to be in their best interests. These provisions include a staggered board of directors and the ability of the board of directors to designate the terms of and issue new series of preferred shares, which may make more difficult the removal of management and may discourage transactions that otherwise could involve payment of a premium over prevailing market prices for our securities.
If we fail to keep pace with changing industry technology and consumer preferences, we will be at a competitive disadvantage.
The Simplicity products and services 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, we need to respond quickly to technological changes and to understand their impact on customers’ preferences. We may take significant time and resources to respond to these technological changes and changes in consumer preferences. Our business and results of operations may be negatively impacted if our products and services fail to keep pace with these changes.
A failure or unanticipated delay in securing any necessary or desired certification for Simplicity Esports LLC’s products from government or regulatory organizations could impair distribution of Simplicity Esports LLC’s products and materially and adversely affect our results of operations and financial condition.
In order for certain Simplicity Esports LLC’s 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 Simplicity Esports LLC’s products could impair sales of Simplicity Esports LLC’s products and materially and adversely affect our business, results of operations and financial condition.
Various product safety laws and governmental regulations applicable to the distributor of Simplicity Esports LLC’s products may adversely affect our business, results of operations and financial condition.
Our distribution of Simplicity Esports LLC’s 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. We and our 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 Simplicity Esports LLC’s products, resulting in the rejection of the products by our franchisees, lost sales, increased customer service and support costs, and costly litigation.
Risks Relating to Our Esports Business
Our esports business faces intense and wide-ranging competition, which may have a material negative effect on our business and results of operations.
The success of an esports business, like the esports business of Simplicity Esports LLC, is dependent upon the performance and/or popularity of its teams. Simplicity Esports LLC’s teams compete, in varying respects and degrees, with other live sporting events, and with sporting events delivered over television networks, radio, the Internet and online services, mobile applications and other alternative sources. For example, our esports teams compete for attendance, viewership and advertising with a wide range of alternatives available in major metropolitan areas. During some or all of the esports season, our teams face competition, in varying respects and degrees, from professional and collegiate basketball, hockey, baseball, football, and soccer, among others.
As a result of the large number of options available, we face strong competition for the sports and gaming fan. We must compete with other esports teams, traditional sports teams and sporting events, in varying respects and degrees, including on the basis of the quality of the teams we field, their success in the leagues, tournaments and genres in which they compete, our ability to provide an entertaining environment at any esports games that we host at our centers, prices charged for tickets and the viewing availability of our teams on multiple media alternatives. Given the nature of esports and sports in general, there can be no assurance that we will be able to compete effectively, including with companies that may have greater resources than we have, and as a consequence, our business and results of operations may be materially negatively affected by competition.
Our businesses are substantially dependent on the continued popularity and/or competitive success of Simplicity Esports LLC’s teams, which cannot be assured.
Our future financial results will be dependent on the Simplicity teams becoming and remaining popular with our fan base and, in varying degrees, on the team achieving in-game success, which can generate fan enthusiasm, resulting in sustained ticket and merchandise sales during the season. Furthermore, success in the regular season at certain tournaments may qualify one or more of our esports teams for participation in post-season playoffs, which provides us with additional revenue from prize money by increasing the number of games played by our sports teams and, more importantly, by generating increased excitement and interest in our esports teams, which can improve attendance in subsequent seasons. There can be no assurance that any of our esports teams, will develop a significant fan base, maintain continued popularity or compete in post-season play in the future.
The actions of the various esports leagues and tournaments may have a material negative effect on our business and results of operations.
The governing bodies of the various esports leagues and tournaments, under certain circumstances, can take actions that they deem to be in the best interests of their respective leagues or tournaments, which may not necessarily be consistent with maximizing our results of operations and which could affect our esports teams in ways that are different than the impact on other esports teams. For example they can take actions relating to the rights to telecast the games of league members or tournament participants, including the Simplicity team, licensing of the rights to produce and sell merchandise bearing the logos and/or other intellectual property of our esports teams and the leagues or tournaments, and the internet-based activities of our esports teams. Certain of these decisions by the esports leagues and tournaments could have a material negative effect on our business and results of operations. From time to time, we may disagree with or challenge actions that the leagues or tournaments take or the power and authority they assert.
We may be unable to effectively manage the growth in the scope and complexity of our business, including our expansion into the esports business which is untested and into adjacent business opportunities.
Our future success depends, in part, on our ability to manage our expanded business, including through the acquisition of Simplicity, and our aspirations for continued expansion. We intend to dedicate resources to a new business model that is largely untested, as is the case with esports. We do not know to what extent our future expansions will be successful. Further, even if successful, the growth of our business could create significant challenges for our management, operational, and financial resources, and could increase existing strain on, and divert focus from, our core businesses. If not managed effectively, this growth could result in the over-extension of our operating infrastructure, and our management systems, information technology systems, and internal controls and procedures may not be adequate to support this growth. Failure to adequately manage our growth in any of these ways may cause damage to our brand, damage our reputation or otherwise negatively impact our business.
Our industry is subject to rapid technological change, and if we do not adapt to, and appropriately allocate our resources among, emerging technologies and business models, our business may be negatively impacted.
Technology changes rapidly in the interactive entertainment industry. We must continually anticipate and adapt our products, services and business models to emerging technologies and delivery platforms in order to stay competitive. Forecasting our revenues and profitability for these new products, services and business models is inherently uncertain and volatile, and if we invest in the development of interactive entertainment products or services incorporating a new technology or for a new platform that does not achieve significant commercial success, whether because of competition or otherwise, we may not recover the often substantial “up front” costs of developing and marketing those products and services, or recover the opportunity cost of diverting management and financial resources away from other products or services. Further, our competitors may adapt to an emerging technology or business model more quickly or effectively than we do, creating products that are technologically superior to ours, more appealing to consumers, or both.
If, on the other hand, we elect not to pursue the development of products or services incorporating a new technology or for new platforms, or otherwise elect not to pursue new business models, that achieve significant commercial success, it may have adverse consequences. It may take significant time and resources to shift product development resources to that technology, platform or business model, as the case may be, and may be more difficult to compete against existing products and services incorporating that technology or for that platform or against companies using that business model.
We may encounter difficulties in integrating Simplicity Esports LLC’s esports businesses or otherwise realizing the anticipated benefits of the transaction.
As part of our business strategy, from time to time, we acquire, make investments in, or enter into strategic alliances and joint ventures with, complementary businesses, such as the acquisition of the Simplicity esports business. The acquisition of Simplicity Esports LLC involves significant risks and uncertainties, including: (i) the potential for Simplicity Esports LLC’s business to underperform relative to our expectations and the acquisition price, (ii) the potential for Simplicity Esports LLC’s business to cause our financial results to differ from expectations in any given period, or over the longer-term, (iii) unexpected tax consequences from the acquisition, or the tax treatment of Simplicity Esports LLC’s business’s operations going forward, giving rise to incremental tax liabilities that are difficult to predict, (iv) difficulty in integrating Simplicity Esports LLC’s business, its operations and its employees in an efficient and effective manner, (v) any unknown liabilities or internal control deficiencies assumed as part of the acquisition, and (vi) the potential loss of key employees of Simplicity Esports LLC’s businesses. Further, the transaction may involve the risk that our senior management’s attention will be excessively diverted from our other operations, the risk that the gaming industry does not evolve as anticipated and that any intellectual property or personnel skills acquired do not prove to be those needed for our future success, and the risk that our strategic objectives, cost savings or other anticipated benefits are otherwise not achieved.
Our business may be harmed if our licensing partners, or other third parties with whom we do business, act in ways that put our brand at risk.
We anticipate that our business partners shall be given access to sensitive and proprietary information or control over our intellectual property in order to provide services and support to our teams. These third parties may misappropriate our information or intellectual property and engage in unauthorized use of it or otherwise act in a way that places our brand at risk. The failure of these third parties to provide adequate services and technologies, the failure of third parties to adequately maintain or update their services and technologies or the misappropriation or misuse of this information or intellectual property could result in a disruption to our business operations or an adverse effect on our reputation, and may negatively impact our business.
Our business is highly dependent on the success and availability of video game platforms manufactured by third parties.
We expect to derive a substantial portion of our revenues from esports games played on game platforms manufactured by third parties, such as Sony’s PS4, Microsoft’s Xbox One, and Nintendo’s Wii U and Switch, and PCs. The success of our business will be driven in large part by our ability to accurately predict which platforms will be successful in the marketplace. We also rely on the availability of an adequate supply of these video game consoles and the continued support for these consoles by their manufacturers. We may be required to commit significant resources well in advance of the anticipated introduction of a new platform. If increased costs are not offset by higher revenues and other cost efficiencies, our business could be negatively impacted. If the platforms for which we invested resources do not attain significant market acceptance, we may not be able to recover our costs, which could be significant.
The games we support are subject to scrutiny regarding the appropriateness of their content. If the publishers and distributors we partner with fail to receive their target ratings for certain titles, or if retailers refuse to sell such titles due to what they perceive to be objectionable content, it could have a negative impact on our business.
Console and PC games are subject to ratings by the Entertainment Software Rating Board (the “ESRB”), a self-regulatory body based in the U.S. that provides U.S. and Canadian consumers of interactive entertainment software with ratings information, including information on the content in such software, such as violence, nudity or sexual content, along with an assessment of the suitability of the content for certain age groups. Certain other countries have also established content rating systems as prerequisites for product sales in those countries. In addition, certain stores use other ratings systems, such as Apple’s use of its proprietary “App Rating System” and Google Play’s use of the International Age Rating Coalition (IARC) rating system. If the software publishers that supply our games are unable to obtain the ratings they have targeted for their products, it could have a negative impact on our business. In some instances, the software publishers and developers may be required to modify their products to comply with the requirements of the rating systems, which could delay or disrupt the release of any given product, or may prevent its sale altogether in certain territories, which would limited its availability for use in the games that our teams play.
We will depend on servers to operate our games with online features. If we were to lose server functionality for any reason, our business may be negatively impacted.
Our business at our game centers will rely on the continuous operation of servers, some of which are owned and operated by third parties. Although we shall strive to maintain more than sufficient server capacity, and provide for active redundancy in the event of limited hardware failure, any broad-based catastrophic server malfunction, a significant service-disrupting attack or intrusion by hackers that circumvents security measures, a failure of disaster recovery service or the failure of a company on which we are relying for server capacity to provide that capacity for whatever reason would likely degrade or interrupt the functionality of our games with online features, and could prevent the operation of such games altogether, any of which could result in the loss of sales for, or in, such games.
We also rely on networks operated by third parties, such as the PlayStation Network, Xbox Live and Steam, for the functionality of the games we use which have online features. An extended interruption to any of these services could adversely affect our ability to operate our games with online features, negatively impacting our business.
Further, insufficient server capacity could also negatively impact our business. Conversely, if we overestimate the amount of server capacity required by our business, we may incur unnecessary additional operating costs.
Risks Related to Smaaash Private
Smaaash Private has significant indebtedness and the imposition of certain restrictive covenants in Smaaash Private debt financing arrangements may increase Smaaash Private’s susceptibility to interest rate fluctuations, adversely impact Smaaash Private’s financial condition and results of operations, as well as restrict Smaaash Private’s operational flexibility.
As on December 31, 2017, Smaaash Private’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 Private may incur additional indebtedness in the future.
Smaaash Private’s significant indebtedness and the imposition of certain restrictive covenants in Smaaash Private’s debt financing arrangements may increase Smaaash Private’s susceptibility to interest rate fluctuations, adversely impact Smaaash Private’s financial condition and results of operations, as well as restricting Smaaash Private’s operational flexibility.
The possible implications of Smaaash Private’s significant indebtedness may include, but are not limited to, the following:
– | a portion of Smaaash Private’s cash flows may be used towards repayment of Smaaash Private’s existing debt, which will reduce the availability of cash to fund Smaaash Private’s working capital requirements, capital expenditures, planned expansions or acquisitions or other strategic objectives, and general corporate purposes; | |
– | Smaaash Private’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 Private’s borrowings, as Smaaash Private’s loans are, currently as well as typically, at variable interest rates; | |
– | Smaaash Private’s ability to declare dividends, while any actual payments are due under the terms of Smaaash Private’s borrowings; | |
– | Smaaash Private may be more vulnerable to economic downturns; | |
– | Smaaash Private’s ability to withstand competitive pressures may be limited; | |
– | Smaaash Private may have reduced operational flexibility in responding to business, regulatory and economic conditions and developments; and | |
– | Smaaash Private’s requirement to obtain lenders’ consents for various activities, including, but not limited to, any change in control or ownership of Smaaash Private. |
Smaaash Private is continually expanding and so may need to continually raise capital. If Smaaash Private is unable to raise capital on commercially favorable terms, including due to Smaaash Private’s high debt-equity ratio, Smaaash Private’s growth trajectory might be affected.
Smaaash Private 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 Private’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 debt to equity ratio, (ii) trends in global capital and credit markets, and (iii) existing debt terms. Smaaash Private’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 Private’s expansion strategy requirements could adversely affect Smaaash Private’s growth trajectory.
The high fixed cost structure of Smaaash Private’s operations can result in significantly lower margins if Smaaash Private’s revenues should decline, which may adversely affect Smaaash Private’s business, financial condition, results of operations and prospects.
Smaaash Private’s total aggregate expenditure was $18.9 million for fiscal year 2017, the most recent year for which data is available to us. A large proportion of Smaaash Private’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 Centers. These expenses may continue to increase, in the aggregate, from year to year, particularly as Smaaash Private continue to expand its network of Smaaash Centers in the future. In the event that Smaaash Private’s expenses increase at a faster rate than Smaaash Private’s revenues and if Smaaash Private is unable to rationalize Smaaash Private’s costs or realize efficiencies of scale, Smaaash Private may not be able to pass on such costs to Smaaash Private’s customers or offset its expenses. In such case, Smaaash Private 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 Private has significant capital expenditure requirements, and inability to raise adequate financing on commercially acceptable terms may limit Smaaash Private’s strategic initiatives and growth prospects.
Smaaash Private’s business is inherently capital intensive. Smaaash Private’s total capital expenditure was $19.23 million in fiscal year 2017, the most recent year for which data is available to us. Smaaash Private 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 Private opens new Smaaash Centers. In addition, Smaaash Private must incur expenditures to maintain and improve supporting or complementary infrastructure and services at Smaaash Centers, including Smaaash Private’s food and beverage venues, parking and other facilities. The actual amounts and timing of Smaaash Private’s future capital expenditure may differ from Smaaash Private’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 Private had estimated, fluctuations in currency exchange rates or commodity prices, unforeseen delays or cost overruns on Smaaash Private’s part or on the part of any of Smaaash Private’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 Private’s payments from corporate customers in Smaaash Private’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 Private operate. Smaaash Private’s capital expenditures and investments may rise in the future, given Smaaash Private’s expansion plans as well as the scope of Smaaash Private’s existing operations. The financing required by Smaaash Private for such capital expenditures and investments may not be available to it on commercially acceptable terms or at all, or Smaaash Private’s ability to seek additional financing in the future may be restricted due to the terms of Smaaash Private’s existing or future borrowings, or regulatory constraints on equity or debt capital raising, or a range of macroeconomic factors, including interest rates.
Smaaash Private’s inability to raise adequate financing on commercially acceptable terms, or at all, in the future may limit Smaaash Private’s strategic initiatives and growth prospects. In addition, there can be no assurance that Smaaash Private’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 Private’s business, financial condition, results of operations and prospects may be adversely affected.
Smaaash Private, 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 Private’s ability to manage its debt service obligations.
Smaaash Private, as well as Smaaash Private’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 Private’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 Private’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 Private’s business, financial condition, results of operation and prospects.
Smaaash Private has a relatively limited operating history and may not be able to sustain Smaaash Private’s growth levels in the future.
Smaaash Private commenced commercial operations at Smaaash Private’s first Smaaash Center in Mumbai in November 2012, and all of Smaaash Private’s other Smaaash Centers have commenced commercial operations within the last three fiscal years. Smaaash Private’s first international Smaaash Center, in the Mall of America, in Minnesota, U.S.A. was opened in December 2016. Consequently, Smaaash Private 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 Private’s past performance and prospects. Smaaash Private may not be able to sustain any historical growth rates in the future, and may not be able to leverage its experience in its existing markets in order to grow Smaaash Private’s business in new markets.
Smaaash Private has entered, and may continue to enter, into certain related party transactions. There can be no assurance that Smaaash Private could not have achieved more favorable terms, if such transactions had not been entered into with related parties, or that Smaaash Private 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 Private has entered into various transactions with related parties. While Smaaash Private believes that all such transactions have been conducted on an arm’s length basis and contain commercially reasonable terms, Smaaash Private may have been able to achieve more favorable terms had such transactions been entered into with unrelated parties. It is also likely that Smaaash Private may enter into related party transactions in the future. Although all material related party transactions that Smaaash Private 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 Private’s financial condition and results of operations or that Smaaash Private 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 Private’s minority shareholders and will not have an adverse effect on Smaaash Private’s business, results of operations, financial condition and cash flows
Since a majority of Smaaash Private’s directors, officers and assets reside or are located outside of the United States, we may have difficulty enforcing judgments against Smaaash Private, its directors and officers.
Smaaash Private is incorporated under the laws of India. Further, Smaaash Private 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 Private’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 Private or those persons, or to recover against Smaaash Private 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 Private 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 court may impose civil liability, including the possibility of monetary damages, on Smaaash Private 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 Private 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 Private 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 Private or its directors and officers or some experts named in this proxy statement/prospectus 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 Our Ownership of Smaaash Private’s Share Equity
Smaaash Private’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.
Shripal Morakhia and AHA Holdings Private Limited, his affiliated entity, and FW Metis, Smaaash Private’s principal shareholders, beneficially own approximately 24.34% and 21.23%, respectively, of Smaaash Private’s share equity after the Transactions. 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 Smaaash Private’s interests. The concentration in ownership may have the effect of delaying, preventing or deterring a change in control of Smaaash Private and deprive Smaaash Private’s shareholders of an opportunity to receive a premium for their equity shares as part of a sale of Smaaash Private.
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 we received in the Transaction and no public trading market is expected to develop in the foreseeable future. Therefore, we may not be able to readily sell or transfer the Smaaash Private equity shares that we own.
Risk Factors Relating to Our Securities and Capital Structure
We have not paid dividends on our Common Stock in the past and do not expect to pay dividends on our Common Stock in the future. Any return on investment in our common stock may be limited to the value of our Common Stock.
We have never paid cash dividends on our Common Stock and do not anticipate paying cash dividends on our Common Stock in the foreseeable future. The payment of dividends on our Common Stock would depend on earnings, financial condition, and other business and economic factors affecting us at such time as our board of directors may consider relevant. If we do not pay dividends on our Common Stock, our Common Stock may be less valuable because a return on your investment will only occur if its stock price appreciates.
Trading on the OTC Markets is volatile and sporadic, which could depress the market price of our common stock and make it difficult for our security holders to resell their common stock and/or warrants.
Our Common Stock and Public Warrants are quoted on the OTCQB tier of the OTC Markets Group, Inc. (“OTC Markets”). Trading in securities quoted on the OTC Markets is often thin and characterized by wide fluctuations in trading prices, due to many factors, some of which may have little to do with our operations or business prospects. This volatility could depress the market price of our common stock for reasons unrelated to operating performance. Moreover, the OTC Markets is not a stock exchange, and trading of securities on the OTC Markets is often more sporadic than the trading of securities listed on a quotation system like Nasdaq Capital Market or a stock exchange like the NYSE American. These factors may result in investors having difficulty reselling any shares of our common stock.
Our stock price is likely to be highly volatile because of several factors, including a limited public float.
The market price of our Common Stock and Public Warrants have been volatile in the past and the market price of our Common Stock and Public Warrants and Private Placement Warrants are likely to be highly volatile in the future. You may not be able to resell shares of our Common Stock and/or Private Placement Warrants following periods of volatility because of the market’s adverse reaction to volatility.
Other factors that could cause such volatility may include, among other things:
● | actual or anticipated fluctuations in our operating results; | |
● | we may have a low trading volume for a number of reasons, including that a large portion of our stock is closely held; | |
● | overall stock market fluctuations; | |
● | announcements concerning our business or those of our competitors; | |
● | actual or perceived limitations on our ability to raise capital when we require it, and to raise such capital on favorable terms; |
● | conditions or trends in the industry; | |
● | litigation; | |
● | changes in market valuations of other similar companies; | |
● | future sales of common stock; | |
● | departure of key personnel or failure to hire key personnel; and | |
● | general market conditions. |
Any of these factors could have a significant and adverse impact on the market price of our Common Stock and/or Private Placement Warrants . In addition, the stock market in general has at times experienced extreme volatility and rapid decline that has often been unrelated or disproportionate to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our Common Stock and/or Private Placement Warrants, regardless of our actual operating performance.
If securities or industry analysts do not publish or cease publishing research or reports about the Company, its business, or its market, or if they change their recommendations regarding our securities adversely, the price and trading volume of our securities could decline.
The trading market for our securities will be influenced by the research and reports that industry or securities analysts may publish about us, our business, our market, or our competitors. Securities and industry analysts do not currently, and may never, publish research on the Company. If no securities or industry analysts commence coverage of the Company, our stock price and trading volume would likely be negatively impacted. If any of the analysts who may cover the Company change their recommendation regarding our securities adversely, or provide more favorable relative recommendations about our competitors, the price of our securities would likely decline. If any analyst who may cover the Company were to cease coverage of the Company or fail to regularly publish reports on it, we could lose visibility in the financial markets, which could cause our stock price or trading volume to decline.
Our common stock has in the past been a “penny stock” under SEC rules, and our warrants may be subject to the “penny stock” rules. It may be more difficult to resell securities classified as “penny stock.”
In the past, our common stock was a “penny stock” under applicable SEC rules (generally defined as non-exchange traded stock with a per-share price below $5.00). Unless we successfully list our common stock and our warrants on a national stock exchange, or maintain a per-share price above $5.00, these rules impose additional sales practice requirements on broker-dealers that recommend the purchase or sale of penny stocks to persons other than those who qualify as “established customers” or “accredited investors.” For example, broker-dealers must determine the appropriateness for non-qualifying persons of investments in penny stocks. Broker-dealers must also provide, prior to a transaction in a penny stock not otherwise exempt from the rules, a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, disclose the compensation of the broker-dealer and its salesperson in the transaction, furnish monthly account statements showing the market value of each penny stock held in the customer’s account, provide a special written determination that the penny stock is a suitable investment for the purchaser, and receive the purchaser’s written agreement to the transaction.
Legal remedies available to an investor in “penny stocks” may include the following:
● | If a “penny stock” is sold to the investor in violation of the requirements listed above, or other federal or states securities laws, the investor may be able to cancel the purchase and receive a refund of the investment. | |
● | If a “penny stock” is sold to the investor in a fraudulent manner, the investor may be able to sue the persons and firms that committed the fraud for damages. |
However, investors who have signed arbitration agreements may have to pursue their claims through arbitration.
These requirements may have the effect of reducing the level of trading activity, if any, in the secondary market for a security that becomes subject to the penny stock rules. The additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers from effecting transactions in our securities, which could severely limit the market price and liquidity of our securities. These requirements may restrict the ability of broker-dealers to sell our common stock or our Private Placement Warrants and may affect your ability to resell our common stock and our Private Placement Warrants.
Many brokerage firms will discourage or refrain from recommending investments in penny stocks. Most institutional investors will not invest in penny stocks. In addition, many individual investors will not invest in penny stocks due, among other reasons, to the increased financial risk generally associated with these investments.
For these reasons, penny stocks may have a limited market and, consequently, limited liquidity. We can give no assurance at what time, if ever, our common stock or our Private Placement Warrants will not be classified as a “penny stock” in the future.
A sale of a substantial number of shares of our Common Stock may cause the price of the Common Stock to decline.
If our stockholders sell substantial amounts of our Common Stock in the public market, the market price of our Common Stock could fall. These sales also may make it more difficult for us to sell our equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate. This risk is significant because of concentrated positions of our Common Stock held by a small group of investors.
Because certain of our stockholders control a significant number of shares of our Common Stock, they may have effective control over actions requiring stockholder approval.
Our directors, executive officers and principal stockholders, and their respective affiliates, beneficially own approximately 59.2% of our outstanding shares of Common Stock. Accordingly, our executive officers, directors and principal stockholders, and their respective affiliates, will have significant influence on the ability to control the Company and the outcome of issues submitted to our stockholders.
If the benefits of any proposed acquisition of do not meet the expectations of investors, stockholders or financial analysts, the market price of our Common Stock may decline.
If the benefits of any proposed acquisition of do not meet the expectations of investors or securities analysts, the market price of our Common Stock prior to the closing of the proposed acquisition may decline. The market values of our Common Stock at the time of the proposed acquisition may vary significantly from their prices on the date the acquisition target was identified.
In addition, broad market and industry factors may materially harm the market price of our Common Stock irrespective of our operating performance. The stock market in general has experienced price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the particular companies affected. The trading prices and valuations of these stocks, and of our securities, may not be predictable. A loss of investor confidence in the market for retail stocks or the stocks of other companies which investors perceive to be similar to us could depress our stock price regardless of our business, prospects, financial conditions or results of operations. A decline in the market price of our securities also could adversely affect our ability to issue additional securities and our ability to obtain additional financing in the future.
Changes in accounting principles and guidance, or their interpretation, could result in unfavorable accounting charges or effects, including changes to our previously filed financial statements, which could cause our stock price to decline.
We prepare our consolidated financial statements in accordance with GAAP. These principles are subject to interpretation by the SEC and various bodies formed to interpret and create appropriate accounting principles and guidance. A change in these principles or guidance, or in their interpretations, may have a significant effect on our reported results and retroactively affect previously reported results.
Being a public company results in additional expenses, diverts management’s attention and could also adversely affect our ability to attract and retain qualified directors.
As a public reporting company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These requirements generate significant accounting, legal and financial compliance costs and make some activities more difficult, time consuming or costly and may place significant strain on our personnel and resources. The Exchange Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. In order to establish the requisite disclosure controls and procedures and internal control over financial reporting, significant resources and management oversight are required.
As a result, management’s attention may be diverted from other business concerns, which could have an adverse and even material effect on our business, financial condition and results of operations. These rules and regulations may also make it more difficult and expensive for us to obtain director and officer liability insurance. If we are unable to obtain appropriate director and officer insurance, our ability to recruit and retain qualified officers and directors, especially those directors who may be deemed independent, could be adversely impacted.
We are an “emerging growth company” and our election to delay adoption of new or revised accounting standards applicable to public companies may result in our financial statements not being comparable to those of some other public companies. As a result of this and other reduced disclosure requirements applicable to emerging growth companies, our securities may be less attractive to investors.
As a public reporting company with less than $1,070,000,000 in revenue during our last fiscal year, we qualify as an “emerging growth company” under the Jumpstart our Business Startups Act of 2012 (the “JOBS Act”). An emerging growth company may take advantage of certain reduced reporting requirements and is relieved of certain other significant requirements that are otherwise generally applicable to public companies. In particular, as an emerging growth company we:
● | are not required to obtain an attestation and report from our auditors on our management’s assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002; | |
● | are not required to provide a detailed narrative disclosure discussing our compensation principles, objectives and elements and analyzing how those elements fit with our principles and objectives (commonly referred to as “compensation discussion and analysis”); | |
● | are not required to obtain a non-binding advisory vote from our stockholders on executive compensation or golden parachute arrangements (commonly referred to as the “say-on-pay,” “say-on-frequency” and “say-on-golden-parachute” votes); | |
● | are exempt from certain executive compensation disclosure provisions requiring a pay-for-performance graph and CEO pay ratio disclosure; | |
● | may present only two years of audited financial statements and only two years of related Management’s Discussion & Analysis of Financial Condition and Results of Operations (“MD&A”); and | |
● | are eligible to claim longer phase-in periods for the adoption of new or revised financial accounting standards under §107 of the JOBS Act. |
We intend to take advantage of all of these reduced reporting requirements and exemptions, including the longer phase-in periods for the adoption of new or revised financial accounting standards under §107 of the JOBS Act. Our election to use the phase-in periods may make it difficult to compare our financial statements to those of non-emerging growth companies and other emerging growth companies that have opted out of the phase-in periods under §107 of the JOBS Act.
Certain of these reduced reporting requirements and exemptions were already available to us due to the fact that we also qualify as a “smaller reporting company” under SEC rules. For instance, smaller reporting companies are not required to obtain an auditor attestation and report regarding management’s assessment of internal control over financial reporting; are not required to provide a compensation discussion and analysis; are not required to provide a pay-for-performance graph or Chief Executive Officer pay ratio disclosure; and may present only two years of audited financial statements and related MD&A disclosure.
Under the JOBS Act, we may take advantage of the above-described reduced reporting requirements and exemptions for up to five years after our initial sale of common equity pursuant to a registration statement declared effective under the Securities Act of 1933, as amended (the “Securities Act”), or such earlier time that we no longer meet the definition of an emerging growth company. In this regard, the JOBS Act provides that we would cease to be an “emerging growth company” if we have more than $1,070,000,000 in annual revenues, have more than $700 million in market value of our Common Stock held by non-affiliates, or issue more than $1.0 billion in principal amount of non-convertible debt over a three-year period. Further, under current SEC rules we will continue to qualify as a “smaller reporting company” for so long as we have a public float (i.e., the market value of common equity held by non-affiliates) of less than $75 million as of the last business day of our most recently completed second fiscal quarter.
We cannot predict if investors will find our securities less attractive due to our reliance on these exemptions.
Failure to establish and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and stock price.
We are required to comply with the SEC’s rules implementing Sections 302 and 404 of the Sarbanes-Oxley Act, which require management to certify financial and other information in our quarterly and annual reports and provide an annual management report on the effectiveness of controls over financial reporting. Though we are required to disclose changes made in our internal controls and procedures on a quarterly basis, we will not be required to make our first annual assessment of our internal control over financial reporting pursuant to Section 404 until year-end 2017. However, as an emerging growth company, our independent registered public accounting firm will not be required to formally attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 until the end of the fiscal year for which our second annual report is due or the date we are no longer an emerging growth company. At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed or operating.
To comply with the requirements of being a public company, we have undertaken various actions, and may need to take additional actions, such as implementing new internal controls and procedures and hiring additional accounting or internal audit staff. Testing and maintaining internal control can divert our management’s attention from other matters that are important to the operation of our business. Additionally, when evaluating our internal control over financial reporting, we may identify material weaknesses that we may not be able to remediate in time to meet the applicable deadline imposed upon us for compliance with the requirements of Section 404. If we identify any material weaknesses in our internal control over financial reporting or are unable to comply with the requirements of Section 404 in a timely manner or assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting once we are no longer an emerging growth company, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our Common Stock could be negatively affected, and we could become subject to investigations by the Financial Industry Regulatory Agency, the SEC or other regulatory authorities, which could require additional financial and management resources.
Anti-takeover provisions contained in our certificate of incorporation and bylaws, as well as provisions of Delaware law, could impair a takeover attempt.
The Company’s certificate of incorporation and bylaws contain provisions that could have the effect of delaying or preventing changes in control or changes in our management without the consent of our board of directors. These provisions include:
● | no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates; | |
● | the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of the board of directors or the resignation, death, or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors; | |
● | the ability of our board of directors to determine whether to issue shares of our preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer; | |
● | limiting the liability of, and providing indemnification to, our directors and officers; | |
● | controlling the procedures for the conduct and scheduling of stockholder meetings; | |
● | providing that directors may be removed prior to the expiration of their terms by stockholders only for cause; and | |
● | advance notice procedures that stockholders must comply with in order to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of the Company. |
These provisions, alone or together, could delay hostile takeovers and changes in control of the Company or changes in our board of directors and management.
Any provision of our certificate of incorporation or bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our security holders to receive a premium for their securities and could also affect the price that some investors are willing to pay for our securities.
In the event that our common stock price does not exceed the exercise price of the Private Placement Warrants during the period when the Private Placement Warrants are exercisable, the Private Placement Warrants may not have any value.
The warrants will be immediately exercisable and expire on the fifth anniversary of the date of issuance. The Private Placement Warrants will have an initial exercise price per share equal to $11.50. In the event that our common stock price does not exceed the exercise price of the Private Placement Warrants during the period when the Private Placement Warrants are exercisable, the Private Placement Warrants may not have any value.
There is no established trading market for the Private Placement Warrants to be sold in this offering, and the market for the Private Placement Warrants may be highly volatile or may decline regardless of our operating performance. We do not intend to list the Private Placement Warrants, nor do we expect the Private Placement Warrants to be quoted, on any securities exchange.
There must be a current registration statement in order for you to exercise the Private Placement Warrants.
Holders of Private Placement Warrants will be able to exercise the Private Placement Warrants only if a current registration statement relating to the common stock underlying the Private Placement Warrants is then in effect. Although we will attempt to maintain the effectiveness of a current registration statement covering the common stock underlying the Private Placement Warrants, there can be no assurance that we will be able to do so. If the registration statement covering the shares issuable upon exercise of the Private Placement Warrants is no longer effective, the Private Placement Warrants may only be exercised on a “cashless” basis and will be issued with restrictive legends unless such shares are eligible for sale under Rule 144 of the Securities Act of 1933, as amended.
Holders of our Private Placement Warrants will have no rights as a common stockholder until they acquire our common stock.
Until you acquire shares of our common stock upon exercise of your Private Placement Warrants, you will have no rights with respect to our common stock. Upon exercise of your Private Placement Warrants, you will be entitled to exercise the rights of a common stockholder only as to matters for which the record date occurs after the exercise date.
All of the shares of Common Stock offered by the Selling Securityholders pursuant to this prospectus will be sold by the Selling Securityholders for their respective accounts. We will not receive any of the proceeds from these sales. We will receive up to an aggregate of approximately $66,757,250.00 from the exercise of Warrants, assuming the exercise in full of all of the Warrants for cash. We expect to use the net proceeds from the exercise of the Warrants for general corporate purposes.
The following table sets forth our cash and cash equivalents and capitalization as of February 28, 2019 on an actual basis.
This table should be read in conjunction with the information contained in this prospectus, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the related notes thereto containedappearing elsewhere in this proxy statement/prospectus. Certain information contained
As of February 28, 2019 | ||||
Actual | ||||
(unaudited) | ||||
Cash and cash equivalents | $ | 1,245,666 | ||
Stockholders’ equity: | ||||
Preferred stock - $0.0001 par value, 1,000,000 shares authorized; no shares issued and outstanding on an actual basis | - | |||
Common stock - $0.0001 par value; 20,000,000 shares authorized; 6,313,038 shares issued and outstanding on an actual basis | 632 | |||
Common stock issuable - 2,030,000 shares on an actual basis | 203 | |||
Additional paid-in capital | 7,515,541 | |||
Accumulated deficit | (3,105,494 | ) | ||
Total stockholders’ equity | 4,410,882 | |||
Total capitalization | $ | 7,367,438 |
Determination of Offering PRice
Resale of Common Stock by Selling Securityholders
Our Common Stock is quoted on the OTCQB under the symbol “WINR.” The sharesregistered for resale in this prospectus being offered by the Selling Securityholders will be sold at a fixed price of $2.00 for the duration of this offering. The offering price of the shares bears no relation to book value, assets, earnings, or any other objective criteria of value. It has been arbitrarily determined by the Selling Securityholders.
Resale of Private Placement Warrants by Selling Securityholders
Our Public Warrants are quoted on the OTCQB under the symbol “WINRW.” The actual offering price by the Selling Securityholders of the Private Placement Warrants covered by this prospectus will be determined by prevailing market prices at the time of sale, by private transactions negotiated by the Selling Securityholders or as otherwise described in the discussionsection entitled “Plan of Distribution.” The exercise price of the Private Placement Warrants as well as the Public Warrants is established based on the terms of the Warrant Agreement and analysis set forth belowbears no relationship to the book value, assets or earnings of our company or any other recognized criteria of value.
Issuance of Shares of Common Stock Underlying Warrants
The price of the shares of Common Stock underlying the Warrants registered hereby is determined by reference to the exercise price of the Warrants, such that each (i) Public Warrant and Private Placement Warrant entitles the holder to purchase one share of our Common Stock at an exercise price of $11.50 per share and (ii) 2019 Warrant entitles the holder to purchase one share of our Common Stock at an exercise price of $4.00 per share.
PRice range of securities and dividends
Price Range of Securities
Our Common Stock and Public Warrants are currently quoted on the OTCQB under the symbols “WINR” and “WINRW”, respectively. On October 9, 2017, our Common Stock and Public Warrants commenced public trading on the NASDAQ Capital Market under the symbols “IAM” and “IAMXW”, respectively. On November 20, 2018, we changed the symbols of our Common Stock and Public Warrants to “SMSH” and “SMSHW”, respectively, in conjunction with our name change from “I-AM Capital Acquisition Company” to “Smaaash Entertainment, Inc.” On January 10, 2019, we changed the symbols of our Common Stock and Public Warrants to “WINR” and “WINRW”, respectively, in conjunction with our name change from “Smaaash Entertainment, Inc.” to “Simplicity Esports and Gaming Company.” However, on January 25, 2019, the NASDAQ suspended our Common Stock and Public Warrants from trading on the NASDAQ Capital Market and the OTCQB commenced the quotation of our Common Stock and Public Warrants. On April 2, 2019, the NASDAQ Capital Market filed a Form 25 for our Common Stock and Public Warrants, which became effective ten days thereafter.
The following table includes forward-looking statements that involve risksthe high and uncertainties. low bids for our Common Stock and Public Warrants for the periods presented, since the consummation of our IPO on August 22, 2017.
Common Stock(1) | PublicWarrants(2) | |||||||||||||||
High | Low | High | Low | |||||||||||||
Fiscal Year 2019 | ||||||||||||||||
March 1 to July 10, 2019 | $ | 2.20 | 0.56 | 0.70 | 0.04 | |||||||||||
December 1, 2018 to February 28, 2019 | $ | 6.62 | 1.23 | 0.52 | 0.06 | |||||||||||
September 1 to November 30, 2018 | $ | 11.05 | 3.15 | 0.46 | 0.17 | |||||||||||
June 1 to August 31, 2018 | $ | 11.05 | 9.86 | 0.50 | 0.20 | |||||||||||
Fiscal Year 2018 | ||||||||||||||||
March 1 to May 31, 2018 | $ | 10.52 | 9.90 | 0.50 | 0.34 | |||||||||||
December 1, 2017 to February 28, 2018 | $ | 10.02 | 9.80 | 0.60 | 0.21 | |||||||||||
September 1 to November 30, 2017 | $ | 9.98 | 9.80 | 0.34 | 0.26 | |||||||||||
August 16 to August 31, 2017 (3) | $ | N/A | N/A | N/A | N/A |
(1) | Our Common Stock began separate trading on NASDAQ on October 9, 2017. |
(2) | Our Public Warrants began separate trading on NASDAQ on October 9, 2017. |
(3) | Our Common Stock and Public Warrants did not trade separately from the Public Units until October 9, 2017. |
On July 10, 2019, the closing price of our Common Stock and Public Warrants were $1.72 and $0.33, respectively. As of July 12, 2019, we had 6,952,195 shares of Common Stock and 5,200,000 Public Warrants.
Holders
As of July 12, 2019, there were approximately 108 holders of record of our Common Stock and 59 holders of record of our Public Warrants.
Dividends
The Company has not paid any dividends on its Common Stock to date. It is the present intention of the Company to retain any earnings for use in its business operations and, accordingly, the Company does not anticipate the board of directors declaring any dividends in the foreseeable future on our Common Stock. Consequently, you will only realize an economic gain on your investment in our Common Stock if the price appreciates. You should not purchase our Common Stock expecting to receive cash dividends. Since we do not anticipate paying dividends, and if we are not successful in establishing an orderly public trading market for our shares, then you may not have any manner to liquidate or receive any payment on your investment. Therefore, our failure to pay dividends may cause you to not see any return on your investment even if we are successful in our business operations. In addition, because we may not pay dividends in the foreseeable future, we may have trouble raising additional funds which could affect our ability to expand our business operations.
Unless the context otherwise indicated, references in this section torequires, “we,” “our,“us,” “us”or “the Company” refers to (i) “Simplicity Esports and other similar terms refer toGaming Company” after the consummation of the Acquisition of Simplicity Esports, LLC, (ii) “Smaaash Entertainment Inc.” before the consummation of the Acquisition of Simplicity Esports, LLC but after the closing of the Transactions with Smaaash Entertainment Private Limited, and (iii) I-AM Capital beforeAcquisition Company prior to the Transaction.closing of the Transactions with Smaaash Entertainment Private Limited.“Simplicity Esports LLC” means Simplicity Esports, LLC, a Florida limited liability company, and its consolidated subsidiaries “Smaaash Private” means Smaaash Entertainment Private Limited, a private limited company incorporated under the laws of India, and its consolidated subsidiaries
Overview
We are a North American esports organization. We have implemented a unique approach to ensure the ultimate fan friendly experience. Our intention is to have gamers involved at the grassroots level and feel a sense of unity as we compete with top class talent. Utilizing the vast resources from within the ownership group, we have already established an impressive management team and roster. Our management and players are well known influencers within the esports community and we plan to use their skill to create a seamless content creation pan to help gamers feel closer to our brand that any other in the scene. Our organization intends to take the opportunity to create a platform that will help grow the sports for generations of gamers.
Acquisition of Simplicity Esports, LLC
On January 4, 2019, the Company consummated the transactions contemplated by that certain share exchange agreement, dated December 21, 2018 (as amended by Amendment No. 1 to Share Exchange Agreement, dated December 28, 2018 and by Amendment No. 2 to Share Exchange Agreement, dated December 30, 2018, the “Share Exchange Agreement”) by and among the Company, Simplicity Esports, LLC, a Florida limited liability company (“Simplicity Esports LLC”), each of the equity holders of Simplicity Esports LLC (“Simplicity Owners”) and Jed Kaplan, in the capacity as the representative of the Simplicity Owners (the “Representative”). Pursuant to the Share Exchange Agreement the Simplicity Owners transferred all the issued and outstanding equity interests of Simplicity Esports LLC to the Company in exchange for newly issued shares of common stock of the Company (the “Acquisition”).
Background of Simplicity Esports, LLC
Founded in 2017, Simplicity Esports LLC is committed to growing and enhancing the Esports industry, fostering the development of amateurs to compete professionally, and partnering with established professional gamers to support their paths to greater success. Esports (also known as electronic sports, e-sports, or eSports) is a form of competition using video games. Most commonly, esports takes the form of organized, multiplayer video game competitions, particularly between professional players, individually or as teams. Our continued accomplishments in various games is a driving force behind the growth of our fan base including viewership of our content.
As of January 4, 2019, upon the completion of the acquisition of Simplicity Esports LLC, the business of Simplicity Esports LLC has now become the primary business of the Company. Simplicity Esports LLC is an established brand in the Esports industry with an engaged fan base competing in popular games across different genres, including Apex Legends, PUBG, Gears of War, SMITE, and NHL 19. The Simplicity Esports LLC stream team encompasses over 50 casters, influencers and personalities who connect to a dedicated fan base. Simplicity Esports LLC’s notoriety in the industry is evidenced by its audience that views millions of minutes of Simplicity Esports LLC content monthly, via various social media outlets including YouTube, Twitter and Twitch.
The acquisition of Simplicity Esports LLC creates a pure play esports team and entertainment platform opportunity, which we believe will increase shareholder value and boost our growth strategy as we endeavor the build out of our brick and mortar esports centers. Through Simplicity Esports LLC, the Company has begun to implement a unique approach to ensure the ultimate fan friendly esports experience. Our intention is to have gamers involved at the grassroots level and feel a sense of unity as we compete with top class talent. Our management and players are known within the esports community and we plan to use their skills to create a seamless content creation plan helping gamers feel closer to our brand than any other in the industry. Simplicity Esports LLC also plans to open and operate corporate-owned retail esports gaming centers (“Simplicity Esports Gaming Centers”) as well as to franchise Simplicity Esports Gaming Centers that will provide the public an opportunity to experience and enjoy gaming and Esports in a social setting, regardless of skill or experience.
Brick & Mortar Esports Gaming Locations
Our business plan encompasses a brick and click physical and digital approach to further recognize revenue from all verticals. As a professional esports organization, we will strive to be the first to market with the aforementioned business model. The physical centers complimented with our esports team, lifestyle brand and marketing campaign offer opportunities for additional revenue via strategic partnerships with both endemic and non-endemic brands. Our ultimate goal is to further engage a diverse fan base with a 360 degree approach driving traffic to both our digital and physical real estate ultimately monetizing these relationships. In addition to the presented information, we have proprietary intellectual capital, fan engagement strategies and brand development blueprints which complement our publicly available information.
We intend to open and operate 15 centers by the end of 2019 and a total of 50 throughout the United States over the next 24 months. These centers are funded by us as well as a combination of tenant improvement allowances from landlords and sponsorships. Our first center was opened May, 3 2019. Due to unsolicited interest from potential franchisees we have launched a franchising program to accelerate the expansion of our planned nationwide footprint. Furthermore, we have engaged a national tenant representation real estate broker to assist in the strategic planning and negotiations for our future gaming center locations.
Optimally, our gaming centers will measure between 1200 and 2500 square feet thereby representing a national footprint unlike any esports organization. The team Simplicity branded centers will feature cutting edge technology, futuristic aesthetic décor and the most dynamic current high speed gaming equipment. We believe our brick-and-click strategy will present attractive opportunities for sponsor and advertisers to connect with our audience, creating an intriguing monetization opportunity.
Creating content that engages fans, promotes our brand as well as sponsors and developers is one of our primary goals. Our talented team will continue to produce unique in depth content which showcases aspects of esports which fans rarely see. We seek to reach a broad demographic encompassing the casual, amateur and professional gaming community. Our philosophy is to enhance our footprint for both endemic and non-endemic partnerships. We are keen to the markets and understand the new age of branding while maintaining authenticity.
Simplicity Stream Team
We are proud to support and present a diverse group of gamers as we engage fans across a multiple of esports genres. Represented below are a few members of our talented stream team. Our electric group of live personalities represent our organization to the fullest with their own unique style. Our Twitch affiliation has enabled our stream team influences to reach a broad fan base. Additionally, we have created several niches within the streaming community which has enabled us to engage fans within certain titles on a 24/7 basis.
Potential Revenue Capacity
The following table shows our potential revenue capacity, per location, from game play.
We also expect opportunities for revenue from parties, tournaments, classes, gaming gear, apparel, advertising and sponsorship sales.
ANNUAL REVENUE CAPACITY FROM GAME PLAY PER ESPORTS GAMING CENTER*
20 | % | $ | 157,248 | ||
40 | % | $ | 314,496 | ||
60 | % | $ | 471,744 | ||
80 | % | $ | 628,992 |
*Assumes 2,808 operational hours, 28 gaming stations, $10/hour price. Represents capacity only, and is not an indication of expected future revenues. There can be no assurance that we will operate at any of the indicated levels of capacity, or at all.
Corporate History
Formation
We were initially a blank check company incorporatedorganized under the laws of the State of Delaware on April 17, 2017 in Delaware andunder the name I-AM Capital Acquisition Company. We were 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 intendAlthough we were not limited to effectuate oura particular industry or geographic region for purposes of consummating a business combination, using cashwe focused on businesses with a connection to India. On November 20, 2018, we changed our name from I-AM Capital Acquisition Company to Smaaash Entertainment, Inc. On January 2, 2019, we changed our name from Smaaash Entertainment, Inc. to Simplicity Esports and Gaming Company.
We are authorized to issue 21,000,000 shares of capital stock, consisting of (i) 20,000,000 shares of common stock, with a par value of $0.0001 per share (“Common Stock”), and (ii) 1,000,000 shares of preferred stock, with a par value of $0.0001 per share. As of July 12, 2019, there were 6,952,195 shares of Common Stock issued and outstanding and there were no shares of preferred stock issued or outstanding.
Founder Shares
On May 31, 2017, we issued 1,437,500 shares of Common Stock (the “Founder Shares”) to I-AM Capital Partners LLC, our sponsor (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, for a balance of 1,300,000 Founder Shares held by our Sponsor.
Initial Public Offering and Private Placement
On August 22, 2017, we sold 5,000,000 units at a purchase price of $10.00 per unit in our initial public offering (“IPO”) of public units (“Public Units”), generating gross proceeds of $50.0 million. Each Public Unit consisted of one share of our Common Stock (“Public Shares”), one right to receive one-tenth of one share our Common Stock upon consummation of an initial business combination (“Public Right”), and one redeemable warrant (“Public Warrants”). Each warrant entitled the holder to purchase one share of common stock at an exercise price of $11.50 per share, subject to adjustment.
Concurrently with the closing of the IPO on August 22, 2017, the Sponsor purchased an aggregate of 254,500 units (“Private Placement Units”) at $10.00 per unit, generating gross proceeds of $2,545,000 in a private placement. The Private Placement Units (including their component securities) are not transferable, assignable or salable until 30 days after the completion of the initial business combination and the warrants included in the Private Placement Units are non-redeemable so long as they are held by the Sponsor or their permitted transferees.
On August 22, 2017, we issued 50,000 shares of Common Stock to Maxim in connection with its services as underwriter for the IPO.
Contained in the underwriting agreement for the IPO was an over-allotment option allowing the underwriters to purchase from the Company up to an additional 750,000 Public Units (the “Over-Allotment Units”) and, in addition, the Company received a commitment from the Sponsor to purchase up to an additional 26,250 Private Placement Units.
On September 13, 2017, the underwriters partially exercised their option and purchased 200,000 Over-Allotment Units, which were sold at an offering price of $10.00 per unit, generating gross proceeds of $2,000,000.
On September 13, 2017, simultaneously with the sale of the Over-Allotment Units, the Company consummated the sale of an additional 7,000 Private Placement Units (the “Over-Allotment Placement Units”), generating gross proceeds of $70,000.
On September 13, 2017, we issued Maxim an additional 2,000 shares of our Common Stock upon partial exercise of the over-allotment.
On October 9, 2017, we commenced trading our Public Shares of Common Stock, Public Rights, and Public Warrants on the Nasdaq Capital Market under the symbols “IAM,” “IAMXR” and “IAMXW,” respectively.
The Founder Shares are identical to the Public Shares and holders of Founder Shares have the same stockholder rights as the holders of our Public Shares (“Public Stockholders”) which include our initial stockholders, including the holders of our Founder Shares prior to the IPO (“initial stockholders”) and members of our management team, including our executive officers and directors (“management” and “management team”), to the extent our initial stockholders and/or members of our management team purchased 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), except that the Founder Shares and the shares of Common Stock (“Private Placement Shares”) forming part of the Private Placement Units are subject to certain transfer restrictions.
Consummation of Transactions with Smaaash Entertainment Private Limited
On November 20, 2018 (the “Closing Date”), the Company and Smaaash Entertainment Private Limited, a private placement,limited company incorporated under the laws of India, consummated the transactions (the “Transactions” or the “Business Combination”) contemplated by the share subscription agreement (as amended, the “Subscription Agreement”), following the approval at the special meeting of the stockholders of the Company held on November 9, 2018 (the “Special Meeting”).
At the Special Meeting, holders of 4,448,260 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 initial 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 Public Rights at the Closing and the issuance of 208,000 shares of common stock to Chardan as consideration for services), there were 5,119,390 shares of common stock and warrants to purchase approximately.
On November 20, 2018, upon the consummation of the Business Combination with Smaaash Private, we issued 26,150 shares of common stock underlying the Private Placement Rights to the holders of the Private Placement Rights.
Pursuant to the Subscription Agreement, the purchase price of $150,000 was paid by the Company to Smaaash Private in exchange for 294,360 newly issued equity shares of Smaaash Private at the closing of the Transactions (the “Closing”).
In addition, AHA Holdings Private Limited (“AHA Holdings”) and Shripal Morakhia (together with AHA Holdings, the “Smaaash Founders”) agreed that within six months following the Closing Date, they would transfer all of their ownership interest in Smaaash Private (representing 33.6% of the share capital of Smaaash Private on a fully diluted basis as of June 22, 2018) (the “Additional Smaaash Shares”) to the Company in exchange for newly issued shares of our Common Stock (the “Transferred Company Shares”) in an amount which would enable the Smaaash Founders to retain their 33.6% ownership interest in Smaaash Private indirectly through their interest in the Company.
At the Closing, the Company issued an aggregate of 2,000,000 shares of its common stock to the Smaaash Founders as an upfront portion of the Transferred Company Shares (the “Upfront Company Shares”). In connection with the issuance of the Upfront Company Shares, the Company and the Smaaash Founders entered into an escrow agreement pursuant to which the Upfront Company Shares would be held in escrow and will be either, (i) if the Additional Smaaash Shares are not transferred in full to the Company within the designated six-month period, cancelled, or (ii) if the Additional Smaaash Shares are transferred in full to the Company within the designated six-month period, released from escrow and the number of Upfront Company Shares will be deducted from the Transferred Company Shares that will be issued to the Smaaash Founders upon the delivery of the Additional Smaaash Shares.
On November 16, 2018, Smaaash Private and the Smaaash Founders executed a letter of undertaking, pursuant to which they agreed to transfer 4,000,000 additional equity shares of Smaaash Private to the Company in consideration for 200,000 shares of our Common Stock, simultaneously with the issuance of the 300,000 equity shares of Smaaash Private to the Company on or prior to November 30, 2018, as permitted by the laws of India. Such additional shares of Smaaash Private have not yet been delivered to the Company.
In connection with the Closing, the Company changed its name from I-AM Capital Acquisition Company to Smaaash Entertainment Inc., changed its stock symbols for its Common Stock, Public Rights, and Public Warrants to “IAM,” “IAMXR” and “IAMXW,” respectively, and entered into a master franchise agreement (“Master Franchise Agreement”) and a master license and distribution agreement (“Master Distribution Agreement”) with Smaaash Private. Prior to the Closing, the Company 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 Private and the rights granted under the Master Franchise Agreement and the Master Distribution Agreement.
Pursuant to the terms of the escrow agreement, the Upfront Company Shares have been cancelled because the Additional Smaaash Shares were not transferred in full to the Company in the designated six-month period.
Master Franchise Agreement
Franchise and license right. Under the Master Franchise Agreement, Smaaash Private has granted to the Company 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 Private with respect to the Smaaash Centers, in the territories of North America and South America (“Territory”). Further, Smaaash Private has granted to the Company the limited license to use the Trademarks of Smaaash Private (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 Private and the Company.
Obligations of the Company. The Company will not directly or indirectly engage or be concerned with any business which competes with Smaaash Private’s business in the Territory during the term of the Master Franchise Agreement. The Company will market, promote and publicize the Smaaash Centers in the Territory. The Company 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 Private. Smaaash Private 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 will 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, the Company 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 Private will not receive any portion of the revenue or other fees in connection with the Master Franchise Agreement.
Ownership of Smaaash Marks. Smaaash Private will be the sole owner of all intellectual property related to the Smaaash Centers. All future rights, goodwill and reputation of the Smaaash Marks shall inure to the benefit of Smaaash.
Term of the Agreement. The Master Franchise Agreement will 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 Private if the Company 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’ notice of the failure.
Addendum to Master Franchise Agreement
On November 29, 2018, the Company and Smaaash Private executed an addendum to the Master Franchise Agreement (the “Amendment”). Pursuant to the Amendment, Smaaash Private grants the Company the exclusive rights to set up family and entertainment centers under the name “Total Sports Center” in the United States (“Total Sports Centers”) in which 51% of the investment will be borne by the Company and 49% by Smaaash Private. Smaaash Private will be responsible for identifying the locations for setting up, managing and controlling the Total Sports Centers and will carry out all the fit out requirements for such centers. Smaaash Private will also appoint the management team for the centers. Smaaash Private will be entitled to 3% of the net revenue of each center, subject to conditions to be confirmed by the parties.
Master License and Distribution Agreement
Grant of license and distribution rights. Under the Master Distribution Agreement, Smaaash Private has granted to the Company an exclusive right to purchase from Smaaash Private specialized equipment and products related to sports and recreational activities (“Products”) in the territory under the brand name of Smaaash Private and sell them with a 15% markup to the customers which will be the sub-franchisees of the Company who will operate the Smaaash Centers, as specified in the Master Franchise Agreement.
Pricing. The Company may sell the Products further to any third party franchisees at a minimum of 15% margin over and above the price at which Smaaash Private sold the Products to the Company.
Grant of license in Smaaash Marks.Smaaash Private has also granted the Company a license to use the Trademarks (as set out in the Master Distribution 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 Private will be the sole owner of any intellectual property rights relating to the Products and all the goodwill relating thereto.
Term.The Master Distribution Agreement will 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 Private if the Company 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 the Company for any reason upon 120 days’ notice.
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Settlement Agreement
On November 20, 2018, the Company entered into a settlement and release agreement (“Settlement Agreement”) with Maxim Group LLC, the underwriter for the Company’s IPO (“Maxim”). Pursuant to the Settlement Agreement, the Company made a cash payment of $20,000 to Maxim and issued a demand secured promissory note in favor of Maxim in the amount of $1.8 million (the “Note”) to settle the payment obligations of the Company under the underwriting agreement dated August 16, 2017, by and between the Company and Maxim. The Company also agreed to remove the restrictive legends on an aggregate of 52,000 shares of its common stock held by Maxim and its affiliate.
The Note accrues interest at 8% per annum from the date of the Note through and including May 20, 2019 and 12% per annum from and including May 21, 2019 through and including August 20, 2019 and 15% per annum from and including August 21, 2019 through and including November 20, 2019. If a late payment occurs and is continuing, the interest rate will be increased to 12% per annum and if from the date of the Note through and including August 20, 2019 and 18% per annum and if from after August 21, 2019. If a late payment remains outstanding for over 48 hours, Maxim may require the Company to redeem all or any part of the Note (“Alternate Payment Amount”) at a redemption price equal to 125% of the Alternate Payment Amount.
The principal and interest of the Note will be payable upon demand by Maxim or from time to time, in accordance the following schedule:
(i) one third of the principal, accrued and unpaid interest and any late charges on May 20, 2019;
(ii) one third of the principal, accrued and unpaid interest and any late charges on August 20, 2019; and
(iii) one third of the principal, accrued and unpaid interest and any late charges on November 20, 2019.
The Note is secured by a first priority security interest in all personal property and assets of the Company excluding the assets held in escrow with respect to (i) that certain stock purchase agreement with Polar, pursuant to which Polar agreed to sell up to 490,000 shares of the Company’s common stock to the Company thirty days after the consummation of the Transactions and (ii) that certain stock purchase agreement with K2 Principal Fund L.P. (“K2”), pursuant to which K2 agreed to sell up to 220,000 shares of the Company’s common stock to the Company thirty days after the consummation of the Transactions.
The amount payable under the Note may be paid in shares of our Common Stock or securities debtconvertible or exercisable into shares of our Common Stock (the “Alternate Equity Payment”) if and only if the Company and Maxim mutually agree on both the purchase price and, if applicable, the conversion and/or exercise price of each security of the Company issued in such Alternate Equity Payment. Otherwise the payment should be made in cash only.
So long as any amount under the Note is outstanding, all cash proceeds received by the Company from any sales of its securities will be used to repay this Note.
Convertible Note Payable
On December 20, 2018, the Company entered into a securities exchange agreement (“Exchange Agreement”) with Maxim Group LLC (the “Holder”). Pursuant to the terms of the Exchange Agreement, the Holder agreed to surrender and exchange the Note in the amount of $1.8 million which was issued to Maxim pursuant to the Settlement Agreement (discussed immediately above). In exchange, the Company issued to the Holder a Series A-1 Exchange Convertible Note in the principal amount of $500,000 (the “Series A-1 Note”) and a Series A-2 Exchange Convertible Note in the principal amount of $1,000,000 (the “Series A-2 Note,” and collectively with Series A-1 Note, the “Exchange Notes”).
The Series A-1 Note bears interest at 2.67% per annum, payable quarterly and has a maturity date of the earlier of the closing date of the Acquisition (as defined below) or June 20, 2020 (the “Maturity Date”). The Company may pay the interest in cash or at its sole discretion, in shares of its common stock or a combination of cash securities and debt.common stock. However, the Company may only pay the interest in shares of its common stock if (i) all the equity conditions specified in the note (“Equity Conditions”) have been met (unless waived by the Holder in writing) during the 20 trading days immediately prior to the interest payment date (“Interest Notice Period”), (ii) the Company has provided proper notice pursuant to the terms of the note and (iii) the Company has delivered to the Holder’s account certain number of shares of its common stock to be applied against such interest payment prior to (but no more than five trading days before) the Interest Notice Period.
The Series A-1 Note is convertible into shares of the Company’s common stock (“Conversion Shares”) at an initial conversion price of $1.93 per share, subject to adjustment for any stock dividends and splits, rights offerings, distributions, combinations or similar transactions. Upon the closing of the Acquisition, the conversion price will be automatically adjusted to equal the arithmetic average of the volume weighted average price (“VWAP”) of the Company’s common stock in the five trading days prior to the closing date of the Acquisition. The Holder may convert the Series A-1 Note at any time, in whole or in part, provided that upon receipt of a notice of conversion from the Holder, the Company has the right to repay all or any portion of the Series A-1 Note included in the notice of conversion.
Additionally, the Series A-1 Note will automatically convert into shares of the Company’s common stock on the earlier of the Maturity Date or the closing date of the Acquisition provided that (i) no event of default then exists, and (ii) solely if such automatic conversion date is also the Maturity Date, each of the Equity Conditions have been met (unless waived in writing by the Holder) on each trading day during the 20 trading day period ending on the trading day immediately prior to the automatic conversation date.
At any time prior to the Maturity Date, the Company may also elect to redeem some or all of the outstanding principal amount for cash in an amount (the “Optional Redemption Amount”) equal to the sum of (a) 100% of the then outstanding principal amount of the note, (b) accrued but unpaid interest and (c) all liquidated damages and other amounts due in respect of the note (the “Optional Redemption”). The Company may only effect an Optional Redemption if each of the Equity Conditions have been met (unless waived in writing by the Holder) on each trading day during the period commencing on the date when the notice of the Optional Redemption is delivered to the date of the Optil Redemption and through and including the date payment of the Optional Redemption Amount is actually made in full.
Except as otherwise provided in the Series A-1 Note, including, without limitation, an Option Redemption, the Company may not prepay any portion of the principal amount of the note without the prior written consent of the Holder.
The Company is not permitted to convert any portion of the Series A-1 Note if doing so results in the Holder beneficially owning more than 4.99% of the outstanding common stock of the Company after giving effect to such conversion, provided that on 61 days’ prior written notice from the Holder to the Company, that percentage may increase to 9.99%. However, if there is an automatic conversion, and the conversion would result in the Company issuing a number of shares in excess of the beneficial ownership limitation, then any such shares in excess of the beneficial ownership limitation will be held in abeyance for the benefit of the Holder until such time or times, if ever, as its right thereto would not result in the Holder exceeding the beneficial ownership limitation, at which time or times the Holder will be issued such shares to the same extent as if there had been no such limitation.
The Series A-1 Note contains restrictive covenants which, among other things, restrict the Company’s ability to repay or repurchase any indebtedness, make distributions on or repurchase its common stock or enter into transactions with its affiliates.
The Series A-2 Note has terms substantially similar to those of the Series A-1 Note except that the Series A-2 Note has a maturity date of June 20, 2020 and an initial conversion price of $1.93 which will be automatically adjusted to the lower of (i) the conversion price then in effect and (ii) the greater of the arithmetic average of the VWAP of the Company’s common stock in the five trading days prior to the notice of conversion and $0.50.
As of December 31, 2018, upon the closing of the Acquisition, the Series A-1 Note automatically converted into 193,648 shares of the Company’s common stock.
Amendments to Forward Purchase Agreements and Warrants
On December 20, 2018, the Company, Polar, K2 and the Escrow Agent, entered into an Amendment (the “Amendment”), pursuant to which, among other things, the stock purchase agreements with Polar and K2 were amended to (x) reduce the purchase price per share payable by the Company at the closing of the Stock Sales from $11.23 per share to (1) first $6.00 per share up to 20% of the original number of Shares (as defined in the respective Purchase Agreement), (2) then $5.00 per remaining share up to 20% of the original number of Shares, (3) then $4.00 per remaining share up to 20% of the original number of Shares, (4) then $3.00 per remaining Share up to 20% of the original number of Shares, and (5) then $2.00 per remaining Share up to 20% of the original number of Shares, (y) to extend the outside date of the closing of the Stock Sales until January 18, 2019, and (z) to authorize the issuance of additional$3,542,700 and $1,590,600 from the Escrow Account to Polar and K2, respectively, as partial payment for the Shares prior to the final closing of the Stock Sales.
In addition, pursuant to the terms of the Amendment, the Company agreed to amend its outstanding Public Warrants and Private Placement Warrants (1) to reduce the exercise price of the warrants from $11.50 per share to $4.00 per share, subject to adjustment (the “Exercise Price Adjustment”) and (2) to revise the redemption provisions of the warrants to provide that the Company may only redeem each warrant in whole at a price of $0.1 per warrant upon a minimum of 30 days’ written notice of redemption if, and only if, the last sale price of the Company’s common stock equals or exceeds $7.00 per share (as opposed to the current $21.00 per share) for any 20 trading days within a 30-trading day period (the “Redemption Threshold Adjustment”); provided, however, that the Exercise Price Adjustment and the Redemption Threshold Adjustment shall only be effective upon the approval of the requisite number of warrant holders, as required by law.
Acquisition of Simplicity Esports, LLC
On January 4, 2019, the Simplicity Owners received an aggregate of 300,000 shares of common stock at the closing of the Acquisition and an additional aggregate of 700,000 shares of common stock on January 7, 2019. The Simplicity Owners are entitled to receive an additional 2,000,000 shares upon the Company’s receipt of the approval of its stockholders to such issuance. This provision was removed as the stockholder approval was only necessary due to the Company’s stock being listed on NASDAQ. Upon completion of the Simplicity Esports LLC acquisition, the Company decided that moving off the NASDAQ was appropriate and, the 2,000,000 shares are included on the balance sheet as common stock issuable to Simplicity Owners at February 28, 2019.
In connection with the acquisition of Simplicity Esports LLC, on January 2, 2019, the Company filed a Certificate of Amendment to the Company’s Third Amended and Restated Certificate of Incorporation (the “Certificate Amendment”) with the Delaware Secretary of State to change the Company’s name from “Smaaash Entertainment, Inc.” to “Simplicity Esports and Gaming Company”. In addition, the Company changed the ticker symbols of its common stock and public warrants to “WINR” and “WINRW,” respectively, and commenced trading of its common stock and public warrants under such new ticker symbols on the OTCQB on January 10, 2019.
Nasdaq Delisting
On December 10, 2018, the Company received a written notice (the “Notice”) from the Listing Qualifications Division of The Nasdaq Stock Market LLC (“Nasdaq”) indicating that the Company has not complied with the requirements of IM-5101-2 of the listing rules of Nasdaq (the “Listing Rules”).
The Notice stated that after its Business Combination, the Company had not demonstrated that its common stock met Listing Rule 5505(b)(1) that requires a market value of publicly held shares of at least $15 million. Additionally, the Company has not provided evidence that its common stock has at least 300 round lot holders as required by Listing Rule 5505(a)(3) and that its warrant has at least 400 round lot holders as required by Listing Rule 5515(a)(4). Finally, the Company does not comply with Listing Rule 5515(a)(2) which requires that for initial listing of a warrant the underlying security must be listed on Nasdaq.
On January 7, 2019, the Company received a second written notice from Nasdaq informing it that the Company failed to comply with Listing Rule 5250(e)(2) which requires companies listed on Nasdaq to timely file notification forms for the Listing of Additional Shares (the “LAS Notification”).
The Company was required to submit the LAS Notification 15 days prior to the issuance of the securities, however, the Company filed the LAS Notification for the issuance of the Series A-1 Note and Series A-2 Note and for the share exchange under our Share Exchange Agreement after such 15-day periods. Nasdaq notified the Company that each of these matters serves as an additional and separate basis for delisting the Company’s securities and that the review panel will consider these matters in rendering a determination regarding the Company’s continued listing on Nasdaq.
Management of Simplicity Esports and Gamily Company has decided that moving from The Nasdaq Stock Market (“Nasdaq”) to the OTCQB is more appropriate for the Company at this time, while the Company builds out its planned network of retail esport centers.
On April 1, 2019, the Company was notified by Nasdaq that it would delist the Company’s common stock and public warrants. The Company’s common stock and public warrants were previously suspended from trading on Nasdaq, effective January 25, 2019.
On April 2, 2019, Nasdaq filed a Notification of Removal from Listing and/or preferred stock:Registration under Section 12(b) of the Securities and Exchange Act of 1934 on Form 25 with the Securities and Exchange Commission relating to the Company’s common stock and public warrants. As a result, the Company’s common stock and public warrants were delisted from Nasdaq effective April 2, 2019.
The Company’s common stock and public warrants currently have been quoted on the OTCQB under the symbols “WINR” and “WINRW,” respectively.
Recent Developments
Private Unit Offering
In2019, the Company sold an aggregate of 987,500 units (the “Units”) at a purchase price of $2.00 per Unit to 12 accredited investors in exchange for receipt of $1,975,000. Each unit consists of (i) one share of common stock, and (ii) a 5-year warrant to purchase one share of common stock at a purchase price of $4.00.
Settlement Agreement
In March 2019, the Company entered into a settlement agreement with its prior attorney. As of July 12, 2019, the Company owed this attorney approximately $725,000. The settlement agreement called for $200,000 to be paid upon signing the settlement agreement and then another approximate $525,000 to be paid over time.
Restricted Stock Award
On March 27, 2019, pursuant to a Restricted Stock Award, we granted Jed Kaplan, our Chief Executive Officer and interim Chief Financial Officer and a member of our board of directors, 120,000 shares of our restricted Common Stock.Such shares vest over a nine month period. As of July 12, 2019, 50,000 of such shares have vested.
On March 27, 2019, pursuant to a Restricted Stock Award, we granted Roman Franklin, our President and a member of our board of directors, 36,000 shares of our restricted Common Stock. Such shares vest over a nine month period. As of July 12, 2019, 15,000 of such shares have vested.
On March 27, 2019, pursuant to a Restricted Stock Award, we granted Steve Grossman, President of Simplicity Esports, LLC, a wholly owned subsidiary of our company, 24,000 shares of our restricted Common Stock.Such shares vest over a nine month period. As of July 12, 2019, 10,000 of such shares have vested.
Each of the Restricted Stock Awards was entered into in connection with entry into employment agreements with each of Messrs. Kaplan, Franklin and Grossman on December 31, 2018.
Debt Conversion
On May 31, 2019, we issued 100,000 shares of Common Stock to affiliates of Polar in exchange for Polar’s forgiveness of $143,476 owed by us to Polar under that that certain Stock Purchase Agreement, dated as of November 2, 2018, between Polar and us.
Special Public Warrant Holder Meeting
On June 5, 2019, we filed a preliminary proxy statement with the SEC in connection with a planned special meeting of public warrant holders to authorize our board of directors to seek public warrant holder approval of the following amendments to the publicly and privately issued warrants under the Warrant Agreement: (1) reducing the exercise price of the warrants from $11.50 per share to $4.00 per share, subject to adjustment (the “Exercise Price Adjustment”) and (2) revising the redemption provisions of the warrants to provide that we may only redeem each warrant in whole at a price of $0.1 per warrant upon a minimum of 30 days’ written notice of redemption if, and only if, the last sale price of our common stock equals or exceeds $7.00 per share (as opposed to the current $21.00 per share) for any 20 trading days within a 30-trading day period (the “Redemption Threshold Adjustment”).
Overview of Smaaash Entertainment Private Limited
Smaaash Private operates 40 state-of-the-art games and entertainment centers (“Smaaash Centers”), including 39 Smaaash Centers in India and one international Smaaash 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 Private’s core concept is to offer an interactive, immersive and fun experience to customers at its Smaaash Centers, blending Augmented Reality (“AR”) and Virtual Reality (“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 corporate customers, families, friends and children. Smaaash Private’s game concepts are supported by its in-house technology, value engineering and systems integration capabilities.
Smaaash Private’s game attractions are classified as follows:
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Similarly, if we issue debt securities, it could result in:Smaaash Private’s game offerings are complemented by its in-house food & beverage services.
Smaaash Private launched its flagship Smaaash Center in November 2012, at Kamala Mills in Lower Parel, Mumbai, with a proprietary cricket game (obtained by Smaaash Private 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 Private 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 the Smaaash Centers. Among other marketing initiatives, from time to time, Smaaash Private 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 Private launched its first international Smaaash Center in December 2016, at the Mall of America in Minnesota, USA. Its star attraction in its U.S. Smaaash Center is a multi-level go-karting track and games developed and launched specifically for this Smaaash 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 Private acquired PVR bluO and SVM’s bowling and gaming assets to expand its footprint across India. The acquisitions added 20 Smaaash Centers to Smaaash Private’s portfolio.
Following the January 2019 acquisition of Simplicity Esports LLC, we determined to shift our current primary focus to the Simplicity Esports LLC business. Accordingly, we do not anticipate generating any material revenues from Smaaash in 2019. The Master Franchise Agreement, as amended, and the Master Distribution Agreement continue in full force and effect, however, and we may now or in the future pursue Smaaash business opportunities.
Employees
As of July 12, 2019, we had three full-time employees and no part-time employees. None of our employees is represented by a union. We consider our relations with our employees to be good.
Legal Proceedings
From time to time, we are involved in various claims and legal actions arising in the ordinary course of business. To the knowledge of our management, there are no legal proceedings currently pending against us which we believe would have a material effect on our business, financial position or results of operations and, to the best of our knowledge, there are no such legal proceedings contemplated or threatened.
Properties
We expectlease approximately 250 rentable square feet of office space from an unaffiliated third party for our corporate office located at 7000 W. Palmetto Park Road, Suite 507, Boca Raton, Florida 33433. This lease expires on June 1, 2022. Terms of the office lease provide for a base rent payment of $800 per month. We also lease approximately 1,200 rentable square feet of retail space from an unaffiliated third party for our Boca Raton Esports Gaming Center. This lease expires in 2024. Terms of the office lease provide for a base rent payment of $2,200 per month and a share of the buildings operating expenses such as taxes and maintenance of $760 per month. We believe that these facilities are adequate for our current and near-term future needs.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
References in this prospectus to “we,” “us” or the “Company” refer to Simplicity Esports and Gaming Company, formerly known as Smaaash Entertainment Inc. and prior to that as I-AM Capital Acquisition Company. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this prospectus.
Overview
We are a North American esports organization. We have implemented a unique approach to ensure the ultimate fan friendly experience. Our intention is to have gamer’s involved at the grassroots level and feel a sense of unity as we compete with top class talent. Utilizing the vast resources from within the ownership group, we have already established an impressive management team and roster. Our management and players are well known influencers within the esports community and we plan to use their skill to create a seamless content creation pan to help gamers feel closer to our brand that any other in the scene. Our organization intends to take the opportunity to create a platform that will help grow the sports for generations of gamers.
For the fiscal year ended May 31, 2018 and the period from April 17, 2017 (date of inception) to May 31, 2017, we did not generate any revenues and reported net losses of $8,862 and $672, respectively, and negative cash flow from operating activities of $470,153 and $672, respectively. For the nine months ended February 28, 2019, we generated revenues of $14,070 and reported a net loss of $3,095,960, and negative cash flow from operating activities of $823,847. As noted in our consolidated financial statements, we had an accumulated deficit of approximately $3,105,494. We anticipate that we will continue to report losses and negative cash flow. Our auditors have raised substantial doubt regarding our ability to continue as a going concern as a result of our historical recurring losses and negative cash flows from operations as well as our dependence on private equity and financings. See “Risk Factors” - We have a history of operating losses and our auditors have indicated that there is a substantial doubt about our ability to incur significant costscontinue as a going concern.”
Consummation of Transactions with Smaaash Entertainment Private Limited
On November 20, 2018 (the “Closing Date”), the Company and Smaaash Entertainment Private Limited, a private limited company incorporated under the laws of India, consummated the transactions (the “Transactions” or the “Business Combination”) contemplated by the share subscription agreement (as amended, the “Subscription Agreement”), following the approval at the special meeting of the stockholders of the Company held on November 9, 2018 (the “Special Meeting”).
Pursuant to the Subscription Agreement, the purchase price of $150,000 was paid by the Company to Smaaash Private in exchange for 294,360 newly issued equity shares of Smaaash Private at the closing of the Transactions (the “Closing”).
In addition, AHA Holdings Private Limited (“AHA Holdings”) and Shripal Morakhia (together with AHA Holdings, the “Smaaash Founders”) agreed that within six months following the Closing Date, they would transfer all of their ownership interest in Smaaash Private (representing 33.6% of the share capital of Smaaash Private on a fully diluted basis as of June 22, 2018) (the “Additional Smaaash Shares”) to the Company in exchange for newly issued shares of our Common Stock (the “Transferred Company Shares”) in an amount which would enable the Smaaash Founders to retain their 33.6% ownership interest in Smaaash Private indirectly through their interest in the pursuit of our acquisition plans. Our plans to raise capital or to complete a business combination may not be successful.Company.
Recent EventsAt the Closing, the Company issued an aggregate of 2,000,000 shares of its common stock to the Smaaash Founders as an upfront portion of the Transferred Company Shares (the “Upfront Company Shares”). In connection with the issuance of the Upfront Company Shares, the Company and the Smaaash Founders entered into an escrow agreement pursuant to which the Upfront Company Shares would be held in escrow and will be either, (i) if the Additional Smaaash Shares are not transferred in full to the Company within the designated six-month period, cancelled, or (ii) if the Additional Smaaash Shares are transferred in full to the Company within the designated six-month period, released from escrow and the number of Upfront Company Shares will be deducted from the Transferred Company Shares that will be issued to the Smaaash Founders upon the delivery of the Additional Smaaash Shares.
On May 3,November 16, 2018, weSmaaash Private and the Smaaash Founders executed a letter of undertaking, pursuant to which they agreed to transfer 4,000,000 additional equity shares of Smaaash Private to the Company in consideration for 200,000 shares of our Common Stock, simultaneously with the issuance of the 300,000 equity shares of Smaaash Private to the Company on or prior to November 30, 2018, as permitted by the laws of India. Such additional shares of Smaaash Private have not yet been delivered to the Company.
In connection with the Closing, the Company changed its name from I-AM Capital Acquisition Company to Smaaash Entertainment Inc., changed its stock symbols for its Common Stock, Public Rights, and Public Warrants to “IAM,” “IAMXR” and “IAMXW,” respectively, and entered into a definitivemaster franchise agreement (“Master Franchise Agreement”) and a master license and distribution agreement (“Master Distribution Agreement”) with Smaaash Private. Prior to invest upthe Closing, the Company was a shell company with no operations, formed as a vehicle to $49 millioneffect a business combination with one or more operating businesses. After the Closing, the Company’s primary assets consist of shares in Smaaash. Smaaash Private and the rights granted under the Master Franchise Agreement and the Master Distribution Agreement.
Pursuant to the terms of the escrow agreement, the Upfront Company Shares have been cancelled because the Additional Smaaash Shares were not transferred in full to the Company in the designated six-month period.
Following the closing,January 2019 acquisition of Simplicity Esports LLC described below, we determined to shift our current primary focus to the Simplicity Esports LLC business. Accordingly, we do not anticipate generating any material revenues from Smaaash in 2019. The Master Franchise Agreement, as amended, and the Master Distribution Agreement continue in full force and effect, however, and we may now or in the future pursue Smaaash Private business opportunities.
Acquisition of Simplicity Esports, LLC
On January 4, 2019, the Company consummated the transactions contemplated by that certain share exchange agreement, dated December 21, 2018 (as amended by Amendment No. 1 to Share Exchange Agreement, dated December 28, 2018 and by Amendment No. 2 to Share Exchange Agreement, dated December 30, 2018, the “Share Exchange Agreement”) by and among the Company, Simplicity Esports, LLC, a Florida limited liability company (“Simplicity Esports LLC”), each of the equity holders of Simplicity Esports LLC (“Simplicity Owners”) and Jed Kaplan, in the capacity as the representative of the Simplicity Owners (the “Representative”). Pursuant to the Share Exchange Agreement the Simplicity Owners transferred all the issued and outstanding equity interests of Simplicity Esports LLC to the Company in exchange for newly issued shares of common stock of the Company (the “Acquisition”).
Background of Simplicity Esports, LLC
Founded in 2017, Simplicity Esports LLC is committed to growing and enhancing the Esports industry, fostering the development of amateurs to compete professionally, and partnering with established professional gamers to support their paths to greater success. Esports (also known as electronic sports, e-sports, or eSports) is a form of competition using video games. Most commonly, esports takes the form of organized, multiplayer video game competitions, particularly between professional players, individually or as teams. Our continued accomplishments in various games is a driving force behind the growth of our fan base including viewership of our content.
As of January 4, 2019, upon the completion of the acquisition of Simplicity Esports LLC, the business of Simplicity Esports LLC has now become the primary business will beof the Company. Simplicity Esports LLC is an established brand in the Esports industry with an engaged fan base competing in popular games across different genres, including Apex Legends, PUBG, Gears of War, SMITE, and NHL 19. The Simplicity Esports LLC stream team encompasses over 50 casters, influencers and personalities who connect to act asa dedicated fan base. Simplicity Esports LLC’s notoriety in the sole master distributorindustry is evidenced by its audience that views millions of Smaaash’s active entertainment games in Northminutes of Simplicity Esports LLC content monthly, via various social media outlets including YouTube, Twitter 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.Twitch.
The acquisition of Simplicity Esports LLC creates a pure play esports team and entertainment platform opportunity, which we believe will increase shareholder value and boost our growth strategy as we endeavor the build out of our brick and mortar esports centers. Through Simplicity Esports LLC, the Company has begun to implement a unique approach to ensure the ultimate fan friendly esports experience. Our intention is to have gamers involved at the grassroots level and feel a sense of unity as we compete with top class talent. Our management and players are known within the esports community and we plan to use their skills to create a seamless content creation plan helping gamers feel closer to our brand than any other in the industry. Simplicity Esports LLC also plans to open and operate corporate-owned retail esports gaming centers (“Simplicity Esports Gaming Centers”) as well as to franchise Simplicity Esports Gaming Centers that will provide the public an opportunity to experience and enjoy gaming and Esports in a social setting, regardless of skill or experience.
Results of Operations
Our only activities from April 17, 2017 (date of inception) through November 20, 2018 were organizational activities, those necessary to prepare for the IPO, which was consummated on August 22, 2017, and identifying a target company for a business combination. Following the IPO through and after our business combination, we had not generated any operating revenues.
Following the acquisition of Simplicity Esports and Gaming, LLC, the Company began generating revenue and incurring additional expenses.
Summary of Statement of Operations for the Three Months Ended February 28, 2019 and 2018:
Other Income
We have neither engagedgenerated $164 of non-operating income in any operations northe form of interest income for the three months ended February 28, 2019 as compared to $158,712 for the three months ended February 28, 2018. The change is attributable to the decrease in the cash held in trust account.
For the three months ended February 28, 2019, the Company had debt forgiveness income of $300,000 due to the exchange notes with Maxim. The original Maxim promissory note was $1,800,000 and this was exchanged for two convertible notes totaling $1,500,000. Also, in December 2018, one of the convertible notes was converted into 193,648 shares of common stock.
Revenue
The Company’s revenue for the three months ended February 28, 2019 was $14,070, a 100% increase over the February 28, 2018 revenue of $-0-. This increase is due to the acquisition of Simplicity Esports, LLC.
General and Administrative Expenses
General and administrative expenses for the three months ended February 28, 2019 was $430,011 as compared to $114,465 for the three months ended February 28, 2018 and increase of $315,546 or approximately 276%. The change is primarily attributable to the acquisition of Simplicity Esports, LLC. The selling, general and administrative expenses of this new acquisition consist primarily of payroll and related costs, stock based compensation and professional services.
Net Loss
Net loss for the three months ended February 28, 2019 was $115,776, as compared to net income of $29,203, for the three months ended February 28, 2018.
Summary of Statement of Operations for the Nine Months Ended February 28, 2019 and 2018:
Other Income
We have generated any revenues$401,582 of non-operating income in the form of interest income for the nine months ended February 28, 2019 as compared to date. $312,000 for the three months ended February 28, 2018.
For the nine months ended February 28, 2019, the Company had debt forgiveness income of $300,000 due to the exchange notes with Maxim. The original Maxim promissory note was $1,800,000 and this was exchanged for two convertible notes totaling $1,500,000. Also, in December of 2018 one of the convertible notes was converted into 193,648 shares of common stock.
Revenue
The Company’s revenue for the nine months ended February 28, 2019 was $14,070, a 100% increase over the February 28, 2018 revenue of $-0-. This increase is due to the acquisition of Simplicity Esports, LLC.
General and Administrative Expenses
General and administrative expenses for the nine months ended February 28, 2019 was $3,811,613 as compared to $305,690 for the nine months ended February 28, 2018 and increase of $3,505,923. The change is primarily attributable to two events, first the acquisition of Simplicity Esports, LLC. The selling, general and administrative expenses of this new acquisition consist primarily of payroll and related costs, stock based compensation and professional services. Second the issuance of shares for services in November of 2018.
Net Loss
Net loss for the nine months ended February 28, 2019 was $3,095,960, as compared to net income of $4,165, for the nine months ended February 28, 2018.
Summary of Statement of Operations for the Period from April 17, 2017 (date of inception) through May 31, 2018:
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.Transactions. Following the IPO through May 31, 2018 (after our IPO,business combination on August 22, 2017), we havehad not generated any operating revenues and will not until after the completion of our initial business combination. revenues.
Other Income
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.
Net Loss
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 ourthe IPO and simultaneous private placement,Private Placement, inclusive of the underwriters’ partial exercise of their over-allotment option, generated gross proceeds to usthe Company 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 arewas held in the trust account)Trust Account) and $478,000 of IPOInitial Public Offering costs.
Following ourthe IPO and the underwriter’s partial exercise of the over-allotment option, a total of $55,740,000$52,780,000 was placed in the trust accountTrust Account and we had $552,190 of cash held outside of the trust account,Trust Account, after payment of all costs related to the IPO.
On November 20, 2018, in connection with the closing of the Transactions, the funds in the Trust Account were used for, among other things, the following:
● | $45,455,596 to redeem 4,448,260 shares; | |
● | $7,255,306 to fund the escrow agreement for Polar and K2; and | |
● | $150,000 to fund our investment in Smaaash. |
As of May 31, 2018,February 28, 2019, we had no 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.Trust Account.
As of May 31, 2018,February 28, 2019, we had cash of $458,063$1,245,666 held outside the trust account,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.purposes. In addition, as of May 31, 2018,February 28, 2019, we had accrued expenses of $63,579.$871,315.
For the yearnine months ended February 28, 2019, cash used in operating activities amounted to $823,847, mainly resulting from net loss of $3,095,960, offset by stock issued for services of $2,169,143. Changes in our operating liabilities and assets generated cash of $654,552.
For the period from April 17, 2017 (date of inception) through 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.
Going Concern
The Company’s consolidated financial statements have been prepared assuming that it will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.
As reflected in the consolidated financial statements, the Company has an accumulated deficit at February 28, 2019, a net loss and net cash used in operating activities for the reporting period then ended. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
The Company is attempting to commence operations and generate sufficient revenue; however, the Company’s cash position may not be sufficient to support the Company’s daily operations. Management intends to raise additional funds by way of a private or public offering. While the Company believes in the viability of its strategy to commence operations and generate sufficient revenue and in its ability to raise additional funds, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to further implement its business plan and generate sufficient revenue and its ability to raise additional funds by way of a public or private offering.
The consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Contractual obligations
We do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities, other than anexcept as follows:
On November 20, 2018, the Company entered into a settlement and release agreement with Maxim Group, LLC, the underwriter for the IPO. Pursuant to pay the sponsorSettlement Agreement, the Company made a monthly feecash payment of $10,000 for office space, utilities$20,000 to Maxim and administrative support providedissued a demand secured promissory note in favor of Maxim in the amount of $1.8 million to us. We began incurring these fees onsettle the payment obligations of the Company under the underwriting agreement dated August 16, 2017, by and will continuebetween the Company and Maxim. The Company also agreed to incur these fees monthly untilremove the earlierrestrictive legends on an aggregate of the completion52,000 shares of our initial business combination or our liquidation.its common stock held by Maxim and its affiliate.
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.
Revenue Recognition
As of January 1, 2018, the Company adopted Revenue from Contracts with Customers (Topic 606) (“ASC 606”). The new guidance sets forth a new five-step revenue recognition model which replaces the prior revenue recognition guidance in its entirety and is intended to eliminate numerous industry-specific pieces of revenue recognition guidance that have historically existed in U.S. GAAP. The underlying principle of the new standard is that a business or other organization will recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects what it expects to receive in exchange for the goods or services. The standard also requires more detailed disclosures and provides additional guidance for transactions that were not addressed completely in the prior accounting guidance. The Company hasadopted the standard using the modified retrospective method and the adoption did not identified any critical accounting policies.have a material impact on its financial statements.
The Company recognizes revenue when performance obligations under the terms of a contract with the customer are satisfied. Product sales occur once control is transferred upon delivery to the customer. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods and services. Our revenue is derived from two sources, the first is from the sale of the rights to our players to third parties and second from participation and prize money awarded at gaming tournaments.
Goodwill
Goodwill is the excess of our purchase cost over the fair value of the net assets of acquired businesses. We do not amortize goodwill, but we assess our goodwill for impairment at least annually. Our assessment date was January 31, 2019 and qualitative considerations indicated no impairment.
The following table sets forth information regarding our directors and executive officers:
Name | Age | Position | ||
Jed Kaplan | 54 | Chief Executive Officer, interim Chief Financial Officer, and Class II Director of the Company | ||
Donald R. Caldwell | 71 | Chairman and Class I Director of the Company | ||
Roman Franklin | 35 | President and Class I Director of the Company | ||
Steven Grossman | 45 | President of Simplicity Esports, LLC | ||
F. Jacob Cherian | 54 | Class II Director of the Company | ||
Suhel Kanuga | 43 | Class II Director of the Company | ||
Max Hooper | 71 | Class II Director of the Company | ||
Frank Leavy | 65 | Class I Director of the Company | ||
Edward Leonard Jaroski | 71 | Class I Director of the Company | ||
William H. Herrmann, Jr. | 72 | Class II Director of the Company |
Jed Kaplan, has been a member of our board of directors since December 31, 2018 and our sole Chief Executive Officer and interim Chief Financial Officer since February 8, 2019. From December 31, 2018 to February 8, 2019, Mr. Kaplan served as our co-Chief Executive Officer.He has served as the Chief Executive Officer of Shearson Financial Services, a FINRA registered broker dealer, since May 1995. Mr. Kaplan has extensive sports management experience with various professional sports organizations. Mr. Kaplan graduated from City University of New York in 1989 with a Bachelor of Business Administration degree.
The Company believes Mr. Kaplan’s strong expertise in the financial services and sports management industries qualifies him to serve on its board of directors.
F. Jacob Cherian, has been a member of our board of directors since April 17, 2017 (date of inception). From December 31, 2018 to February 8, 2019, Mr. Cherian served as our co-Chief Executive Officer. From April 17, 2017 to December 31, 2018, Mr. Cherian served as our sole Chief Executive Officer. He 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 been a member of our board of directors since April 17, 2017 (date of inception). From April 17, 2017 to February 8, 2019, Mr. Kanuga served as our Chief Financial Officer and Secretary. He 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 a member of our board of directors since August 16, 2017 and our President since December 31, 2018. 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.
Steven Grossman,has served as the President of our wholly-owned subsidiary Simplicity Esports, LLC since January 2018. Mr. Grossman has been employed by Shearson Financial Services, a FINRA registered broker dealer, since February 2001 and has served as its President since January 2010. Mr. Grossman graduated from Towson University in 1995 with a Bachelor of Science degree.
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 thereinMax Hooper, who has been obtainedan independent member of our board of directors 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 sourcesa 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 member of our board of directors 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 member of our board of directors 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 1987. 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 member of our board of directors 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 its 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.
Mr. Kaplan is Mr. Grossman’s brother-in-law, there are no other family relationships among any of the Company’s directors or executive officers.
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 serving a two-year term.
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
Since we are currently quoted on the OTCQB tier of the OTC Markets Group, we are not required to comply with the corporate governance rules of a national exchange, such as the NYSE American (“NYSE”), or national quotation system, such as the NASDAQ Capital Market (the “NASDAQ”), and instead may comply with less stringent corporate governance standards of the OTCQB. The OTCQB does not require any of its members to establish any committees comprised of members of our board of directors, including an Audit Committee, a Compensation Committee or a Nominating Committee, any committee performing a similar function. Instead, the functions of those committees may be undertaken by the board of directors as a whole. Unlike the requirements of the NYSE or NASDAQ, the OTCQB does not require that a majority of our board members be independent and does not require that all or any portion of our board of directors include “independent” directors, nor are we currently required to establish or maintain an Audit Committee or other committee of our board of directors. Although we may comply with less stringent corporate governance standards while listed on the OTCQB, we have elected to voluntarily comply with the corporate governance rules of the NASDAQ in order to provide the same protections afforded to stockholders of companies that are subject to all of the corporate governance rules of the NASDAQ.
The NASDAQ standards relating to corporate governance, require, among other things, that:
● A majority of our board of directors to consist of “independent directors.” An “independent director” is defined generally believedas 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, 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;
● The compensation of our executive officers to be reliable, but that their accuracy, completeness and underlying assumptions are not guaranteed and their reliability cannot be assured. Industry and Governmentdetermined, or recommended to the board of India’s publications are also prepared based on information asdirectors for determination, by independent directors constituting a majority of specific dates and may no longer be currentthe independent directors of the Board in a vote in which only independent directors participate or reflect current trends. However, we believe the information under this sectionby a Compensation Committee comprised solely of independent directors;
● Director nominees to be accurateselected, or recommended to the board of directors for selection, by independent directors constituting a majority of the independent directors of the Board in a vote in which only independent directors participate or by a nomination committee comprised solely of independent directors; and complete.
● An audit committee with at least three independent directors as well as composed entirely of independent directors be established and maintained, where at least one of the independent directors qualifies as an audit committee financial expert under SEC rules and as a financially sophisticated audit committee member under the applicable Exchange rules.
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
OverviewMessrs. Caldwell and Leavy and Dr. Hooper will serve as members of our audit committee. Mr. Caldwell serves as chairman of the Indian Economyaudit committee. Under NASDAQ listing standards and applicable SEC rules, we are required to have three members of the audit committee, all of whom must be independent. Messrs. Caldwell, and Leavy 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
India has emergedThe members of our compensation committee are Messrs. Caldwell and Jaroski and Dr. Hooper. Mr. Caldwell serves 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 onechairman of the top three economic powerscompensation committee. We have adopted a compensation committee charter, which details the principal functions 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.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. |
Market size
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.
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
WithPrivate Unit Offering
In 2019, the improvementCompany sold an aggregate of 987,500 units (the “Units”) at a purchase price of $2.00 per Unit to 12 accredited investors in exchange for receipt of $1,975,000. Each unit consists of (i) one share of common stock, and (ii) a 5-year warrant to purchase one share of common stock at a purchase price of $4.00.
Settlement Agreement
In March of 2019, the Company entered into a settlement agreement with its prior attorney. As of July 12, 2019, the Company owes this attorney approximately $725,000. The settlement agreement called for $200,000 to be paid upon signing the settlement agreement and then another approximate $725,000 to be paid over time.
Restricted Stock Award
On March 27, 2019, pursuant to a Restricted Stock Award, we granted Jed Kaplan, our Chief Executive Officer and interim Chief Financial Officer and a member of our board of directors, 120,000 shares of our restricted Common Stock.Such shares vest over a nine month period. As of July 12, 2019, 50,000 of such shares have vested.
On March 27, 2019, pursuant to a Restricted Stock Award, we granted Roman Franklin, our President and a member of our board of directors, 36,000 shares of our restricted Common Stock. Such shares vest over a nine month period. As of July 12, 2019, 15,000 of such shares have vested.
On March 27, 2019, pursuant to a Restricted Stock Award, we granted Steve Grossman, President of Simplicity Esports, LLC, a wholly owned subsidiary of our company, 24,000 shares of our restricted Common Stock.Such shares vest over a nine month period. As of July 12, 2019, 10,000 of such shares have vested.
Each of the Restricted Stock Awards was entered into in connection with entry into employment agreements with each of Messrs. Kaplan, Franklin and Grossman on December 31, 2018.
Debt Conversion
On May 31, 2019, we issued 100,000 shares of Common Stock to affiliates of Polar in exchange for Polar’s forgiveness of $143,476 owed by us to Polar under that that certain Stock Purchase Agreement, dated as of November 2, 2018, between Polar and us.
Special Public Warrant Holder Meeting
On June 5, 2019, we filed a preliminary proxy statement with the SEC in connection with a planned special meeting of public warrant holders to authorize our board of directors to seek public warrant holder approval of the following amendments to the publicly and privately issued warrants under the Warrant Agreement: (1) reducing the exercise price of the warrants from $11.50 per share to $4.00 per share, subject to adjustment (the “Exercise Price Adjustment”) and (2) revising the redemption provisions of the warrants to provide that we may only redeem each warrant in whole at a price of $0.1 per warrant upon a minimum of 30 days’ written notice of redemption if, and only if, the last sale price of our common stock equals or exceeds $7.00 per share (as opposed to the current $21.00 per share) for any 20 trading days within a 30-trading day period (the “Redemption Threshold Adjustment”).
Summary Risk Factors
Our business is subject to numerous risks and uncertainties, including those in the economic scenario,section entitled “Risk Factors” and elsewhere in this prospectus. These risks include, but are not limited to, the following:
● | our history of losses; | |
● | our inability to attract sufficient demand for our services and products; |
● | our ability to successfully execute our growth and acquisition strategy and manage effectively our growth; | |
● | changes in the competitive environment in our industry and the markets we serve, and our ability to compete effectively; | |
● | our dependence on a strong brand image; | |
● | our cash needs and the adequacy of our cash flows and earnings; | |
● | our ability to access additional capital; | |
● | our dependence upon our executive officers, founders and key employees; | |
● | our ability to attract and retain qualified personnel; | |
● | our reliance on our technology systems, the impact of technological changes and cybersecurity risks; | |
● | changes in applicable laws or regulations; | |
● | our ability to protect our trademarks or other intellectual property rights; | |
● | potential litigation from competitors or customers; and | |
● | the possibility that we may be adversely affected by other economic, business, and/or competitive factors. |
In addition, our auditors have raised substantial doubt regarding our ability to continue as a going concern as a result of our historical recurring losses from operations and negative cash flows from operations as well as our dependence on private equity and financings in Note 2 of our unaudited consolidated financial statements for the nine-months ended February 28, 2019.
Corporate Information
Our principal executive offices are located at 7000 W. Palmetto Park Road, Suite 210, Boca Raton, Florida 33433, and our telephone number at that location is (855) 345-9467.
We are registering (i) the issuance by us of up to 6,449,000 shares of our Common Stock which may be issued upon the exercise of the Warrants, and (ii) the resale from time to time by the Selling Securityholders of 6,360,617 shares of Common Stock and 261,500 warrants (“Private Placement Warrants”) forming part of the Private Placement Units.“Warrants”means our redeemable warrants, which includes all of our warrants sold as part of the Public Units as well as the Private Placement Warrants and 2019 Warrants to the extent they are no longer held by the initial purchasers of the Private Placement Warrants, 2019 Warrants or their permitted transferees.
Common Stock and Warrants Held by Selling Securityholders
Securities Outstanding Prior to This Registration | 6,952,195 shares of our Common Stock are issued and outstanding as of July 12, 2019. In addition, as of July 12, 2019, 6,449,000 shares of Common Stock underlying Warrants are issuable upon exercise of the 6,449,0000 outstanding Warrants. |
Securities Outstanding After This Registration | 13,401,195shares of our Common Stock, which assumes the exercise of all Warrants. The number of outstanding shares of Common Stock that will be outstanding after this offering excludes 500,000 shares of Common Stock reserved and available for issuance under the 2018 Equity Incentive Plan (the “Incentive Plan”). |
Common Stock Held by the Selling Securityholders | We are registering 6,360,617 shares of Common Stock held by the Selling Securityholders named herein. |
Private Placement Warrants offered by certain Selling Securityholders | We are registering 261,500 Private Placement Warrants to be offered from time to time by certain Selling Securityholders. Each Private Placement Warrant entitles the holder to purchase Common Stock at an exercise price of $11.50 per share of Common Stock, subject to adjustment as set forth in the warrant agreement between Continental Stock Transfer & Trust Company, as warrant agent, and us. |
Warrants Held by the Selling Securityholders | Each Public Warrant and Private Placement Warrant entitles the holder to purchase one share of our Common Stock at an exercise price of $11.50 per share. Each 2019 Warrant entitles the holder to purchase one share of our Common Stock at an exercise price of $4.00 per share. Each Public Warrant and Private Placement Warrant may be exercised at any time commencing on December 20, 2018 until November 19, 2023, or earlier upon redemption or liquidation. The Private Placement Warrants may also be exercised on a cashless basis pursuant to the terms of such warrants. |
Terms of Offering | The Selling Securityholders will determine when and how they will dispose of the Common Stock and Private Placement Warrants registered under this prospectus for resale, as well as any shares of Common Stock issued by the Company in a registered issuance under this prospectus upon exercise of any Warrants. |
Use of Proceeds | We will not receive any of the proceeds from the sale of shares of Common Stock or Private Placement Warrants by the Selling Securityholders. However, we will receive proceeds from the cash exercise of Warrants if they are exercised by the Selling Securityholders, provided that the Private Placement Warrants may be exercised on a cashless basis. We intend to use any net proceeds from the cash exercise of the Warrants for working capital, and general corporate purposes. |
Trading Market and Ticker Symbol | The Company’s Common Stock and Public Warrants currently have been quoted on the OTCQB under the symbols “WINR” and “WINRW,” respectively. |
Issuance of Warrant Shares Underlying the Warrants
Warrant Shares to be Issued upon Exercise of Warrants | 6,449,000shares of Common Stock underlying the Warrants. |
Shares Outstanding Prior to Exercise of Warrants | 6,952,195shares of Common Stock as of July 12, 2019. |
Shares to be Outstanding Assuming Exercise of All Warrants | 13,401,195shares of Common Stock. |
Terms of Warrants | Each Public Warrant and Private Placement Warrant entitles the holder to purchase one share of our Common Stock at an exercise price of $11.50 per share. Each 2019 Warrant entitles the holder to purchase one share of our Common Stock at an exercise price of $4.00 per share. Each Public Warrant and Private Placement Warrant may be exercised at any time commencing on December 20, 2018 until November 19, 2023, or earlier upon redemption or liquidation. |
Use of Proceeds | We expect to receive approximately $66,757,250 in gross proceeds assuming the cash exercise of all of the (i) Public Warrants and Private Placement Warrants at an exercise price of $11.50 per share of Common Stock and (ii) 2019 Warrants at an exercise price of $4.00 per share of Common Stock. However, the Private Placement Warrants may be exercised on a cashless basis, in which case we would expect to receive $63,750,000 in gross proceeds from the cash exercise of the Public Warrants and 2019 Warrants. We intend to use any net proceeds from the cash exercise of the Warrants for working capital and general corporate purposes. |
Trading Market | Our Public Warrants are currently quoted on the OTCQB tier of the OTC Market Group, Inc. under the symbols “WINRW.” |
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table presents our selected historical consolidated financial data for the periods indicated. The selected historical consolidated financial data for the year ended May 31, 2018 and for the period from April 17, 2017 (inception) to May 31, 2017 and the balance sheet data as of May 31, 2018 and 2017 are derived from the audited financial statements. The selected historical financial data for the nine months ended February 28, 2019 and 2018 and the balance sheet data as of February 28, 2019 and 2018 are derived from our unaudited financial statements.
Historical results are included for illustrative and informational purposes only and are not necessarily indicative of results we expect in future periods, and results of interim periods are not necessarily indicative of results for the entire year.The data presented below should be read in conjunction with, and are qualified in their entirety by reference to, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the notes thereto included elsewhere in this prospectus.
Year Ended May 31, 2018 | For the period from April 17, 2017 (Inception) to May 31, 2017 | Nine Months Ended February 28, 2019 | Nine Months Ended February 28, 2018 | |||||||||||||
(unaudited) | ||||||||||||||||
Statement of Operations Data | ||||||||||||||||
Total revenues | $ | 0 | $ | 0 | $ | 14,070 | $ | 0 | ||||||||
Total operating expenses | 530,564 | 672 | 3,811,612 | 305,690 | ||||||||||||
Loss from operations | (530,564 | ) | (672 | ) | (3,797,542 | ) | (305,690 | ) | ||||||||
Total other income | 521,702 | 0 | 701,582 | 312,000 | ||||||||||||
Loss before provision for taxes | (8,862 | ) | (672 | ) | (3,095,960 | ) | 6,310 | ) | ||||||||
Income tax provisions | 0 | 0 | 0 | 2,145 | ||||||||||||
Net income (loss) | $ | (8,862 | ) | $ | (672 | ) | $ | (3,095,960 | ) | $ | 4,165 | |||||
Basic and diluted net loss per share | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.87 | ) | $ | 0.00 | |||||
Balance Sheet Data (at period end) | ||||||||||||||||
Cash and cash equivalents | $ | 458,062 | $ | 30,000 | $ | 1,245,666 | $ | 483,867 | ||||||||
Working capital (deficit) (1) | $ | 216,034 | $ | 24,328 | $ | (1,710,836 | ) | $ | 250,354 | |||||||
Total assets | $ | 53,356,883 | $ | 55,000 | $ | 7,367,438 | $ | 53,358,226 | ||||||||
Total liabilities | $ | 2,065,197 | $ | 30,672 | $ | 2,956,556 | $ | 2,053,513 | ||||||||
Commitments | $ | 46,291,685 | $ | 0 | $ | 0 | $ | 46,304,712 | ||||||||
Stockholders’ equity | $ | 5,550,098 | $ | 24,328 | $ | 4,410,882 | $ | 5,000,001 |
(1) Working capital (deficit) represents total current assets less total current liabilities.
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An investment in our securities carries a significant degree of risk. You should carefully consider the following risks, as well as the other information contained in this prospectus, including our historical financial statements and related notes included elsewhere in this prospectus, before you decide to purchase our securities. Any one of these risks and uncertainties has the potential to cause material adverse effects on our business, prospects, financial condition and operating results which could cause actual results to differ materially from any forward-looking statements expressed by us and a significant decrease in the value of our common shares and warrants. Refer to “Cautionary Statement Regarding Forward-Looking Statements”.
We may not be successful in preventing the material adverse effects that any of the following risks and uncertainties may cause. These potential risks and uncertainties may not be a complete list of the risks and uncertainties facing us. There may be additional risks and uncertainties that we are presently unaware of, or presently consider immaterial, that may become material in the future and have a material adverse effect on us. You could lose all or a significant portion of your investment due to any of these risks and uncertainties.
Risks Related to Our Business
We have a relatively limited operating history and limited revenues to date and thus are subject to risks of business development and you have no basis on which to evaluate our ability to achieve our business objective.
Because we have a relatively limited operating history and limited revenues to date, you should consider and evaluate our operating prospects in light of the risks and uncertainties frequently encountered by early-stage operating companies in rapidly evolving markets. These risks include:
● | that we may not have sufficient capital to achieve our growth strategy; | |
● | that we may not develop our product and service offerings in a manner that enables us to be profitable and meet our customers’ requirements; | |
● | that our growth strategy may not be successful; and | |
● | that fluctuations in our operating results will be significant relative to our revenues. |
Our future growth will depend substantially on our 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.
We have a history of operating losses and our auditors have indicated that there is a substantial doubt about our ability to continue as a going concern.
To date, we have not been profitable and have incurred significant losses and cash flow deficits. For the fiscal year ended May 31, 2018 and the period from April 17, 2017 (inception) to May 31, 2017, we reported net losses of $8,862 and $672, respectively, and negative cash flow from operating activities of $470,153 and $672, respectively. For the nine months ended February 28, 2019 and 2018, we reported a net loss of $3,095,960 and net income of $4,165, respectively, and negative cash flow from operating activities of $823,847 and $38,299, respectively. As of February 28, 2019, we had an aggregate accumulated deficit of approximately $3,105,494. We anticipate that we will continue to report losses and negative cash flow. As a result of these net losses and cash flow deficits as well as our dependence on private equity and financings, our independent auditors have indicated that there is a substantial doubt about our ability to continue as a going concern in Note 2 of our unaudited consolidated financial statements for the nine-months ended February 28, 2019.
Our consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. These adjustments would likely include substantial impairment of the carrying amount of our assets and potential contingent liabilities that may arise if we are unable to fulfill various operational commitments. In addition, the value of our securities, including common stock issued in this offering, would be greatly impaired. Our ability to continue as a going concern is dependent upon generating sufficient cash flow from operations and obtaining additional capital and financing, including funds to be raised in this offering. If our ability to generate cash flow from operations is delayed or reduced and we are unable to raise additional funding from other sources, we may be unable to continue in business even if this offering is successful. For further discussion about our ability to continue as a going concern and our plan for future liquidity, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Ability to Continue as a Going Concern.”
18 |
We are a holding company and depend upon our subsidiaries for our cash flows.
We are a holding company. All of our operations are conducted, and almost all of our assets are owned, by our subsidiaries. Consequently, our cash flows and our ability to meet our obligations depend upon the cash flows of our subsidiaries and the payment of funds by these subsidiaries to us in the form of dividends, distributions or otherwise. The ability of our subsidiaries to make any payments to us depends on their earnings, the terms of their indebtedness, including the terms of any credit facilities and legal restrictions. Any failure to receive dividends or distributions from our subsidiaries when needed could have a material adverse effect on our business, results of operations or financial condition.
Future acquisitions or strategic investments could disrupt our business and harm our business, results of operations or financial condition.
We may in the future explore potential acquisitions of companies or strategic investments to strengthen our business. Even if we identify an appropriate acquisition candidate, we may not be successful in negotiating the terms or financing of the acquisition, and our due diligence may fail to identify all of the problems, liabilities or other shortcomings or challenges of an acquired business.
Acquisitions involve numerous risks, any of which could harm our business, including:
● | straining our financial resources to acquire a company; | |
● | anticipated benefits may not materialize as rapidly as we expect, or at all; | |
● | diversion of management time and focus from operating our business to address acquisition integration challenges; | |
● | retention of employees from the acquired company; | |
● | cultural challenges associated with integrating employees from the acquired company into our organization; | |
● | integration of the acquired company’s accounting, management information, human resources and other administrative systems; | |
● | the need to implement or improve controls, procedures and policies at a business that prior to the acquisition may have lacked effective controls, procedures and policies; and | |
● | litigation or other claims in connection with the acquired company, including claims from terminated employees, former stockholders or other third parties. |
Failure to appropriately mitigate these risks or other issues related to such strategic investments and acquisitions could result in reducing or completely eliminating any anticipated benefits of transactions, and harm our business generally. Future acquisitions could also result in dilutive issuances of our equity securities, the incurrence of debt, contingent liabilities, amortization expenses or the impairment of goodwill, any of which could have a material adverse effect on business, results of operations or financial condition.
We may require additional funding for our growth plans, and such funding may result in a dilution of your investment.
We attempted to estimate our funding requirements in order to implement our growth plans. If the costs of implementing such plans should exceed these estimates significantly or if we come across opportunities to grow through expansion plans which cannot be predicted at this time, and our funds generated from our operations prove insufficient for such purposes, we may need to raise additional funds to meet these funding requirements.
These additional funds may be raised by issuing equity or debt securities or by borrowing from banks or other resources. We cannot assure you that we will be able to obtain any additional financing on terms that are acceptable to us, or at all. If we fail to obtain additional financing on terms that are acceptable to us, we will not be able to implement such plans fully if at all. Such financing even if obtained, may be accompanied by conditions that limit our ability to pay dividends or require us to seek lenders’ consent for payment of dividends, or restrict our freedom to operate our business by requiring lender’s consent for certain corporate actions.
Further, if we raise additional funds by way of a rights offering or through the issuance of new shares, any shareholders who are unable or unwilling to participate in such an additional round of fund raising may suffer dilution in their investment.
We may become subject to the requirements of the Investment Company Act, which would limit our business operations and require us to spend significant resources to comply with such act.
The Investment Company Act of 1940, as amended (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 operating a global virtual reality gaming and fully integrated esports platform, operating corporate owned as well as franchising Simplicity Esports Gaming Centers in United States, and making acquisitions in the active entertainment industry in the United States, the composition of our assets after the Acquisition and Transactions, including our ownership of equity shares in Simplicity Esports LLC and Smaaash Private, 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.
We may not have sufficient capital to fund our ongoing operations, effectively pursue our strategy or sustain our growth initiatives.
After the consummation of the acquisition of Simplicity Esports LLC, our remaining liquidity and capital resources may not be sufficient to allow us to fund our ongoing operations, effectively pursue our strategy or sustain our growth initiatives. If we require additional capital resources, we may seek such funds directly from third party sources; however, we may not be able to obtain sufficient equity capital and/or debt financing from third parties to allow us to fund our expected ongoing operations or we 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 us on acceptable terms and conditions include:
● | Our current and future financial results and position; | |
● | the collateral availability of our otherwise unsecured assets; | |
● | the market’s, investors and lenders’ view of our industry and products; | |
● | the perception in the equity and debt markets of our ability to execute our business plan or achieve our operating results expectations; and | |
● | the price, volatility and trading volume and history of our Common Stock. |
If we are unable to obtain the equity capital or debt financing necessary to fund our ongoing operations, pursue our strategy and sustain our growth initiatives, we may be forced to scale back our operations or our expansion initiatives, and our business and operating results will be materially adversely affected.
Our growth strategy depends on the availability of suitable locations for our Simplicity Esports Gaming Centers and our ability to open new Simplicity Esports Gaming Centers and operate them profitably.
A key element of our growth strategy is to extend our brand by opening corporate owned as well as franchising retail Simplicity Esports Gaming Centers in locations in the United States that we believe will provide attractive returns on investment. We have initially identified five sites for potential Simplicity Esports Gaming Centers, in the United States, however, desirable locations for additional Simplicity Esports Gaming Center openings may not be available at an acceptable cost when we identify a particular opportunity for a new Simplicity Esports Gaming Center.
In addition,our ability to open new Simplicity Esports Gaming Centers on a timely and cost-effective basis, or at all, is dependent on a number of factors, many of which are beyond our control, including our 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 Simplicity Esports Gaming Center. |
If we succeed in opening new Simplicity Esports Gaming Centers on a timely and cost-effective basis, we may nonetheless be unable to attract enough customers to the new Simplicity Esports Gaming Centers because potential customers may be unfamiliar with our Simplicity Esports Gaming Centers or concepts, or our entertainment and menu options might not appeal to them. Our new Simplicity Esports Gaming Centers may not meet or exceed our performance targets, including target cash-on-cash returns. New Simplicity Esports Gaming Centers may even operate at a loss, which could have a significant adverse effect on our overall operating results.
Our operations of Simplicity Esports Gaming Centers are significantly dependent on changes in public and customer tastes and discretionary spending patterns. Our inability to successfully anticipate customer preferences or to gain popularity for such Simplicity Esports Gaming Centers games may negatively impact our profitability.
Our success depends significantly on public and customer tastes and preferences, which can be unpredictable. If we are unable to successfully anticipate customer preferences or increase the popularity of the games offered at the Simplicity Esports Gaming Centers, the per capita revenue and overall customer expenditures at the Simplicity Esports Gaming Centers may decrease, and thereby negatively impact our profitability. In response to such developments, we may need to increase our marketing and product development efforts and expenditures, adjust our game or product sale pricing, modify the games themselves, or take other actions, which may further erode our profit margins, or otherwise adversely affect our results of operations and financial condition. In particular, we 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 Simplicity stream team’s casters, influencers and personalities among Simplicity Esports LLC’s dedicated fan base.
While we may incur significant expenditures of this nature, including in the future as we continue to expand our operations, there can be no assurance that any such expenditures or investments by us will yield expected or commensurate returns or results, within a reasonable or anticipated time, or at all.
The nature of our business exposes us to negative publicity or customer complaints, including in relation to, among other things, accidents, injuries or thefts at the Simplicity Esports Gaming Centers, or health and safety concerns arising from improper use of our game equipment or at our food and beverage venues.
Our business inherently exposes us 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 our 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 the Simplicity Esports Gaming Centers. Even isolated or sporadic incidents or accidents may have a negative impact on our brand image and reputation, and the Simplicity Esports Gaming Centers’ or games’ or our own popularity with customers. The considerable expansion of social media in recent years has compounded the effect of any potential negative publicity.
We cannot guarantee that its employee training, internal controls and other precautions will be sufficient to prevent any such occurrence at the Simplicity Esports Gaming Centers, in relation to our Simplicity global virtual reality gaming and fully integrated esports platform, or to control or mitigate any negative consequences. In addition, we or our franchisees rely on third-party security and housekeeping staff for certain non-core functions, as well as certain technology vendors and partners. Although we monitors vendors and partners and, in certain cases, may have a contractual indemnity or recourse in case of any default on their part, our ability to assure a safe and satisfactory experience to our customers is necessarily limited to the extent of our or our franchisees’, dependence on third parties, from time to time. Moreover, we 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 the Simplicity Esports Gaming Centers.
We or our franchisees may not be able to operate in the United States, or obtain and maintain licenses and permits necessary for such operation, in compliance with laws, regulations and other requirements, which could adversely affect our business, results of operations or financial condition.
Each Simplicity Esports Gaming Center 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 Simplicity Esports Gaming Center is located. In the United States, each Simplicity Esports Gaming 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 Simplicity Esports Gaming Center may lead to the loss of licenses at all Simplicity Esports Gaming 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 Simplicity Esports Gaming 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. Our failure or a failure by a franchisee in obtaining and maintaining the required licenses, permits and approvals at any one Simplicity Esports Gaming Center could impact the continuing operations of existing Simplicity Esports Gaming Centers, or delay or prevent the opening of new Simplicity Esports Gaming Centers. Although we do 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 our 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, the Simplicity Esports Gaming Centers in the United States are subject to amusement licensing and regulation by the countries, states, provinces, counties and municipalities in which our Simplicity Esports Gaming Centers are located. These laws and regulations can vary significantly by country, state, province, county, and municipality and, in some jurisdictions, may require us to modify our business operations or alter the mix of redemption games and simulators we offer. Moreover, as more states in the United States and local communities implement legalized gambling, the laws and corresponding enabling regulations may also be applicable to our redemption games and regulators may create new licensing requirements, taxes or fees, or restrictions on the various types of redemption games we offer. 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 we have established a Simplicity Esports Gaming Center in the jurisdiction could require the existing center in these jurisdictions to alter the mix of games, modify certain games, change the mix of prizes that we may offer or terminate the use of specific games, any of which could adversely affect our operations.
We are also subject to laws and regulations governing our relationship with our 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 our workforce being subjected to greater organized labor influence, which could result in an increase to our labor costs. A significant portion of Simplicity Esports Gaming 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.
We are 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 we 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. We shall endeavor to make sure that any franchise disclosure document we provide, 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 we and our franchisees fail to comply with such laws and regulations, we may be subject to various sanctions and/or penalties and fines or may be required to cease operations until we achieve compliance, which could have an adverse effect on our business and our financial results.
Our growth through franchising may not occur as rapidly as we currently anticipate and may be subject to additional risks.
As part of our growth strategy, we will continue to seek franchisees to operate Simplicity Esports Gaming Centers in certain strategic domestic locations or venues. We believe that our ability to recruit, retain and contract with qualified franchisees will be increasingly important to our operations as we expand. Our franchisees are dependent upon the availability of adequate sources of financing in order to meet their development obligations. Such financing may not be available to our franchisees, or only available upon disadvantageous terms. Our franchise strategy may not enhance our results of operations.
Expanding through franchising exposes our business and brand to risks because the quality of the franchised operations will be beyond our immediate control, including risks associated with our confidential information, intellectual properties (including trademarks) and brand reputation. Even if we have contractual remedies to cause franchisees to maintain operational standards, enforcing those remedies may require litigation and therefore our image and reputation may suffer, unless and until such litigation is successfully concluded.
We could face liability from or as a result of our franchisees.
Various state and federal laws will govern the relationship between us and our franchisees and the potential sale of a franchise. If we fail to comply with these laws, we could be liable for damages to franchisees and fines or other penalties. A franchisee or government agency may bring legal action against us based on the franchisee/franchisor relationship. Also, under the franchise business model, we 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 our franchisees or government agencies that could adversely affect both our profit and our important relations with our 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, our profit.
We may not be able to compete favorably in the highly competitive out-of-home and home-based entertainment market in the United States, which could have a material adverse effect on our business, results of operations or financial condition.
The out-of-home entertainment market in the United States is highly competitive. Simplicity Esports Gaming Centers that we or our franchisees operate will compete for 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 Simplicity Esports Gaming Centers are planned to be located. As a result, they may be able to invest greater resources than we can in attracting customers and succeed in attracting customers who would otherwise come to the Simplicity Esports Gaming Centers we or our franchisees operate. In the United States, the legalization of casino gambling in geographic areas near any future Simplicity Esports Gaming Center would create the possibility for adult entertainment alternatives, which could have a material adverse effect on our business and financial condition. We will also face competition from local, regional and national establishments that offer entertainment experiences similar to us. Simplicity Esports Gaming Centers we or our franchisees operate 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 we fail to compete favorably in the competitive out-of-home and home-based entertainment markets it could have a material adverse effect on our business, results of operations and financial condition.
Our senior management team has limited experience in establishing, operating, licensing rights to and franchising entertainment centers and related products.
The members of our senior management team have extensive backgrounds in finance and the management of financial services businesses, however, they have limited prior experience in establishing, operating, licensing rights to and franchising entertainment centers. We will need to expand our management team, to include individuals with expertise in establishing and operating entertainment centers as well as individuals with expertise in product licensing and franchise operations. If we are unable to recruit professionals with acceptable backgrounds in establishing and operating entertainment centers and with backgrounds in product licensing and financing, we may not be able to pursue our growth strategy which could have a material adverse effect on our business and results of operations.
Our success depends upon our ability to recruit and retain qualified management and operating personnel at Simplicity Esports Gaming Centers.
We and our franchisees must attract, retain and motivate a sufficient number of qualified management and operating personnel in order to maintain consistency in our service, hospitality, quality and atmosphere of our Simplicity Esports Gaming Centers. Qualified management and operating personnel are typically in high demand. If we and our franchisees are unable to attract and retain a satisfactory number of qualified management and operating personnel, labor shortages could delay the planned openings of new Simplicity Esports Gaming Centers which could have a material adverse effect on our business and results of operations.
Our business and operations are subject to various risks relating to the acquisitions of target companies. Our inability to complete and successfully integrate the future acquisition targets may affect our growth strategy, market share, profitability or competitive position.
We plan to expand through future acquisitions of companies along with organic growth. There can be no assurance that we will be able to successfully integrate the acquired businesses into our existing operations as planned. We may be adversely impacted by liabilities that we assume from these acquisitions, including known and unknown obligations, intellectual property or other assets, terminated employees, current or former clients, or other third parties, and we 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 our business.
Our insurance coverage may not adequately protect us against all future risks, which may adversely affect our business and prospects.
We maintain 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 we maintain insurance in amounts that we consider reasonably sufficient for a business of our nature and scale, with insurers that we consider reliable and credit worthy, we may face losses and liabilities that are uninsurable by their nature, or that are not covered, fully or at all, under our 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 us may not be honored by our insurers in full, or at all. In addition, our premium payments under our insurance policies may require a significant investment by us.
To the extent that we suffers loss or damage for which we did not obtain insurance, that is not covered by insurance or that exceeds our insurance coverage, the loss will have to be borne by us and our business, cash flow, financial condition, results of operations and prospects may be adversely affected.
Changes in laws or regulations, or a failure to comply with any laws and regulations, may adversely affect our business, investments and results of operations.
We are subject to laws and regulations enacted by national, regional and local governments. In particular, we will be required to comply with certain SEC and other legal requirements. Compliance with, and monitoring of, applicable laws and regulations may be difficult, time consuming and costly. Those laws and regulations and their interpretation and application may also change from time to time and those changes could have a material adverse effect on our business, investments and results of operations. In addition, a failure to comply with applicable laws or regulations, as interpreted and applied, could have a material adverse effect on our business and results of operations.
We are dependent upon our executive officers and directors and their departure could adversely affect our ability to operate.
Our operations are dependent upon a relatively small group of individuals and, in particular, our executive officers and directors. We believe that our success depends on the continued service of our executive officers and directors. In addition, our executive officers and directors are not required to commit any specified amount of time to our affairs and, accordingly, will have conflicts of interest in allocating management time among various business activities, including identifying potential business combinations and monitoring the related due diligence. We do not have an employment agreement with, or key-man insurance on the life of, any of our directors or executive officers. The unexpected loss of the services of one or more of our directors or executive officers could have a detrimental effect on us.
Our executive officers, directors, security holders and their respective affiliates may have competitive pecuniary interests that conflict with our interests.
We have not adopted a policy that expressly prohibits our directors, executive officers, security holders or affiliates from having a direct or indirect pecuniary or financial interest in any investment to be acquired or disposed of by us or in any transaction to which we are a party or have an interest. Nor do we have a policy that expressly prohibits any such persons from engaging for their own account in business activities of the types conducted by us. Accordingly, such persons or entities may have a conflict between their interests and ours.
We are an emerging growth company within the meaning of the Securities Act, and if we take advantage of certain exemptions from disclosure requirements available to emerging growth companies, this could make our securities less attractive to investors and may make it more difficult to compare our performance with other public companies.
We are an “emerging growth company” within the meaning of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor internal controls attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. As a result, our stockholders may not have access to certain information they may deem important. We could be an emerging growth company for up to five years, although circumstances could cause us to lose that status earlier, including if the market value of our Common Stock held by non-affiliates exceeds $700 million as of any June 30 before that time, in which case we would no longer be an emerging growth company as of the following December 31. We cannot predict whether investors will find our securities less attractive because we will rely on these exemptions. If some investors find our securities less attractive as a result of our reliance on these exemptions, the trading prices of our securities may be lower than they otherwise would be, there may be a less active trading market for our securities and the trading prices of our securities may be more volatile.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. We have elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of our financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
Compliance obligations under the Sarbanes-Oxley Act may require substantial financial and management resources.
Section 404 of the Sarbanes-Oxley Act requires that we evaluate and report on our system of internal controls beginning with our Annual Report on Form 10-K for the year ended May 31, 2019. As long as we remain an emerging growth company, we will not be required to comply with the independent registered public accounting firm attestation requirement on our internal control over financial reporting.
Provisions in our third amended and restated certificate of incorporation, as amended, and Delaware law may inhibit a takeover of us, which could limit the price investors might be willing to pay in the future for our Common Stock and could entrench management.
Our third amended and restated certificate of incorporation, as amended, contains provisions that may discourage unsolicited takeover proposals that stockholders may consider to be in their best interests. These provisions include a staggered board of directors and the ability of the board of directors to designate the terms of and issue new series of preferred shares, which may make more difficult the removal of management and may discourage transactions that otherwise could involve payment of a premium over prevailing market prices for our securities.
If we fail to keep pace with changing industry technology and consumer preferences, we will be at a competitive disadvantage.
The Simplicity products and services 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, we need to respond quickly to technological changes and to understand their impact on customers’ preferences. We may take significant time and resources to respond to these technological changes and changes in consumer preferences. Our business and results of operations may be negatively impacted if our products and services fail to keep pace with these changes.
A failure or unanticipated delay in securing any necessary or desired certification for Simplicity Esports LLC’s products from government or regulatory organizations could impair distribution of Simplicity Esports LLC’s products and materially and adversely affect our results of operations and financial condition.
In order for certain Simplicity Esports LLC’s 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 Simplicity Esports LLC’s products could impair sales of Simplicity Esports LLC’s products and materially and adversely affect our business, results of operations and financial condition.
Various product safety laws and governmental regulations applicable to the distributor of Simplicity Esports LLC’s products may adversely affect our business, results of operations and financial condition.
Our distribution of Simplicity Esports LLC’s 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. We and our 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 Simplicity Esports LLC’s products, resulting in the rejection of the products by our franchisees, lost sales, increased customer service and support costs, and costly litigation.
Risks Relating to Our Esports Business
Our esports business faces intense and wide-ranging competition, which may have a material negative effect on our business and results of operations.
The success of an esports business, like the esports business of Simplicity Esports LLC, is dependent upon the performance and/or popularity of its teams. Simplicity Esports LLC’s teams compete, in varying respects and degrees, with other live sporting events, and with sporting events delivered over television networks, radio, the Internet and online services, mobile applications and other alternative sources. For example, our esports teams compete for attendance, viewership and advertising with a wide range of alternatives available in major metropolitan areas. During some or all of the esports season, our teams face competition, in varying respects and degrees, from professional and collegiate basketball, hockey, baseball, football, and soccer, among others.
As a result of the large number of options available, we face strong competition for the sports and gaming fan. We must compete with other esports teams, traditional sports teams and sporting events, in varying respects and degrees, including on the basis of the quality of the teams we field, their success in the leagues, tournaments and genres in which they compete, our ability to provide an entertaining environment at any esports games that we host at our centers, prices charged for tickets and the viewing availability of our teams on multiple media alternatives. Given the nature of esports and sports in general, there can be no assurance that we will be able to compete effectively, including with companies that may have greater resources than we have, and as a consequence, our business and results of operations may be materially negatively affected by competition.
Our businesses are substantially dependent on the continued popularity and/or competitive success of Simplicity Esports LLC’s teams, which cannot be assured.
Our future financial results will be dependent on the Simplicity teams becoming and remaining popular with our fan base and, in varying degrees, on the team achieving in-game success, which can generate fan enthusiasm, resulting in sustained ticket and merchandise sales during the season. Furthermore, success in the regular season at certain tournaments may qualify one or more of our esports teams for participation in post-season playoffs, which provides us with additional revenue from prize money by increasing the number of games played by our sports teams and, more importantly, by generating increased excitement and interest in our esports teams, which can improve attendance in subsequent seasons. There can be no assurance that any of our esports teams, will develop a significant fan base, maintain continued popularity or compete in post-season play in the future.
The actions of the various esports leagues and tournaments may have a material negative effect on our business and results of operations.
The governing bodies of the various esports leagues and tournaments, under certain circumstances, can take actions that they deem to be in the best interests of their respective leagues or tournaments, which may not necessarily be consistent with maximizing our results of operations and which could affect our esports teams in ways that are different than the impact on other esports teams. For example they can take actions relating to the rights to telecast the games of league members or tournament participants, including the Simplicity team, licensing of the rights to produce and sell merchandise bearing the logos and/or other intellectual property of our esports teams and the leagues or tournaments, and the internet-based activities of our esports teams. Certain of these decisions by the esports leagues and tournaments could have a material negative effect on our business and results of operations. From time to time, we may disagree with or challenge actions that the leagues or tournaments take or the power and authority they assert.
We may be unable to effectively manage the growth in the scope and complexity of our business, including our expansion into the esports business which is untested and into adjacent business opportunities.
Our future success depends, in part, on our ability to manage our expanded business, including through the acquisition of Simplicity, and our aspirations for continued expansion. We intend to dedicate resources to a new business model that is largely untested, as is the case with esports. We do not know to what extent our future expansions will be successful. Further, even if successful, the growth of our business could create significant challenges for our management, operational, and financial resources, and could increase existing strain on, and divert focus from, our core businesses. If not managed effectively, this growth could result in the over-extension of our operating infrastructure, and our management systems, information technology systems, and internal controls and procedures may not be adequate to support this growth. Failure to adequately manage our growth in any of these ways may cause damage to our brand, damage our reputation or otherwise negatively impact our business.
Our industry is subject to rapid technological change, and if we do not adapt to, and appropriately allocate our resources among, emerging technologies and business models, our business may be negatively impacted.
Technology changes rapidly in the interactive entertainment industry. We must continually anticipate and adapt our products, services and business models to emerging technologies and delivery platforms in order to stay competitive. Forecasting our revenues and profitability for these new products, services and business models is inherently uncertain and volatile, and if we invest in the development of interactive entertainment products or services incorporating a new technology or for a new platform that does not achieve significant commercial success, whether because of competition or otherwise, we may not recover the often substantial “up front” costs of developing and marketing those products and services, or recover the opportunity cost of diverting management and financial resources away from other products or services. Further, our competitors may adapt to an emerging technology or business model more quickly or effectively than we do, creating products that are technologically superior to ours, more appealing to consumers, or both.
If, on the other hand, we elect not to pursue the development of products or services incorporating a new technology or for new platforms, or otherwise elect not to pursue new business models, that achieve significant commercial success, it may have adverse consequences. It may take significant time and resources to shift product development resources to that technology, platform or business model, as the case may be, and may be more difficult to compete against existing products and services incorporating that technology or for that platform or against companies using that business model.
We may encounter difficulties in integrating Simplicity Esports LLC’s esports businesses or otherwise realizing the anticipated benefits of the transaction.
As part of our business strategy, from time to time, we acquire, make investments in, various sectorsor enter into strategic alliances and joint ventures with, complementary businesses, such as the acquisition of the economy.Simplicity esports business. The M&A activityacquisition of Simplicity Esports LLC involves significant risks and uncertainties, including: (i) the potential for Simplicity Esports LLC’s business to underperform relative to our expectations and the acquisition price, (ii) the potential for Simplicity Esports LLC’s business to cause our financial results to differ from expectations in India increased 53.3%any given period, or over the longer-term, (iii) unexpected tax consequences from the acquisition, or the tax treatment of Simplicity Esports LLC’s business’s operations going forward, giving rise to $77.6 billionincremental tax liabilities that are difficult to predict, (iv) difficulty in 2017 while private equity (PE) deals reached $24.4 billion. Someintegrating Simplicity Esports LLC’s business, its operations and its employees in an efficient and effective manner, (v) any unknown liabilities or internal control deficiencies assumed as part of the important recent developmentsacquisition, and (vi) the potential loss of key employees of Simplicity Esports LLC’s businesses. Further, the transaction may involve the risk that our senior management’s attention will be excessively diverted from our other operations, the risk that the gaming industry does not evolve as anticipated and that any intellectual property or personnel skills acquired do not prove to be those needed for our future success, and the risk that our strategic objectives, cost savings or other anticipated benefits are otherwise not achieved.
Our business may be harmed if our licensing partners, or other third parties with whom we do business, act in Indian economyways that put our brand at risk.
We anticipate that our business partners shall be given access to sensitive and proprietary information or control over our intellectual property in order to provide services and support to our teams. These third parties may misappropriate our information or intellectual property and engage in unauthorized use of it or otherwise act in a way that places our brand at risk. The failure of these third parties to provide adequate services and technologies, the failure of third parties to adequately maintain or update their services and technologies or the misappropriation or misuse of this information or intellectual property could result in a disruption to our business operations or an adverse effect on our reputation, and may negatively impact our business.
Our business is highly dependent on the success and availability of video game platforms manufactured by third parties.
We expect to derive a substantial portion of our revenues from esports games played on game platforms manufactured by third parties, such as Sony’s PS4, Microsoft’s Xbox One, and Nintendo’s Wii U and Switch, and PCs. The success of our business will be driven in large part by our ability to accurately predict which platforms will be successful in the marketplace. We also rely on the availability of an adequate supply of these video game consoles and the continued support for these consoles by their manufacturers. We may be required to commit significant resources well in advance of the anticipated introduction of a new platform. If increased costs are not offset by higher revenues and other cost efficiencies, our business could be negatively impacted. If the platforms for which we invested resources do not attain significant market acceptance, we may not be able to recover our costs, which could be significant.
The games we support are subject to scrutiny regarding the appropriateness of their content. If the publishers and distributors we partner with fail to receive their target ratings for certain titles, or if retailers refuse to sell such titles due to what they perceive to be objectionable content, it could have a negative impact on our business.
Console and PC games are subject to ratings by the Entertainment Software Rating Board (the “ESRB”), a self-regulatory body based in the U.S. that provides U.S. and Canadian consumers of interactive entertainment software with ratings information, including information on the content in such software, such as follows:violence, nudity or sexual content, along with an assessment of the suitability of the content for certain age groups. Certain other countries have also established content rating systems as prerequisites for product sales in those countries. In addition, certain stores use other ratings systems, such as Apple’s use of its proprietary “App Rating System” and Google Play’s use of the International Age Rating Coalition (IARC) rating system. If the software publishers that supply our games are unable to obtain the ratings they have targeted for their products, it could have a negative impact on our business. In some instances, the software publishers and developers may be required to modify their products to comply with the requirements of the rating systems, which could delay or disrupt the release of any given product, or may prevent its sale altogether in certain territories, which would limited its availability for use in the games that our teams play.
We will depend on servers to operate our games with online features. If we were to lose server functionality for any reason, our business may be negatively impacted.
Our business at our game centers will rely on the continuous operation of servers, some of which are owned and operated by third parties. Although we shall strive to maintain more than sufficient server capacity, and provide for active redundancy in the event of limited hardware failure, any broad-based catastrophic server malfunction, a significant service-disrupting attack or intrusion by hackers that circumvents security measures, a failure of disaster recovery service or the failure of a company on which we are relying for server capacity to provide that capacity for whatever reason would likely degrade or interrupt the functionality of our games with online features, and could prevent the operation of such games altogether, any of which could result in the loss of sales for, or in, such games.
We also rely on networks operated by third parties, such as the PlayStation Network, Xbox Live and Steam, for the functionality of the games we use which have online features. An extended interruption to any of these services could adversely affect our ability to operate our games with online features, negatively impacting our business.
Further, insufficient server capacity could also negatively impact our business. Conversely, if we overestimate the amount of server capacity required by our business, we may incur unnecessary additional operating costs.
Risks Related to Smaaash Private
Smaaash Private has significant indebtedness and the imposition of certain restrictive covenants in Smaaash Private debt financing arrangements may increase Smaaash Private’s susceptibility to interest rate fluctuations, adversely impact Smaaash Private’s financial condition and results of operations, as well as restrict Smaaash Private’s operational flexibility.
As on December 31, 2017, Smaaash Private’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 Private may incur additional indebtedness in the future.
Smaaash Private’s significant indebtedness and the imposition of certain restrictive covenants in Smaaash Private’s debt financing arrangements may increase Smaaash Private’s susceptibility to interest rate fluctuations, adversely impact Smaaash Private’s financial condition and results of operations, as well as restricting Smaaash Private’s operational flexibility.
The possible implications of Smaaash Private’s significant indebtedness may include, but are not limited to, the following:
– | a portion of Smaaash Private’s cash flows may be used towards repayment of Smaaash Private’s existing debt, which will reduce the availability of cash to fund Smaaash Private’s working capital requirements, capital expenditures, planned expansions or acquisitions or other strategic objectives, and general corporate purposes; | |
– | Smaaash Private’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 Private’s borrowings, as Smaaash Private’s loans are, currently as well as typically, at variable interest rates; | |
– | Smaaash Private’s ability to declare dividends, while any actual payments are due under the terms of Smaaash Private’s borrowings; | |
– | Smaaash Private may be more vulnerable to economic downturns; | |
– | Smaaash Private’s ability to withstand competitive pressures may be limited; | |
– | Smaaash Private may have reduced operational flexibility in responding to business, regulatory and economic conditions and developments; and | |
– | Smaaash Private’s requirement to obtain lenders’ consents for various activities, including, but not limited to, any change in control or ownership of Smaaash Private. |
Smaaash Private is continually expanding and so may need to continually raise capital. If Smaaash Private is unable to raise capital on commercially favorable terms, including due to Smaaash Private’s high debt-equity ratio, Smaaash Private’s growth trajectory might be affected.
Smaaash Private 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 Private’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 debt to equity ratio, (ii) trends in global capital and credit markets, and (iii) existing debt terms. Smaaash Private’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 Private’s expansion strategy requirements could adversely affect Smaaash Private’s growth trajectory.
The high fixed cost structure of Smaaash Private’s operations can result in significantly lower margins if Smaaash Private’s revenues should decline, which may adversely affect Smaaash Private’s business, financial condition, results of operations and prospects.
Smaaash Private’s total aggregate expenditure was $18.9 million for fiscal year 2017, the most recent year for which data is available to us. A large proportion of Smaaash Private’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 Centers. These expenses may continue to increase, in the aggregate, from year to year, particularly as Smaaash Private continue to expand its network of Smaaash Centers in the future. In the event that Smaaash Private’s expenses increase at a faster rate than Smaaash Private’s revenues and if Smaaash Private is unable to rationalize Smaaash Private’s costs or realize efficiencies of scale, Smaaash Private may not be able to pass on such costs to Smaaash Private’s customers or offset its expenses. In such case, Smaaash Private 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 Private has significant capital expenditure requirements, and inability to raise adequate financing on commercially acceptable terms may limit Smaaash Private’s strategic initiatives and growth prospects.
Smaaash Private’s business is inherently capital intensive. Smaaash Private’s total capital expenditure was $19.23 million in fiscal year 2017, the most recent year for which data is available to us. Smaaash Private 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 Private opens new Smaaash Centers. In addition, Smaaash Private must incur expenditures to maintain and improve supporting or complementary infrastructure and services at Smaaash Centers, including Smaaash Private’s food and beverage venues, parking and other facilities. The actual amounts and timing of Smaaash Private’s future capital expenditure may differ from Smaaash Private’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 Private had estimated, fluctuations in currency exchange rates or commodity prices, unforeseen delays or cost overruns on Smaaash Private’s part or on the part of any of Smaaash Private’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 Private’s payments from corporate customers in Smaaash Private’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 Private operate. Smaaash Private’s capital expenditures and investments may rise in the future, given Smaaash Private’s expansion plans as well as the scope of Smaaash Private’s existing operations. The financing required by Smaaash Private for such capital expenditures and investments may not be available to it on commercially acceptable terms or at all, or Smaaash Private’s ability to seek additional financing in the future may be restricted due to the terms of Smaaash Private’s existing or future borrowings, or regulatory constraints on equity or debt capital raising, or a range of macroeconomic factors, including interest rates.
Smaaash Private’s inability to raise adequate financing on commercially acceptable terms, or at all, in the future may limit Smaaash Private’s strategic initiatives and growth prospects. In addition, there can be no assurance that Smaaash Private’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 Private’s business, financial condition, results of operations and prospects may be adversely affected.
Smaaash Private, 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 Private’s ability to manage its debt service obligations.
Smaaash Private, as well as Smaaash Private’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 Private’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 Private’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 Private’s business, financial condition, results of operation and prospects.
Smaaash Private has a relatively limited operating history and may not be able to sustain Smaaash Private’s growth levels in the future.
Smaaash Private commenced commercial operations at Smaaash Private’s first Smaaash Center in Mumbai in November 2012, and all of Smaaash Private’s other Smaaash Centers have commenced commercial operations within the last three fiscal years. Smaaash Private’s first international Smaaash Center, in the Mall of America, in Minnesota, U.S.A. was opened in December 2016. Consequently, Smaaash Private 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 Private’s past performance and prospects. Smaaash Private may not be able to sustain any historical growth rates in the future, and may not be able to leverage its experience in its existing markets in order to grow Smaaash Private’s business in new markets.
Smaaash Private has entered, and may continue to enter, into certain related party transactions. There can be no assurance that Smaaash Private could not have achieved more favorable terms, if such transactions had not been entered into with related parties, or that Smaaash Private 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 Private has entered into various transactions with related parties. While Smaaash Private believes that all such transactions have been conducted on an arm’s length basis and contain commercially reasonable terms, Smaaash Private may have been able to achieve more favorable terms had such transactions been entered into with unrelated parties. It is also likely that Smaaash Private may enter into related party transactions in the future. Although all material related party transactions that Smaaash Private 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 Private’s financial condition and results of operations or that Smaaash Private 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 Private’s minority shareholders and will not have an adverse effect on Smaaash Private’s business, results of operations, financial condition and cash flows
Since a majority of Smaaash Private’s directors, officers and assets reside or are located outside of the United States, we may have difficulty enforcing judgments against Smaaash Private, its directors and officers.
Smaaash Private is incorporated under the laws of India. Further, Smaaash Private 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 Private’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 Private or those persons, or to recover against Smaaash Private 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 Private 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 court may impose civil liability, including the possibility of monetary damages, on Smaaash Private 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 Private 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 Private 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 Private or its directors and officers or some experts named in this proxy statement/prospectus 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 Our Ownership of Smaaash Private’s Share Equity
Smaaash Private’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.
Shripal Morakhia and AHA Holdings Private Limited, his affiliated entity, and FW Metis, Smaaash Private’s principal shareholders, beneficially own approximately 24.34% and 21.23%, respectively, of Smaaash Private’s share equity after the Transactions. 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 Smaaash Private’s interests. The concentration in ownership may have the effect of delaying, preventing or deterring a change in control of Smaaash Private and deprive Smaaash Private’s shareholders of an opportunity to receive a premium for their equity shares as part of a sale of Smaaash Private.
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 we received in the Transaction and no public trading market is expected to develop in the foreseeable future. Therefore, we may not be able to readily sell or transfer the Smaaash Private equity shares that we own.
Risk Factors Relating to Our Securities and Capital Structure
We have not paid dividends on our Common Stock in the past and do not expect to pay dividends on our Common Stock in the future. Any return on investment in our common stock may be limited to the value of our Common Stock.
We have never paid cash dividends on our Common Stock and do not anticipate paying cash dividends on our Common Stock in the foreseeable future. The payment of dividends on our Common Stock would depend on earnings, financial condition, and other business and economic factors affecting us at such time as our board of directors may consider relevant. If we do not pay dividends on our Common Stock, our Common Stock may be less valuable because a return on your investment will only occur if its stock price appreciates.
Trading on the OTC Markets is volatile and sporadic, which could depress the market price of our common stock and make it difficult for our security holders to resell their common stock and/or warrants.
Our Common Stock and Public Warrants are quoted on the OTCQB tier of the OTC Markets Group, Inc. (“OTC Markets”). Trading in securities quoted on the OTC Markets is often thin and characterized by wide fluctuations in trading prices, due to many factors, some of which may have little to do with our operations or business prospects. This volatility could depress the market price of our common stock for reasons unrelated to operating performance. Moreover, the OTC Markets is not a stock exchange, and trading of securities on the OTC Markets is often more sporadic than the trading of securities listed on a quotation system like Nasdaq Capital Market or a stock exchange like the NYSE American. These factors may result in investors having difficulty reselling any shares of our common stock.
Our stock price is likely to be highly volatile because of several factors, including a limited public float.
The market price of our Common Stock and Public Warrants have been volatile in the past and the market price of our Common Stock and Public Warrants and Private Placement Warrants are likely to be highly volatile in the future. You may not be able to resell shares of our Common Stock and/or Private Placement Warrants following periods of volatility because of the market’s adverse reaction to volatility.
Other factors that could cause such volatility may include, among other things:
● | ||
● | we may have a low trading volume for a number of reasons, including that a large portion of our stock is closely held; | |
● | overall stock market fluctuations; | |
● | announcements concerning our business or those of our competitors; | |
● | actual or perceived limitations on our ability to raise capital when we require it, and to raise such capital on favorable terms; |
● | conditions or trends in the industry; | |
● | litigation; | |
● | changes in market valuations of other similar companies; | |
● | future sales of common stock; | |
● | departure of key personnel or failure to hire key personnel; and | |
● | general market conditions. |
Any of these factors could have a significant and adverse impact on the market price of our Common Stock and/or Private Placement Warrants . In addition, the stock market in general has at times experienced extreme volatility and rapid decline that has often been unrelated or disproportionate to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our Common Stock and/or Private Placement Warrants, regardless of our actual operating performance.
If securities or industry analysts do not publish or cease publishing research or reports about the Company, its business, or its market, or if they change their recommendations regarding our securities adversely, the price and trading volume of our securities could decline.
The trading market for our securities will be influenced by the research and reports that industry or securities analysts may publish about us, our business, our market, or our competitors. Securities and industry analysts do not currently, and may never, publish research on the Company. If no securities or industry analysts commence coverage of the Company, our stock price and trading volume would likely be negatively impacted. If any of the analysts who may cover the Company change their recommendation regarding our securities adversely, or provide more favorable relative recommendations about our competitors, the price of our securities would likely decline. If any analyst who may cover the Company were to cease coverage of the Company or fail to regularly publish reports on it, we could lose visibility in the financial markets, which could cause our stock price or trading volume to decline.
Our common stock has in the past been a “penny stock” under SEC rules, and our warrants may be subject to the “penny stock” rules. It may be more difficult to resell securities classified as “penny stock.”
In the past, our common stock was a “penny stock” under applicable SEC rules (generally defined as non-exchange traded stock with a per-share price below $5.00). Unless we successfully list our common stock and our warrants on a national stock exchange, or maintain a per-share price above $5.00, these rules impose additional sales practice requirements on broker-dealers that recommend the purchase or sale of penny stocks to persons other than those who qualify as “established customers” or “accredited investors.” For example, broker-dealers must determine the appropriateness for non-qualifying persons of investments in penny stocks. Broker-dealers must also provide, prior to a transaction in a penny stock not otherwise exempt from the rules, a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, disclose the compensation of the broker-dealer and its salesperson in the transaction, furnish monthly account statements showing the market value of each penny stock held in the customer’s account, provide a special written determination that the penny stock is a suitable investment for the purchaser, and receive the purchaser’s written agreement to the transaction.
Legal remedies available to an investor in “penny stocks” may include the following:
● | If a “penny stock” is sold to the investor in violation of the requirements listed above, or other federal or states securities laws, the investor may be able to cancel the purchase and receive a refund of the investment. | |
● | If a “penny stock” is sold to the investor in a fraudulent manner, the investor may be able to sue the persons and firms that committed the fraud for damages. |
However, investors who have signed arbitration agreements may have to pursue their claims through arbitration.
These requirements may have the effect of reducing the level of trading activity, if any, in the secondary market for a security that becomes subject to the penny stock rules. The additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers from effecting transactions in our securities, which could severely limit the market price and liquidity of our securities. These requirements may restrict the ability of broker-dealers to sell our common stock or our Private Placement Warrants and may affect your ability to resell our common stock and our Private Placement Warrants.
Many brokerage firms will discourage or refrain from recommending investments in penny stocks. Most institutional investors will not invest in penny stocks. In addition, many individual investors will not invest in penny stocks due, among other reasons, to the increased financial risk generally associated with these investments.
For these reasons, penny stocks may have a limited market and, consequently, limited liquidity. We can give no assurance at what time, if ever, our common stock or our Private Placement Warrants will not be classified as a “penny stock” in the future.
A sale of a substantial number of shares of our Common Stock may cause the price of the Common Stock to decline.
If our stockholders sell substantial amounts of our Common Stock in the public market, the market price of our Common Stock could fall. These sales also may make it more difficult for us to sell our equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate. This risk is significant because of concentrated positions of our Common Stock held by a small group of investors.
Because certain of our stockholders control a significant number of shares of our Common Stock, they may have effective control over actions requiring stockholder approval.
Our directors, executive officers and principal stockholders, and their respective affiliates, beneficially own approximately 59.2% of our outstanding shares of Common Stock. Accordingly, our executive officers, directors and principal stockholders, and their respective affiliates, will have significant influence on the ability to control the Company and the outcome of issues submitted to our stockholders.
If the benefits of any proposed acquisition of do not meet the expectations of investors, stockholders or financial analysts, the market price of our Common Stock may decline.
If the benefits of any proposed acquisition of do not meet the expectations of investors or securities analysts, the market price of our Common Stock prior to the closing of the proposed acquisition may decline. The market values of our Common Stock at the time of the proposed acquisition may vary significantly from their prices on the date the acquisition target was identified.
In addition, broad market and industry factors may materially harm the market price of our Common Stock irrespective of our operating performance. The stock market in general has experienced price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the particular companies affected. The trading prices and valuations of these stocks, and of our securities, may not be predictable. A loss of investor confidence in the market for retail stocks or the stocks of other companies which investors perceive to be similar to us could depress our stock price regardless of our business, prospects, financial conditions or results of operations. A decline in the market price of our securities also could adversely affect our ability to issue additional securities and our ability to obtain additional financing in the future.
Changes in accounting principles and guidance, or their interpretation, could result in unfavorable accounting charges or effects, including changes to our previously filed financial statements, which could cause our stock price to decline.
We prepare our consolidated financial statements in accordance with GAAP. These principles are subject to interpretation by the SEC and various bodies formed to interpret and create appropriate accounting principles and guidance. A change in these principles or guidance, or in their interpretations, may have a significant effect on our reported results and retroactively affect previously reported results.
Being a public company results in additional expenses, diverts management’s attention and could also adversely affect our ability to attract and retain qualified directors.
As a public reporting company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These requirements generate significant accounting, legal and financial compliance costs and make some activities more difficult, time consuming or costly and may place significant strain on our personnel and resources. The Exchange Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. In order to establish the requisite disclosure controls and procedures and internal control over financial reporting, significant resources and management oversight are required.
As a result, management’s attention may be diverted from other business concerns, which could have an adverse and even material effect on our business, financial condition and results of operations. These rules and regulations may also make it more difficult and expensive for us to obtain director and officer liability insurance. If we are unable to obtain appropriate director and officer insurance, our ability to recruit and retain qualified officers and directors, especially those directors who may be deemed independent, could be adversely impacted.
We are an “emerging growth company” and our election to delay adoption of new or revised accounting standards applicable to public companies may result in our financial statements not being comparable to those of some other public companies. As a result of this and other reduced disclosure requirements applicable to emerging growth companies, our securities may be less attractive to investors.
As a public reporting company with less than $1,070,000,000 in revenue during our last fiscal year, we qualify as an “emerging growth company” under the Jumpstart our Business Startups Act of 2012 (the “JOBS Act”). An emerging growth company may take advantage of certain reduced reporting requirements and is relieved of certain other significant requirements that are otherwise generally applicable to public companies. In particular, as an emerging growth company we:
● | are not required to obtain an attestation and report from our auditors on our management’s assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002; | |
● | are not required to provide a detailed narrative disclosure discussing our compensation principles, objectives and elements and analyzing how those elements fit with our principles and objectives (commonly referred to as “compensation discussion and analysis”); | |
● | are not required to obtain a non-binding advisory vote from our stockholders on executive compensation or golden parachute arrangements (commonly referred to as the “say-on-pay,” “say-on-frequency” and “say-on-golden-parachute” votes); | |
● | are exempt from certain executive compensation disclosure provisions requiring a pay-for-performance graph and CEO pay ratio disclosure; | |
● | may present only two years of audited financial statements and only two years of related Management’s Discussion & Analysis of Financial Condition and Results of Operations (“MD&A”); and | |
● | are eligible to claim longer phase-in periods for the adoption of new or revised financial accounting standards under §107 of the JOBS Act. |
We intend to take advantage of all of these reduced reporting requirements and exemptions, including the longer phase-in periods for the adoption of new or revised financial accounting standards under §107 of the JOBS Act. Our election to use the phase-in periods may make it difficult to compare our financial statements to those of non-emerging growth companies and other emerging growth companies that have opted out of the phase-in periods under §107 of the JOBS Act.
Certain of these reduced reporting requirements and exemptions were already available to us due to the fact that we also qualify as a “smaller reporting company” under SEC rules. For instance, smaller reporting companies are not required to obtain an auditor attestation and report regarding management’s assessment of internal control over financial reporting; are not required to provide a compensation discussion and analysis; are not required to provide a pay-for-performance graph or Chief Executive Officer pay ratio disclosure; and may present only two years of audited financial statements and related MD&A disclosure.
Under the JOBS Act, we may take advantage of the above-described reduced reporting requirements and exemptions for up to five years after our initial sale of common equity pursuant to a registration statement declared effective under the Securities Act of 1933, as amended (the “Securities Act”), or such earlier time that we no longer meet the definition of an emerging growth company. In this regard, the JOBS Act provides that we would cease to be an “emerging growth company” if we have more than $1,070,000,000 in annual revenues, have more than $700 million in market value of our Common Stock held by non-affiliates, or issue more than $1.0 billion in principal amount of non-convertible debt over a three-year period. Further, under current SEC rules we will continue to qualify as a “smaller reporting company” for so long as we have a public float (i.e., the market value of common equity held by non-affiliates) of less than $75 million as of the last business day of our most recently completed second fiscal quarter.
We cannot predict if investors will find our securities less attractive due to our reliance on these exemptions.
Failure to establish and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and stock price.
We are required to comply with the SEC’s rules implementing Sections 302 and 404 of the Sarbanes-Oxley Act, which require management to certify financial and other information in our quarterly and annual reports and provide an annual management report on the effectiveness of controls over financial reporting. Though we are required to disclose changes made in our internal controls and procedures on a quarterly basis, we will not be required to make our first annual assessment of our internal control over financial reporting pursuant to Section 404 until year-end 2017. However, as an emerging growth company, our independent registered public accounting firm will not be required to formally attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 until the end of the fiscal year for which our second annual report is due or the date we are no longer an emerging growth company. At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed or operating.
To comply with the requirements of being a public company, we have undertaken various actions, and may need to take additional actions, such as implementing new internal controls and procedures and hiring additional accounting or internal audit staff. Testing and maintaining internal control can divert our management’s attention from other matters that are important to the operation of our business. Additionally, when evaluating our internal control over financial reporting, we may identify material weaknesses that we may not be able to remediate in time to meet the applicable deadline imposed upon us for compliance with the requirements of Section 404. If we identify any material weaknesses in our internal control over financial reporting or are unable to comply with the requirements of Section 404 in a timely manner or assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting once we are no longer an emerging growth company, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our Common Stock could be negatively affected, and we could become subject to investigations by the Financial Industry Regulatory Agency, the SEC or other regulatory authorities, which could require additional financial and management resources.
Anti-takeover provisions contained in our certificate of incorporation and bylaws, as well as provisions of Delaware law, could impair a takeover attempt.
The Company’s certificate of incorporation and bylaws contain provisions that could have the effect of delaying or preventing changes in control or changes in our management without the consent of our board of directors. These provisions include:
● | no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates; | |
● | the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of the board of directors or the resignation, death, or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors; | |
● | the ability of our board of directors to determine whether to issue shares of our preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer; | |
● | limiting the liability of, and providing indemnification to, our directors and officers; | |
● | controlling the procedures for the conduct and scheduling of stockholder meetings; | |
● | providing that directors may be removed prior to the expiration of their terms by stockholders only for cause; and | |
● | advance notice procedures that stockholders must comply with in order to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of the Company. |
These provisions, alone or together, could delay hostile takeovers and changes in control of the Company or changes in our board of directors and management.
Any provision of our certificate of incorporation or bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our security holders to receive a premium for their securities and could also affect the price that some investors are willing to pay for our securities.
In the event that our common stock price does not exceed the exercise price of the Private Placement Warrants during the period when the Private Placement Warrants are exercisable, the Private Placement Warrants may not have any value.
The warrants will be immediately exercisable and expire on the fifth anniversary of the date of issuance. The Private Placement Warrants will have an initial exercise price per share equal to $11.50. In the event that our common stock price does not exceed the exercise price of the Private Placement Warrants during the period when the Private Placement Warrants are exercisable, the Private Placement Warrants may not have any value.
There is no established trading market for the Private Placement Warrants to be sold in this offering, and the market for the Private Placement Warrants may be highly volatile or may decline regardless of our operating performance. We do not intend to list the Private Placement Warrants, nor do we expect the Private Placement Warrants to be quoted, on any securities exchange.
There must be a current registration statement in order for you to exercise the Private Placement Warrants.
Holders of Private Placement Warrants will be able to exercise the Private Placement Warrants only if a current registration statement relating to the common stock underlying the Private Placement Warrants is then in effect. Although we will attempt to maintain the effectiveness of a current registration statement covering the common stock underlying the Private Placement Warrants, there can be no assurance that we will be able to do so. If the registration statement covering the shares issuable upon exercise of the Private Placement Warrants is no longer effective, the Private Placement Warrants may only be exercised on a “cashless” basis and will be issued with restrictive legends unless such shares are eligible for sale under Rule 144 of the Securities Act of 1933, as amended.
Holders of our Private Placement Warrants will have no rights as a common stockholder until they acquire our common stock.
Until you acquire shares of our common stock upon exercise of your Private Placement Warrants, you will have no rights with respect to our common stock. Upon exercise of your Private Placement Warrants, you will be entitled to exercise the rights of a common stockholder only as to matters for which the record date occurs after the exercise date.
All of the shares of Common Stock offered by the Selling Securityholders pursuant to this prospectus will be sold by the Selling Securityholders for their respective accounts. We will not receive any of the proceeds from these sales. We will receive up to an aggregate of approximately $66,757,250.00 from the exercise of Warrants, assuming the exercise in full of all of the Warrants for cash. We expect to use the net proceeds from the exercise of the Warrants for general corporate purposes.
The following table sets forth our cash and cash equivalents and capitalization as of February 28, 2019 on an actual basis.
This table should be read in conjunction with the information contained in this prospectus, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the related notes thereto appearing elsewhere in this prospectus.
As of February 28, 2019 | ||||
Actual | ||||
(unaudited) | ||||
Cash and cash equivalents | $ | 1,245,666 | ||
Stockholders’ equity: | ||||
Preferred stock - $0.0001 par value, 1,000,000 shares authorized; no shares issued and outstanding on an actual basis | - | |||
Common stock - $0.0001 par value; 20,000,000 shares authorized; 6,313,038 shares issued and outstanding on an actual basis | 632 | |||
Common stock issuable - 2,030,000 shares on an actual basis | 203 | |||
Additional paid-in capital | 7,515,541 | |||
Accumulated deficit | (3,105,494 | ) | ||
Total stockholders’ equity | 4,410,882 | |||
Total capitalization | $ | 7,367,438 |
Determination of Offering PRice
Resale of Common Stock by Selling Securityholders
Our Common Stock is quoted on the OTCQB under the symbol “WINR.” The sharesregistered for resale in this prospectus being offered by the Selling Securityholders will be sold at a fixed price of $2.00 for the duration of this offering. The offering price of the shares bears no relation to book value, assets, earnings, or any other objective criteria of value. It has been arbitrarily determined by the Selling Securityholders.
Resale of Private Placement Warrants by Selling Securityholders
Our Public Warrants are quoted on the OTCQB under the symbol “WINRW.” The actual offering price by the Selling Securityholders of the Private Placement Warrants covered by this prospectus will be determined by prevailing market prices at the time of sale, by private transactions negotiated by the Selling Securityholders or as otherwise described in the section entitled “Plan of Distribution.” The exercise price of the Private Placement Warrants as well as the Public Warrants is established based on the terms of the Warrant Agreement and bears no relationship to the book value, assets or earnings of our company or any other recognized criteria of value.
Issuance of Shares of Common Stock Underlying Warrants
The price of the shares of Common Stock underlying the Warrants registered hereby is determined by reference to the exercise price of the Warrants, such that each (i) Public Warrant and Private Placement Warrant entitles the holder to purchase one share of our Common Stock at an exercise price of $11.50 per share and (ii) 2019 Warrant entitles the holder to purchase one share of our Common Stock at an exercise price of $4.00 per share.
PRice range of securities and dividends
Price Range of Securities
Our Common Stock and Public Warrants are currently quoted on the OTCQB under the symbols “WINR” and “WINRW”, respectively. On October 9, 2017, our Common Stock and Public Warrants commenced public trading on the NASDAQ Capital Market under the symbols “IAM” and “IAMXW”, respectively. On November 20, 2018, we changed the symbols of our Common Stock and Public Warrants to “SMSH” and “SMSHW”, respectively, in conjunction with our name change from “I-AM Capital Acquisition Company” to “Smaaash Entertainment, Inc.” On January 10, 2019, we changed the symbols of our Common Stock and Public Warrants to “WINR” and “WINRW”, respectively, in conjunction with our name change from “Smaaash Entertainment, Inc.” to “Simplicity Esports and Gaming Company.” However, on January 25, 2019, the NASDAQ suspended our Common Stock and Public Warrants from trading on the NASDAQ Capital Market and the OTCQB commenced the quotation of our Common Stock and Public Warrants. On April 2, 2019, the NASDAQ Capital Market filed a Form 25 for our Common Stock and Public Warrants, which became effective ten days thereafter.
The following table includes the high and low bids for our Common Stock and Public Warrants for the periods presented, since the consummation of our IPO on August 22, 2017.
Common Stock(1) | PublicWarrants(2) | |||||||||||||||
High | Low | High | Low | |||||||||||||
Fiscal Year 2019 | ||||||||||||||||
March 1 to July 10, 2019 | $ | 2.20 | 0.56 | 0.70 | 0.04 | |||||||||||
December 1, 2018 to February 28, 2019 | $ | 6.62 | 1.23 | 0.52 | 0.06 | |||||||||||
September 1 to November 30, 2018 | $ | 11.05 | 3.15 | 0.46 | 0.17 | |||||||||||
June 1 to August 31, 2018 | $ | 11.05 | 9.86 | 0.50 | 0.20 | |||||||||||
Fiscal Year 2018 | ||||||||||||||||
March 1 to May 31, 2018 | $ | 10.52 | 9.90 | 0.50 | 0.34 | |||||||||||
December 1, 2017 to February 28, 2018 | $ | 10.02 | 9.80 | 0.60 | 0.21 | |||||||||||
September 1 to November 30, 2017 | $ | 9.98 | 9.80 | 0.34 | 0.26 | |||||||||||
August 16 to August 31, 2017 (3) | $ | N/A | N/A | N/A | N/A |
(1) | Our Common Stock began separate trading on NASDAQ on October 9, 2017. |
(2) | Our Public Warrants began separate trading on NASDAQ on October 9, 2017. |
(3) | Our Common Stock and Public Warrants did not trade separately from the Public Units until October 9, 2017. |
On July 10, 2019, the closing price of our Common Stock and Public Warrants were $1.72 and $0.33, respectively. As of July 12, 2019, we had 6,952,195 shares of Common Stock and 5,200,000 Public Warrants.
Road AheadHolders
India’s gross domestic product (GDP) is expected to reach $6 trillion by 2027As of July 12, 2019, there were approximately 108 holders of record of our Common Stock and achieve upper-middle income status on the back59 holders 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 termsrecord of purchasing power parity (PPP) by the year 2040, according to a report by Pricewaterhouse Coopers.
our Public Warrants.
Overview of the Indian Media & Entertainment Sector (Source: FICCI – EY M&E Report 2018)Dividends
The Media & Entertainment (“M&E”) sector in IndiaCompany has not paid any dividends on its Common Stock to date. It is also experiencing good growth. Favorable demographics, rising consumer incomes, and demand for knowledge, entertainment, experiences, news, and sports aided the growthpresent intention of the Indian M&E sector,Company to retain any earnings for use in its business operations and, accordingly, the Company does not anticipate the board of directors declaring any dividends in the foreseeable future on our Common Stock. Consequently, you will only realize an economic gain on your investment in our Common Stock if the price appreciates. You should not purchase our Common Stock expecting to receive cash dividends. Since we do not anticipate paying dividends, and if we are not successful in establishing an orderly public trading market for our shares, then you may not have any manner to liquidate or receive any payment on your investment. Therefore, our failure to pay dividends may cause you to not see any return on your investment even if we are successful in our business operations. In addition, because we may not pay dividends in the foreseeable future, we may have trouble raising additional funds 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.could affect our ability to expand our business operations.
Family Entertainment Center (“FEC”) Market Overview (Source: Global Family/Indoor Entertainment Centers report by Future Market InsightsDESCRIPTION OF BUSINESS
Family entertainment centers (FECs) are small amusement parksUnless the context otherwise requires, “we,” “us,” or entertainment zones that typically serve local communities in big“the Company” refers to (i) “Simplicity Esports and small cities. These centers are designed to keepGaming Company” after 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 growthconsummation of the market.
US and India markets are specifically fast-growing due to emergenceAcquisition 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 fuelingSimplicity Esports, LLC, (ii) “Smaaash Entertainment Inc.” before 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 growthconsummation of the FEC market.
Increasing disposable incomeAcquisition of Simplicity Esports, LLC but after the closing of the Transactions with Smaaash Entertainment Private Limited, 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(iii) I-AM Capital Acquisition Company prior 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 ownersclosing of the FEC’s have started to partnerTransactions with Smaaash Entertainment Private Limited.“Simplicity Esports LLC” means Simplicity Esports, LLC, a Florida limited liability company, and its consolidated subsidiaries “Smaaash Private” means Smaaash Entertainment Private Limited, a private limited company incorporated under 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 promotionslaws 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% |
92
SMAAASH’S BUSINESSits consolidated subsidiaries
Overview
We are a North American esports organization. We have implemented a unique approach to ensure the ultimate fan friendly experience. Our intention is to have gamers involved at the grassroots level and feel a sense of unity as we compete with top class talent. Utilizing the vast resources from within the ownership group, we have already established an impressive management team and roster. Our management and players are well known influencers within the esports community and we plan to use their skill to create a seamless content creation pan to help gamers feel closer to our brand that any other in the scene. Our organization intends to take the opportunity to create a platform that will help grow the sports for generations of gamers.
Acquisition of Simplicity Esports, LLC
On January 4, 2019, the Company consummated the transactions contemplated by that certain share exchange agreement, dated December 21, 2018 (as amended by Amendment No. 1 to Share Exchange Agreement, dated December 28, 2018 and by Amendment No. 2 to Share Exchange Agreement, dated December 30, 2018, the “Share Exchange Agreement”) by and among the Company, Simplicity Esports, LLC, a Florida limited liability company (“Simplicity Esports LLC”), each of the equity holders of Simplicity Esports LLC (“Simplicity Owners”) and Jed Kaplan, in the capacity as the representative of the Simplicity Owners (the “Representative”). Pursuant to the Share Exchange Agreement the Simplicity Owners transferred all the issued and outstanding equity interests of Simplicity Esports LLC to the Company in exchange for newly issued shares of common stock of the Company (the “Acquisition”).
Background of Simplicity Esports, LLC
Founded in 2017, Simplicity Esports LLC is committed to growing and enhancing the Esports industry, fostering the development of amateurs to compete professionally, and partnering with established professional gamers to support their paths to greater success. Esports (also known as electronic sports, e-sports, or eSports) is a form of competition using video games. Most commonly, esports takes the form of organized, multiplayer video game competitions, particularly between professional players, individually or as teams. Our continued accomplishments in various games is a driving force behind the growth of our fan base including viewership of our content.
As of January 4, 2019, upon the completion of the acquisition of Simplicity Esports LLC, the business of Simplicity Esports LLC has now become the primary business of the Company. Simplicity Esports LLC is an established brand in the Esports industry with an engaged fan base competing in popular games across different genres, including Apex Legends, PUBG, Gears of War, SMITE, and NHL 19. The Simplicity Esports LLC stream team encompasses over 50 casters, influencers and personalities who connect to a dedicated fan base. Simplicity Esports LLC’s notoriety in the industry is evidenced by its audience that views millions of minutes of Simplicity Esports LLC content monthly, via various social media outlets including YouTube, Twitter and Twitch.
The acquisition of Simplicity Esports LLC creates a pure play esports team and entertainment platform opportunity, which we believe will increase shareholder value and boost our growth strategy as we endeavor the build out of our brick and mortar esports centers. Through Simplicity Esports LLC, the Company has begun to implement a unique approach to ensure the ultimate fan friendly esports experience. Our intention is to have gamers involved at the grassroots level and feel a sense of unity as we compete with top class talent. Our management and players are known within the esports community and we plan to use their skills to create a seamless content creation plan helping gamers feel closer to our brand than any other in the industry. Simplicity Esports LLC also plans to open and operate corporate-owned retail esports gaming centers (“Simplicity Esports Gaming Centers”) as well as to franchise Simplicity Esports Gaming Centers that will provide the public an opportunity to experience and enjoy gaming and Esports in a social setting, regardless of skill or experience.
Brick & Mortar Esports Gaming Locations
Our business plan encompasses a brick and click physical and digital approach to further recognize revenue from all verticals. As a professional esports organization, we will strive to be the first to market with the aforementioned business model. The physical centers complimented with our esports team, lifestyle brand and marketing campaign offer opportunities for additional revenue via strategic partnerships with both endemic and non-endemic brands. Our ultimate goal is to further engage a diverse fan base with a 360 degree approach driving traffic to both our digital and physical real estate ultimately monetizing these relationships. In addition to the presented information, we have proprietary intellectual capital, fan engagement strategies and brand development blueprints which complement our publicly available information.
We intend to open and operate 15 centers by the end of 2019 and a total of 50 throughout the United States over the next 24 months. These centers are funded by us as well as a combination of tenant improvement allowances from landlords and sponsorships. Our first center was opened May, 3 2019. Due to unsolicited interest from potential franchisees we have launched a franchising program to accelerate the expansion of our planned nationwide footprint. Furthermore, we have engaged a national tenant representation real estate broker to assist in the strategic planning and negotiations for our future gaming center locations.
Optimally, our gaming centers will measure between 1200 and 2500 square feet thereby representing a national footprint unlike any esports organization. The team Simplicity branded centers will feature cutting edge technology, futuristic aesthetic décor and the most dynamic current high speed gaming equipment. We believe our brick-and-click strategy will present attractive opportunities for sponsor and advertisers to connect with our audience, creating an intriguing monetization opportunity.
Creating content that engages fans, promotes our brand as well as sponsors and developers is one of our primary goals. Our talented team will continue to produce unique in depth content which showcases aspects of esports which fans rarely see. We seek to reach a broad demographic encompassing the casual, amateur and professional gaming community. Our philosophy is to enhance our footprint for both endemic and non-endemic partnerships. We are keen to the markets and understand the new age of branding while maintaining authenticity.
Simplicity Stream Team
We are proud to support and present a diverse group of gamers as we engage fans across a multiple of esports genres. Represented below are a few members of our talented stream team. Our electric group of live personalities represent our organization to the fullest with their own unique style. Our Twitch affiliation has enabled our stream team influences to reach a broad fan base. Additionally, we have created several niches within the streaming community which has enabled us to engage fans within certain titles on a 24/7 basis.
Potential Revenue Capacity
The following table shows our potential revenue capacity, per location, from game play.
We also expect opportunities for revenue from parties, tournaments, classes, gaming gear, apparel, advertising and sponsorship sales.
ANNUAL REVENUE CAPACITY FROM GAME PLAY PER ESPORTS GAMING CENTER*
20 | % | $ | 157,248 | ||
40 | % | $ | 314,496 | ||
60 | % | $ | 471,744 | ||
80 | % | $ | 628,992 |
*Assumes 2,808 operational hours, 28 gaming stations, $10/hour price. Represents capacity only, and is not an indication of expected future revenues. There can be no assurance that we will operate at any of the indicated levels of capacity, or at all.
Corporate History
Formation
We were initially a blank check company organized under the laws of the State of Delaware on April 17, 2017 under the name I-AM Capital Acquisition Company. We were 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 we were not limited to a particular industry or geographic region for purposes of consummating a business combination, we focused on businesses with a connection to India. On November 20, 2018, we changed our name from I-AM Capital Acquisition Company to Smaaash Entertainment, Inc. On January 2, 2019, we changed our name from Smaaash Entertainment, Inc. to Simplicity Esports and Gaming Company.
We are authorized to issue 21,000,000 shares of capital stock, consisting of (i) 20,000,000 shares of common stock, with a par value of $0.0001 per share (“Common Stock”), and (ii) 1,000,000 shares of preferred stock, with a par value of $0.0001 per share. As of July 12, 2019, there were 6,952,195 shares of Common Stock issued and outstanding and there were no shares of preferred stock issued or outstanding.
Founder Shares
On May 31, 2017, we issued 1,437,500 shares of Common Stock (the “Founder Shares”) to I-AM Capital Partners LLC, our sponsor (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, for a balance of 1,300,000 Founder Shares held by our Sponsor.
Initial Public Offering and Private Placement
On August 22, 2017, we sold 5,000,000 units at a purchase price of $10.00 per unit in our initial public offering (“IPO”) of public units (“Public Units”), generating gross proceeds of $50.0 million. Each Public Unit consisted of one share of our Common Stock (“Public Shares”), one right to receive one-tenth of one share our Common Stock upon consummation of an initial business combination (“Public Right”), and one redeemable warrant (“Public Warrants”). Each warrant entitled the holder to purchase one share of common stock at an exercise price of $11.50 per share, subject to adjustment.
Concurrently with the closing of the IPO on August 22, 2017, the Sponsor purchased an aggregate of 254,500 units (“Private Placement Units”) at $10.00 per unit, generating gross proceeds of $2,545,000 in a private placement. The Private Placement Units (including their component securities) are not transferable, assignable or salable until 30 days after the completion of the initial business combination and the warrants included in the Private Placement Units are non-redeemable so long as they are held by the Sponsor or their permitted transferees.
On August 22, 2017, we issued 50,000 shares of Common Stock to Maxim in connection with its services as underwriter for the IPO.
Contained in the underwriting agreement for the IPO was an over-allotment option allowing the underwriters to purchase from the Company up to an additional 750,000 Public Units (the “Over-Allotment Units”) and, in addition, the Company received a commitment from the Sponsor to purchase up to an additional 26,250 Private Placement Units.
On September 13, 2017, the underwriters partially exercised their option and purchased 200,000 Over-Allotment Units, which were sold at an offering price of $10.00 per unit, generating gross proceeds of $2,000,000.
On September 13, 2017, simultaneously with the sale of the Over-Allotment Units, the Company consummated the sale of an additional 7,000 Private Placement Units (the “Over-Allotment Placement Units”), generating gross proceeds of $70,000.
On September 13, 2017, we issued Maxim an additional 2,000 shares of our Common Stock upon partial exercise of the over-allotment.
On October 9, 2017, we commenced trading our Public Shares of Common Stock, Public Rights, and Public Warrants on the Nasdaq Capital Market under the symbols “IAM,” “IAMXR” and “IAMXW,” respectively.
The Founder Shares are identical to the Public Shares and holders of Founder Shares have the same stockholder rights as the holders of our Public Shares (“Public Stockholders”) which include our initial stockholders, including the holders of our Founder Shares prior to the IPO (“initial stockholders”) and members of our management team, including our executive officers and directors (“management” and “management team”), to the extent our initial stockholders and/or members of our management team purchased 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), except that the Founder Shares and the shares of Common Stock (“Private Placement Shares”) forming part of the Private Placement Units are subject to certain transfer restrictions.
Consummation of Transactions with Smaaash Entertainment Private Limited
On November 20, 2018 (the “Closing Date”), the Company and Smaaash Entertainment Private Limited, a private limited company incorporated under the laws of India, consummated the transactions (the “Transactions” or the “Business Combination”) contemplated by the share subscription agreement (as amended, the “Subscription Agreement”), following the approval at the special meeting of the stockholders of the Company held on November 9, 2018 (the “Special Meeting”).
At the Special Meeting, holders of 4,448,260 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 initial 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 Public Rights at the Closing and the issuance of 208,000 shares of common stock to Chardan as consideration for services), there were 5,119,390 shares of common stock and warrants to purchase approximately.
On November 20, 2018, upon the consummation of the Business Combination with Smaaash Private, we issued 26,150 shares of common stock underlying the Private Placement Rights to the holders of the Private Placement Rights.
Pursuant to the Subscription Agreement, the purchase price of $150,000 was paid by the Company to Smaaash Private in exchange for 294,360 newly issued equity shares of Smaaash Private at the closing of the Transactions (the “Closing”).
In addition, AHA Holdings Private Limited (“AHA Holdings”) and Shripal Morakhia (together with AHA Holdings, the “Smaaash Founders”) agreed that within six months following the Closing Date, they would transfer all of their ownership interest in Smaaash Private (representing 33.6% of the share capital of Smaaash Private on a fully diluted basis as of June 22, 2018) (the “Additional Smaaash Shares”) to the Company in exchange for newly issued shares of our Common Stock (the “Transferred Company Shares”) in an amount which would enable the Smaaash Founders to retain their 33.6% ownership interest in Smaaash Private indirectly through their interest in the Company.
At the Closing, the Company issued an aggregate of 2,000,000 shares of its common stock to the Smaaash Founders as an upfront portion of the Transferred Company Shares (the “Upfront Company Shares”). In connection with the issuance of the Upfront Company Shares, the Company and the Smaaash Founders entered into an escrow agreement pursuant to which the Upfront Company Shares would be held in escrow and will be either, (i) if the Additional Smaaash Shares are not transferred in full to the Company within the designated six-month period, cancelled, or (ii) if the Additional Smaaash Shares are transferred in full to the Company within the designated six-month period, released from escrow and the number of Upfront Company Shares will be deducted from the Transferred Company Shares that will be issued to the Smaaash Founders upon the delivery of the Additional Smaaash Shares.
On November 16, 2018, Smaaash Private and the Smaaash Founders executed a letter of undertaking, pursuant to which they agreed to transfer 4,000,000 additional equity shares of Smaaash Private to the Company in consideration for 200,000 shares of our Common Stock, simultaneously with the issuance of the 300,000 equity shares of Smaaash Private to the Company on or prior to November 30, 2018, as permitted by the laws of India. Such additional shares of Smaaash Private have not yet been delivered to the Company.
In connection with the Closing, the Company changed its name from I-AM Capital Acquisition Company to Smaaash Entertainment Inc., changed its stock symbols for its Common Stock, Public Rights, and Public Warrants to “IAM,” “IAMXR” and “IAMXW,” respectively, and entered into a master franchise agreement (“Master Franchise Agreement”) and a master license and distribution agreement (“Master Distribution Agreement”) with Smaaash Private. Prior to the Closing, the Company 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 Private and the rights granted under the Master Franchise Agreement and the Master Distribution Agreement.
Pursuant to the terms of the escrow agreement, the Upfront Company Shares have been cancelled because the Additional Smaaash Shares were not transferred in full to the Company in the designated six-month period.
Master Franchise Agreement
Franchise and license right. Under the Master Franchise Agreement, Smaaash Private has granted to the Company 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 Private with respect to the Smaaash Centers, in the territories of North America and South America (“Territory”). Further, Smaaash Private has granted to the Company the limited license to use the Trademarks of Smaaash Private (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 Private and the Company.
Obligations of the Company. The Company will not directly or indirectly engage or be concerned with any business which competes with Smaaash Private’s business in the Territory during the term of the Master Franchise Agreement. The Company will market, promote and publicize the Smaaash Centers in the Territory. The Company 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 Private. Smaaash Private 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 will 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, the Company 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 Private will not receive any portion of the revenue or other fees in connection with the Master Franchise Agreement.
Ownership of Smaaash Marks. Smaaash Private will be the sole owner of all intellectual property related to the Smaaash Centers. All future rights, goodwill and reputation of the Smaaash Marks shall inure to the benefit of Smaaash.
Term of the Agreement. The Master Franchise Agreement will 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 Private if the Company 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’ notice of the failure.
Addendum to Master Franchise Agreement
On November 29, 2018, the Company and Smaaash Private executed an addendum to the Master Franchise Agreement (the “Amendment”). Pursuant to the Amendment, Smaaash Private grants the Company the exclusive rights to set up family and entertainment centers under the name “Total Sports Center” in the United States (“Total Sports Centers”) in which 51% of the investment will be borne by the Company and 49% by Smaaash Private. Smaaash Private will be responsible for identifying the locations for setting up, managing and controlling the Total Sports Centers and will carry out all the fit out requirements for such centers. Smaaash Private will also appoint the management team for the centers. Smaaash Private will be entitled to 3% of the net revenue of each center, subject to conditions to be confirmed by the parties.
Master License and Distribution Agreement
Grant of license and distribution rights. Under the Master Distribution Agreement, Smaaash Private has granted to the Company an exclusive right to purchase from Smaaash Private specialized equipment and products related to sports and recreational activities (“Products”) in the territory under the brand name of Smaaash Private and sell them with a 15% markup to the customers which will be the sub-franchisees of the Company who will operate the Smaaash Centers, as specified in the Master Franchise Agreement.
Pricing. The Company may sell the Products further to any third party franchisees at a minimum of 15% margin over and above the price at which Smaaash Private sold the Products to the Company.
Grant of license in Smaaash Marks.Smaaash Private has also granted the Company a license to use the Trademarks (as set out in the Master Distribution 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 Private will be the sole owner of any intellectual property rights relating to the Products and all the goodwill relating thereto.
Term.The Master Distribution Agreement will 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 Private if the Company 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 the Company for any reason upon 120 days’ notice.
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Settlement Agreement
On November 20, 2018, the Company entered into a settlement and release agreement (“Settlement Agreement”) with Maxim Group LLC, the underwriter for the Company’s IPO (“Maxim”). Pursuant to the Settlement Agreement, the Company made a cash payment of $20,000 to Maxim and issued a demand secured promissory note in favor of Maxim in the amount of $1.8 million (the “Note”) to settle the payment obligations of the Company under the underwriting agreement dated August 16, 2017, by and between the Company and Maxim. The Company also agreed to remove the restrictive legends on an aggregate of 52,000 shares of its common stock held by Maxim and its affiliate.
The Note accrues interest at 8% per annum from the date of the Note through and including May 20, 2019 and 12% per annum from and including May 21, 2019 through and including August 20, 2019 and 15% per annum from and including August 21, 2019 through and including November 20, 2019. If a late payment occurs and is continuing, the interest rate will be increased to 12% per annum and if from the date of the Note through and including August 20, 2019 and 18% per annum and if from after August 21, 2019. If a late payment remains outstanding for over 48 hours, Maxim may require the Company to redeem all or any part of the Note (“Alternate Payment Amount”) at a redemption price equal to 125% of the Alternate Payment Amount.
The principal and interest of the Note will be payable upon demand by Maxim or from time to time, in accordance the following schedule:
(i) one third of the principal, accrued and unpaid interest and any late charges on May 20, 2019;
(ii) one third of the principal, accrued and unpaid interest and any late charges on August 20, 2019; and
(iii) one third of the principal, accrued and unpaid interest and any late charges on November 20, 2019.
The Note is secured by a first priority security interest in all personal property and assets of the Company excluding the assets held in escrow with respect to (i) that certain stock purchase agreement with Polar, pursuant to which Polar agreed to sell up to 490,000 shares of the Company’s common stock to the Company thirty days after the consummation of the Transactions and (ii) that certain stock purchase agreement with K2 Principal Fund L.P. (“K2”), pursuant to which K2 agreed to sell up to 220,000 shares of the Company’s common stock to the Company thirty days after the consummation of the Transactions.
The amount payable under the Note may be paid in shares of our Common Stock or securities convertible or exercisable into shares of our Common Stock (the “Alternate Equity Payment”) if and only if the Company and Maxim mutually agree on both the purchase price and, if applicable, the conversion and/or exercise price of each security of the Company issued in such Alternate Equity Payment. Otherwise the payment should be made in cash only.
So long as any amount under the Note is outstanding, all cash proceeds received by the Company from any sales of its securities will be used to repay this Note.
Convertible Note Payable
On December 20, 2018, the Company entered into a securities exchange agreement (“Exchange Agreement”) with Maxim Group LLC (the “Holder”). Pursuant to the terms of the Exchange Agreement, the Holder agreed to surrender and exchange the Note in the amount of $1.8 million which was issued to Maxim pursuant to the Settlement Agreement (discussed immediately above). In exchange, the Company issued to the Holder a Series A-1 Exchange Convertible Note in the principal amount of $500,000 (the “Series A-1 Note”) and a Series A-2 Exchange Convertible Note in the principal amount of $1,000,000 (the “Series A-2 Note,” and collectively with Series A-1 Note, the “Exchange Notes”).
The Series A-1 Note bears interest at 2.67% per annum, payable quarterly and has a maturity date of the earlier of the closing date of the Acquisition (as defined below) or June 20, 2020 (the “Maturity Date”). The Company may pay the interest in cash or at its sole discretion, in shares of its common stock or a combination of cash and common stock. However, the Company may only pay the interest in shares of its common stock if (i) all the equity conditions specified in the note (“Equity Conditions”) have been met (unless waived by the Holder in writing) during the 20 trading days immediately prior to the interest payment date (“Interest Notice Period”), (ii) the Company has provided proper notice pursuant to the terms of the note and (iii) the Company has delivered to the Holder’s account certain number of shares of its common stock to be applied against such interest payment prior to (but no more than five trading days before) the Interest Notice Period.
The Series A-1 Note is convertible into shares of the Company’s common stock (“Conversion Shares”) at an initial conversion price of $1.93 per share, subject to adjustment for any stock dividends and splits, rights offerings, distributions, combinations or similar transactions. Upon the closing of the Acquisition, the conversion price will be automatically adjusted to equal the arithmetic average of the volume weighted average price (“VWAP”) of the Company’s common stock in the five trading days prior to the closing date of the Acquisition. The Holder may convert the Series A-1 Note at any time, in whole or in part, provided that upon receipt of a notice of conversion from the Holder, the Company has the right to repay all or any portion of the Series A-1 Note included in the notice of conversion.
Additionally, the Series A-1 Note will automatically convert into shares of the Company’s common stock on the earlier of the Maturity Date or the closing date of the Acquisition provided that (i) no event of default then exists, and (ii) solely if such automatic conversion date is also the Maturity Date, each of the Equity Conditions have been met (unless waived in writing by the Holder) on each trading day during the 20 trading day period ending on the trading day immediately prior to the automatic conversation date.
At any time prior to the Maturity Date, the Company may also elect to redeem some or all of the outstanding principal amount for cash in an amount (the “Optional Redemption Amount”) equal to the sum of (a) 100% of the then outstanding principal amount of the note, (b) accrued but unpaid interest and (c) all liquidated damages and other amounts due in respect of the note (the “Optional Redemption”). The Company may only effect an Optional Redemption if each of the Equity Conditions have been met (unless waived in writing by the Holder) on each trading day during the period commencing on the date when the notice of the Optional Redemption is delivered to the date of the Optil Redemption and through and including the date payment of the Optional Redemption Amount is actually made in full.
Except as otherwise provided in the Series A-1 Note, including, without limitation, an Option Redemption, the Company may not prepay any portion of the principal amount of the note without the prior written consent of the Holder.
The Company is not permitted to convert any portion of the Series A-1 Note if doing so results in the Holder beneficially owning more than 4.99% of the outstanding common stock of the Company after giving effect to such conversion, provided that on 61 days’ prior written notice from the Holder to the Company, that percentage may increase to 9.99%. However, if there is an automatic conversion, and the conversion would result in the Company issuing a number of shares in excess of the beneficial ownership limitation, then any such shares in excess of the beneficial ownership limitation will be held in abeyance for the benefit of the Holder until such time or times, if ever, as its right thereto would not result in the Holder exceeding the beneficial ownership limitation, at which time or times the Holder will be issued such shares to the same extent as if there had been no such limitation.
The Series A-1 Note contains restrictive covenants which, among other things, restrict the Company’s ability to repay or repurchase any indebtedness, make distributions on or repurchase its common stock or enter into transactions with its affiliates.
The Series A-2 Note has terms substantially similar to those of the Series A-1 Note except that the Series A-2 Note has a maturity date of June 20, 2020 and an initial conversion price of $1.93 which will be automatically adjusted to the lower of (i) the conversion price then in effect and (ii) the greater of the arithmetic average of the VWAP of the Company’s common stock in the five trading days prior to the notice of conversion and $0.50.
As of December 31, 2018, upon the closing of the Acquisition, the Series A-1 Note automatically converted into 193,648 shares of the Company’s common stock.
Amendments to Forward Purchase Agreements and Warrants
On December 20, 2018, the Company, Polar, K2 and the Escrow Agent, entered into an Amendment (the “Amendment”), pursuant to which, among other things, the stock purchase agreements with Polar and K2 were amended to (x) reduce the purchase price per share payable by the Company at the closing of the Stock Sales from $11.23 per share to (1) first $6.00 per share up to 20% of the original number of Shares (as defined in the respective Purchase Agreement), (2) then $5.00 per remaining share up to 20% of the original number of Shares, (3) then $4.00 per remaining share up to 20% of the original number of Shares, (4) then $3.00 per remaining Share up to 20% of the original number of Shares, and (5) then $2.00 per remaining Share up to 20% of the original number of Shares, (y) to extend the outside date of the closing of the Stock Sales until January 18, 2019, and (z) to authorize the issuance of $3,542,700 and $1,590,600 from the Escrow Account to Polar and K2, respectively, as partial payment for the Shares prior to the final closing of the Stock Sales.
In addition, pursuant to the terms of the Amendment, the Company agreed to amend its outstanding Public Warrants and Private Placement Warrants (1) to reduce the exercise price of the warrants from $11.50 per share to $4.00 per share, subject to adjustment (the “Exercise Price Adjustment”) and (2) to revise the redemption provisions of the warrants to provide that the Company may only redeem each warrant in whole at a price of $0.1 per warrant upon a minimum of 30 days’ written notice of redemption if, and only if, the last sale price of the Company’s common stock equals or exceeds $7.00 per share (as opposed to the current $21.00 per share) for any 20 trading days within a 30-trading day period (the “Redemption Threshold Adjustment”); provided, however, that the Exercise Price Adjustment and the Redemption Threshold Adjustment shall only be effective upon the approval of the requisite number of warrant holders, as required by law.
Acquisition of Simplicity Esports, LLC
On January 4, 2019, the Simplicity Owners received an aggregate of 300,000 shares of common stock at the closing of the Acquisition and an additional aggregate of 700,000 shares of common stock on January 7, 2019. The Simplicity Owners are entitled to receive an additional 2,000,000 shares upon the Company’s receipt of the approval of its stockholders to such issuance. This provision was removed as the stockholder approval was only necessary due to the Company’s stock being listed on NASDAQ. Upon completion of the Simplicity Esports LLC acquisition, the Company decided that moving off the NASDAQ was appropriate and, the 2,000,000 shares are included on the balance sheet as common stock issuable to Simplicity Owners at February 28, 2019.
In connection with the acquisition of Simplicity Esports LLC, on January 2, 2019, the Company filed a Certificate of Amendment to the Company’s Third Amended and Restated Certificate of Incorporation (the “Certificate Amendment”) with the Delaware Secretary of State to change the Company’s name from “Smaaash Entertainment, Inc.” to “Simplicity Esports and Gaming Company”. In addition, the Company changed the ticker symbols of its common stock and public warrants to “WINR” and “WINRW,” respectively, and commenced trading of its common stock and public warrants under such new ticker symbols on the OTCQB on January 10, 2019.
Nasdaq Delisting
On December 10, 2018, the Company received a written notice (the “Notice”) from the Listing Qualifications Division of The Nasdaq Stock Market LLC (“Nasdaq”) indicating that the Company has not complied with the requirements of IM-5101-2 of the listing rules of Nasdaq (the “Listing Rules”).
The Notice stated that after its Business Combination, the Company had not demonstrated that its common stock met Listing Rule 5505(b)(1) that requires a market value of publicly held shares of at least $15 million. Additionally, the Company has not provided evidence that its common stock has at least 300 round lot holders as required by Listing Rule 5505(a)(3) and that its warrant has at least 400 round lot holders as required by Listing Rule 5515(a)(4). Finally, the Company does not comply with Listing Rule 5515(a)(2) which requires that for initial listing of a warrant the underlying security must be listed on Nasdaq.
On January 7, 2019, the Company received a second written notice from Nasdaq informing it that the Company failed to comply with Listing Rule 5250(e)(2) which requires companies listed on Nasdaq to timely file notification forms for the Listing of Additional Shares (the “LAS Notification”).
The Company was required to submit the LAS Notification 15 days prior to the issuance of the securities, however, the Company filed the LAS Notification for the issuance of the Series A-1 Note and Series A-2 Note and for the share exchange under our Share Exchange Agreement after such 15-day periods. Nasdaq notified the Company that each of these matters serves as an additional and separate basis for delisting the Company’s securities and that the review panel will consider these matters in rendering a determination regarding the Company’s continued listing on Nasdaq.
Management of Simplicity Esports and Gamily Company has decided that moving from The Nasdaq Stock Market (“Nasdaq”) to the OTCQB is more appropriate for the Company at this time, while the Company builds out its planned network of retail esport centers.
On April 1, 2019, the Company was notified by Nasdaq that it would delist the Company’s common stock and public warrants. The Company’s common stock and public warrants were previously suspended from trading on Nasdaq, effective January 25, 2019.
On April 2, 2019, Nasdaq filed a Notification of Removal from Listing and/or Registration under Section 12(b) of the Securities and Exchange Act of 1934 on Form 25 with the Securities and Exchange Commission relating to the Company’s common stock and public warrants. As a result, the Company’s common stock and public warrants were delisted from Nasdaq effective April 2, 2019.
The Company’s common stock and public warrants currently have been quoted on the OTCQB under the symbols “WINR” and “WINRW,” respectively.
Recent Developments
Private Unit Offering
In2019, the Company sold an aggregate of 987,500 units (the “Units”) at a purchase price of $2.00 per Unit to 12 accredited investors in exchange for receipt of $1,975,000. Each unit consists of (i) one share of common stock, and (ii) a 5-year warrant to purchase one share of common stock at a purchase price of $4.00.
Settlement Agreement
In March 2019, the Company entered into a settlement agreement with its prior attorney. As of July 12, 2019, the Company owed this attorney approximately $725,000. The settlement agreement called for $200,000 to be paid upon signing the settlement agreement and then another approximate $525,000 to be paid over time.
Restricted Stock Award
On March 27, 2019, pursuant to a Restricted Stock Award, we granted Jed Kaplan, our Chief Executive Officer and interim Chief Financial Officer and a member of our board of directors, 120,000 shares of our restricted Common Stock.Such shares vest over a nine month period. As of July 12, 2019, 50,000 of such shares have vested.
On March 27, 2019, pursuant to a Restricted Stock Award, we granted Roman Franklin, our President and a member of our board of directors, 36,000 shares of our restricted Common Stock. Such shares vest over a nine month period. As of July 12, 2019, 15,000 of such shares have vested.
On March 27, 2019, pursuant to a Restricted Stock Award, we granted Steve Grossman, President of Simplicity Esports, LLC, a wholly owned subsidiary of our company, 24,000 shares of our restricted Common Stock.Such shares vest over a nine month period. As of July 12, 2019, 10,000 of such shares have vested.
Each of the Restricted Stock Awards was entered into in connection with entry into employment agreements with each of Messrs. Kaplan, Franklin and Grossman on December 31, 2018.
Debt Conversion
On May 31, 2019, we issued 100,000 shares of Common Stock to affiliates of Polar in exchange for Polar’s forgiveness of $143,476 owed by us to Polar under that that certain Stock Purchase Agreement, dated as of November 2, 2018, between Polar and us.
Special Public Warrant Holder Meeting
On June 5, 2019, we filed a preliminary proxy statement with the SEC in connection with a planned special meeting of public warrant holders to authorize our board of directors to seek public warrant holder approval of the following amendments to the publicly and privately issued warrants under the Warrant Agreement: (1) reducing the exercise price of the warrants from $11.50 per share to $4.00 per share, subject to adjustment (the “Exercise Price Adjustment”) and (2) revising the redemption provisions of the warrants to provide that we may only redeem each warrant in whole at a price of $0.1 per warrant upon a minimum of 30 days’ written notice of redemption if, and only if, the last sale price of our common stock equals or exceeds $7.00 per share (as opposed to the current $21.00 per share) for any 20 trading days within a 30-trading day period (the “Redemption Threshold Adjustment”).
Overview of Smaaash Entertainment Private Limited
Smaaash Private operates 40 state-of-the-art games and entertainment centers (the “Centers” and each a “Center”(“Smaaash Centers”) across 31 locations, including 39 Smaaash Centers in India and one locationinternational Smaaash Center in the U.S., in addition to carrying out product sales of Smaaash’sits games and equipment that Smaaash has developed in-house, supported by Smaaash’sits sponsorship and other revenues.
Smaaash’sSmaaash Private’s core concept is to offer an interactive, immersive and fun experience to customers at Smaaash’sits Smaaash Centers, blending AugementedAugmented Reality (AR)(“AR”) and Virtual Reality (VR)(“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’sSmaaash Private’s game concepts are supported by Smaaash’sits in-house technology, value engineering and systems integration capabilities.
Smaaash’sSmaaash Private’s game attractions are classified as follows:
● | Active games and interactive sports simulators (“Active |
● | 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 |
Smaaash Private’s game offerings are complemented by its in-house food & beverage services.
Smaaash Private launched its flagship Smaaash Center in November 2012, at Kamala Mills in Lower Parel, Mumbai, with a proprietary cricket game (obtained viaby Smaaash Private under a perpetual license from its Promoterfounder and the patent-holder, Shripal Morakhia, for a one-time fee) as its anchor attraction. Over the last five years, Smaaash Private 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 itsthe Smaaash Centers. Among other marketing initiatives, from time to time, Smaaash’s sponsorshipsSmaaash Private 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 Private launched its first international Smaaash Center in December 2016, at the Mall of America in Minnesota, USA. Smaaash’sIts star attraction in its U.S. Smaaash Center is a multi-level go-karting track and games developed and launched by Smaash specifically for this Smaaash 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 Marchyear 2018, Smaaash boughtPrivate acquired PVR bluO and SVMSVM’s bowling and gaming assets to expand its footprint across India. The acquisitions added 20 centersSmaaash Centers to Smaaash’s already existingSmaaash Private’s portfolio.
Following the January 2019 acquisition of Simplicity Esports LLC, we determined to shift our current primary focus to the Simplicity Esports LLC business. Accordingly, we do not anticipate generating any material revenues from Smaaash isin 2019. The Master Franchise Agreement, as amended, and the Master Distribution Agreement continue in full force and effect, however, and we may now or in the final stages of launching its Center in Dubai, in this quarter.future pursue Smaaash business opportunities.
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.Employees
Scalable business model, uniquely positioned for growth.As of July 12, 2019, we had three full-time employees and no part-time employees. None of our employees is represented by a union. We consider our relations with our employees to be good.
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:
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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:
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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/prospectus, 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.
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% |
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:
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.
Legal Proceedings
Smaaash has initiated civil proceedings against the Municipal Corporation of Greater MumbaiFrom time to time, we are involved in various claims and legal actions arising in the High Courtordinary course of Bombay. Asbusiness. To the knowledge of our management, there are no legal proceedings currently pending against us which we believe would have a resultmaterial effect on our business, financial position or results of a fire that occurred in oneoperations and, to the best of our knowledge, there are no such legal proceedings contemplated or threatened.
Properties
We lease approximately 250 rentable square feet of office space from an unaffiliated third party for our corporate office located at 7000 W. Palmetto Park Road, Suite 507, Boca Raton, Florida 33433. This lease expires on June 1, 2022. Terms of the restaurantsoffice lease provide for a base rent payment of $800 per month. We also lease approximately 1,200 rentable square feet of retail space from an unaffiliated third party for our Boca Raton Esports Gaming Center. This lease expires 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 course2024. Terms of the demolition, the BMC, its officersoffice lease provide for a base rent payment of $2,200 per month 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 portionsshare of the Verbena restaurantbuildings operating expenses such as taxes and bar premisesmaintenance of $760 per month. We believe that these facilities are adequate for our current 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.near-term future needs.
SMAAASH’S MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
References in this prospectus to “we,” “us” or the “Company” refer to Simplicity Esports and Gaming Company, formerly known as Smaaash Entertainment Inc. and prior to that as I-AM Capital Acquisition Company. The following discussion and analysis of Smaaash’sthe Company’s financial condition and results of operations is based upon, and should be read in conjunction with Smaaash’sthe financial statements)statements and relatedthe notes that appearthereto contained 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
We are a North American esports organization. We have implemented a unique approach to ensure the ultimate fan friendly experience. Our intention is to have gamer’s involved at the grassroots level and feel a sense of unity as we compete with top class talent. Utilizing the vast resources from within the ownership group, we have already established an impressive management team and roster. Our management and players are well known influencers within the esports community and we plan to use their skill to create a seamless content creation pan to help gamers feel closer to our brand that any other in the scene. Our organization intends to take the opportunity to create a platform that will help grow the sports for generations of gamers.
For the fiscal year ended May 31, 2018 and the period from April 17, 2017 (date of inception) to May 31, 2017, we did not generate any revenues and reported net losses of $8,862 and $672, respectively, and negative cash flow from operating activities of $470,153 and $672, respectively. For the nine months ended February 28, 2019, we generated revenues of $14,070 and reported a net loss of $3,095,960, and negative cash flow from operating activities of $823,847. As noted in our consolidated financial statements, we had an accumulated deficit of approximately $3,105,494. We anticipate that we will continue to report losses and negative cash flow. Our auditors have raised substantial doubt regarding our ability to continue as a going concern as a result of our historical recurring losses and negative cash flows from operations as well as our dependence on private equity and financings. See “Risk Factors” - We have a history of operating losses and our auditors have indicated that there is a substantial doubt about our ability to continue as a going concern.”
Consummation of Transactions with Smaaash operates 32 state-of-the-artEntertainment Private Limited
On November 20, 2018 (the “Closing Date”), the Company and Smaaash Entertainment Private Limited, a private limited company incorporated under the laws of India, consummated the transactions (the “Transactions” or the “Business Combination”) contemplated by the share subscription agreement (as amended, the “Subscription Agreement”), following the approval at the special meeting of the stockholders of the Company held on November 9, 2018 (the “Special Meeting”).
Pursuant to the Subscription Agreement, the purchase price of $150,000 was paid by the Company to Smaaash Private in exchange for 294,360 newly issued equity shares of Smaaash Private at the closing of the Transactions (the “Closing”).
In addition, AHA Holdings Private Limited (“AHA Holdings”) and Shripal Morakhia (together with AHA Holdings, the “Smaaash Founders”) agreed that within six months following the Closing Date, they would transfer all of their ownership interest in Smaaash Private (representing 33.6% of the share capital of Smaaash Private on a fully diluted basis as of June 22, 2018) (the “Additional Smaaash Shares”) to the Company in exchange for newly issued shares of our Common Stock (the “Transferred Company Shares”) in an amount which would enable the Smaaash Founders to retain their 33.6% ownership interest in Smaaash Private indirectly through their interest in the Company.
At the Closing, the Company issued an aggregate of 2,000,000 shares of its common stock to the Smaaash Founders as an upfront portion of the Transferred Company Shares (the “Upfront Company Shares”). In connection with the issuance of the Upfront Company Shares, the Company and the Smaaash Founders entered into an escrow agreement pursuant to which the Upfront Company Shares would be held in escrow and will be either, (i) if the Additional Smaaash Shares are not transferred in full to the Company within the designated six-month period, cancelled, or (ii) if the Additional Smaaash Shares are transferred in full to the Company within the designated six-month period, released from escrow and the number of Upfront Company Shares will be deducted from the Transferred Company Shares that will be issued to the Smaaash Founders upon the delivery of the Additional Smaaash Shares.
On November 16, 2018, Smaaash Private and the Smaaash Founders executed a letter of undertaking, pursuant to which they agreed to transfer 4,000,000 additional equity shares of Smaaash Private to the Company in consideration for 200,000 shares of our Common Stock, simultaneously with the issuance of the 300,000 equity shares of Smaaash Private to the Company on or prior to November 30, 2018, as permitted by the laws of India. Such additional shares of Smaaash Private have not yet been delivered to the Company.
In connection with the Closing, the Company changed its name from I-AM Capital Acquisition Company to Smaaash Entertainment Inc., changed its stock symbols for its Common Stock, Public Rights, and Public Warrants to “IAM,” “IAMXR” and “IAMXW,” respectively, and entered into a master franchise agreement (“Master Franchise Agreement”) and a master license and distribution agreement (“Master Distribution Agreement”) with Smaaash Private. Prior to the Closing, the Company 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 Private and the rights granted under the Master Franchise Agreement and the Master Distribution Agreement.
Pursuant to the terms of the escrow agreement, the Upfront Company Shares have been cancelled because the Additional Smaaash Shares were not transferred in full to the Company in the designated six-month period.
Following the January 2019 acquisition of Simplicity Esports LLC described below, we determined to shift our current primary focus to the Simplicity Esports LLC business. Accordingly, we do not anticipate generating any material revenues from Smaaash in 2019. The Master Franchise Agreement, as amended, and the Master Distribution Agreement continue in full force and effect, however, and we may now or in the future pursue Smaaash Private business opportunities.
Acquisition of Simplicity Esports, LLC
On January 4, 2019, the Company consummated the transactions contemplated by that certain share exchange agreement, dated December 21, 2018 (as amended by Amendment No. 1 to Share Exchange Agreement, dated December 28, 2018 and by Amendment No. 2 to Share Exchange Agreement, dated December 30, 2018, the “Share Exchange Agreement”) by and among the Company, Simplicity Esports, LLC, a Florida limited liability company (“Simplicity Esports LLC”), each of the equity holders of Simplicity Esports LLC (“Simplicity Owners”) and Jed Kaplan, in the capacity as the representative of the Simplicity Owners (the “Representative”). Pursuant to the Share Exchange Agreement the Simplicity Owners transferred all the issued and outstanding equity interests of Simplicity Esports LLC to the Company in exchange for newly issued shares of common stock of the Company (the “Acquisition”).
Background of Simplicity Esports, LLC
Founded in 2017, Simplicity Esports LLC is committed to growing and enhancing the Esports industry, fostering the development of amateurs to compete professionally, and partnering with established professional gamers to support their paths to greater success. Esports (also known as electronic sports, e-sports, or eSports) is a form of competition using video games. Most commonly, esports takes the form of organized, multiplayer video game competitions, particularly between professional players, individually or as teams. Our continued accomplishments in various games is a driving force behind the growth of our fan base including viewership of our content.
As of January 4, 2019, upon the completion of the acquisition of Simplicity Esports LLC, the business of Simplicity Esports LLC has now become the primary business of the Company. Simplicity Esports LLC is an established brand in the Esports industry with an engaged fan base competing in popular games across different genres, including Apex Legends, PUBG, Gears of War, SMITE, and NHL 19. The Simplicity Esports LLC stream team encompasses over 50 casters, influencers and personalities who connect to a dedicated fan base. Simplicity Esports LLC’s notoriety in the industry is evidenced by its audience that views millions of minutes of Simplicity Esports LLC content monthly, via various social media outlets including YouTube, Twitter and Twitch.
The acquisition of Simplicity Esports LLC creates a pure play esports team and entertainment centers (the “Centers”) across 31 Centers in Indiaplatform opportunity, which we believe will increase shareholder value and one international Centerboost our growth strategy as we endeavor the build out of our brick and mortar esports centers. Through Simplicity Esports LLC, the Company has begun to implement a unique approach to ensure the ultimate fan friendly esports experience. Our intention is to have gamers involved at the grassroots level and feel a sense of unity as we compete with top class talent. Our management and players are known within the esports community and we plan to use their skills to create a seamless content creation plan helping gamers feel closer to our brand than any other in the U.S.,industry. Simplicity Esports LLC also plans to open and operate corporate-owned retail esports gaming centers (“Simplicity Esports Gaming Centers”) as well as to franchise Simplicity Esports Gaming Centers that will provide the public an opportunity to experience and enjoy gaming and Esports in additiona social setting, regardless of skill or experience.
Results of Operations
Our only activities from April 17, 2017 (date of inception) through November 20, 2018 were organizational activities, those necessary to carrying out product sales of its gamesprepare for the IPO, which was consummated on August 22, 2017, and equipment that Smaaash has developed in-house, supported by its sponsorshipidentifying a target company for a business combination. Following the IPO through and otherafter our business combination, we had not generated any operating revenues.
Smaaash’s core conceptFollowing the acquisition of Simplicity Esports and Gaming, LLC, the Company began generating revenue and incurring additional expenses.
Summary of Statement of Operations for the Three Months Ended February 28, 2019 and 2018:
Other Income
We have generated $164 of non-operating income in the form of interest income for the three months ended February 28, 2019 as compared to $158,712 for the three months ended February 28, 2018. The change 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, customizedattributable 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.decrease in the cash held in trust account.
Smaaash’s game attractions are classifiedFor the three months ended February 28, 2019, the Company had debt forgiveness income of $300,000 due to the exchange notes with Maxim. The original Maxim promissory note was $1,800,000 and this was exchanged for two convertible notes totaling $1,500,000. Also, in December 2018, one of the convertible notes was converted into 193,648 shares of common stock.
Revenue
The Company’s revenue for the three months ended February 28, 2019 was $14,070, a 100% increase over the February 28, 2018 revenue of $-0-. This increase is due to the acquisition of Simplicity Esports, LLC.
General and Administrative Expenses
General and administrative expenses for the three months ended February 28, 2019 was $430,011 as follows:compared to $114,465 for the three months ended February 28, 2018 and increase of $315,546 or approximately 276%. The change is primarily attributable to the acquisition of Simplicity Esports, LLC. The selling, general and administrative expenses of this new acquisition consist primarily of payroll and related costs, stock based compensation and professional services.
Net Loss
Net loss for the three months ended February 28, 2019 was $115,776, as compared to net income of $29,203, for the three months ended February 28, 2018.
Summary of Statement of Operations for the Nine Months Ended February 28, 2019 and 2018:
Other Income
We have generated $401,582 of non-operating income in the form of interest income for the nine months ended February 28, 2019 as compared to $312,000 for the three months ended February 28, 2018.
For the nine months ended February 28, 2019, the Company had debt forgiveness income of $300,000 due to the exchange notes with Maxim. The original Maxim promissory note was $1,800,000 and this was exchanged for two convertible notes totaling $1,500,000. Also, in December of 2018 one of the convertible notes was converted into 193,648 shares of common stock.
Revenue
The Company’s revenue for the nine months ended February 28, 2019 was $14,070, a 100% increase over the February 28, 2018 revenue of $-0-. This increase is due to the acquisition of Simplicity Esports, LLC.
General and Administrative Expenses
General and administrative expenses for the nine months ended February 28, 2019 was $3,811,613 as compared to $305,690 for the nine months ended February 28, 2018 and increase of $3,505,923. The change is primarily attributable to two events, first the acquisition of Simplicity Esports, LLC. The selling, general and administrative expenses of this new acquisition consist primarily of payroll and related costs, stock based compensation and professional services. Second the issuance of shares for services in November of 2018.
Net Loss
Net loss for the nine months ended February 28, 2019 was $3,095,960, as compared to net income of $4,165, for the nine months ended February 28, 2018.
Summary of Statement of Operations for the Period from April 17, 2017 (date of inception) through May 31, 2018:
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 Transactions. Following the IPO through May 31, 2018 (after our business combination on August 22, 2017), we had not generated any operating revenues.
Other Income
We 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.
Net Loss
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 the IPO and simultaneous Private Placement, inclusive of the underwriters’ exercise of their over-allotment option, generated gross proceeds to the Company 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 was held in the Trust Account) and $478,000 of Initial Public Offering costs.
Following the IPO and the underwriter’s partial exercise of the over-allotment option, a total of $52,780,000 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.
On November 20, 2018, in connection with the closing of the Transactions, the funds in the Trust Account were used for, among other things, the following:
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Smaaash’s game offerings are complemented by its in-house food & beverage services.As of February 28, 2019, we had no cash and marketable securities held in the Trust Account.
Smaaash launched its flagship Center in November 2012, at Kamala Mills in Lower Parel, Mumbai,As of February 28, 2019, we had cash of $1,245,666 held outside the Trust Account, which is available for use by us to cover the costs associated 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 VRdue diligence procedures and other games,general corporate purposes. In addition, 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.February 28, 2019, we had accrued expenses of $871,315.
Smaaash launched its first international CenterFor the nine months ended February 28, 2019, cash used in December 2016, atoperating activities amounted to $823,847, mainly resulting from net loss of $3,095,960, offset by stock issued for services of $2,169,143. Changes in our operating liabilities and assets generated cash of $654,552.
For the Mallperiod from April 17, 2017 (date of Americainception) through May 31, 2018, cash used in Minnesota, USA. Its star attractionoperating activities amounted to $470,153, mainly resulting from net loss of $8,862, offset by interest earned on marketable securities held in its U.S. Center is a multi-level go-karting trackthe trust account of $521,702. Changes in our operating assets and games developed and launched by us specificallyliabilities generated cash of $60,411.
We will need to raise additional funds in order to meet the expenditures required 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 othersoperating our business.
Off-balance sheet financing arrangements
In fiscal year 2018, Smaaash acquired PVR bluO and SVM’s bowling and gamingWe 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 expand its footprint across India. The acquisitions added 20 centers to Smaaash’s portfolio.
Factors Affecting Smaaash’s Resultsas variable interest entities, which would have been established for the purpose of Operationsfacilitating 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.
Visitors to the centers:Going Concern
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 notThe Company’s consolidated financial statements 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 years 2017 and 2018 were Rs.243 million and Rs.385 million, respectively.
Rental:
Smaaash is required to pay rent for its premises including its centers and corporate office. Lease expenses in fiscal 2017 and 2018 were Rs.131 million and Rs.267 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.2.043 billion, and Rs. 2.936 billion, as of March 31, 2017 and 2018, respectively. Finance costs in fiscal 2017 and 2018 were Rs.236 million and Rs.433 million, respectively. Smaaash expectsbeen prepared assuming that it will continue to use debt to finance its businessas a going concern, which contemplates continuity of operations, realization of assets, and operation.
Raw Material Costs:
Smaaash’s total costliquidation of raw materials consumed was Rs. 225 million and Rs. 142 million for fiscal year 2018 and 2017, respectively.liabilities in the normal course of business.
As Smaaash incurs significant raw material costs, including import costs,reflected in the consolidated financial statements, the Company has an accumulated deficit at February 28, 2019, a net loss and doesnet cash used in operating activities for the reporting period then ended. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
The Company is attempting to commence operations and generate sufficient revenue; however, the Company’s cash position may not be sufficient to support the Company’s daily operations. Management intends to raise additional funds by way of a private or public offering. While the Company believes in the viability of its strategy to commence operations and generate sufficient revenue and in its ability to raise additional funds, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to further implement its business plan and generate sufficient revenue and its ability to raise additional funds by way of a public or private offering.
The consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Contractual obligations
We do not have long term purchase contracts with its vendors, Smaaash may be susceptible to pricing pressuresany long-term capital lease obligations, operating lease obligations or disruptions in our relationships with our vendors.long-term liabilities, except as follows:
On November 20, 2018, the Company entered into a settlement and release agreement with Maxim Group, LLC, the underwriter for the IPO. Pursuant to the Settlement Agreement, the Company made a cash payment of $20,000 to Maxim and issued a demand secured promissory note in favor of Maxim in the amount of $1.8 million to settle the payment obligations of the Company under the underwriting agreement dated August 16, 2017, by and between the Company and Maxim. The Company also agreed to remove the restrictive legends on an aggregate of 52,000 shares of its common stock held by Maxim and its affiliate.
Critical Accounting Policies
In preparing its consolidatedThe preparation of financial statements Smaaash makesand related disclosures in conformity with GAAP requires management to make estimates and judgmentsassumptions that affect the reported amounts of assets liabilities, revenues and expenses, and relatedliabilities, disclosure of contingent assets and liabilities. Smaaash bases its estimates on historical experienceliabilities at the date of the financial statements, and various assumptions that it believes to be reasonable underincome and expenses during the circumstances, theperiods reported. Actual results of which form its basis for making judgments about the carrying values of assets and liabilities that are not readily apparentcould materially differ 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:those estimates.
Impairment reviewsRevenue Recognition
IFRSAs of January 1, 2018, the Company adopted Revenue from Contracts with Customers (Topic 606) (“ASC 606”). The new guidance sets forth a new five-step revenue recognition model which replaces the prior revenue recognition guidance in its entirety and is intended to eliminate numerous industry-specific pieces of revenue recognition guidance that have historically existed in U.S. GAAP. The underlying principle of the new standard is that a business or other organization will recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects what it expects to receive in exchange for the goods or services. The standard also requires managementmore detailed disclosures and provides additional guidance for transactions that were not addressed completely in the prior accounting guidance. The Company adopted the standard using the modified retrospective method and the adoption did not have a material impact on its financial statements.
The Company recognizes revenue when performance obligations under the terms of a contract with the customer are satisfied. Product sales occur once control is transferred upon delivery to undertake an annual test for impairment for finite lived assets, to test for impairment if events or changes in circumstances indicate that the carryingcustomer. Revenue is measured as the amount of an asset may not be recoverable.consideration the Company expects to receive in exchange for transferring goods and services. Our revenue is derived from two sources, the first is from the sale of the rights to our players to third parties and second from participation and prize money awarded at gaming tournaments.
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 taxesGoodwill
SmaaashGoodwill is subject to income taxes in a numberthe excess of Indian jurisdictions. A significant amountour purchase cost over the fair value of judgment is required to determine the amountnet assets of provisionacquired businesses. We do not amortize goodwill, but we assess our goodwill for income taxes. There are certain transactionsimpairment at least annually. Our assessment date was January 31, 2019 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.qualitative considerations indicated no impairment.
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 7.35% and 7.40% for the fiscal years 2017 and 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.
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 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 | ) |
112
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 (in Rs. Thousands):
Particulars | For the year ended March 31, 2018 | For the year ended March 31, 2017 | ||||||
a) Revenue from rendering of services | ||||||||
- Gaming | 801,526 | 478,562 | ||||||
- Food and beverages | 477,646 | 216,777 | ||||||
- Banquet, corporate events and others | 355,228 | 246,073 | ||||||
- Sponsorship fees | 97,035 | 50,748 | ||||||
b) Other operating revenue | ||||||||
- Professional charges | 3,154 | 20 | ||||||
- Income from exhibits, merchandise and others | 11,870 | 3,309 | ||||||
c) Product Sales | 378,466 | 153,101 | ||||||
Total | 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, etc. (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.
For the fiscal year ended March 31, 2018, the revenue from operations is Rs 2.124 billion, an increase of 85% over the fiscal year 2017 numbers as the numbers include revenues from inorganic acquisitions by Smaaash of PVR Blu O and assets of SVM centers.
The Product Sales business has grown to Rs 378 million in the fiscal year 2018 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 (in Rs. Thousands):
Particulars | For the year ended March 31, 2018 | For the year ended March 31, 2017 | ||||||
a) Interest income: | ||||||||
- Bank deposits | 2,456 | 2,234 | ||||||
- Other financial assets carried at amortised cost | — | — | ||||||
- Unwinding of security deposits | 9,056 | 8,855 | ||||||
- Income tax refund | — | 166 | ||||||
b) Sundry credit balances written back | 12,449 | 16,117 | ||||||
c) Net foreign exchange gain/ (loss) | 5,056 | (1,397 | ) | |||||
d) Other income: | ||||||||
- Net gain/(loss) arising on financial assets carried at FVTPL | 1,681 | 7,078 | ||||||
- Net gain/(loss) arising on financial liabilities carried at amortised cost | (9,028 | ) | (12,337 | ) | ||||
- Net gain/(loss) arising on financial liabilities carried at FVTPL | (6,869 | ) | — | |||||
- Miscellaneous income | 4,158 | 480 | ||||||
Total | 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 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 (in Rs. Thousands):
Particulars | For the year ended March 31, 2018 | For the year ended March 31, 2017 | ||||||
a) Salaries and wages, including bonus | 335,089 | 209,532 | ||||||
b) Contribution to provident and other funds | 27,616 | 19,320 | ||||||
c) Gratuity | 2,800 | 3,315 | ||||||
d) Staff welfare expenses | 19,801 | 10,466 | ||||||
Total employee benefit expense | 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 58% to Rs. 385 million in fiscal year 2018 from Rs. 243 million in fiscal year 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.
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 (in Rs. Thousands):
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 76% to Rs. 816 million in fiscal year 2018 from Rs. 463 million in fiscal year 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 76 million for the fiscal year 2018 compared to Rs 26 million for the fiscal 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 (in Rs. Thousands):
Particulars | For the year ended 31st March, 2018 | For the year ended 31st March, 2017 | ||||||
a) Interest costs: | ||||||||
- on loans from banks | 15,861 | 16,773 | ||||||
- on loans from financial institutions | 98,804 | 71,205 | ||||||
- on debentures | 305,740 | 128,643 | ||||||
- other interest expenses | 642 | 366 | ||||||
b) Processing fees and related costs | 12,137 | 18,541 | ||||||
Total | 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, 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. For the fiscal year 2018, the depreciation and amortization expense was Rs. 553 million, an 85% increase from Rs. 298 million for the 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 2018 and 2017 (in Rs. Thousands):
Fiscal Year 2018 | Fiscal Year 2017 | |||||||
Net Cash From/(Used in) Operating Activities | (143,077 | ) | 190,306 | |||||
Net Cash From/(Used in) Investing Activities | (2,151,435 | ) | (1,152,892 | ) | ||||
Net Cash Provided By/(Used in) Financing Activities | 2,280,823 | 1,071,486 | ||||||
Net Increase in/(Decrease in) Cash And Cash Equivalents | (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 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 was Rs 2,182 million fiscal year 2018 compared to Rs 1,200 million in fiscal year 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 3.011 billion in fiscal year 2018. Smaaash repaid Rs 1.035 billion in fiscal year 2017 and Rs. 2.136 billion in fiscal year 2018.
Borrowings
The total borrowings as at March 31, 2018 was Rs. 2.936 billion compared to Rs. 2.043 billion as at March 31, 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.
The following table summarizes Smaaash’s secured and unsecured long-term indebtedness as of March 31, 2018:
Particulars | Secured / Unsecured | Outstanding indebtedness as of March 31, 2018 (Rs. Million) | Interest Rate %* | |||||||
NCD- ECL Finance | Secured | 2,200 | 14.75 | % | ||||||
SIDBI – Loan 1 | Secured | 90 | 15.50 | % | ||||||
SIDBI- Loan 2 | Secured | 99 | 13.95 | % | ||||||
Tata Capital | Secured | 206 | 12.25 | % | ||||||
HDFC- Loan 1 | Secured | 25 | 12.50 | % | ||||||
HDFC – Loan 2 | Secured | 75 | 12.50 | % | ||||||
HDFC – Loan 3 | Secured | 100 | 12.50 | % | ||||||
YES Bank | Secured | 135 | 11.00 | % | ||||||
AHA Holdings | Unsecured | 6 | Interest Free | |||||||
Total | 2,936 |
A. Details of Secured Borrowings of Smaaash
Set forth below is a summary of Smaaash’s secured borrowings as of March 31, 2018 (unless otherwise stated)
B. Details of Unsecured Borrowings of Smaaash
Set forth below is a summary of Smaaash’s secured borrowings as of March 31, 2018 (unless otherwise stated)
Director and Executive Officers
The following table sets forth information regarding theour directors and executive officers of Smaaash. officers:
Name | Age | Position | ||
Chief Executive Officer, | ||||
interim Chief Financial | ||||
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:
of the Company | ||||
Donald R. Caldwell | 71 | Chairman and Class I Director | ||
of the Company | ||||
Roman Franklin | President and Class I Director of the Company | |||
Steven Grossman | 45 | President of Simplicity Esports, LLC | ||
F. Jacob Cherian | 54 | Class | ||
Suhel Kanuga | 43 | Class II Director of the Company | ||
Max Hooper | 71 | Class II Director | ||
of the Company | ||||
Frank Leavy | 65 | Class I Director | ||
of the Company | ||||
Edward Leonard Jaroski | 71 | Class I Director | ||
of the Company | ||||
William H. Herrmann, Jr. | 72 | Class II Director | ||
of the Company |
*This individual
Jed Kaplan, has indicated his assentbeen a member of our board of directors since December 31, 2018 and our sole Chief Executive Officer and interim Chief Financial Officer since February 8, 2019. From December 31, 2018 to occupy such position.February 8, 2019, Mr. Kaplan served as our co-Chief Executive Officer.He has served as the Chief Executive Officer of Shearson Financial Services, a FINRA registered broker dealer, since May 1995. Mr. Kaplan has extensive sports management experience with various professional sports organizations. Mr. Kaplan graduated from City University of New York in 1989 with a Bachelor of Business Administration degree.
ForThe Company believes Mr. Kaplan’s strong expertise in the backgroundfinancial services and sports management industries qualifies him to serve on its board of directors.
F. Jacob Cherian, has been a member of our board of directors since April 17, 2017 (date of inception). From December 31, 2018 to February 8, 2019, Mr. Cherian served as our co-Chief Executive Officer. From April 17, 2017 to December 31, 2018, Mr. Cherian served as our sole Chief Executive Officer. He is also one of the currentmanaging 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 been a member of our board of directors since April 17, 2017 (date of inception). From April 17, 2017 to February 8, 2019, Mr. Kanuga served as our Chief Financial Officer and executive officersSecretary. He is also one of I-AMthe 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 see “Information about I-AM Capital–Management–DirectorsPartners, Inc., a venture capital management company, where he has served as its Chairman and Chief Executive Officers”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 nominee, see “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.
SmaaashRoman Franklin, has been a member of our board of directors since August 16, 2017 and our President since December 31, 2018. 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.
Steven Grossman".,has served as the President of our wholly-owned subsidiary Simplicity Esports, LLC since January 2018. Mr. Grossman has been employed by Shearson Financial Services, a FINRA registered broker dealer, since February 2001 and has served as its President since January 2010. Mr. Grossman graduated from Towson University in 1995 with a Bachelor of Science degree.
Max Hooper, who has been an independent member of our board of directors 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 member of our board of directors 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 member of our board of directors 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 1987. 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 member of our board of directors 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 its 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.
Mr. Kaplan is Mr. Grossman’s brother-in-law, there are no other family relationships among any of the Company’s directors or executive officers.
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.
Director Independence
Since we are currently quoted on the OTCQB tier of the OTC Markets Group, we are not required to comply with the corporate governance rules of a national exchange, such as the NYSE American (“NYSE”), or national quotation system, such as the NASDAQ Capital Market (the “NASDAQ”), and instead may comply with less stringent corporate governance standards of the OTCQB. The OTCQB does not require any of its members to establish any committees comprised of members of our board of directors, including an Audit Committee, a Compensation Committee or a Nominating Committee, any committee performing a similar function. Instead, the functions of those committees may be undertaken by the board of directors as a whole. Unlike the requirements of the NYSE or NASDAQ, the OTCQB does not require that a majority of our board members be independent and does not require that all or any portion of our board of directors include “independent” directors, nor are we currently required to establish or maintain an Audit Committee or other committee of our board of directors. Although we may comply with less stringent corporate governance standards while listed on the OTCQB, we have elected to voluntarily comply with the corporate governance rules of the NASDAQ in order to provide the same protections afforded to stockholders of companies that are subject to all of the corporate governance rules of the NASDAQ.
The NASDAQ standards relating to corporate governance, require, among other things, that:
● A majority of our board of directors to consist of “independent directors.” 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, 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;
● The compensation of our executive officers to be determined, or recommended to the board of directors for determination, by independent directors constituting a majority of the independent directors of the Board in a vote in which only independent directors participate or by a Compensation Committee comprised solely of independent directors;
● Director nominees to be selected, or recommended to the board of directors for selection, by independent directors constituting a majority of the independent directors of the Board in a vote in which only independent directors participate or by a nomination committee comprised solely of independent directors; and
● An audit committee with at least three independent directors as well as composed entirely of independent directors be established and maintained, where at least one of the independent directors qualifies as an audit committee financial expert under SEC rules and as a financially sophisticated audit committee member under the applicable Exchange rules.
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 FranklinLeavy 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 iswe are required to have three members of the audit committee, all of whom must be independent. Messrs. Caldwell, and FranklinLeavy 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
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, theThe members of our compensation committee are Messrs. Caldwell and FranklinJaroski 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 We have adopted a corporation incorporated undercompensation committee charter, which details the lawsprincipal functions of the State of Delaware are required to present business opportunities to a corporation if:compensation committee, including:
● | reviewing and approving the | |
● | ||
● | 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 | |
● |
CertainThe 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, Jaroski, Leavy, and Herrmann, 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.
We have not formerly 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 executivebusiness, integrity, professional reputation, independence, wisdom, and the ability to represent the best interests of our stockholders.
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Code of Ethics
We have adopted a Code of Ethics applicable to our directors, officers and directors presently have, and anyemployees. We previously filed a copy of them inour 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 future may have additional, fiduciary or contractual obligations to another entity pursuant to which such officer or director is required to presentSEC’s web site atwww.sec.gov. In addition, a business combination opportunity to such entity. Prior to the Transaction, if anycopy of the above executive officers or directors becomes awareCode 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 doctrineEthics will be removedprovided without charge upon request from I-AM’sus. 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.”
Limitation on Liability and Indemnification of Officers and Directors
Our third amended and restated 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 andincorporation, as amended, 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.
We have entered into agreements with our officers and directors to provide contractual indemnification in addition to the indemnification provided for in our third amended and 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. We have 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 votewaive any public shares purchased duringright, title, interest or afterclaim of any kind in or to any monies in the initial public offeringtrust account, and have agreed to waive any right, title, interest or claim of any kind they may have in favorthe 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 we have sufficient funds outside of the Business Combination Proposal.trust account.
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
For information regarding board’s roleAlthough 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 riskdischarging its oversight see “Information about I-AM Capital–Management – The Board’s Roleduties and addresses risks inherent in Risk Oversight.”its area.
Executive CompensationEXECUTIVE COMPENSATION
OverviewNone of our executive officers, directors or director nominees received any cash (or non-cash) compensation for services rendered to us for the years ended May 31, 2019 and 2018. During the year ended May 31, 2018, we paid an affiliate of our executive officers a total of $10,000 per month for office space, utilities and secretarial support. 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.
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Executive Officer and Director Compensation
Following the closing of the Transaction, theThe 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 Capitalus 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).awards.
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, ourOur compensation committee will determine base salaries and manage the base salary review process, subject to existing employment agreements.
Annual Bonuses
I-AM Capital intendsWe intend 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 expectsWe expect 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 intendsWe intend to use stock-based awards to reward long-term performance of the executive officers. I-AM Capital believesWe believe 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’sour 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/prospectus under the heading “Incentive Plan Proposal.”
Executive Employment Agreements
I-AM Capital currently does not have anyOn December 31, 2018, the Company entered into an employment agreementsagreement with its executive officers.
COMPARISON OF RIGHTS AS A HOLDER OF I-AM CAPITALCOMMON STOCK AND THE RIGHTS OF THE COMPANY AS A HOLDER OFSMAAASH EQUITY SHARES
Smaaash is a company organized underJed Kaplan, pursuant to which he shall serve as 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 discussionCo-Chief Executive Officer of the material differences betweenCompany until March 31, 2019, at which point he shall automatically become the rights of holderssole Chief Executive Officer of the SmaaashCompany. Mr. Kaplan shall not receive a salary or other monetary compensation and in lieu thereof he shall receive an equity grant of 10,000 shares of Common Stock per month, which shares shall be fully vested upon grant. Mr. Kaplan shall also be eligible to receive a quarterly bonus in the form of cash or equity shares, and holdersshall be entitled to participate in the Company’s employee benefit plans. The term of I-AM Capital common stockMr. Kaplan’s employment agreement is only a summary and doesfor an initial one-year term, which shall automatically renew for successive one-year terms unless either party provides 60 days’ advance written notice of its intention not purport to renew the agreement at the conclusion of the then applicable term. The term of the employment agreement may be a completeterminated by the Company with or without cause or by Mr. Kaplan with or without good reason, as such terms are defined therein. The foregoing description of these differences. The following discussionMr. Kaplan’s employment agreement is qualified in its entirety by reference to Indian Law, including the Indian Companies Act,employment agreement, which is attached hereto as Exhibit 10.3 and Delaware law, includingis herein incorporated by reference.
On December 31, 2018, the DGCL,Company also entered into an employment agreement with Roman Franklin, pursuant to which he shall serve as well as Smaaash’s Memorandumthe President of the Company. During the term of his employment agreement, Mr. Franklin shall receive (i) a monthly base salary of $8,333.33 and Articles(ii) an equity grant of Association and I-AM Capital’s Restated Certificate and bylaws, currently3,000 shares of Common Stock per month, which shares shall be fully vested upon grant. Mr. Franklin shall also be eligible to receive a quarterly bonus in effect. For information on how you can obtain copiesthe form of these documents, See “WhereYou Can Find More Information."
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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 wayparticipate in the Company’s employee benefit plans. The term of showMr. Franklin’s employment agreement is for an initial one-year term, which shall automatically renew for successive one-year terms unless either party provides 60 days’ advance written notice of hands or on a poll. Each shareholder shall have one vote in a show of hands. In a poll,its intention not to renew the voting rightsagreement at the conclusion of the shareholdersthen applicable term. The term of the employment agreement may be terminated by the Company with or without cause or by Mr. Franklin with or without good reason, as such terms are defined therein. The foregoing description of Mr. Franklin’s employment agreement is qualified in its entirety by reference to the employment agreement, which is attached hereto as Exhibit 10.6 and is herein incorporated by reference.
On December 31, 2018, the Company also entered into an employment agreement with Steven Grossman, pursuant to which he shall continue to serve as the President of Simplicity Esports, LLC. During the term of his employment agreement, Mr. Grossman shall receive (i) a monthly base salary of $5,208.33 and (ii) an equity grant of 2,000 shares of Common Stock per month, which shares shall be in proportionfully vested upon grant. Mr. Grossman shall also be eligible to their share in paid up equity share capital of Smaaash.
Dividends -Smaaash shall declare dividends inreceive 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 summarizedquarterly bonus in the comparative table below.
Disclosureform of Ownership Interest –Except as specified by law, no person shall be recognized by Smaaash as holding any share upon any trust,cash or equity shares, 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 caseparticipate in Company’s employee benefit plans. The term of subscribersMr. Grossman’s employment agreement is for an initial one-year term, which shall automatically renew for successive one-year terms unless either party provides 60 days’ advance written notice of its intention not to renew the memorandumagreement at the conclusion of associationthe then applicable term. The term of Smaaash),the employment agreement may be terminated by the Company with or after allotmentwithout cause or within 1 (one) monthby Mr. Grossman with or without good reason, as such terms are defined therein.
Each of the employment agreements contain customary non-competition and non-solicitation covenants for a period of one year after the application fortermination of the registration of transfer or transmission or within such other periods as the conditions of issue shall provide.executive’s employment.
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).
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In addition to the rights captured in the comparative table below, the following shareholders have certain specific rights which have been briefly summarized below:
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.
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.
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.
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.
BENEFICIALSECURITY OWNERSHIP OF SMAAASH SECURITIESCERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information with respect toregarding the beneficial ownership of Smaaash’s equity sharesour Common Stock 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 held12, 2019, by:
● | each person known by us to | |
● | each of our current named executive officers and directors that beneficially own shares of our Common Stock; and | |
● | all our named executive officers and directors as a group. |
EachInformation with respect to beneficial ownership has been furnished by each director, named executive officer or 5% or more stockholder, as the case may be. Unless otherwise indicated, we believe that all persons named in the table have sole voting and investment power with respect to all shares 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.Common Stock beneficially owned by them.
Name of Beneficial Owner (1) | ||||||||
Amount of beneficial ownership | Percent of outstanding Common Stock(2) | |||||||
Directors and Executive Officers | ||||||||
Jed Kaplan (3) | 1,131,614 | 16.2 | % | |||||
Roman Franklin (4) | 307,000 | 4.4 | % | |||||
F. Jacob Cherian | 307,286 | 4.4 | % | |||||
Suhel Kanuga | 307,287 | 4.4 | % | |||||
Donald R. Caldwell (5) | 97,000 | 1.4 | % | |||||
Max Hooper (6) | 29,500 | * | ||||||
Frank Leavy (7) | 27,625 | * | ||||||
Edward Leonard Jaroski (8) | 128,500 | 1.8 | % | |||||
William H. Herrmann, Jr. (9) | 28,500 | * | ||||||
All directors and officers as a group (9 persons) | 3,364,312 | 33.3 | % | |||||
Principal Shareholders (more than 5%): | ||||||||
The K2 Principal Fund, L.P. (10) | 849,655 | 10.99 | % | |||||
Polar Asset Management Partners Inc. (11) | 760,419 | 10.89 | % | |||||
IRIS Cantor Trust (12) | 395,164 | 5.7 | % | |||||
Timothy P. Schenden – SEP IRA (13) | 515,322 | 7.4 | % |
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 | % |
* Less than 1%.
(1) | ||
(2) | The calculation in this column is based upon 6,952,195 shares of Common Stock outstanding as of July 12, 2019, which does not include 6,449,000 shares of our Common Stock that may be issued upon the | |
(3) | Includes 60,000 shares of our restricted Common Stock that have vested or will vest within 60 days of July 12, 2019, and 50,000 shares of Common Stock issuable upon exercise of 20,000 warrants. | |
(4) | The number of shares of Common Stock beneficially owned by Roman Franklin is 118,000 and includes 18,000 shares of our restricted Common Stock that have vested or will vest within 60 days of July 12, 2019. | |
(5) | The number of shares of Common Stock beneficially owned by Donald R. Caldwell is 97,000 and includes 20,000 shares of our Common Stock issuable upon exercise of 20,000 warrants. | |
(6) | Max Hooper is Managing Director of Merging Traffic, Inc. The number of shares of Common Stock beneficially owned by Merging Traffic, Inc., is 29,500 and includes 14,500 shares of Common Stock owned directly by Merging Traffic, Inc., 10,000 shares of our Common Stock issuable upon exercise of 10,000 warrants, and 5,000 shares of our Common Stock owned directly by Max Hooper. | |
(7) | The number of shares of Common Stock beneficially owned by Frank Leavy is 27,625 and includes 7,500 shares of our Common Stock issuable upon exercise of 7,500 warrants. | |
(8) | The number of shares of Common Stock beneficially owned by Edward Leonard Jaroski is 128,500 and includes 60,000 shares of our Common Stock issuable upon exercise of 60,000 warrants. | |
(9) | The number of shares of Common Stock beneficially owned by William H. Herrmann, Jr. is 28,500 and includes 10,000 shares of our Common Stock issuable upon exercise of 10,000 warrants. | |
(10) | 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 beneficially owned by the Fund is 849,655 which 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 our Common Stock to the Company pursuant to a stock purchase agreement dated November 5, 2018 by and between the Company and the Fund and (ii) 781,655 shares of our Common Stock issuable upon exercise of 781,655 warrants. | |
(11) | Polar Asset Management Partners Inc. (“Polar”) serves as investment advisor to Polar Multi-Strategy Master Fund (“PMSMF”), Crown Managed Accounts SPC (“CMA”) and certain managed accounts (together with PMSMF and CMA, 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 beneficially owned by Polar is 760,419 which includes (i) 20,203 shares of Common Stock held by CMA and 283,116 shares of Common Stock held by Polar (which includes 150,000 shares of Common Stock transferred by the Sponsor to the Polar as additional consideration for Polar agreeing to potentially sell shares of our Common Stock to the Company pursuant to a stock purchase agreement dated November 2, 2018 by and between the Company and Polar) and (ii) 456,600 shares of our Common Stock issuable upon exercise of 423,712 warrants held by CMA and 32,888 warrants held by Polar. | |
(12) | The principal office of the stockholder is 220 Banyan Road, Palm Beach, Florida 33480-4804. | |
(13) | The principal office of the stockholder is 6599 NW 33rd Ave., Boca Raton, Florida 33496-3317. |
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
I-AM CapitalOur audit committee must review and approve any related person transaction we propose to enter into. Our audit committee charter details the policies and procedures relating to transactions that may present actual, potential or perceived conflicts of interest and may raise questions as to whether such transactions are consistent with the best interest of our company and our stockholders. A summary of such policies and procedures is set forth below.
Any potential related party transaction that is brought to the audit committee’s attention will be analyzed by the audit committee, in consultation with outside counsel or members of management, as appropriate, to determine whether the transaction or relationship does, in fact, constitute a related party transaction. At its meetings, the audit committee will be provided with the details of each new, existing or proposed related party transaction, including the terms of the transaction, the business purpose of the transaction and the benefits to us and to the relevant related party.
In determining whether to approve a related party transaction, the audit committee must consider, among other factors, the following factors to the extent relevant:
● | whether the terms of the transaction are fair to us and on the same basis as would apply if the transaction did not involve a related party; | |
● | whether there are business reasons for us to enter into the transaction; | |
● | whether the transaction would impair the independence of an outside director; and | |
● | whether the transaction would present an improper conflict of interest for any director or executive officer. |
Any member of the audit committee who has an interest in the transaction under discussion must abstain from any voting regarding the transaction, but may, if so requested by the chairman of the audit committee, participate in some or all of the audit committee’s discussions of the transaction. Upon completion of its review of the transaction, the audit committee may determine to permit or to prohibit the transaction.
Founder Shares
On May 31, 2017, I-AM Capitalwe issued 1,437,500 shares of I-AM Capital’s common stockour Common Stock to the Sponsor (the founder sharesFounder Shares in exchange for a capital contribution of $25,000. On September 13, 2017, 137,500 founder sharesFounder Shares were forfeited by the Sponsor upon the partial exercise of the underwriters’ over-allotment option.
The founder sharesFounder Shares are identical to the shares of common stockCommon Stock included in the Units and holders of Founder Shares have the same stockholder rights as public stockholders,Public Stockholders, except that (i) the founder sharesFounder Shares and the shares of common stockCommon Stock underlying the private placement unitsPrivate 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,Founder Shares, and the shares of common stockCommon Stock underlying the private placement unitsPrivate Placement Units and the public unitsPublic 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 sharesFounder Shares and the shares of common stockCommon Stock underlying the private placement unitsPrivate Placement Units if I-AM Capitalthe Company fails to complete a business combination within 12 months from the closing of the initial public offeringIPO (or up to 21 months from the closing of the initial public offeringIPO if I-AM Capitalthe Company extends the period of time to consummate a business combination).
With certain limited exceptions, the founder sharesFounder Shares are not transferable, assignable or salable (except to I-AM Capital’sthe Company’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’sthe Company’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 Capitalthe Company completes a liquidation, merger, stock exchange or other similar transaction that results in all stockholders having the right to exchange their shares of common stockCommon 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 unitsPrivate Placement Units at $10.00 per private placement unitPrivate 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.IPO. 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 unitsPrivate Placement Units were purchased by the Sponsor at $10.00 per private placement unitPrivate Placement Unit upon the partial exercise of the underwriter’s over-allotment option.
Registration Rights
We have entered into a registration rights agreement with respect to the founder shares and private placement units (and their constituent securities). Pursuant to the registration rights agreement, we are required to register the founder shares and private placement units (and their constituent securities) for sale under the Securities Act. Holders of these securities are entitled to make up to three demands that we 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 us. We will bear the costs and expenses of filing any such registration statements.
Administrative Services
I-AM Capital hasWe agreed, commencing on the effective date of the initial public offeringIPO through the earlier of I-AM Capital’sour 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 AprilFor the three months ended November 30, 2018, I-AM Capital haswe have paid $70,000$30,080 which is presented as general and administrative expense on the accompanying statement of operations. In December 2018, this monthly administrative service fee agreement was terminated.
Working Capital Loan
The Sponsor has loaned I-AM Capitalus $201,707 in the aggregate, to be used for a portion of the expenses of the initial public offeringIPO 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.IPO. As of February 28,November 30, 2018, $120,089 of the Sponsor’s loan has been repaidrepaid. As of February 28, 2019, the balance of the Sponsor loan is $85,238.
Cash Balance
We maintain our cash balance at a financial services company that is owned by an officer of our company.
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Related Officers
Jed Kaplan, our Chief Executive Officer, is the brother-in-law of Steven Grossman, the President of our subsidiary, Simplicity Esports, LLC.
Restricted Stock Awards to Certain Officers
On March 27, 2019, pursuant to a Restricted Stock Award, we granted Jed Kaplan, our Chief Executive Officer and interim Chief Financial Officer and a member of our board of directors, 120,000 shares of our restricted common stock. Such shares vest over the next nine months.Also on March 27, 2019, pursuant to a Restricted Stock Award, we granted Roman Franklin, our President and a member of our board of directors, 36,000 shares of our restricted common stock. Such shares vest over the next nine months also. Lastly, on March 27, 2019, pursuant to a Restricted Stock Award and collectively with the Kaplan Restricted Stock Award and the balance due is $81,618.Franklin Restricted Stock Award, we granted Steve Grossman, President of Simplicity Esports, LLC, a wholly owned subsidiary of our company, 24,000 shares of our restricted common stock. Such shares also vest over the next nine months.
Each of the Restricted Stock Awards was entered into in connection with entry into employment agreements with each of Messrs. Kaplan, Franklin and Grossman on December 31, 2018.
The Selling Securityholders may offer and sell, from time to time, any or all of the Private Placement Warrants, shares of Common Stock, and shares of Common Stock underlying the Warrants covered by this prospectus. Selling Securityholders are offering for resale 6,360,617 shares of Common Stock under this registration statement.
In addition, (i) the resale by Selling Securityholders of the 261,500 Private Placement Warrants and (ii) the issuance by the Company of 6,449,000 shares of Common Stock underlying the Warrants (which consist of (a) 5,200,000 shares that may be issued upon the exercise of Public Warrants originally sold as part of units in our IPO and which entitle the holder to purchase Common Stock at an exercise price of $11.50 per share of Common Stock, (b) 261,500 shares of Common Stock that may be issued upon the exercise of the Private Placement Warrants, underlying Private Placement Units, which entitle the holder to purchase Common Stock at an exercise price of $11.50 per share of Common Stock), and (c) 987,500 shares of Common Stock that may be issued upon the exercise of the 2019 Warrants originally sold as part of units in the 2019 Private Placement and which entitle the holder to purchase Common Stock at an exercise price of $4.00 per share of Common Stock) are being registered by the registration statement of which this prospectus forms a part pursuant to registration rights granted to the Selling Securityholders in connection with our initial organization, the IPO, the Transactions and/or the 2019 Private Placement. See the section entitled “Plan of Distribution” for further information regarding the Selling Securityholders’ method of distributing these securities.
The following table provides, as of July 12, 2019, information regarding the beneficial ownership of our Common Stock and Warrants held by each Selling Securityholder, the securities that may be sold by each Selling Securityholder under this prospectus and the number and percentage of securities that each Selling Securityholder will beneficially own after this offering. Applicable percentages are based on 6,360,617 shares of Common Stock offered for resale and 6,449,000 shares of Common Stock underlying the Warrants as of July 12, 2019.
The Selling Securityholders are not making any representation that any shares of Common Stock or Private Placement Warrants covered by this prospectus will be offered for sale. Because each Selling Securityholder may dispose of all, none or some portion of their securities, no estimate can be given as to the number of securities that will be beneficially owned by a Selling Securityholder upon termination of this offering. For purposes of the table below, however, we have assumed that after termination of this offering none of the securities covered by this prospectus will be beneficially owned by the Selling Securityholders and further assumed that the Selling Securityholders will not acquire beneficial ownership of any additional securities during the offering. In addition, the Selling Securityholders may have sold, transferred or otherwise disposed of, or may sell, transfer or otherwise dispose of, at any time and from time to time, our securities in transactions exempt from the registration requirements of the Securities Act after the date on which the information in the table is presented.
We may amend or supplement this prospectus from time to time in the future to update or change this Selling Securityholders list and the securities that may be resold.
See the section entitled “Plan of Distribution” for further information regarding the stockholders’ method of distributing these shares.
Common Stock
Number of Shares of Common Stock Beneficially | Number of Shares of Common Stock Offered | Shares of Common Stock Beneficially Owned After Completion of the Offering(1) | ||||||||||||||
Name | Owned(1) | Hereby (2) | Number | Percentage | ||||||||||||
Timothy Eden(3) | 57,000 | 57,000 | 0 | 0.0 | % | |||||||||||
Darby Tyser(4) | 44,500 | 44,500 | 0 | 0.0 | % | |||||||||||
Albert Allen(5) | 44,500 | 44,500 | 0 | 0.0 | % | |||||||||||
Wilton Lee(6) | 48,400 | 48,400 | 0 | 0.0 | % | |||||||||||
NuView Trust Company FBO Edward Jaroski(7) | 128,500 | 128,500 | 0 | 0.0 | % | |||||||||||
NuView Trust Company FBO William Herrmann(8) | 28,500 | 28,500 | 0 | 0.0 | % | |||||||||||
Merging Traffic, Inc.(9) | 24,500 | 24,500 | 0 | 0.0 | % | |||||||||||
Sharon Katuin(10) | 26,650 | 26,650 | 0 | 0.0 | % | |||||||||||
Barbara Winkler-Chimbor(11) | 28,220 | 28,220 | 0 | 0.0 | % | |||||||||||
NuView Trust Company FBO Frank Leavy(12) | 27,625 | 27,625 | 0 | 0.0 | % | |||||||||||
Paul Torre(13) | 22,250 | 22,250 | 0 | 0.0 | % | |||||||||||
NuView Trust Company FBO Erin Fitch(14) | 18,075 | 18,075 | 0 | 0.0 | % | |||||||||||
David Crossmier(15) | 14,750 | 14,750 | 0 | 0.0 | % | |||||||||||
Donald Sera(16) | 14,750 | 14,750 | 0 | 0.0 | % | |||||||||||
NuView Trust Company FBO David Keenum(17) | 14,250 | 14,250 | 0 | 0.0 | % | |||||||||||
Fred Zollinger(18) | 14,750 | 14,750 | 0 | 0.0 | % | |||||||||||
Ann Akers(19) | 14,500 | 14,500 | 0 | 0.0 | % | |||||||||||
Robert Ripley(20) | 15,500 | 15,500 | 0 | 0.0 | % | |||||||||||
Gregory Hall(21) | 14,500 | 14,500 | 0 | 0.0 | % | |||||||||||
William Jones(22) | 11,900 | 11,900 | 0 | 0.0 | % | |||||||||||
Paul Reitz(23) | 10,350 | 10,350 | 0 | 0.0 | % | |||||||||||
Joseph Frick(24) | 10,140 | 10,140 | 0 | 0.0 | % | |||||||||||
NuView Trust Company FBO Judith Koons(25) | 9,100 | 9,100 | 0 | 0.0 | % | |||||||||||
Shirley W. Barnard(26) | 7,920 | 7,920 | 0 | 0.0 | % | |||||||||||
Vipul Vassa(27) | 7,750 | 7,750 | 0 | 0.0 | % | |||||||||||
Ravi Parik(28) | 8,000 | 8,000 | 0 | 0.0 | % | |||||||||||
Bradley Westover(29) | 7,750 | 7,750 | 0 | 0.0 | % | |||||||||||
Suzanne Ronneau(30) | 8,250 | 8,250 | 0 | 0.0 | % | |||||||||||
NuView Trust Company FBO Mary Tryon(31) | 7,750 | 7,750 | 0 | 0.0 | % | |||||||||||
Marjorie Lee(32) | 7,250 | 7,250 | 0 | 0.0 | % | |||||||||||
Silvanus Williams(33) | 9,250 | 9,250 | 0 | 0.0 | % | |||||||||||
Ardys B. Clawson(34) | 7,250 | 7,250 | 0 | 0.0 | % | |||||||||||
NuView Trust Company FBO Helen Carter(35) | 5,950 | 5,950 | 0 | 0.0 | % | |||||||||||
NuView Trust Company FBO June Rayle(36) | 5,950 | 5,950 | 0 | 0.0 | % | |||||||||||
NuView Trust Company FBO Clyde Steven Batiste(37) | 5,070 | 5,070 | 0 | 0.0 | % | |||||||||||
NuView Trust Company FBO Francis Malanowski(38) | 4,350 | 4,350 | 0 | 0.0 | % | |||||||||||
NuView Trust Company FBO John T. Vonesh(39) | 4,450 | 4,450 | 0 | 0.0 | % | |||||||||||
James Hermann(40) | 3,930 | 3,930 | 0 | 0.0 | % | |||||||||||
William Jordan(41) | 3,930 | 3,930 | 0 | 0.0 | % | |||||||||||
Vian Borg(42) | 3,520 | 3,520 | 0 | 0.0 | % | |||||||||||
NuView Trust Company FBO Leon Pike(43) | 3,310 | 3,310 | 0 | 0.0 | % | |||||||||||
Barbara Conn(44) | 3,000 | 3,000 | 0 | 0.0 | % | |||||||||||
Jason Franklin(45) | 3,600 | 3,600 | 0 | 0.0 | % | |||||||||||
Scott Berg(46) | 2,850 | 2,850 | 0 | 0.0 | % | |||||||||||
Donald Caldwell(47) | 97,000 | 97,000 | 0 | 0.0 | % | |||||||||||
Sandeep Dhanuka(48) | 71,580 | 71,580 | 0 | 0.0 | % | |||||||||||
Buttonwood Capital LLC(49) | 8,375 | 8,375 | 0 | 0.0 | % | |||||||||||
Christian Thomas Holzman | 1,000 | 1,000 | 0 | 0.0 | % | |||||||||||
Lloyd David Franklin | 2,750 | 2,750 | 0 | 0.0 | % | |||||||||||
James Mark Franklin | 7,682 | 7,682 | 0 | 0.0 | % | |||||||||||
Alyssia Marie Franklin | 51,000 | 51,000 | 0 | 0.0 | % | |||||||||||
Roman Nehemiah Franklin | 256,000 | 256,000 | 0 | 0.0 | % | |||||||||||
F. Jacob Cherian | 307,286 | 307,286 | 0 | 0.0 | % | |||||||||||
Suhel Kanuga | 307,287 | 307,287 | 0 | 0.0 | % | |||||||||||
Max Hooper | 5,000 | 5,000 | 0 | 0.0 | % | |||||||||||
Christopher Dorman | 2,500 | 2,500 | 0 | 0.0 | % | |||||||||||
Margaret Ticehurst | 100 | 100 | 0 | 0.0 | % | |||||||||||
Richard Ticehurst | 100 | 100 | 0 | 0.0 | % | |||||||||||
Alan Totten | 100 | 100 | 0 | 0.0 | % | |||||||||||
Deborah Totten | 100 | 100 | 0 | 0.0 | % | |||||||||||
Susan MacFadden | 100 | 100 | 0 | 0.0 | % | |||||||||||
Edward Nance | 100 | 100 | 0 | 0.0 | % | |||||||||||
Simon Franklin | 100 | 100 | 0 | 0.0 | % | |||||||||||
Mariel Dejesus | 100 | 100 | 0 | 0.0 | % | |||||||||||
Corina Jaime | 100 | 100 | 0 | 0.0 | % | |||||||||||
Chantina Omar | 100 | 100 | 0 | 0.0 | % | |||||||||||
Kendal Franklin | 100 | 100 | 0 | 0.0 | % | |||||||||||
Robert Franklin | 100 | 100 | 0 | 0.0 | % | |||||||||||
Michelle Franklin | 100 | 100 | 0 | 0.0 | % | |||||||||||
Barbara Franklin | 100 | 100 | 0 | 0.0 | % | |||||||||||
Dalaynee Deck | 100 | 100 | 0 | 0.0 | % | |||||||||||
Nathen Skinner | 100 | 100 | 0 | 0.0 | % | |||||||||||
Virginia Skinner | 100 | 100 | 0 | 0.0 | % | |||||||||||
Pilar Puglise | 100 | 100 | 0 | 0.0 | % | |||||||||||
Asalilia Heath | 100 | 100 | 0 | 0.0 | % | |||||||||||
Russell Smith | 100 | 100 | 0 | 0.0 | % | |||||||||||
Tarik Mobolaji Andwele | 100 | 100 | 0 | 0.0 | % | |||||||||||
William E. Findley Living Trust Dtd 3/1/2004 | 5,000 | 5,000 | 0 | 0.0 | % | |||||||||||
Cup & Cross Ministries International | 300 | 300 | 0 | 0.0 | % | |||||||||||
Maxim Partners LLC | 243,648 | 243,648 | 0 | 0.0 | % | |||||||||||
Chardan Capital Markets, LLC | 208,000 | 208,000 | 0 | 0.0 | % | |||||||||||
Crown Managed Accounts SPC(50) | 444,415 | 444,415 | 0 | 0.0 | % | |||||||||||
K2 Principal Fund L.P. (51) | 847,655 | 847,655 | 0 | 0.0 | % | |||||||||||
Polar Asset Management Partners Inc. (52) | 316,004 | 316,004 | 0 | 0.0 | % | |||||||||||
Timothy P. Schenden – SEP IRA (53) | 640,322 | 640,322 | 0 | 0.0 | % | |||||||||||
Jed Kaplan – Roth IRA (54) | 490,322 | 490,322 | 0 | 0.0 | % | |||||||||||
Iris Cantor Trust (55) | 595,164 | 595,164 | 0 | 0.0 | % | |||||||||||
John Desiderio Trust (56) | 495,161 | 495,161 | 0 | 0.0 | % | |||||||||||
Jed Kaplan – SEP IRA | 331,775 | 331,775 | 0 | 0.0 | % | |||||||||||
Jed Kaplan | 290,000 | 290,000 | 0 | 0.0 | % | |||||||||||
Scythe LLC (57) | 397,580 | 397,580 | 0 | 0.0 | % | |||||||||||
James L. Orleans – IRA (58) | 271,372 | 271,372 | 0 | 0.0 | % | |||||||||||
Steven Grossman | 158,400 | 158,400 | 0 | 0.0 | % | |||||||||||
Steven Grossman – IRA | 151,620 | 151,620 | 0 | 0.0 | % | |||||||||||
Cant Fish LLC (59) | 147,580 | 147,580 | 0 | 0.0 | % | |||||||||||
John Marchese – IRA | 97,580 | 97,580 | 0 | 0.0 | % | |||||||||||
Mike Zahalsky PSP | 97,580 | 97,580 | 0 | 0.0 | % | |||||||||||
One Plus Four LLC | 97,580 | 97,580 | 0 | 0.0 | % | |||||||||||
Zahalsky Investments Holdings LLLP | 97,580 | 97,580 | 0 | 0.0 | % | |||||||||||
Bill Yates | 91,800 | 91,800 | 0 | 0.0 | % | |||||||||||
Fidelity Management Trust Company FBO Christopher Leary (60) | 100,000 | 100,000 | 0 | 0.0 | % | |||||||||||
Sterling Hall (61) | 100,000 | 100,000 | 0 | 0.0 | % | |||||||||||
Mad Money Entertainment | 48,792 | 48,792 | 0 | 0.0 | % | |||||||||||
Bryan Rosenblatt | 29,275 | 29,275 | 0 | 0.0 | % | |||||||||||
RBC Capital Markets FBO Robert Winters (62) | 50,000 | 50,000 | 0 | 0.0 | % | |||||||||||
Suzanne G. Fisher Revocable Trust (63) | 50,000 | 50,000 | 0 | 0.0 | % | |||||||||||
Jamie Kaplan – SEP IRA | 19,517 | 19,517 | 0 | 0.0 | % | |||||||||||
Michael Zoller (64) | 50,000 | 50,000 | 0 | 0.0 | % |
(1) | The amounts and percentages of Common Stock beneficially owned are determined in accordance with the SEC’s rules, pursuant to which a person is deemed to be a “beneficial owner” of a security if that person has or shares voting or investment power or has the right to acquire such power within 60 days through exercise of any option, warrant or other right. Securities that can be so acquired are deemed to be outstanding for purposes of computing such person’s ownership percentage, but not for purposes of computing any other person’s percentage. Under these rules, more than one person may be deemed beneficial owner of the same securities, and a person may be deemed to be a beneficial owner of securities as to which such person has no economic interest. Except as otherwise indicated in these footnotes, each of the beneficial owners has, to our knowledge, sole voting and investment power with respect to the indicated shares of Common Stock. | |
(2) | The shares of Common Stock shown in this column includes shares of Common Stock that are offered for resale by the Selling Securityholders, as well as shares of Common Stock that are offered for sale by us pursuant to this prospectus. | |
(3) | The number of shares of Common Stock beneficially owned by Timothy Eden includes 20,000 shares of our Common Stock issuable upon exercise of 20,000 Private Placement Warrants. | |
(4) | The number of shares of Common Stock beneficially owned by Darby Tyser includes 15,000 shares of our Common Stock issuable upon exercise of 15,000 Private Placement Warrants. | |
(5) | The number of shares of Common Stock beneficially owned by Albert Allen includes 15,000 shares of our Common Stock issuable upon exercise of 15,000 Private Placement Warrants. | |
(6) | The number of shares of Common Stock beneficially owned by Wilton Lee includes 14,000 shares of our Common Stock issuable upon exercise of 14,000 Private Placement Warrants. | |
(7) | The number of shares of Common Stock beneficially owned by NuView Trust Company FBO Edward Jaroski includes 60,000 shares of our Common Stock issuable upon exercise of 60,000 Private Placement Warrants. | |
(8) | The number of shares of Common Stock beneficially owned by NuView Trust Company FBO William Herrmann includes 10,000 shares of our Common Stock issuable upon exercise of 10,000 Private Placement Warrants. | |
(9) | The number of shares of Common Stock beneficially owned by Merging Traffic, Inc. includes 10,000 shares of our Common Stock issuable upon exercise of 10,000 Private Placement Warrants. | |
(10) | The number of shares of Common Stock beneficially owned by Sharon Katuin includes 8,500 shares of our Common Stock issuable upon exercise of 8,500 Private Placement Warrants. | |
(11) | The number of shares of Common Stock beneficially owned by Barbara Winkler-Chimbor includes 8,200 shares of our Common Stock issuable upon exercise of 8,200 Private Placement Warrants. | |
(12) | The number of shares of Common Stock beneficially owned by NuView Trust Company FBO Frank Leavy includes 7,500 shares of our Common Stock issuable upon exercise of 7,500 Private Placement Warrants. | |
(13) | The number of shares of Common Stock beneficially owned by Paul Torre includes 7,500 shares of our Common Stock issuable upon exercise of 7,500 Private Placement Warrants. | |
(14) | The number of shares of Common Stock beneficially owned by NuView Trust Company FBO Erin Fitch includes 5,300 shares of our Common Stock issuable upon exercise of 5,300 Private Placement Warrants. | |
(15) | The number of shares of Common Stock beneficially owned by David Crossmier includes 5,000 shares of our Common Stock issuable upon exercise of 5,000 Private Placement Warrants. |
(16) | The number of shares of Common Stock beneficially owned by Donald Sera includes 5,000 shares of our Common Stock issuable upon exercise of 5,000 Private Placement Warrants. | |
(17) | The number of shares of Common Stock beneficially owned by NuView Trust Company FBO David Keenum includes 5,000 shares of our Common Stock issuable upon exercise of 5,000 Private Placement Warrants. | |
(18) | The number of shares of Common Stock beneficially owned by Fred Zollinger includes 5,000 shares of our Common Stock issuable upon exercise of 5,000 Private Placement Warrants. | |
(19) | The number of shares of Common Stock beneficially owned by Ann Akers includes 5,000 shares of our Common Stock issuable upon exercise of 5,000 Private Placement Warrants. | |
(20) | The number of shares of Common Stock beneficially owned by Robert Ripley includes 5,000 shares of our Common Stock issuable upon exercise of 5,000 Private Placement Warrants. | |
(21) | The number of shares of Common Stock beneficially owned by Gregory Hall includes 5,000 shares of our Common Stock issuable upon exercise of 5,000 Private Placement Warrants. | |
(22) | The number of shares of Common Stock beneficially owned by William Jones includes 4,000 shares of our Common Stock issuable upon exercise of 4,000 Private Placement Warrants. | |
(23) | The number of shares of Common Stock beneficially owned by Paul Reitz includes 3,500 shares of our Common Stock issuable upon exercise of 3,500 Private Placement Warrants. | |
(24) | The number of shares of Common Stock beneficially owned by Joseph Frick includes 3,400 shares of our Common Stock issuable upon exercise of 3,400 Private Placement Warrants. | |
(25) | The number of shares of Common Stock beneficially owned by NuView Trust Company FBO Judith Koons includes 3,000 shares of our Common Stock issuable upon exercise of 3,000 Private Placement Warrants. | |
(26) | The number of shares of Common Stock beneficially owned by Shirley W. Barnard includes 2,700 shares of our Common Stock issuable upon exercise of 2,700 Private Placement Warrants. | |
(27) | The number of shares of Common Stock beneficially owned by Vipul Vassa includes 2,500 shares of our Common Stock issuable upon exercise of 2,500 Private Placement Warrants. | |
(28) | The number of shares of Common Stock beneficially owned by Ravi Parik includes 2,500 shares of our Common Stock issuable upon exercise of 2,500 Private Placement Warrants. | |
(29) | The number of shares of Common Stock beneficially owned by Bradley Westover includes 2,500 shares of our Common Stock issuable upon exercise of 2,500 Private Placement Warrants. | |
(30) | The number of shares of Common Stock beneficially owned by Suzanne Ronneau includes 2,500 shares of our Common Stock issuable upon exercise of 2,500 Private Placement Warrants. | |
(31) | The number of shares of Common Stock beneficially owned by NuView Trust Company FBO Mary Tryon includes 2,500 shares of our Common Stock issuable upon exercise of 2,500 Private Placement Warrants. | |
(32) | The number of shares of Common Stock beneficially owned by Marjorie Lee includes 2,500 shares of our Common Stock issuable upon exercise of 2,500 Private Placement Warrants. | |
(33) | The number of shares of Common Stock beneficially owned by Silvanus Williams includes 2,500 shares of our Common Stock issuable upon exercise of 2,500 Private Placement Warrants. | |
(34) | The number of shares of Common Stock beneficially owned by Ardys B. Clawson includes 2,500 shares of our Common Stock issuable upon exercise of 2,500 Private Placement Warrants. |
(35) | The number of shares of Common Stock beneficially owned by NuView Trust Company FBO Helen Carter includes 2,000 shares of our Common Stock issuable upon exercise of 2,000 Private Placement Warrants. | |
(36 | The number of shares of Common Stock beneficially owned by NuView Trust Company FBO June Rayle includes 2,000 shares of our Common Stock issuable upon exercise of 2,000 Private Placement Warrants. | |
(37) | The number of shares of Common Stock beneficially owned by NuView Trust Company FBO Clyde Steven Batiste includes 1,700 shares of our Common Stock issuable upon exercise of 1,700 Private Placement Warrants. | |
(38) | The number of shares of Common Stock beneficially owned by NuView Trust Company FBO Francis Malanowski includes 1,500 shares of our Common Stock issuable upon exercise of 1,500 Private Placement Warrants. | |
(39) | The number of shares of Common Stock beneficially owned by NuView Trust Company FBO John T. Vonesh includes 1,500 shares of our Common Stock issuable upon exercise of 1,500 Private Placement Warrants. | |
(40) | The number of shares of Common Stock beneficially owned by James Hermann includes 1,300 shares of our Common Stock issuable upon exercise of 1,300 Private Placement Warrants. | |
(41) | The number of shares of Common Stock beneficially owned by William Jordan includes 1,300 shares of our Common Stock issuable upon exercise of 1,300 Private Placement Warrants. | |
(42) | The number of shares of Common Stock beneficially owned by Vian Borg includes 1,200 shares of our Common Stock issuable upon exercise of 1,200 Private Placement Warrants. | |
(43) | The number of shares of Common Stock beneficially owned by NuView Trust Company FBO Leon Pike includes 1,100 shares of our Common Stock issuable upon exercise of 1,100 Private Placement Warrants. | |
(44) | The number of shares of Common Stock beneficially owned by Barbara Conn includes 1,000 shares of our Common Stock issuable upon exercise of 1,000 Private Placement Warrants. | |
(45) | The number of shares of Common Stock beneficially owned by Jason Franklin includes 1,000 shares of our Common Stock issuable upon exercise of 1,000 Private Placement Warrants. | |
(46) | The number of shares of Common Stock beneficially owned by Scott Berg includes 1,000 shares of our Common Stock issuable upon exercise of 1,000 Private Placement Warrants. | |
(47) | The number of shares of Common Stock beneficially owned by Donald Caldwell includes 20,000 shares of our Common Stock issuable upon exercise of 20,000 Private Placement Warrants. | |
(48) | The number of shares of Common Stock beneficially owned by Sandeep Dhanuka includes 19,800 shares of our Common Stock issuable upon exercise of 19,800 Private Placement Warrants. | |
(49) | The number of shares of Common Stock beneficially owned by Buttonwood Capital LLC includes 2,500 shares of our Common Stock issuable upon exercise of 2,500 Private Placement Warrants. | |
(50) | The number of shares of Common Stock beneficially owned by Crown Managed Accounts SPC includes 423,712 shares of our Common Stock issuable upon exercise of 423,712 warrants. |
(51) | The number of shares of Common Stock beneficially owned by K2 Principal Fund L.P. includes 781,655 shares of our Common Stock issuable upon exercise of 781,655 warrants. | |
(52) | The number of shares of Common Stock beneficially owned by Polar Asset Management Partners Inc. includes 32,888 shares of our Common Stock issuable upon exercise of 32,888 warrants. | |
(53) | The number of shares of Common Stock beneficially owned by Timothy P. Schenden – SEP IRA includes 125,000 shares of our Common Stock issuable upon exercise of 125,000 warrants. | |
(54) | The number of shares of Common Stock beneficially owned by Jed Kaplan – Roth IRA includes 50,000 shares of our Common Stock issuable upon exercise of 50,000 warrants. | |
(55) | The number of shares of Common Stock beneficially owned by Iris Cantor Trust includes 200,000 shares of our Common Stock issuable upon exercise of 200,000 warrants. | |
(56) | The number of shares of Common Stock beneficially owned by John Desiderio Trust includes 150,000 shares of our Common Stock issuable upon exercise of 150,000 warrants. | |
(57) | The number of shares of Common Stock beneficially owned by Scythe LLC includes 150,000 shares of our Common Stock issuable upon exercise of 150,000 warrants. | |
(58) | The number of shares of Common Stock beneficially owned by James L. Orleans includes 62,500 shares of our Common Stock issuable upon exercise of 62,500 warrants. | |
(59) | The number of shares of Common Stock beneficially owned by Cant Fish LLC includes 25,000 shares of our Common Stock issuable upon exercise of 25,000 warrants. | |
(60) | The number of shares of Common Stock beneficially owned by Christopher Leary includes 50,000 shares of our Common Stock issuable upon exercise of 50,000 warrants. | |
(61) | The number of shares of Common Stock beneficially owned by Sterling Hall includes 50,000 shares of our Common Stock issuable upon exercise of 50,000 warrants. | |
(62) | The number of shares of Common Stock beneficially owned by RBC Capital Markets FBO Robert Winters includes 25,000 shares of our Common Stock issuable upon exercise of 25,000 warrants. | |
(63) | The number of shares of Common Stock beneficially owned by Suzanne G. Fisher Revocable Trust includes 25,000 shares of our Common Stock issuable upon exercise of 25,000 warrants. | |
(64) | The number of shares of Common Stock beneficially owned by Michael Zoller includes 25,000 shares of our Common Stock issuable upon exercise of 25,000 warrants. |
Private Placement Warrants
Number of Private Placement Warrants Beneficially | Number of Private Placement Warrants Offered | Private Placement Warrants Beneficially Owned After Completion of the Offering | ||||||||||||||
Name | Owned(1) | Hereby | Number | Percentage | ||||||||||||
Timothy Eden | 20,000 | 20,000 | 0 | 0.0 | % | |||||||||||
Darby Tyser | 15,000 | 15,000 | 0 | 0.0 | % | |||||||||||
Albert Allen | 15,000 | 15,000 | 0 | 0.0 | % | |||||||||||
Wilton Lee | 14,000 | 14,000 | 0 | 0.0 | % | |||||||||||
NuView Trust Company FBO Edward Jaroski | 10,000 | 10,000 | 0 | 0.0 | % | |||||||||||
NuView Trust Company FBO William Herrmann | 10,000 | 10,000 | 0 | 0.0 | % | |||||||||||
Merging Traffic, Inc. | 10,000 | 10,000 | 0 | 0.0 | % | |||||||||||
Sharon Katuin | 8,500 | 8,500 | 0 | 0.0 | % | |||||||||||
Barbara Winkler-Chimbor | 8,200 | 8,200 | 0 | 0.0 | % | |||||||||||
NuView Trust Company FBO Frank Leavy | 7,500 | 7,500 | 0 | 0.0 | % | |||||||||||
Paul Torre | 7,500 | 7,500 | 0 | 0.0 | % | |||||||||||
NuView Trust Company FBO Erin Fitch | 5,300 | 5,300 | 0 | 0.0 | % | |||||||||||
David Crossmier | 5,000 | 5,000 | 0 | 0.0 | % | |||||||||||
Donald Sera | 5,000 | 5,000 | 0 | 0.0 | % | |||||||||||
NuView Trust Company FBO David Keenum | 5,000 | 5,000 | 0 | 0.0 | % | |||||||||||
Fred Zollinger | 5,000 | 5,000 | 0 | 0.0 | % | |||||||||||
Ann Akers | 5,000 | 5,000 | 0 | 0.0 | % | |||||||||||
Robert Ripley | 5,000 | 5,000 | 0 | 0.0 | % | |||||||||||
Gregory Hall | 5,000 | 5,000 | 0 | 0.0 | % | |||||||||||
William Jones | 4,000 | 4,000 | 0 | 0.0 | % | |||||||||||
Paul Reitz | 3,500 | 3,500 | 0 | 0.0 | % | |||||||||||
Joseph Frick | 3,400 | 3,400 | 0 | 0.0 | % | |||||||||||
NuView Trust Company FBO Judith Koons | 3,000 | 3,000 | 0 | 0.0 | % | |||||||||||
Shirley W. Barnard | 2,700 | 2,700 | 0 | 0.0 | % | |||||||||||
Vipul Vassa | 2,500 | 2,500 | 0 | 0.0 | % | |||||||||||
Ravi Parik | 2,500 | 2,500 | 0 | 0.0 | % | |||||||||||
Bradley Westover | 2,500 | 2,500 | 0 | 0.0 | % | |||||||||||
Suzanne Ronneau | 2,500 | 2,500 | 0 | 0.0 | % | |||||||||||
NuView Trust Company FBO Mary Tryon | 2,500 | 2,500 | 0 | 0.0 | % | |||||||||||
Marjorie Lee | 2,500 | 2,500 | 0 | 0.0 | % | |||||||||||
Silvanus Williams | 2,500 | 2,500 | 0 | 0.0 | % | |||||||||||
Ardys B. Clawson | 2,500 | 2,500 | 0 | 0.0 | % | |||||||||||
NuView Trust Company FBO Helen Carter | 2,000 | 2,000 | 0 | 0.0 | % | |||||||||||
NuView Trust Company FBO June Rayle | 2,000 | 2,000 | 0 | 0.0 | % | |||||||||||
NuView Trust Company FBO Clyde Steven Batiste | 1,700 | 1,700 | 0 | 0.0 | % | |||||||||||
NuView Trust Company FBO Francis Malanowski | 1,500 | 1,500 | 0 | 0.0 | % | |||||||||||
NuView Trust Company FBO John T. Vonesh | 1,500 | 1,500 | 0 | 0.0 | % | |||||||||||
James Hermann | 1,300 | 1,300 | 0 | 0.0 | % | |||||||||||
William Jordan | 1,300 | 1,300 | 0 | 0.0 | % | |||||||||||
Vian Borg | 1,200 | 1,200 | 0 | 0.0 | % | |||||||||||
NuView Trust Company FBO Leon Pike | 1,100 | 1,100 | 0 | 0.0 | % | |||||||||||
Barbara Conn | 1,000 | 1,000 | 0 | 0.0 | % | |||||||||||
Jason Franklin | 1,000 | 1,000 | 0 | 0.0 | % | |||||||||||
Scott Berg | 1,000 | 1,000 | 0 | 0.0 | % | |||||||||||
Donald Caldwell | 20,000 | 20,000 | 0 | 0.0 | % | |||||||||||
Sandeep Dhanuka | 19,800 | 19,800 | 0 | 0.0 | % | |||||||||||
Buttonwood Capital LLC | 2,500 | 2,500 | 0 | 0.0 | % |
76 |
Registration Rights
Issuance of Common Stock Underlying Warrants
Pursuant to a registration rights agreement I-AM Capital entered into with its initial stockholder and initial purchasersthe terms of the Warrants, the shares of Common Stock issuable upon exercise thereof will be distributed to those Warrant holders who surrender the certificates representing the Warrants and provide payment of the exercise price through their brokers to our warrant agent, Continental Stock Transfer & Trust Company.
Resale of Common Stock by Selling Securityholders
We are registering Common Stock offered by this prospectus on behalf of the Selling Securityholders. The Selling Securityholders, which as used herein includes donees, pledgees, transferees or other successors-in-interest selling Common Stock received after the date of this prospectus from a Selling Securityholder as a gift, pledge, limited liability company or partnership distribution or other transfer, may, from time to time, sell, transfer or otherwise dispose of any or all of their securities on the OTCQB (in the case of our Common Stock) or any other stock exchange, market or trading facility on which such securities are traded or in private placement units (and constituent securities)transactions. These shares of Common Stock registered for resale in this prospectus shall be sold at a fixed price of $2.00for the duration of this offering. The offering price of the shares bears no relation to book value, assets, earnings, or any other objective criteria of value. It has been arbitrarily determined by the Selling Securityholders.
Resale of Private Placement Warrants by Selling Securityholders
We are registering Private Placement Warrants, offered by this prospectus on behalf of the Selling Securityholders. The Selling Securityholders, which as used herein includes donees, pledgees, transferees or other successors-in-interest selling Private Placement Warrants received after the date of this prospectus from a Selling Securityholder as a gift, pledge, limited liability company or partnership distribution or other transfer, may, from time to time, sell, transfer or otherwise dispose of any or all of their securities on the OTCQB (in the case of our Private Placement Warrants) or any other stock exchange, market or trading facility on which such securities are traded or in private transactions. These dispositions may be at fixed prices, at prevailing market prices at the closingtime of sale, at prices related to the prevailing market price, at varying prices determined at the time of sale or at negotiated prices.
The Selling Securityholders may use any one or more of the initial public offering, I-AM Capital is requiredfollowing methods when disposing of their Common Stock or Private Placement Warrants or interests therein:
● | in market transactions, including transactions on a national securities exchange or quotations service or over-the-counter market; | |
● | in privately negotiated transactions; | |
● | through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise; | |
● | in a block trade in which a broker-dealer will attempt to sell a block of securities as agent but may position and resell a portion of the block as principal to facilitate the transaction; | |
● | through the settlement of short sales (including short sales “against the box”), in each case subject to compliance with the Securities Act and other applicable securities laws; | |
● | through one or more underwriters in a public offering on a firm commitment or best-efforts basis; | |
● | an exchange distribution in accordance with the rules of the applicable exchange, if any; | |
● | ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers; | |
● | purchases by a broker-dealer as principal and resale by the broker-dealer for its account; | |
● | broker-dealers may agree with the Selling Securityholders to sell a specified number of such securities at a stipulated price per security; | |
● | directly to one or more purchasers; | |
● | in other ways not involving market makers or established trading markets; | |
● | by pledge to secure debts and other obligations; | |
● | through agents; or | |
● | in any combination of the above or by any other legally available means. |
The Selling Securityholders may, from time to register certaintime, pledge or grant a security interest in some or all of the securities owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell their securities, from time to time, under this prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act amending the list of Selling Securityholders to include the pledgee, transferee or other successors in interest as Selling Securityholders under this prospectus. The Selling Securityholders also may transfer their securities in other circumstances, in which case the transferees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus.
In connection with the sale of our securities or interests therein, the Selling Securityholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of our securities in the course of hedging the positions they assume. The Selling Securityholders may also sell their securities short and deliver these securities to close out their short positions, or loan or pledge such securities to broker-dealers that in turn may sell these securities. The Selling Securityholders may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealers or other financial institutions of securities offered by this prospectus, which securities such broker-dealers or other financial institutions may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).
The aggregate proceeds to the Selling Securityholders from the sale of the securities offered by them will be the purchase price of the security less discounts or commissions, if any. Each of the Selling Securityholders reserves the right to accept and, together with their agents from time to time, to reject, in whole or in part, any proposed purchase of their securities to be made directly or through agents. We will not receive any of the proceeds from the resale of securities being offered by the Selling Securityholders named herein. However, we will receive proceeds from the exercise of the Warrants if they are exercised by a holder thereof.
The Selling Securityholders also may resell all or a portion of their securities in open market transactions in reliance upon Rule 144 under the Securities Act. These holders are entitledAct, provided that they meet the criteria and conform to the requirements of that rule.
The Selling Securityholders and any broker-dealers that act in connection with the sale of securities might be deemed to be “underwriters” within the meaning of Section 2(a)(11) of the Securities Act, and any commissions received by such broker-dealers and any profit on the resale of the securities sold by them while acting as principals might be deemed to be underwriting discounts or commissions under the Securities Act.
To the extent required, the securities to be sold, the names of the Selling Securityholders, the respective purchase prices and public offering prices, the names of any agent, dealer or underwriter, and any applicable commissions or discounts with respect to a particular offer will be set forth in an accompanying prospectus supplement or, if appropriate, a post-effective amendment to the registration rights agreementstatement that includes this prospectus.
Blue Sky Restrictions on Resale
In order to make upcomply with the securities laws of some states, if applicable, our securities may be sold in these jurisdictions only through registered or licensed brokers or dealers. In addition, in some states our securities may not be sold unless they have been registered or qualified for sale or an exemption from registration or qualification requirements is available and is complied with.
If a Selling Securityholder wants to three demands that I-AM Capital register certain ofsell its securities heldunder this prospectus in the United States, the Selling Securityholder will also need to comply with state securities laws, also known as “Blue Sky laws,” with regard to secondary sales. All states offer a variety of exemptions from registration for secondary sales. Many states, for example, have an exemption for secondary trading of securities registered under Section 12(g) of the Exchange Act, or for securities of issuers that publish continuous disclosure of financial and non-financial information in a recognized securities manual, such as Standard & Poor’s. The broker for a Selling Securityholder will be able to advise a Selling Securityholder in which states our securities are exempt from registration with that state for secondary sales.
Any person who purchases our securities from a Selling Securityholder offered by themthis prospectus who then wants to sell such securities will also have to comply with Blue Sky laws regarding secondary sales.
When the registration statement that includes this prospectus becomes effective, and a Selling Securityholder indicates in which state(s) such Selling Securityholder desires to sell such Selling Securityholder’s securities, we will be able to identify whether such Selling Securityholder will need to register or will be able to rely on an exemption therefrom.
We have advised the Selling Securityholders that the anti-manipulation rules of Regulation M under the Exchange Act may apply to sales of securities in the market and to the activities of the Selling Securityholders and their affiliates. In addition, we will make copies of this prospectus (as it may be supplemented or amended from time to time) available to the Selling Securityholders for the purpose of satisfying the prospectus delivery requirements of the Securities Act. The Selling Securityholders may indemnify any broker-dealer that participates in transactions involving the sale of their securities against certain liabilities, including liabilities arising under the Securities Act.
We have agreed to indemnify the Selling Securityholders against liabilities, including certain liabilities under the Securities Act and state securities laws, relating to havethe registration of the securities offered by this prospectus.
We are required to pay all of our fees and expenses incident to the registration of the securities covered therebyby this prospectus, including with regard to compliance with state securities or “blue sky” laws. The registration expenses of any registration effected by preparing and filing a registration statement or similar document in compliance with the requirements of the Securities Act, and the applicable rules and regulations promulgated thereunder, and such registration statement becoming effective, will be borne by the Company.
Pursuant to our third amended and restated certificate of incorporation, our authorized capital stock consists of 20,000,000 shares of Common Stock, par value $0.0001 per share, and 1,000,000 shares of undesignated preferred stock, par value $0.0001 per share. The following description summarizes the material terms of our capital stock. Because it is only a summary, it may not contain all the information that is important to you.
Common Stock
Prior to the date of this prospectus, there were 6,952,195 shares of our Common Stock outstanding.
Common stockholders of record are entitled to one vote for each share held on all matters to be voted on by stockholders. Unless specified in our third amended and restated certificate of incorporation, as amended, or bylaws, or as required by applicable provisions of the DGCL or applicable stock exchange rules, the affirmative vote of a majority of our shares of Common Stock that are voted is required to approve any such matter voted on by our stockholders. Our board of directors is divided into two classes, each of which will generally serve for a term of two years with only one class of directors being elected in each year. There is no cumulative voting with respect to the election of directors, with the result that the holders of more than 50% of the shares voted for the election of directors can elect all of the directors. Our stockholders are entitled to receive ratable dividends when, as and if declared by the board of directors out of funds legally available therefor.
Preferred Stock
Our third amended and restated certificate of incorporation, as amended, provides that shares of preferred stock may be issued from time to time in one or more series. Our board of directors will be authorized to fix the voting rights, if any, designations, powers, preferences, the relative, participating, optional or other special rights and any qualifications, limitations and restrictions thereof, applicable to the shares of each series. Our board of directors will be able to, without stockholder approval, issue preferred stock with voting and other rights that could adversely affect the voting power and other rights of the holders of the common stock and could have anti-takeover effects. The ability of our board of directors to issue preferred stock without stockholder approval could have the effect of delaying, deferring or preventing a change of control of us or the removal of existing management. We have no preferred stock outstanding at the date hereof. Although we do not currently intend to issue any shares of preferred stock, we cannot assure you that we will not do so in the future. No shares of preferred stock are being issued or registered in this offering.
Warrants
Public Stockholders’ Warrants
Each warrant entitles the registered holder to purchase one share of our Common Stock at a price of $11.50 per share, subject to adjustment as discussed below, at any time commencing on the later of 12 months from the closing of our IPO or 30 days after the completion of our initial business combination. Warrants may be exercised only for resalea whole number of shares of Common Stock. The warrants will expire five years after the completion of our initial business combination, at 5:00 p.m., New York City time, or earlier upon redemption or liquidation.
We will not be obligated to deliver any shares of Common Stock pursuant to Rule 415the exercise of a warrant and will have no obligation to settle such warrant exercise unless a registration statement under the Securities Act.Act with respect to the shares of Common Stock underlying the warrants is then effective and a prospectus relating thereto is current, subject to our satisfying our obligations described below with respect to registration. No warrant will be exercisable for cash or on a cashless basis, and we will not be obligated to issue any shares to holders seeking to exercise their warrants, unless the issuance of the shares upon such exercise is registered or qualified under the securities laws of the state of the exercising holder, unless an exemption is available. In addition, thesethe event that the conditions in the two immediately preceding sentences are not satisfied with respect to a warrant, the holder of such warrant will not be entitled to exercise such warrant and such warrant may have no value and expire worthless. In no event will we be required to net cash settle any warrant. In the event that a registration statement is not effective for the exercised warrants, the purchaser of a unit containing such warrant will have paid the full purchase price for the unit solely for the share of common stock underlying such unit.
This registration statement complies with our obligation to as soon as practicable, but in no event later than thirty (30) days, after the closing of our initial business combination, use our best efforts to file with the SEC a registration statement for the registration, under the Securities Act, of the shares of Common Stock issuable upon exercise of the warrants. We will use our best efforts to cause the same to become effective no later than ninety (90) days after the closing of our initial business combination and to maintain the effectiveness of such registration statement, and a current prospectus relating thereto, until the expiration of the warrants in accordance with the provisions of the warrant agreement. Notwithstanding the above, if our Common Stock is at the time of any exercise of a warrant not listed on a national securities exchange such that it satisfies the definition of a “covered security” under Section 18(b)(1) of the Securities Act, we may, at our option, require holders of Public Warrants who exercise their warrants to do so on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act and, in the event we so elect, we will not be required to file or maintain in effect a registration statement or register or qualify the shares under blue sky laws, and in the event we do not so elect, we will use our best efforts to register or qualify the shares under the blue sky laws of the state of residence in those states in which the warrants were initially offered by us in this offering.
Once the warrants become exercisable, we may call the warrants for redemption:
● | in whole and not in part; | |
● | at a price of $0.01 per warrant; | |
● | upon not less than 30 days’ prior written notice of redemption (the “30-day redemption period”) to each warrant holder; and | |
● | if, and only if, the reported last sale price of the common stock equals or exceeds $21.00 per share for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date we send to the notice of redemption to the warrant holders. |
If and when the warrants become redeemable by us, we may exercise our redemption right even if the issuance of shares of Common Stock upon exercise of the warrants is not exempt from registration or qualification under applicable state blue sky laws and we are unable to effect such registration or qualification, subject to our obligation in such case to use our best efforts to register or qualify the shares of Common Stock under the blue sky laws of the state of residence in those states in which the warrants were initially offered by us in this offering.
We have established the last of the redemption criterion discussed above to prevent a redemption call unless there is at the time of the call a significant premium to the warrant exercise price. If the foregoing conditions are satisfied and we issue a notice of redemption of the warrants, each warrant holder will be entitled to exercise his, her or its warrant prior to the scheduled redemption date. However, the price of the common stock may fall below the $21.00 redemption trigger price as well as the $11.50 warrant exercise price after the redemption notice is issued.
If we call the warrants for redemption as described above, our management will have the option to require any holder that wishes to exercise his, her or its warrant to do so on a “cashless basis.” In determining whether to require all holders to exercise their warrants on a “cashless basis,” our management will consider, among other factors, our cash position, the number of warrants that are outstanding and the dilutive effect on our stockholders of issuing the maximum number of shares of Common Stock issuable upon the exercise of our warrants. If our management takes advantage of this option, all holders of warrants would pay the exercise price by surrendering their warrants for that number of shares of Common Stock equal to the quotient obtained by dividing (x) the product of the number of shares of Common Stock underlying the warrants, multiplied by the difference between the exercise price of the warrants and the “fair market value” (defined below) by (y) the fair market value. The “fair market value” shall mean the average reported last sale price of the common stock for the 10 trading days ending on the third trading day prior to the date on which the notice of redemption is sent to the holders of warrants. If our management takes advantage of this option, the notice of redemption will contain the information necessary to calculate the number of shares of Common Stock to be received upon exercise of the warrants, including the “fair market value” in such case. Requiring a cashless exercise in this manner will reduce the number of shares to be issued and thereby lessen the dilutive effect of a warrant redemption. We believe this feature is an attractive option to us if we do not need the cash from the exercise of the warrants after our initial business combination. If we call our warrants for redemption and our management does not take advantage of this option, the initial purchasers and their permitted transferees would still be entitled to exercise their Private Placement Warrants contained in the Private Placement Units for cash or on a cashless basis using the same formula described above that other warrant holders would have been required to use had all warrant holders been required to exercise their warrants on a cashless basis, as described in more detail below.
A holder of a warrant may notify us in writing in the event it elects to be subject to a requirement that such holder will not have the right to include their securitiesexercise such warrant, to the extent that after giving effect to such exercise, such person (together with such person’s affiliates), to the warrant agent’s actual knowledge, would beneficially own in excess of 4.9% or 9.8% (or such other registration statements filed by I-AM Capital. The Company will bearamount as a holder may specify) of the costs and expensesshares of filing anyCommon Stock outstanding immediately after giving effect to such registration statements.exercise.
SMAAASHIf the number of outstanding shares of Common Stock is increased by a stock dividend payable in shares of Common Stock, or by a split-up of shares of Common Stock or other similar event, then, on the effective date of such stock dividend, split-up or similar event, the number of shares of Common Stock issuable on exercise of each warrant will be increased in proportion to such increase in the outstanding shares of Common Stock. A rights offering to holders of common stock entitling holders to purchase shares of Common Stock at a price less than the fair market value will be deemed a stock dividend of a number of shares of Common Stock equal to the product of (i) the number of shares of Common Stock actually sold in such rights offering (or issuable under any other equity securities sold in such rights offering that are convertible into or exercisable for common stock) multiplied by (ii) one (1) minus the quotient of (x) the price per share of common stock paid in such rights offering divided by (y) the fair market value. For these purposes (i) if the rights offering is for securities convertible into or exercisable for common stock, in determining the price payable for common stock, there will be taken into account any consideration received for such rights, as well as any additional amount payable upon exercise or conversion and (ii) fair market value means the volume weighted average price of common stock as reported during the ten (10) trading day period ending on the trading day prior to the first date on which the shares of Common Stock trade on the applicable exchange or in the applicable market, regular way, without the right to receive such rights.
IssueIn addition, if we, at any time while the warrants are outstanding and unexpired, pay a dividend or make a distribution in cash, securities or other assets to the holders of Shares
Shares were issuedcommon stock on account of such shares of Common Stock (or other shares of our capital stock into which the warrants are convertible), other than (a) as described above, (b) certain ordinary cash dividends, (c) to AHA Holdings Private Limited against optionally convertible preference shares. This transaction amounted to $ 3.27 million forsatisfy the nine-month period ended 31 December 2017. Forredemption rights of the year ended 31 March 2017,holders of common stock in connection with a proposed initial business combination, (d) as a result of the issue of optionally convertible preference shares to AHA Holdings Private Limited amounted to $3.27 million. There was also a rights issuerepurchase of shares of Common Stock by the company if the proposed initial business combination is presented to AHA Holdings Private Limitedthe stockholders of the company 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,approval, or NASDAQ under the symbols “IAM,” “IAMXR” and “IAMXW,” respectively. I-AM Capital intends to apply to change its ticker symbol to “SMSH”(e) in connection with the closingredemption of our Public Shares upon our failure to complete our initial business combination, then the warrant exercise price will be decreased, effective immediately after the effective date of such event, by the amount of cash and/or the fair market value of any securities or other assets paid on each share of common stock in respect of such event.
If the number of outstanding shares of our Common Stock is decreased by a consolidation, combination, reverse stock split or reclassification of shares of Common Stock or other similar event, then, on the effective date of such consolidation, combination, reverse stock split, reclassification or similar event, the number of shares of Common Stock issuable on exercise of each warrant will be decreased in proportion to such decrease in outstanding shares of Common Stock.
Whenever the number of shares of Common Stock purchasable upon the exercise of the Transaction,warrants is adjusted, as described above, the warrant exercise price will be adjusted by multiplying the warrant exercise price immediately prior to such adjustment by a fraction (x) the numerator of which will be the number of shares of Common Stock purchasable upon the exercise of the warrants immediately prior to such adjustment, and (y) the denominator of which will be the number of shares of Common Stock so purchasable immediately thereafter.
In case of any reclassification or reorganization of the outstanding shares of Common Stock (other than those described above or that solely affects the par value of such shares of Common Stock), or in the case of any merger or consolidation of us with or into another corporation (other than a consolidation or merger in which we are the continuing corporation and that does not result in any reclassification or reorganization of our outstanding shares of Common Stock), or in the case itsof any sale or conveyance to another corporation or entity of the assets or other property of us as an entirety or substantially as an entirety in connection with which we are dissolved, the holders of the warrants will thereafter have the right to purchase and receive, upon the basis and upon the terms and conditions specified in the warrants and in lieu of the shares of our Common Stock immediately theretofore purchasable and receivable upon the exercise of the rights represented thereby, the kind and amount of shares of stock or other securities or property (including cash) receivable upon such reclassification, reorganization, merger or consolidation, or upon a dissolution following any such sale or transfer, that the holder of the warrants would have received if such holder had exercised their warrants immediately prior to such event. However, if such holders were entitled to exercise a right of election as to the kind or amount of securities, cash or other assets receivable upon such consolidation or merger, then the kind and amount of securities, cash or other assets for which each warrant will become exercisable will be deemed to be the weighted average of the kind and amount received per share by such holders in such consolidation or merger that affirmatively make such election, and if a tender, exchange or redemption offer has been made to and accepted by such holders (other than a tender, exchange or redemption offer made by the company in connection with redemption rights held by stockholders of the company as provided for in the company’s amended and restated certificate of incorporation or as a result of the repurchase of shares of Common Stock by the company if a proposed initial business combination is presented to the stockholders of the company for approval) under circumstances in which, upon completion of such tender or exchange offer, the maker thereof, together with members of any group (within the meaning of Rule 13d-5(b)(1) under the Exchange Act) of which such maker is a part, and together with any affiliate or associate of such maker (within the meaning of Rule 12b-2 under the Exchange Act) and any members of any such group of which any such affiliate or associate is a part, own beneficially (within the meaning of Rule 13d-3 under the Exchange Act) more than 50% of the outstanding shares of Common Stock, the holder of a warrant will be entitled to receive the highest amount of cash, securities or other property to which such holder would actually have been entitled as a stockholder if such warrant holder had exercised the warrant prior to the expiration of such tender or exchange offer, accepted such offer and all of the common stock held by such holder had been purchased pursuant to such tender or exchange offer, subject to adjustments (from and after the consummation of such tender or exchange offer) as nearly equivalent as possible to the adjustments provided for in the warrant agreement. Additionally, if less than 70% of the consideration receivable by the holders of common stock in such a transaction is payable in the form of common stock in the successor entity that is listed for trading on a national securities exchange or is quoted in an established over-the-counter market, or is to be so listed for trading or quoted immediately following such event, and if the registered holder of the warrant properly exercises the warrant within thirty days following public disclosure of such transaction, the warrant exercise price will be reduced as specified in the warrant agreement based on the per share consideration minus Black-Scholes Warrant Value (as defined in the warrant agreement) of the warrant in order to determine and realize the option value component of the warrant. This formula is to compensate the warrant holder for the loss of the option value portion of the warrant value due to the requirement that the warrant holder exercise the warrant within 30 days of the event. The Black-Scholes model is an accepted pricing model for estimating fair market value where no quoted market price for an instrument is available.
The warrants have been issued in registered form under a warrant agreement between Continental Stock Transfer & Trust Company, as warrant agent, and us. You should review a copy of the warrant agreement, which will be filed as an exhibit to the registration statement of which this prospectus is a part, for a complete description of the terms and conditions applicable to the warrants. The warrant agreement provides that the terms of the warrants may be amended without the consent of any holder to cure any ambiguity or correct any defective provision, but requires the approval by the holders of at least 65% of the then outstanding Public Warrants to make any change that adversely affects the interests of the registered holders of Public Warrants.
The warrants may be exercised upon surrender of the warrant certificate on or prior to the expiration date at the offices of the warrant agent, with the exercise form on the reverse side of the warrant certificate completed and executed as indicated, accompanied by full payment of the exercise price (or on a cashless basis, if applicable), by certified or official bank check payable to us, for the number of warrants being exercised. The warrant holders do not have the rights or privileges of holders of common stock and any voting rights until they exercise their warrants and receive shares of Common Stock. After the issuance of shares of Common Stock upon exercise of the warrants, each holder will be quotedentitled to one vote for each share held of record on the NASDAQ under the symbols “SMSH,” and “SMSHW,” respectively. The rights expireall matters to be voted on by stockholders. Warrants may be exercised only for a whole number of shares of Common Stock. No fractional shares will be issued upon the consummationexercise of the Transaction.warrants. If, upon exercise of the warrants, a holder would be entitled to receive a fractional interest in a share, we will, upon exercise, round down to the nearest whole number the number of shares of Common Stock to be issued to the warrant holder.
Private Placement Warrants
The following table includesPrivate Placement Warrants (including the high and low bids for I-AM Capital’s common stock rightsissuable upon exercise of the Private Placement Warrants), will not be redeemable by us so long as they are held by the initial purchasers or their permitted transferees. Otherwise, the Private Placement Warrants have terms and provisions that are identical to those of the warrants being sold as part of the units in the IPO. If the Private Placement Warrants are held by holders other than the initial purchasers or their permitted transferees, the Private Placement Warrants will be redeemable by us and exercisable by the holders on the same basis as the Public Warrants.
If holders of the Private Placement Warrants elect to exercise them on a cashless basis, they would pay the exercise price by surrendering his, her or its warrants for that number of shares of Common Stock equal to the periods presented, sincequotient obtained by dividing (x) the consummationproduct of I-AM Capital’s initial public offeringthe number of shares of Common Stock underlying the warrants, multiplied by the difference between the exercise price of the warrants and the “fair market value” (defined below) by (y) the fair market value. The “fair market value” shall mean the average reported last sale price of the common stock for the 10 trading days ending on August 22, 2017.
Common Stock(1) | Rights(2) | Warrants(3) | ||||||||||||||||||||||
High | Low | High | Low | High | Low | |||||||||||||||||||
Fiscal Year 2018 | ||||||||||||||||||||||||
June 1 to August 31, 2018 (4) | 11.05 | 9.86 | 0.50 | 0.20 | 0.52 | 0.22 | ||||||||||||||||||
March 1 to May 31, 2018 | $ | 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 |
|
On May 9, 2018,the third trading day prior to the date afteron which the public announcementnotice of warrant exercise is sent to the Transaction, I-AM Capital’s common stock, rightswarrant agent. The reason that we have agreed that these warrants will be exercisable on a cashless basis so long as they are held by the initial purchasers and their permitted transferees is because it is not known at this time whether they will be affiliated with us following a business combination. If they remain affiliated with us, their ability to sell our securities in the open market will be significantly limited. We expect to have policies in place that prohibit insiders from selling our securities except during specific periods of time. Even during such periods of time when insiders will be permitted to sell our securities, an insider cannot trade in our securities if he or she is in possession of material non-public information. Accordingly, unlike Public Stockholders who could exercise their warrants closed at $10.10, $0.40 and $0.47, respectively. On August 21, 2018, I-AM Capital’s common stock, rights andsell the shares of Common Stock received upon such exercise freely in the open market in order to recoup the cost of such exercise, the insiders could be significantly restricted from selling such securities. As a result, we believe that allowing the holders to exercise such warrants closed at $10.19, $0.41 and $0.41, respectively.on a cashless basis is appropriate.
Special Public Warrant Holder Meeting
On June 5, 2019, we filed a preliminary proxy statement with the SEC in connection with a planned special meeting of public warrant holders to authorize our board of directors to seek public warrant holder approval of the following amendments to the publicly and privately issued warrants under the Warrant Agreement: (1) reducing the exercise price of the warrants from $11.50 per share to $4.00 per share, subject to adjustment (the “Exercise Price Adjustment”) and (2) revising the redemption provisions of the warrants to provide that we may only redeem each warrant in whole at a price of $0.1 per warrant upon a minimum of 30 days’ written notice of redemption if, and only if, the last sale price of our common stock equals or exceeds $7.00 per share (as opposed to the current $21.00 per share) for any 20 trading days within a 30-trading day period (the “Redemption Threshold Adjustment”).
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Holders2019 Warrants
AsIn 2019, the Company issued 987,500 warrants (“2019 Warrants”) which formed a part of August 21, 2018, there were four holdersunits privately placed in a units offering. The warrants expire 5-years from the date of recordissuance and are exercisable at a purchase price of I-AM Capital’s common stock, two holders of record of its rights and two holders of record of its warrants.$4.00 per share.
Dividends
I-AM Capital hasWe have not paid any cash dividends on its common stockour Common Stock to date and doesdo not intend to pay cash dividends prior to the completiondividends. The payment 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/prospectus, there were 92 holders of Smaaash equity shares.
Dividend Policy of Smaaash
Smaaash currently has no formal dividend policy and has not paid anycash dividends in the past.
Dividend Policy Following the Transaction
Followingfuture will be dependent upon our revenues and earnings, if any, capital requirements and general financial condition subsequent to completion of a business combination. The payment of any cash dividends will be within the Transaction, Smaaash’sdiscretion of our board of directors will consider whether orat such time. In addition, our board of directors is not to institute a dividend policy. It is the present intention of Smaaash to retain any earnings for use in its business operationscurrently contemplating and accordingly, Smaaash does not anticipate the board of directors declaring any stock dividends in the foreseeable future.
I-AM Capital will not receive any cash proceeds fromfuture, except if we increase the issuance of Special Dividend to holders of I-AM Capital common stock that are outstanding at the endsize of the dayoffering pursuant to Rule 462(b) under the Securities Act, in which case we will effect a stock dividend immediately prior to the closingconsummation of Transaction.the offering in such amount as to maintain the ownership of our initial stockholders prior to this offering at 20% of our issued and outstanding shares of our Common Stock upon the consummation of this offering (not including the Private Placement Shares and the shares of Common Stock issuable to Maxim upon the consummation of this offering). Further, if we incur any indebtedness, our ability to declare dividends may be limited by restrictive covenants we may agree to in connection therewith.
LEGAL MATTERSOur Transfer Agent and Warrant Agent
The validitytransfer agent for our Common Stock and warrant agent for our Warrants is Continental Stock Transfer & Trust Company. We have agreed to indemnify Continental Stock Transfer & Trust Company in its roles as transfer agent and warrant agent, its agents and each of its stockholders, directors, officers and employees against all liabilities, including judgments, costs and reasonable counsel fees that may arise out of acts performed or omitted for its activities in that capacity, except for any liability due to any gross negligence, willful misconduct or bad faith of the issuance of the common stock offered by this proxy statement/prospectus will be passed upon for us by Ellenoff Grossman & Schole LLP.indemnified person or entity.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMSCertain Anti-Takeover Provisions of Delaware Law and our Third Amended and Restated Certificate of Incorporation, as Amended, and Bylaws
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/prospectus 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.
The financial statements of I-AM Capital as of May 31, 2018 and for the period from April 17, 2017 (inception) through May 31, 2018, have been included herein in reliance upon the report of Prager Metis, independent registered public accounting firm, appearing elsewhere herein, and upon the authority of Prager Metis as experts in accounting and auditing.
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/prospectusWe 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 inprovisions of Section 13203 of the C.P.C.DGCL regulating corporate takeovers. This section, which is the statutory basis for the recognition of foreign judgments, states thatstatute prevents certain Delaware corporations, under certain circumstances, from engaging in a foreign judgment is conclusive as to any matter directly adjudicated upon except:“business combination” with:
● | ||
● | an affiliate of an interested stockholder; or | |
● | an associate of an interested stockholder, for three years following the date that the stockholder became an interested stockholder. |
A “business combination” includes a merger or sale of more than 10% of our assets. However, the above provisions of Section 203 do not apply if:
● |
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India is notOur third amended and restated certificate of incorporation, as amended, provides that our board of directors will be classified into two classes of directors. As a signatoryresult, in most circumstances, a person can gain control of our board only by successfully engaging in a proxy contest at two or more annual meetings.
Our authorized but unissued common stock and preferred stock are available for future issuances without stockholder approval and could be utilized for a variety of corporate purposes, including future offerings to raise additional capital, acquisitions and employee benefit plans. The existence of authorized but unissued and unreserved common stock and preferred stock could render more difficult or discourage an attempt to obtain control of us by means of a proxy contest, tender offer, merger or otherwise.
Exclusive Forum for Certain Lawsuits
Our third amended and restated certificate of incorporation, as amended, will require, to the “Convention on the Recognitionfullest extent permitted by law, that derivative actions brought in our name, actions against directors, officers and Enforcementemployees for breach of Foreign Judgments in Civilfiduciary duty 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, itsimilar actions may be enforcedbrought only in India asthe Court of Chancery in the State of Delaware and, if brought outside of Delaware, the judgment had been renderedstockholder bringing such suit will be deemed to have consented to service of process on such stockholder’s counsel. Although we believe this provision benefits us by providing increased consistency in India. The United States has not been declared by the GoIapplication of Delaware law in the types of lawsuits to be a reciprocating territory forwhich it applies, the purposesprovision may have the effect of Section 44Adiscouraging lawsuits against our directors and officers.
Special Meeting of the C.P.C. If a judgmentStockholders
Our bylaws provide that special meetings of a foreign courts is not enforceable under Section 44A of the C.P.C. as described above, itour stockholders may be enforced in Indiacalled only by a suit filed upon the judgment, subject to Section 13majority vote of the C.P.C., and notour board of directors, by proceedings in execution. Accordingly, a judgment of a courts in the United States may be enforced onlyour Chief Executive Officer or 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.our Chairman.
A partyAdvance Notice Requirements for Stockholder Proposals and Director Nominations
Our bylaws provide that stockholders seeking to enforce a foreign judgment in India is requiredbring business before our annual meeting of stockholders, or to obtain prior approval from the Reserve Banknominate candidates for election as directors at our annual meeting 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 Capitalmust provide timely notice of their requestsintent in writing. To be timely, a stockholder’s notice will need to be received by calling or writing I-AM Capital at I-AM Capital’sthe secretary to our principal executive offices at 1345 Avenuenot later than the close of business on 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 no90th day nor earlier than the opening of business on the 120th120th day prior to the scheduled date of the annual meeting of stockholders. If our annual meeting is called for a date that is not within 45 days before or after such anniversary date, a stockholder’s notice will need to be received not earlier than the opening of business on the 120th day before the meeting and nonot later than the later of (x) the close of business on the 90th90th day before the meeting or (y) the close of business on the 10th day following the day on which public announcement ofwe first publicly announce the date of the annual meeting. Our bylaws also specify certain requirements as to the form and content of a stockholder’s notice for an annual meeting. Specifically, a stockholder’s notice must include: (i) a brief description of the business desired to be brought before the annual meeting, the text of the proposal or business and the reasons for conducting such business at the annual meeting, (ii) the name and record address of such stockholder and the name and address of the beneficial owner, if any, on whose behalf the proposal is first made, (iii) the class or series and number of shares of our capital stock owned beneficially and of record by I-AM Capital.such stockholder and by the beneficial owner, if any, on whose behalf the proposal is made, (iv) a description of all arrangements or understandings between such stockholder and the beneficial owner, if any, on whose behalf the proposal is made and any other person or persons (including their names) in connection with the proposal of such business by such stockholder, (v) any material interest of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made in such business and (vi) a representation that such stockholder intends to appear in person or by proxy at the annual meeting to bring such business before such meeting. These notice requirements will be deemed satisfied by a stockholder as to any proposal (other than nominations) if the stockholder has notified us of such stockholder’s intention to present such proposal at an annual meeting in compliance with Rule 14a-8 of the Exchange Act, and such stockholder has complied with the requirements of such rule for inclusion of such proposal in the proxy statement we prepare to solicit proxies for such annual meeting. Pursuant to Rule 14a-8 of the Exchange Act, proposals seeking inclusion in our annual proxy statement must comply with the notice periods contained therein. The foregoing provisions may limit our stockholders’ ability to bring matters before our annual meeting of stockholders or from making nominations for directors at our annual meeting of stockholders.
Rule 144
Pursuant to Rule 144, a person who has beneficially owned restricted shares of our Common Stock or Warrants for at least six months would be entitled to sell their securities provided that (i) such person is not deemed to have been one of our affiliates at the time of, or at any time during the three months preceding, a sale and (ii) we are subject to the Exchange Act periodic reporting requirements for at least three months before the sale and have filed all required reports under Section 13 or 15(d) of the Exchange Act during the 12 months (or such shorter period as we were required to file reports) preceding the sale.
Persons who have beneficially owned restricted shares of our Common Stock or Warrants for at least six months but who are our affiliates at the time of, or at any time during the three months preceding, a sale, would be subject to additional restrictions, by which such person would be entitled to sell within any three-month period only a number of securities that does not exceed the greater of:
● 1% of the total number of shares of Common Stock then outstanding; or
● the average weekly reported trading volume of the Common Stock during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale.
Sales by our affiliates under Rule 144 are also limited by manner of sale provisions and notice requirements and to the availability of current public information about us.
For purposes of the six-month holding period requirement of Rule 144, a person who beneficially owns restricted shares of our Common Stock issued pursuant to a cashless exercise of a Warrant shall be deemed to have acquired such shares, and the holding period for such shares shall be deemed to have commenced, on the date the Warrant was originally issued.
Restrictions on the Use of Rule 144 by Shell Companies or Former Shell Companies
Rule 144 is not available for the resale of securities initially issued by shell companies (other than business combination related shell companies) or issuers that have been at any time previously a shell company. However, Rule 144 also includes an important exception to this prohibition if the following conditions are met:
● the issuer of the securities that was formerly a shell company has ceased to be a shell company;
● the issuer of the securities is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act;
● the issuer of the securities has filed all Exchange Act reports and material required to be filed, as applicable, during the preceding 12 months (or such shorter period that the issuer was required to file such reports and materials), other than Form 8-K reports; and
● at least one year has elapsed from the time that the issuer filed current Form 10 type information with the SEC reflecting its status as an entity that is not a shell company.
As of the date of this prospectus, we had 6,952,195 shares of Common Stock outstanding. As of the date of this prospectus, there are 6,449,000 Warrants outstanding, consisting of 5,200,000 Public Warrants, 261,500 Private Placement Warrants and 987,500 2019 Warrants. Each Warrant is exercisable for one share of our Common Stock. The Public Warrants are freely tradable. In addition, we were obligated to file no later than 30 business days after the closing of the Transaction the registration statement of which this prospectus forms a part covering the 6,449,000 shares of our Common Stock that may be issued upon the exercise of the Warrants and the resale from time to time of 6,360,617 shares of Common Stock and 261,500 Private Placement Warrants by the Selling Securityholders and cause this registration statement to become effective and maintain the effectiveness of this registration statement until the expiration of the Private Placement Warrants.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a discussion of the material U.S. federal income tax considerations generally applicable to the acquisition, ownership and disposition of our Common Stock and Warrants. This discussion is limited to certain U.S. federal income tax considerations to beneficial owners of our securities who hold the securities as a capital asset within the meaning of Section 1221 of the U.S. Internal Revenue Code of 1986, as amended (the “Code”). This discussion does not describe all of the tax consequences that may be relevant to you in light of your particular circumstances, including the alternative minimum tax, the Medicare contribution tax on certain investment income and the different consequences that may apply if you are subject to special rules that apply to certain types of investors, such as:
● | financial institutions or financial services entities; | |
● | broker-dealers; | |
● | insurance companies; | |
● | governments or agencies or instrumentalities thereof; | |
● | regulated investment companies; | |
● | real estate investment trusts; | |
● | expatriates or former long-term residents of the United States; | |
● | persons that actually or constructively own five percent or more of our voting shares; | |
● | persons that acquired our securities pursuant to an exercise of employee share options, in connection with employee share incentive plans or otherwise as compensation; | |
● | dealers or traders subject to a mark to market method of accounting with respect to the securities; |
● | persons holding the securities as part of a “straddle,” hedge, constructive sale, conversion or other integrated or similar transaction; | |
● | U.S. holders (as defined below) whose functional currency is not the U.S. dollar; | |
● | partnerships or other pass through entities for U.S. federal income tax purposes; and | |
● | tax exempt entities. |
If you intendare a partnership for U.S. federal income tax purposes, the U.S. federal income tax treatment of your partners will generally depend on the status of the partners and your activities.
This discussion is based on the Code and administrative pronouncements, judicial decisions and final, temporary and proposed Treasury regulations as of the date hereof, changes to presentany of which subsequent to the date of this prospectus may affect the tax consequences described herein. This discussion does not address any aspect of state, local or non-U.S. taxation, or any U.S. tax law other than the U.S. federal income tax (such as gift, estate or Medicare contribution taxes) or except as discussed below, any tax reporting obligations of a proposalholder of our securities. This discussion also assumes that any distribution made (or deemed made on our securities and any consideration received (or deemed received) by a holder from the sale or other disposition of our securities will be in U.S. dollars.
We have not sought, and will not seek, a ruling from the Internal Revenue Service (the “IRS”) as to any U.S. federal income tax consequence described herein. The IRS may disagree with the discussion herein, and its determination may be upheld by a court. Moreover, there can be no assurance that future legislation, regulations, administrative rulings or court decisions will not adversely affect the accuracy of the statements in this discussion.
THIS DISCUSSION IS ONLY A SUMMARY OF THE U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF OUR SECURITIES. EACH PROSPECTIVE INVESTOR IN OUR SECURITIES IS URGED TO CONSULT ITS OWN TAX ADVISOR WITH RESPECT TO THE PARTICULAR TAX CONSEQUENCES TO SUCH INVESTOR OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF OUR SECURITIES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL, AND NON-U.S. TAX LAWS, AS WELL AS U.S. FEDERAL TAX LAWS AND ANY APPLICABLE TAX TREATIES.
Personal Holding Company Status
We could be subject to a second level of U.S. federal income tax on a portion of our income if we are determined to be a personal holding company, or PHC, for U.S. federal income tax purposes. A U.S. corporation generally will be classified as a PHC for U.S. federal income tax purposes in a given taxable year if (i) at any time during the last half of such taxable year, five or fewer individuals (without regard to their citizenship or residency and including as individuals for this purpose certain entities such as certain tax-exempt organizations, pension funds and charitable trusts) own or are deemed to own (pursuant to certain constructive ownership rules) more than 50% of the stock of the corporation by value and (ii) at least 60% of the corporation’s adjusted ordinary gross income, as determined for U.S. federal income tax purposes, for such taxable year consists of PHC income (which includes, among other things, dividends, interest, certain royalties, annuities and, under certain circumstances, rents).
Depending on the date and size of our transactions, at least 60% of our adjusted ordinary gross income may consist of PHC income as discussed above. In addition, depending on the concentration of our stock in the hands of individuals, including the members of our sponsor and certain tax-exempt organizations, pension funds and charitable trusts, more than 50% of our stock may be owned or deemed owned (pursuant to the constructive ownership rules) by such persons during the last half of a taxable year. Thus, no assurance can be given that we will not become a PHC following this offering or in the future. If we are or were to become a PHC in a given taxable year, we would be subject to an additional PHC tax, currently 20%, on our undistributed PHC income, which generally includes our taxable income, subject to certain adjustments. The PHC requirements may apply to us in the taxable year of the offering and/or future taxable years.
U.S. Holders
This section applies to you if you are a “U.S. holder.” A U.S. holder is a beneficial owner of our securities who or that is, for U.S. federal income tax purposes:
● | an individual who is a citizen or resident of the United States; | |
● | a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) organized in or under the laws of the United States, any state thereof or the District of Columbia; | |
● | an estate the income of which is includible in gross income for U.S. federal income tax purposes regardless of its source; or | |
● | a trust if (i) a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust, or (ii) it has in effect a valid election to be treated as a U.S. person. |
Taxation of Distributions. If we pay cash distributions to U.S. holders of shares of our Common Stock, such distributions generally will be treated as a dividend for U.S. federal income tax purposes to the extent the distribution is paid out of our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Distributions in excess of current and accumulated earnings and profits will constitute a return of capital that will be applied against and reduce (but not below zero) the U.S. holder’s adjusted tax basis in our Common Stock. Any remaining excess will be treated as gain realized on the sale or other disposition of the common stock and will be treated as described under “U.S. holders — Gain or Loss on Sale, Taxable Exchange or Other Taxable Disposition of Our Securities” below.
Dividends we pay to a U.S. holder that is a taxable corporation generally will qualify for the dividends received deduction if the requisite holding period is satisfied. With certain exceptions (including, but not limited to, dividends treated as investment income for purposes of investment interest deduction limitations), and provided certain holding period requirements are met, dividends we pay to a non-corporate U.S. holder generally will constitute “qualified dividends” that will be subject to tax at the 2019 annual meeting,maximum tax rate accorded to long-term capital gains.
Gain or Loss on Sale, Taxable Exchange or Other Taxable Disposition of Our Securities. Upon a sale or other taxable disposition of our securities which, in general, would include a redemption of common stock or warrants, a U.S. holder generally will recognize capital gain or loss in an amount equal to the difference between the amount realized and the U.S. holder’s adjusted tax basis in such securities. Any such capital gain or loss generally will be long-term capital gain or loss if the U.S. holder’s holding period for the securities so disposed of exceeds one year. Long-term capital gains recognized by non-corporate U.S. holders will be eligible to be taxed at reduced rates. The deductibility of capital losses is subject to various limitations that are not described herein because a discussion of such limitations depends on each U.S. holder’s particular facts and circumstances.
Generally, the amount of gain or loss recognized by a U.S. holder is an amount equal to the difference between (i) the sum of the amount of cash and the fair market value of any property received in such disposition and (ii) the U.S. holder’s adjusted tax basis in its securities so disposed of. A U.S. holder’s adjusted tax basis in its common stock or warrants generally will equal the U.S. holder’s acquisition cost less, in the case of a share of common stock, any prior distributions treated as a return of capital.
Exercise or Lapse of a Warrant. Except as discussed below with respect to the cashless exercise of a warrant, a U.S. holder generally will not recognize taxable gain or loss from the acquisition of common stock upon exercise of a warrant for cash. The U.S. holder’s tax basis in the share of our Common Stock received upon exercise of the warrant generally will be an amount equal to the sum of the U.S. holder’s initial investment in the warrant and the exercise price. It is unclear whether a U.S. holder’s holding period for the shares of Common Stock received upon exercise of the warrants will commence on the date of exercise of the warrant or the day following the date of exercise of the warrants; in either case, the holding period will not include the period during which the U.S. holder held the warrants. If a warrant is allowed to lapse unexercised, a U.S. holder generally will recognize a capital loss equal to such holder’s tax basis in the warrant.
The tax consequences of a cashless exercise of a warrant are not clear under current tax law. A cashless exercise may be tax-free, either because the exercise is not a realization event or because the exercise is treated as a recapitalization for U.S. federal income tax purposes. In either tax-free situation, a U.S. holder’s basis in the common stock received would equal the holder’s basis in the warrant. If the cashless exercise were treated as not being a realization event, it is unclear whether a U.S. holder’s holding period for the shares of Common Stock would be treated as commencing on the date of exercise of the warrant or the day following the date of exercise of the warrant. If the cashless exercise were treated as a recapitalization, the holding period of the common stock would include the holding period of the warrant.
It is also possible that a cashless exercise could be treated in part as a taxable exchange in which gain or loss would be recognized. In such event, a U.S. holder could be deemed to have surrendered warrants equal to the number of common shares having a value equal to the exercise price for the total number of warrants to be exercised. The U.S. holder would recognize capital gain or loss in an amount equal to the difference between the fair market value the warrants deemed surrendered and the U.S. holder’s tax basis in the warrants deemed surrendered. In this case, a U.S. holder’s tax basis in the common stock received would equal the sum of the fair market value of the warrants deemed surrendered and the U.S. holder’s tax basis in the warrants exercised. It is unclear whether a U.S. holder’s holding period for the shares of Common Stock would commence on the date of exercise of the warrant or the day following the date of exercise of the warrant.
Due to the absence of authority on the U.S. federal income tax treatment of a cashless exercise, there can be no assurance which, if any, of the alternative tax consequences and holding periods described above would be adopted by the IRS or a court of law. Accordingly, U.S. holders should consult their tax advisors regarding the tax consequences of a cashless exercise.
Possible Constructive Distributions. The terms of each warrant provide for an adjustment to the number of shares of Common Stock for which the warrant may be exercised or to the exercise price of the warrant in certain events, as discussed in the section of this prospectus captioned “Description of Securities — Warrants — Public Stockholders’ Warrants.” An adjustment which has the effect of preventing dilution generally is not taxable. The U.S. holders of the warrants would, however, be treated as receiving a constructive distribution from us if, for example, the adjustment increases the warrant holders’ proportionate interest in our assets or earnings and profits (e.g., through an increase in the number of shares of Common Stock that would be obtained upon exercise) as a result of a distribution of cash to the holders of shares of our Common Stock which is taxable to the U.S. holders of such shares as described under “U.S. holders — Taxation of Distributions” above. For example, if the exercise price of the warrants is decreased as a result of certain taxable dividends paid to holders of the common stock (as contemplated by the terms of the warrant in certain circumstances), then the amount by which such exercise was decreased could be considered an increase in the warrant holder’s proportionate interest in our assets or earnings and profits, which may result in a constructive distribution to holders of the warrants. Such constructive distribution would be subject to tax as described under that section in the same manner as if the U.S. holders of the warrants received a cash distribution from us equal to the fair market value of such increased interest. For certain information reporting purposes, we are required to determine the date and amount of any such constructive distributions. Recently proposed Treasury regulations, which we may rely on prior to the issuance of final regulations, specify how the date and amount of constructive distributions are determined.
Information Reporting and Backup Withholding. In general, information reporting requirements may apply to dividends paid to a U.S. holder and to the proceeds of the sale or other disposition of our securities, unless the U.S. holder is an exempt recipient. Backup withholding may apply to such payments if the U.S. holder fails to provide a taxpayer identification number, a certification of exempt status or has been notified by the IRS that it is subject to backup withholding (and such notification has not been withdrawn).
Any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against a U.S. holder’s U.S. federal income tax liability provided the required information is timely furnished to the IRS.
Non-U.S. Holders
This section applies to you if you want to nominate oneare a “Non-U.S. holder.” A Non-U.S. holder is a beneficial owner of our securities who or that is, for U.S. federal income tax purposes:
● | a non resident alien individual, other than certain former citizens and residents of the United States subject to U.S. tax as expatriates; | |
● | a foreign corporation; or | |
● | an estate or trust that is not a U.S. holder; |
but does not include an individual who is present in the United States for 183 days or more directorsin the taxable year of disposition. If you are such an individual, you should consult your tax advisor regarding the U.S. federal income tax consequences of the sale or other disposition of a security.
Taxation of Distributions. In general, any distributions we make to a Non-U.S. holder of shares of our Common Stock, to the extent paid out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles), will constitute dividends for U.S. federal income tax purposes and, provided such dividends are not effectively connected with the Non-U.S. holder’s conduct of a trade or business within the United States, we will be required to withhold tax from the gross amount of the dividend at a rate of 30%, unless such Non-U.S. holder is eligible for a reduced rate of withholding tax under an applicable income tax treaty and provides proper certification of its eligibility for such reduced rate (usually on an IRS Form W-8BEN or W-8BEN-E). Any distribution not constituting a dividend will be treated first as reducing (but not below zero) the 2019 annual meeting, you mustNon-U.S. holder’s adjusted tax basis in its shares of our Common Stock and, to the extent such distribution exceeds the Non-U.S. holder’s adjusted tax basis, as gain realized from the sale or other disposition of the common stock, which will be treated as described under “Non-U.S. holders — Gain on Sale, Taxable Exchange or Other Taxable Disposition of Our Securities” below. In addition, if we determine that we are classified as a “United States real property holding corporation” (see “Non-U.S. holders — Gain on Sale, Taxable Exchange or Other Taxable Disposition of Our Securities” below), we will withhold 15% of any distribution that exceeds our current and accumulated earnings and profits.
The withholding tax does not apply to dividends paid to a Non-U.S. holder who provides a Form W-8ECI, certifying that the dividends are effectively connected with the Non-U.S. holder’s conduct of a trade or business within the United States. Instead, the effectively connected dividends will be subject to regular U.S. federal income tax as if the Non-U.S. holder were a U.S. resident, subject to an applicable income tax treaty providing otherwise. A Non-U.S. corporation receiving effectively connected dividends may also be subject to an additional “branch profits tax” imposed at a rate of 30% (or a lower treaty rate).
Exercise of a Warrant. The U.S. federal income tax treatment of a Non-U.S. holder’s exercise of a warrant, or the lapse of a warrant held by a Non-U.S. holder, generally will correspond to the U.S. federal income tax treatment of the exercise or lapse of a warrant by a U.S. holder, as described under “U.S. holders — Exercise or Lapse of a Warrant” above, although to the extent a cashless exercise results in a taxable exchange, the consequences would be similar to those described below in “Non-U.S. holders — Gain on Sale, Taxable Exchange or Other Taxable Disposition of Our Securities.”
Gain on Sale, Taxable Exchange or Other Taxable Disposition of Our Securities. A Non-U.S. holder generally will not be subject to U.S. federal income or withholding tax in respect of gain recognized on a sale, taxable exchange or other taxable disposition of our securities unless:
● | the gain is effectively connected with the conduct of a trade or business by the Non-U.S. holder within the United States (and, under certain income tax treaties, is attributable to a United States permanent establishment or fixed base maintained by the Non-U.S. holder); or | |
● | we are or have been a “U.S. real property holding corporation” for U.S. federal income tax purposes at any time during the shorter of the five-year period ending on the date of disposition or the period that the Non-U.S. holder held our securities, and, in the case where shares of our Common Stock are regularly traded on an established securities market, the Non-U.S. holder has owned, directly or constructively, more than 5% of our Common Stock at any time within the shorter of the five-year period preceding the disposition or such Non-U.S. holder’s holding period for the shares of our Common Stock. There can be no assurance that our Common Stock will be treated as regularly traded on an established securities market for this purpose. |
Unless an applicable treaty provides otherwise, gain described in the first bullet point above will be subject to tax at generally applicable U.S. federal income tax rates as if the Non-U.S. holder were a U.S. resident. Any gains described in the first bullet point above of a Non-U.S. holder that is a foreign corporation may also be subject to an additional “branch profits tax” at a 30% rate (or lower treaty rate).
If the second bullet point above applies to a Non-U.S. holder, gain recognized by such holder on the sale, exchange or other disposition of our securities will be subject to tax at generally applicable U.S. federal income tax rates. In addition, a buyer of our securities from such holder may be required to withhold U.S. federal income tax at a rate of 15% of the amount realized upon such disposition. We will be classified as a U.S. real property holding corporation if the fair market value of our “U.S. real property interests” equals or exceeds 50% of the sum of the fair market value of our worldwide real property interests plus our other assets used or held for use in a trade or business, as determined for U.S. federal income tax purposes.
Information Reporting and Backup Withholding. Information returns will be filed with the IRS in connection with payments of dividends and the proceeds from a sale or other disposition of our securities. A Non-U.S. holder may have to comply with certification procedures to establish that it is not a United States person in order to avoid information reporting and backup withholding requirements. The certification procedures required to claim a reduced rate of withholding under a treaty will satisfy the advance notice provisionscertification requirements necessary to avoid the backup withholding as well. The amount of I-AM Capital’s bylaws. If the Transaction is completed, I-AM Capital’s bylawsany backup withholding from a payment to a Non-U.S. holder will be amendedallowed as a credit against such holder’s U.S. federal income tax liability and restated. You may contact I-AM Capital’s Secretary at I-AM Capital’s principal executive officesentitle such holder to a refund, provided that the required information is timely furnished to the IRS.
FATCA Withholding Taxes. Provisions commonly referred to as “FATCA” impose withholding of 30% on payments of dividends (including constructive dividends) on our securities, and, beginning January 1, 2019, sales or other disposition proceeds from our securities to “foreign financial institutions” (which is broadly defined for this purpose and in general includes investment vehicles) and certain other Non-U.S. entities unless various U.S. information reporting and due diligence requirements (generally relating to ownership by U.S. persons of interests in or accounts with those entities) have been satisfied, or an exemption applies (typically certified as to by the delivery of a copyproperly completed IRS Form W-8BEN-E). If FATCA withholding is imposed, a beneficial owner of the relevant bylaw provisionspayment that is not a foreign financial institution (or that is a foreign financial institution entitled to a reduced rate of withholding tax with respect to such payment under an income tax treaty) generally may be entitled to a refund or credit of any amounts withheld by filing a U.S. federal income tax return and providing certain other information to the IRS (which may entail significant administrative burden). Foreign financial institutions located in jurisdictions that have an intergovernmental agreement with the United States governing FATCA may be subject to different rules. Prospective investors should consult their tax advisers regarding the requirements for making stockholder proposals and nominating director candidates.effects of FATCA on their investment in our securities.
The validity of the securities offered by this prospectus will be passed upon for us by Anthony L.G., PLLC, 625 N. Flagler Drive, Suite 600, West Palm Beach, Florida 33401.
Our balance sheets as of May 31, 2018 and May 31, 207 and the related statement of operations, changes in stockholders’ equity and cash flows for the year ended May 31, 2018 and for the period from April 17, 2017 (date of inception) through May 31, 2017 included in this prospectus have been audited by Prager Metis, independent registered public accounting firm, as indicated in their report with respect thereto, and have been so included in reliance upon the report of such firm given on their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
I-AM Capital filesWe have filed with the SEC a registration statement on Form S−1 under the Securities Act with respect to the shares of Common Stock and Private Placement Warrants being offered by this prospectus. This prospectus does not contain all of the information included in the registration statement. For further information pertaining to us and our Common Stock and the Private Placement Warrants you should refer to the registration statement and its exhibits. Statements contained in this prospectus concerning any of our contracts, agreements or other documents are not necessarily complete. If a contract or document has been filed as an exhibit to the registration statement, we refer you to the copy of the contract or document that has been filed. Each statement in this prospectus relating to a contract or document filed as an exhibit is qualified in all respects by the filed exhibit.
We are subject to the informational requirements of the Exchange Act and file annual, quarterly and current reports proxy statements/prospectus and other information with the SEC. Our filings with the SEC as required byare available to the Exchange Act. You can read I-AM Capital’s SEC filings, including this proxy statement/prospectus, over the Internet atpublic on the SEC’s website athttp://www.sec.gov. The information we file with the SEC or contained on or accessible through any website that we may maintain is not part of this prospectus or the registration statement of which this prospectus is a part. You may also read and copy, at SEC prescribed rates, any document I-AM Capital fileswe file with the SEC, including the registration statement (and its exhibits) of which this prospectus is a part, at the SEC public reference roomSEC’s Public Reference Room located at 100 F Street, N.E., Room 1580 Washington D.C., 20549. You maycan call the SEC at 1-800-SEC-0330 to 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/prospectus 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, SecretaryI-AM Capital Acquisition Company1345 Avenue of the Americas, 11th Floor
New York, New York 10105Tel: (212) 878-3684Email: 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:
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.comRoom.
91 |
If you are a stockholder of I-AM Capital and would like to request documents, please do so by September [ ], 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.
SIMPLICITY ESPORTS AND GAMING COMPANY
All information contained or incorporated by reference in this proxy statement/prospectus 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/prospectus 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/prospectus. 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
I-AM CAPITAL ACQUSITION COMPANY
To the Board of Directors of Smaaash Entertainment Pvt. Ltd. and subsidiaries
We have audited the accompanying consolidated financial statements of Smaaash Entertainment Pvt. Ltd. and subsidiaries (the “Company”), which comprise the consolidated statements of financial position as of March 31, 2018 and 2017 and the related consolidated statements of profit or loss and comprehensive loss, changes in equity, and cash flows, for the years then ended, and the related notes to the consolidated financial statements.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial 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.
Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain 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 fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, 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 includes evaluating the appropriateness of accounting policies 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 the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
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
New York, New York
July 27, 2018
Smaaash Entertainment Private Limited
Consolidated statement of financial position at March 31, 2018 and 2017
All amounts are in Rs. ’000 unless otherwise stated
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
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
Smaaash 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
(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 |
(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 |
Smaaash 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
All amounts are in Rs. ’000 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 onJuly 26, 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 realizable 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:
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
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.
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:
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.
Changes 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 reflect 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.
When the Group loses control of a subsidiary, a gain or loss is recognized in profit or loss and is calculated as the difference between (i) the aggregate of 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), 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.
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:
When the outcome of the transaction involving the rendering of services cannot be estimated reliably, revenue shall be recognized only to the extent of the expenses recognized that are recoverable.
Rendering of services include:
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
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:
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 recognized as revenue on redemption and / or expected redemption after breakage.
Dividend income from investments is recognized 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 recognized 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 recognized in profit or loss as incurred.
At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognized at their fair value, except that:
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
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 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.
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 capitalized 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 warehouse at various locations. Rental expense from operating leases is generally recognized 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 recognized 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 recognized on a straight-line basis over the lease term.
Rental income from operating leases is generally recognized 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 recognized on a straight-line basis over the lease term.
In preparing the financial statements of each individual group entity, transactions in currencies other than the entity’s functional currency (foreign currencies) are recognized 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 translated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are translated 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 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 recognized 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 recognized in other comprehensive loss 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 recognized in profit or loss in the period in which they are incurred.
Government grants are not recognized 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 recognized in profit or loss on a systematic basis over the periods in which the Group recognizes 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 recognized 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 recognized 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.
Employee benefits include provident fund, employee state insurance scheme, gratuity fund and compensated absences.
Payments to defined contribution retirement benefit plans are recognized 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 recognized in other comprehensive income in the period in which they occur. Remeasurement recognized in other comprehensive income is reflected immediately in accumulated deficit and is not reclassified to profit or loss. Past service cost is recognized 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 recognized 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 recognized at the earlier of when the entity can no longer withdraw the offer of the termination benefit and when the entity recognizes any related restructuring costs.
A liability is recognized 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.
Deferred tax is recognized 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 recognized for all taxable temporary differences. Deferred tax assets are generally recognized 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 utilized. Such deferred tax assets and liabilities are not recognized 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 recognized if the temporary difference arises from the initial recognition of goodwill.
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
Deferred tax liabilities are recognized 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 recognized to the extent that it is probable that there will be sufficient taxable profits against which to utilize 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 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 (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 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 recognized in profit or loss, except when they relate to items that are recognized in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognized 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 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 capitalized if replacement meets the recognition criteria.
Depreciation is recognized 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:
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
Leasehold Improvements are amortized over the unexpired period of lease on a straight-line basis.
Individual assets costing up 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 derecognized 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 recognized 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 amortization and accumulated impairment losses. Amortization is recognized on a straight-line basis over their estimated useful lives. The estimated useful life and amortization 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:
An intangible asset is derecognized 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 recognized in profit or loss when the asset is derecognized.
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 recognized 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 recognized for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognized 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 are stated at the lower of cost and net realizable value. Net realizable 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 recognized 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 recognized 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 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 assets and financial liabilities are recognized 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 recognized immediately in profit or loss.
All regular way purchases or sales of financial assets are recognized and derecognized 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 recognized financial assets are subsequently measured in their entirety at either amortized cost or fair value, depending on the classification of the financial assets.
Debt instruments that meet the following conditions are subsequently measured at amortized 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 recognized 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):
Interest income is recognized 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 amortized cost. Thus, the exchange differences on the amortized cost are recognized in profit or loss and other changes in the fair value of FVTOCI financial assets are recognized 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 amortized cost, refer note 3.18.5.
The effective interest method is a method of calculating the amortized 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 recognized on an effective interest basis for debt instruments other than those financial assets classified as at FVTPL. Interest income is recognized 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 recognized 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 recognized 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 recognized 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
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 amortized 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 recognized in profit or loss. The net gain or loss recognized 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 amortized 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
The Group derecognizes 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 recognizes 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 recognize the financial asset and also recognizes 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 recognized in other comprehensive income and accumulated in equity is recognized in profit or loss if such gain or loss would have otherwise been recognized 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 amortized cost and FVTPL, the exchange differences are recognized in profit or loss except for those, which are designated as hedging instruments in a hedging relationship.
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.
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 recognized at the proceeds received, net of direct issue costs.
Repurchase of the Group’s own equity instruments is recognized and deducted directly in equity. No gain or loss is recognized 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 recognized as a liability on an amortized 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
All financial liabilities are subsequently measured at amortized cost using the effective interest method or at FVTPL.
Financial liabilities subsequently measured at amortized cost
Financial liabilities that are not held-for-trading and are not designated as at FVTPL are measured at amortized cost at the end of subsequent accounting period. The carrying amounts of financial liabilities that are subsequently measured at amortized cost are determined based on the effective interest method. Interest expense that is not capitalized 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 amortized 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 amortized cost at the end of each reporting period, the foreign exchange gains and losses are determined based on the amortized cost of the instruments and are recognized 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 recognized in profit or loss.
The Group derecognizes 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 derecognized and the consideration paid and payable is recognized 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 recognized amounts and there is an intention to settle on a net basis or realize 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 to note 40 for segment information presented.
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 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.
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 recognized.
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.
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. 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
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 utilize 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 summarized 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 finalized 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.
1Effective for annual periods beginning on or after January 1, 2018, with earlier application permitted.
2Effective for annual periods beginning on or after January 1, 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 recognize 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: Recognize revenue when (or as) the entity satisfies a performance obligation
Under IFRS 15, an entity recognizes 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 recognized 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 March 31, 2018, the Group has non-cancellable operating lease commitments of Rs. 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 recognizes 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, 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
Notes to consolidated financial statements for the period ended March 31, 2018 AND 2017
All amounts are in Rs. '000 unless otherwise stated
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
6.1The 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 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 capitalized 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 capitalized will be depreciated as per useful life of plant and machinery. The amount of deferred liability shall be amortized 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 recognized Government grant of Rs. 7,772 thousands from the date of capitalization of plant.
6.2Adjustments 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 | ||
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
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
Intangible assets under development comprises of the cost related to assets or projects that are not yet ready for their intended use at the reporting date.
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 | — | — |
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
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 |
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 |
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
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 |
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 |
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 Entertainment Private Limited
Notes to consolidated financial statements for the period ended March 31, 2018
All amounts are in Rs. ’000 unless otherwise stated
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 |
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 recognized as an expense during the period in respect of continuing operations was Rs. 483,652 thousands (for the year ended 31st March, 2017: Rs 240,842 thousands).
The mode of valuation of inventories has been stated in note 3.15
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 to note 37 for disclosures related to financial instruments.
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.
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 |
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 |
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 |
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 |
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
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.
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 will 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 will be in proportion to his share in the paid-up preference share capital of the Company.
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 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.
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 Entertainment Private Limited
Notes to consolidated financial statements for the period ended March 31, 2018
All amounts are in Rs. ’000 unless otherwise 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.
18.7 During the current year, Company has issued 39,443,000 Compulsorily Convertible Redeemable Preference Shares of 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.
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 |
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
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 recognized 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 promoters/ 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.
c). Share application money pending allotment:
Share application money pending allotment represents the share application money received to the extent not refundable and against which allotment of the preference shares is pending.
The Company 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 Rs. 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 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.
Particulars | As at March 31, 2018 | As at March 31, 2017 |
Accumulated deficit | (1,283,494) | (953,910) |
Total | (1,283,494) | (953,910) |
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
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 |
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 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, Survey No 108 & 109, Village – Kunenama, Taluka – Maval, Dist – Pune 410401, 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 108 & 109, Village – Kunenama, Taluka – Maval, District Pune 410401
4. B-4501, B4601 at Lodha Bellissimo, Lodha Pavillion, Apollo Mill Compound, Mahalaxmi, Mumbai – 400011 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. Pledge 100% shareholding of AHA Holdings Private Limited.
7. Pledge 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.
15. Corporate Guarantee by AHA Holdings Private Limited
16. Personal Guarantee by Mr. Shripal Morakhia & Mrs. Kalpana Morakhia
17. Corporate Guarantee by SMAAASH Entertainment USA Limited
18. Corporate Guarantee by Elements Learning Centre Private Limited.
Repayment:
Issuer is 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, F.Y. 2022 and F.Y. 2023 respectively.
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.
II: Term loan from banks
(i) Term loan from Yes bank
Term loan 1 and 2
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:
Interest:
The term loan will bear interest at 13.50% p.a with immediate reset and the same is payable monthly.
Term loan 3
Security:
- Personal guarantee of Mr.Shripal Morakhia (Director).
- Exclusive charge on current asset and moveable fixed assets of the Company both present and future including sponsorship money from PVR Limited to be routed through Yes Bank account.
Repayment:
Loan repayable in equal quarterly instalment as follows:
Interest:
The term loan will bear interest at 2.50% (Spread) over and above the 6M YBL MCLR with half-yearly reset and the same is payable monthly.
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
III: Term loans from financial institutions
(i) Term loan from Tata Capital Financial Services Limited (TCFSL):
Primary Security:
Mortgage of certain immovable property owned by promoter associates (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 60 million with bank as acceptable and same provided by Aha Holding Private Limited.
Repayment:
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.
Interest:
The 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.
(ii) Small Industries Development Bank of India (SIDBI):
Term loan 1
Primary Security:
First pari passu charge over the movable and current assets of Smaaash pertaining to the 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 Javeri, Nitya Gopal Banik, Aha holding Private Limited and Mrs Kalpana Morakhia. The guarantee shall be joint and several.
Repayment:
Loan is required to be repaid in 72 monthly instalments after a moratorium of 24 month commencing from April 10, 2018.
Interest:
The term loan will bear interest at 12.95% p.a (fixed) with monthly reset and the same is payable monthly.
Term loan 2
Security:
The 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’.
Guarantee:
Irrevocable and unconditional guarantee of Shripal Morakhia, Kalpana Morakhia and Ms Ami Zaveri. The guarantee will be joint and several.
Repayment:
Loan is required to 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 2,100 thousands each and balance Rs 1,300 thousands in last instalment.
Interest:
The term loan will bear interest at 15.50% p.a (fixed) with monthly reset and the same is payable monthly.
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
Repayment | ||
Particulars | As at March 31, 2018 | As at March 31, 2017 |
Repayable within 1 year | 155,600 | 32,050 |
Repayable within 2-3 years | 154,889 | 283,750 |
Repayable within 4-5 years | 60,400 | 74,000 |
More than 5 years | 24,400 | 50,200 |
Total | 395,289 | 440,000 |
(vi). Housing Development Financial Corporation Limited (HDFC):
Term loan 1
Security:
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 Restaurant, Mumbai Go-Karting.
c) Corporate guarantee of Aha Holdings Private Limited
d) Personal Guarantee of Mr. Shripal Morakhia
Repayable Term:Principal will be repaid in 12 months and will be repayable in 4 equal monthly instalments starting 9th month.
Interest:Interest payable is linked to HDFC’s Corporate Prime Lending rate and is currently payable monthly at 12.50% p.a.
Term loan 2
Security:
a) Mortgage of property situated at Khatian number LR-817 & RS-817, Tambuldaha-I, Bibirabad, Jibantala, 24 Parganas (South)
b) Corporate guarantee of Aha Holdings Private Limited
c) Personal Guarantee of Mr. Shripal Morakhia
Repayable Term:Principal will be repaid in 12 months and will be repayable in 4 equal monthly instalments starting 9th month.
Interest:Interest payable is linked to HDFC’s Corporate Prime Lending rate and is currently payable monthly at 12.50% p.a.
Term loan 3
Security:
a) Mortgage of property situated at Khatian number LR-817 & RS-817, Tambuldaha-I, Bibirabad, Jibantala, 24 Parganas (South)
b) Corporate guarantee of Aha Holdings Private Limited
c) Personal Guarantee of Mr. Shripal Morakhia
Repayable Term:Principal will be repaid in 12 months and will be repayable in 4 equal monthly instalments starting 9th month.
Interest:Interest payable is linked to HDFC’s Corporate Prime Lending rate and is currently payable monthly at 12.50% p.a.
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 will become payable forthwith. The Optional convertible preference shares are converted into equity shares during the F.Y 2017-18.
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
V:Loans from related parties includes loans from Aha Holdings Private Limited and are unsecured, interest-free and repayable on demand.
VI: For the current maturities of long term borrowings, refer to note 22 other financial liabilities.
VII: 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.
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, 2016 | — | 121,655 | 798,162 | — | 56,578 |
Financing cash flows | |||||
Proceeds | 1,200,000 | — | 550,000 | 200,000 | 145,600 |
Repayment | — | (33,767) | (823,713) | — | (169,450) |
Non-cash changes | |||||
Converted into preference shares | — | — | — | 12,663 | (12,663) |
Transfer of current assets | — | — | — | — | (7,645) |
Amortization of borrowing | (4,172) | 1,771 | 8,734 | — | — |
As at March 31, 2017 | 1,195,828 | 89,659 | 533,183 | 212,663 | 12,420 |
Financing cash flows | |||||
Proceeds | 2,440,000 | 135,000 | 445,000 | — | 191,081 |
Repayment | (1,440,000) | (95,895) | (389,710) | — | (157,000) |
Non-cash changes | |||||
Converted into equity shares | — | — | (212,663) | — | |
Reimbursement of expenses | — | — | — | — | (40,966) |
Transfer of current assets | — | — | — | — | |
Amortization of borrowing | (49,171) | 4,396 | 2,290 | — | — |
As at March 31, 2018 | 2,146,657 | 133,160 | 590,763 | — | 5,535 |
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
Particulars | As at March 31, 2018 | As at March 31, 2017 |
Non-current | ||
A. Interest accrued | ||
- interest accrued but not due on debenture | — | 44,409 |
B. Security deposits | 5,990 | 5,348 |
C. Other liabilities | ||
- Payable on purchase of property, plant and equipment | 188,280 | 53,660 |
Total | 194,270 | 103,417 |
Current | ||
A. Current maturities of long term debt | ||
- from bank | 54,000 | 23,708 |
- from financial institutions | 155,600 | 32,050 |
- Non-convertible debentures | 1,100,000 | — |
B. Interest accrued | ||
- on Term loan from bank | 1,261 | 2,269 |
- on Term loan from financial institutions | 2,159 | — |
C. Security deposits | 186 | — |
D. Temporary overdrawn bank balance | 990 | — |
Total | 1,314,196 | 58,027 |
Particulars | As at March 31, 2018 | As at March 31, 2017 |
Non-current | ||
Provision for employee benefits | ||
a) Post-employment benefit -gratuity liability | 2,327 | — |
Total | 2,327 | — |
Current | ||
Provision for employee benefits | ||
a) Leave encashment | 8,512 | 6,930 |
b) Post-employment benefit -gratuity liability | 503 | — |
Total | 9,015 | 6,930 |
Notes:For other disclosures, refer note 39 on employee benefit plans.
Particulars | As at March 31, 2018 | As at March 31, 2017 |
Non-current | ||
A. Unearned income on discounted deposits | 252 | 1,093 |
B. Deferred government grant (refer note 6.1) | 7,772 | 7,772 |
8,024 | 8,865 | |
Current | ||
A. Advances received from customers | 42,398 | 38,352 |
B. Unearned income on discounted deposits | 673 | 504 |
C. Statutory dues | 26,948 | 24,440 |
D. Deferred improvement credit | — | 15,152 |
Total | 70,019 | 78,448 |
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
Particulars | As at March 31, 2018 | As at March 31, 2017 |
Trade payables | 228,616 | 133,489 |
Total | 228,616 | 133,489 |
Note: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.
Particulars | For the year ended March 31, 2018 | For the year ended March 31, 2017 |
a) Revenue from rendering of services | ||
- Gaming | 801,526 | 478,562 |
- Food and beverages | 477,646 | 216,777 |
- Banquet, corporate events and others | 355,228 | 246,073 |
- Sponsorship fees | 97,035 | 50,748 |
b) Other operating revenue | ||
- Professional charges | 3,154 | 20 |
- Income from exhibits, merchandise and others | 11,870 | 3,309 |
Total | 1,746,459 | 995,489 |
Particulars | For the year ended March 31, 2018 | For the year ended March 31, 2017 |
a) Interest income: | ||
- Bank deposits | 2,456 | 2,234 |
- Other financial assets carried at amortized cost | — | — |
- Unwinding of security deposits | 9,056 | 8,855 |
- Income tax refund | — | 166 |
b) Sundry credit balances written back | 12,449 | 16,117 |
c) Net foreign exchange gain/ (loss) | 5,056 | (1,397) |
d) Other income: | ||
- 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 FVTPL | (6,869) | — |
- Miscellaneous income | 4,158 | 480 |
Total | 18,959 | 21,196 |
Particulars | For the year ended March 31, 2018 | For the year ended March 31, 2017 |
Opening stock | ||
- Food and beverages | 18,507 | 7,625 |
- Less : Food and beverages (discontinuing operation) | — | (197) |
- Consumables | 9,492 | 11,039 |
Add: Purchases | 243,002 | 151,902 |
271,001 | 170,370 | |
Less: Closing stock | ||
- Food and beverages | 34,290 | 18,507 |
- Consumables | 11,879 | 9,492 |
Total cost of materials consumed | 224,832 | 142,370 |
F-44
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
Particulars | For the year ended March 31, 2018 | For the year ended March 31, 2017 |
Gaming products | ||
Inventories at the beginning of the year | 22,896 | 4,933 |
Inventories at the end of the year | (69,027) | (22,896) |
Increase/ (decrease) | (46,131) | (17,963) |
Particulars | For the year ended March 31, 2018 | For the year ended March 31, 2017 |
a) Salaries and wages, including bonus | 335,089 | 209,532 |
b) Contribution to provident and other funds | 27,616 | 19,320 |
c) Gratuity (Refer note 39) | 2,800 | 3,315 |
d) Staff welfare expenses | 19,801 | 10,466 |
Total employee benefit expense | 385,306 | 242,633 |
Particulars | For the year ended March 31, 2018 | For the year ended March 31, 2017 |
a) Interest costs: | ||
- on loans from banks | 15,861 | 16,773 |
- on loans from financial institutions | 98,804 | 71,205 |
- on debentures | 305,740 | 128,643 |
- other interest expenses | 642 | 366 |
b) Processing fees and related costs | 12,137 | 18,541 |
Total | 433,184 | 235,528 |
Particulars | For the year ended March 31, 2018 | For the year ended March 31, 2017 |
Marketing expenses | 36,013 | 31,406 |
Food trial expenses | 978 | 10,466 |
Total | 36,991 | 41,872 |
The above comprises costs associated with the opening and organizing of new centers, including pre-opening utility and service related costs and other related costs for employees engaged in such pre-launch activities
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
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 expenses | 267,467 | 130,595 |
Repairs and maintenance charges | 34,977 | 24,060 |
Insurance premium | 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 |
Housekeeping 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 |
34.1 Due to a fire in one of the buildings situated near the company premises (Kamala Mills compound), the Bombay Municipal Corporation (BMC), demolished several bars, eateries and restaurants situated in the Kamala Mills compound and surrounding areas in Mumbai.
The BMC and its officers demolished the Pravas restaurant and part of the Smaaash centre being operated by the Company. The loss incurred on account of this demolition, net off Rs. 670 thousands recovered from the sale of scrap, aggregating to net loss of Rs. 15,201 thousands is recognized as exceptional items in the financial statements. The Company has lodged the insurance claim against this loss and also filed a writ petition in the Bombay High Court against the demolition.
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
Particulars | For the year ended March 31, 2018 | For the year ended March 31, 2017 |
A. Current Tax: | ||
In respect of current year | (2,091) | 1,173 |
In respect of previous year | (835) | — |
Total | (2,091) | 1,173 |
B. Deferred Tax: | ||
In respect of current year origination and reversal of temporary differences | (260,723) | (106,522) |
Total | (260,723) | (106,523) |
Total (A+B) | (262,814) | (105,349) |
35.2 Income tax recognized in other comprehensive loss
Particulars | For the year ended March 31, 2018 | For the year ended March 31, 2017 |
Deferred tax: | ||
Remeasurement of defined benefit obligations | (74) | (818) |
Total | (74) | (818) |
Classification of income tax recognized in other comprehensive loss | ||
Income taxes related to items that will not be reclassified to profit or loss | (74) | (818) |
Income taxes related to items that will be reclassified to profit or loss | — | — |
Total | (74) | (818) |
Particulars | For the year ended March 31, 2018 | For the year ended March 31, 2017 |
Profit before tax | (565,784) | (352,899) |
Income tax expense calculated at 30% plus surcharge (2016-17: 30% and 2015-16: 30%) | (174,827) | (109,046) |
Effect on different tax rates of subsidiary operating in other jurisdictions | 68 | 48 |
Effects of expenses that are not deductible in determining taxable profits | 792 | 370 |
Effect of income that is exempt from taxation | 10,211 | — |
Effect of expenses deductible in determining taxable profits | — | — |
Effect of previously unrecognized and unused tax losses and deductible temporary difference now recognized as deferred tax assets | (98,236) | — |
Others | 13 | 3,278 |
(261,979) | (105,350) | |
Adjustments recognized in the current year in relation to the current tax of prior years | (835) | — |
Income tax expense recognized In profit or loss (relating to continuing operations) | (262,814) | (105,350) |
The tax rate used for the year ended March 31, 2018, and March 31, 2017 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
Notes to consolidated financial statements for the period ended March 31, 2018
All amounts are in Rs. ’000 unless otherwise stated
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 effective March 17, 2017. The closing down and discontinuation of Mall Food court business model was due to the lack of business in mall.
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.
Particulars | For the year ended March 31, 2018 | For the year ended March 31, 2017 |
Profit for the year from discontinued operations | ||
Revenue | ||
Food and Beverages | — | 11,817 |
Other Income | 945 | 182 |
Total Revenue (A) | 945 | 11,999 |
Expenses | ||
Cost of materials consumed | — | 3,657 |
Employee Benefit expense | — | 7,339 |
Depreciation/amortization | — | 6,114 |
Other expenses | 912 | 10,822 |
Total expenses (B) | 912 | 27,932 |
Income (loss) from discontinued operations before tax (A-B) | 34 | (15,933) |
Income tax expense | — | (467) |
Income (loss) from discontinued operations after tax | 34 | (15,466) |
The carrying amount of net asset Rs. 658 thousands (Total assets Rs. 668 thousands less total liabilities Rs.10 thousands) (previous year: net liabilities Rs. 1,568 thousands {Total assets Rs. 1,244 thousands less total liabilities Rs. 2,812 thousands}). The carrying amount of total assets and liabilities as at the balance sheet date relating to the discontinuing business are as under:
Particulars | As at March 31, 2018 | As at March 31, 2017 |
Assets for discontinued operation | ||
Short-term loans and advances | 668 | 1,244 |
Total | 668 | 1,244 |
Liabilities for Discontinued Operation | ||
Trade Payables | — | 2,208 |
Other current liabilities | 10 | 604 |
10 | 2,812 |
F-48
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
Particulars | For the year ended March 31, 2018 | For the year ended March 31, 2017 |
Loss before tax | 34 | (15,933) |
Adjustments for: | ||
Depreciation and amortization expense | — | 6,114 |
Operating loss before changes in working capital | 34 | (9,819) |
Changes in working capital: | ||
Inventories | — | 197 |
Trade receivables | — | 3,555 |
Short term loans and advances | 576 | (1,244) |
Long term loans and advances | — | 432 |
Provision for employee benefits | — | (524) |
Trade payables | (2,208) | (1,943) |
Other current liabilities | (595) | (1,319) |
Short-term provisions | — | (2,350) |
Cash used in from operations | (2,193) | (13,015) |
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 maximize 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:
Particulars | As at March 31, 2018 | As at March 31, 2017 |
Debt (i) | 2,876,116 | 2,043,754 |
Cash and bank balances | 119,840 | 133,529 |
Net debt | 2,756,276 | 1,910,225 |
Total equity | 2,435,593 | 824,304 |
Net debt to equity ratio | 1.13 | 2.32 |
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, 2018 and March 31, 2017.
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
As at March 31, 2018
Particulars | Amortized Costs | FVTPL | FVTOCI | Total |
A. Non-current assets | ||||
a) Investments | 30 | — | 6,466 | 6,496 |
b) Other financial assets | 206,192 | — | — | 206,192 |
Total | 206,222 | — | 6,466 | 212,688 |
B) Current assets | ||||
a) Investments | — | 11,012 | — | 11,012 |
b) Trade receivables | 177,947 | — | — | 177,947 |
c) Cash and bank balances | 119,840 | — | — | 119,840 |
d) Loans | 412 | — | — | 412 |
e) Other financial assets | 87,288 | — | — | 87,288 |
Total | 385,487 | 11,012 | — | 396,499 |
C. Non-current liabilities | ||||
a) Borrowings | 1,360,980 | — | — | 1,360,980 |
b) Other financial liabilities | 194,270 | — | — | 194,270 |
Total | 1,555,250 | — | — | 1,555,250 |
D. Current Liabilities | ||||
a) Borrowings | 205,535 | — | — | 205,535 |
b) Trade payables | 228,616 | — | — | 228,616 |
c) Other financial liabilities | 1,314,196 | — | — | 1,314,196 |
Total | 1,748,347 | — | — | 1,748,347 |
As at March 31, 2017
Particulars | Amortized Costs | FVTPL | FVTOCI | Total |
A. Non-current assets | ||||
a) Investments | 20 | 18,566 | — | 18,586 |
b) Other financial assets | 138,243 | — | — | 138,243 |
Total | 138,263 | 18,566 | — | 156,829 |
B) Current assets | ||||
a) Investments | — | 8,198 | — | 8,198 |
b) Trade receivables | 26,551 | — | — | 26,551 |
c) Cash and bank balances | 133,529 | — | — | 133,529 |
d) Loans | 1,897 | — | — | 1,897 |
e) Other financial assets | 56,063 | — | — | 56,062 |
Total | 218,039 | 8,198 | — | 226,237 |
C. Non-current liabilities | ||||
a) Borrowings | 1,662,912 | — | — | 1,662,912 |
b) Other financial liabilities | 103,417 | — | — | 103,417 |
Total | 1,766,329 | — | — | 1,766,329 |
D. Current Liabilities | ||||
a) Borrowings | 325,082 | — | — | 325,082 |
b) Trade payables | 133,489 | — | — | 133,489 |
c) Other financial liabilities | 58,027 | — | — | 58,027 |
Total | 516,599 | — | — | 516,599 |
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
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 summarized as below:
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.
(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.
Table showing maturity profile of non-derivative financial liabilities:
Particulars | Less than 1 Year | 1-3 Years | 3 Years to 5 Years | 5 years and above | Total | Carrying amount |
As at March 31, 2018 | ||||||
a) Non-interest bearing Trade payable | 228,616 | — | — | — | 228,616 | 228,616 |
Borrowings | 5,535 | — | — | — | 5,535 | 5,535 |
Other financial liabilities | 4,596 | 194,270 | — | — | 198,866 | 198,866 |
b) Interest rate instruments Borrowings | 200,000 | 609,889 | 786,400 | 24,400 | 1,620,689 | 1,560,980 |
Current maturities of long term debt | 1,309,600 | — | — | — | 1,309,600 | 1,309,600 |
Total | 1,748,347 | 804,159 | 786,400 | 24,400 | 3,363,306 | 3,303,597 |
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 | 103,417 | — | — | 105,686 | 105,686 |
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 | 684,349 | 329,005 | 770,200 | 2,300,153 | 2,282,928 |
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
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.
(iii) Financing facilities
There are no undrawn financing facilities as at each reporting period.
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 recognized 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:
As at March 31, 2018 | As at March 31, 2017 | |||
Rupees (INR) | In foreign currency (In 000’s) | Rupees (INR) | In foreign currency (In 000’s) | |
Trade payables | ||||
USD | 17,849 | 274 | 109 | 2 |
GBP | — | — | — | — |
EURO | 142 | 2 | 38 | 0 |
17,991 | 276 | 147 | 2 | |
Trade receivable | ||||
USD | 164,232 | 2,525 | 1,793 | 28 |
164,232 | 2,525 | 1,793 | 28 | |
Cash on hand | ||||
Thai Baht | 5 | 2 | — | — |
USD | 5 | 0 | — | — |
10 | 2 | — | — | |
Advances paid | ||||
AUD | — | — | 52 | 1 |
CNY | — | — | 27 | 3 |
EURO | 948 | 12 | 7,076 | 100 |
GBP | 195 | 2 | 346 | 4 |
SAR | — | — | 78 | 4 |
USD | 31,479 | 482 | 2,151 | 33 |
32,622 | 496 | 9,730 | 145 |
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
Foreign exchange rate sensitivity
A change of 5% in foreign exchange rates would have following impact on profit before tax
| ||||||||
Particulars | As at March 31, 2018 | As at March 31, 2017 | ||||||
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 | 40 | 352 | ||||||
5% decrease in exchange rate – impact on profit | (40 | ) | (352 | ) | ||||
GBP | ||||||||
5% increase in exchange rate – impact on profit | 10 | 17 | ||||||
5% decrease in exchange rate – impact on profit | (10 | ) | (17 | ) | ||||
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 | 8,893 | 192 | ||||||
5% decrease in exchange rate – impact on profit | (8,893 | ) | (192 | ) | ||||
Thai Baht | ||||||||
5% increase in exchange rate – impact on profit | 0 | — | ||||||
5% decrease in exchange rate – impact on profit | (0 | ) | — | |||||
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.
Particulars | As at March 31, 2018 | As at March 31, 2017 |
Fixed rate borrowings: | ||
Non-convertible debentures | 2,146,657 | 1,195,828 |
Term loan from financial institutions | ||
- SIDBI | 187,790 | 188,096 |
2,334,447 | 1,383,924 | |
Floating rate borrowing | ||
Term loan from Yes bank | 133,160 | 89,658 |
Term loan from financial institutions | ||
- Housing Development Finance Corporation Limited | 200,000 | 100,000 |
- Tata Capital Finance Limited | 202,973 | 245,089 |
536,133 | 434,747 | |
Total Borrowings | 2,870,580 | 1,818,671 |
F-53
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
Interest rate sensitivity
| ||
A change of 1% in interest rates would have following impact on profit before tax
| ||
Particulars | As at March 31, 2018 | As at March 31, 2017 |
1% increase in interest rate – decrease in profit | (482) | (1,072) |
1% decrease in interest rate – increase in profit | 482 | 1,072 |
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, 2018 | March 31, 2017 | |||||
A) Financial assets | ||||||
a) Investments | ||||||
i) Investment in equity instruments | 6,466 | — | Level 3 | Discounted cash flow method was used to capture the present value of future cash flows that are available to all the equity holders of the issuer company. | Discount rate of 17.76% that reflects the Company’s WACC. | A slight increase in the discount rate used in isolation would result in a decrease in the fair value. |
ii) Mutual fund investments | 17,478 | 26,765 | Level 1 | Quoted bid prices in an active market | NA | NA |
Total financial assets | 23,944 | 26,765 |
As at the reporting date, the Group does not have any financial liability measured at fair values.
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
The management believes the carrying amounts of financial assets and financial liabilities measured at amortized cost approximate their fair values.
The Groups’ contribution to Provident fund for the year ended March 31, 2018: Rs. 16,780 thousands and for year ended March 31, 2017: Rs 10,806 thousands) has been recognized in consolidated statement of profit or loss under the heading employee benefits expense.
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 return 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.
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
The significant actuarial assumptions used for the purposes of the actuarial valuations were as follows:
| ||
Particulars | Valuation as at | |
March 31, 2018 | March 31, 2017 | |
(i). Financial assumptions | ||
Discount rate (p.a.) | 7.40% | 7.35% |
Salary escalation rate (p.a.) | 7.00% | 7.00% |
(ii). Demographic assumptions | ||
Mortality rate | Indian assured lives mortality (2006-08) | Indian assured lives mortality (2006-08) |
Leaving service | ||
21 years - 30 years | 84.00% | 84.00% |
31 years - 40 years | 13.00% | 13.00% |
41 years - 50 years | 3.00% | 3.00% |
51 years - 57 years | 0.00% | 0.00% |
Amounts recognized in statement of profit and loss in respect of these defined benefit plans are as follows:
Particulars | For the year ended March 31, 2018 | For the year ended March 31, 2017 | ||||||
Current Service Cost | 2,763 | 3,250 | ||||||
Past service cost and (gains)/losses from settlements | 42 | — | ||||||
Net interest expense | (5 | ) | 65 | |||||
Components of defined benefit costs recognized in profit or loss | 2,800 | 3,315 | ||||||
Remeasurement on the net defined benefit liability | ||||||||
Actuarial (gains)/loss arising from changes in financial assumptions | (354 | ) | 254 | |||||
Actuarial (gains)/loss arising from changes in demographic assumptions | — | (2,140 | ) | |||||
Actuarial (gains)/loss arising from experience adjustments | (30 | ) | (777 | ) | ||||
Return on plan assets (excluding amount included in net interest expense) | 48 | 17 | ||||||
Adjustment to recognize the effect of asset ceiling | 97 | — | ||||||
Components of defined benefit costs recognized in other comprehensive income | (239 | ) | (2,646 | ) | ||||
Total | 2,561 | 669 |
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 consolidated statement of profit and loss.
ii) The remeasurement of the net define benefits liability is included in other comprehensive income
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
The amount included in the balance sheet arising from the entity’s obligation in respect of its defined benefit plans is as follows:
Particulars | As at March 31, 2018 | As at March 31, 2017 |
Present value of defined benefit obligation | 5,485 | 4,291 |
Fair value of plan assets | (8,989) | (5,930) |
Funded status | (3,504) | (1,639) |
Restriction on asset recognize | 97 | — |
Net liability arising from the defined benefit obligation | (3,407) | (1,639) |
Present value of unfunded defined benefit obligation | 2,830 | — |
Current portion of the above | 503 | — |
Non-current portion of the above | (1,080) | (1,639) |
Movement in the present value of the defined benefit obligation are as follows: | ||
Particulars | As at March 31, 2018 | As at March 31, 2017 |
Opening of defined benefit obligation | 4,291 | 3,625 |
Liability transferred in / Acquisitions | 2,944 | — |
Current service cost | 2,763 | 3,250 |
Past service cost | 41 | — |
Interest on defined benefit obligation | 434 | 273 |
Remeasurements due to: | ||
Actuarial loss / (gain) arising from change in financial assumptions | (354) | 254 |
Actuarial loss / (gain) arising from change in demographic assumptions | — | (2,140) |
Actuarial loss / (gain) arising on account of experience changes | (30) | (777) |
Benefits paid | (1,774) | — |
Liabilities assumed / (settled)* | — | (194) |
Liabilities extinguished on settlement | — | — |
Closing of defined benefit obligation | 8,315 | 4,291 |
* On account of business combination or inter group transfer |
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
Movement in the fair value of the plan assets are as follows: | ||
Particulars | As at March 31, 2018 | As at March 31, 2017 |
Opening fair value of plan assets | 5,930 | 2,409 |
Employer contribution | 2,729 | 3,331 |
Interest on plan assets | 439 | 207 |
Administration expenses | — | — |
Remeasurement due to: | ||
Actual return on plan assets less interest on plan assets | (48) | (17) |
Benefits paid | (1,774) | — |
Assets acquired / (settled)* | 1,713 | — |
Assets distributed on settlement | — | — |
Closing fair value of plan assets | 8,989 | 5,930 |
* On account of business combination or inter group transfer |
Major category of plan assets | ||
Particulars | As at March 31, 2018 | As at March 31, 2017 |
Equity instruments | — | — |
Debt Instruments | — | — |
Insurer Managed Funds | 8,989 | 5,930 |
Total | 8,989 | 5,930 |
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
Notes to consolidated financial statements for the period ended March 31, 2018
All amounts are in Rs. ’000 unless otherwise stated
Principal assumption | Impact on defined benefit obligation | |||
Increase in assumption | Decrease in assumption | |||
a) Discount rate | ||||
As at March 31, 2018 | -4.39% | 4.74% | ||
As at March 31, 2017 | -4.96% | 5.36% | ||
b) Salary Escalation Rate | ||||
As at March 31, 2018 | 4.57% | -4.36% | ||
As at March 31, 2017 | 4.89% | -4.91% | ||
Notes:
The Group expects to contribute Rs. 2,000 thousands (as at March 31, 2017: Rs 400 thousand) 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:
Particulars | As at March 31, 2018 | As at March 31, 2017 |
Expected benefits for year 1 | 1,322 | 316 |
Expected benefits for year 2 | 869 | 267 |
Expected benefits for year 3 | 911 | 268 |
Expected benefits for year 4 | 920 | 331 |
Expected benefits for year 5 | 749 | 377 |
Expected benefits for year 6 | 630 | 287 |
Expected benefits for year 7 | 885 | 244 |
Expected benefits for year 8 | 459 | 519 |
Expected benefits for year 9 | 290 | 212 |
Expected benefits for year 10 and above | 10,680 | 7,858 |
The weighted average duration of the defined benefit obligation as at March 31, 2018: 9.13 years (March 31, 2017: 10.32 years)
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
i). Details of related party transactions | ||
For the year ended March 31, 2018 | For the year ended March 31, 2017 | |
Aha Holdings Private Limited | ||
Transactions during the Year | ||
Issue of shares including share premium (Right issue) | 218,215 | — |
Issue of shares against optionally convertible preference shares | 212,663 | — |
Issue of optionally convertible preference shares (Out the total Rs 12,663 thousands was issued towards repayment of loan) | — | 212,663 |
Transfer of liquor license | — | 7,045 |
Transfer of security deposit | — | 600 |
Reimbursement of expenses | 40,965 | — |
Short term borrowings taken | 191,081 | 145,600 |
Short term borrowings repaid | 157,000 | 169,450 |
FW Metis Ltd | ||
Transactions during the Year | ||
Issue of shares including share premium | — | 233,975 |
ii). Details of related party closing balances
As at March 31, 2018 | As at March 31, 2017 | |
Aha Holdings Private Limited | ||
Short term borrowings payable | 5,536 | 12,420 |
iii). Compensation of key managerial personnel
The remuneration of directors and other members of key managerial personnel during the year was as follows:
Particulars | For the year ended March 31, 2018 | For the year ended March 31, 2017 |
Short-term employee benefits | 9,602 | 8,249 |
Termination benefits | — | |
Total | 9,602 | 8,249 |
Sitting Fee paid to Independent directors | — | — |
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 21 for detail description of guarantees and mortgages provided by related parties.
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
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 organize 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:
- Goods and services provided in India
- Goods and services provided in America
The following is an analysis of the Group’s revenue and results from continuing operations by reportable segment.
Particulars | Segment revenue | |
For the year ended March 31, 2018 | For the year ended March 31, 2017 | |
Goods and services provided | ||
- India | 1,888,856 | 1,008,363 |
- America | 236,069 | 140,227 |
Total for continuing operations | 2,124,925 | 1,148,590 |
Segment profit | ||
Goods and services provided | ||
- India | (545,564) | (358,706) |
- America | (20,221) | 5,807 |
Loss before tax (continuing operations) | (565,785) | (352,899) |
Segment revenue reported above represents revenue generated from external customers. The intersegment services provided for the year ended March 31, 2018: Rs. Nil thousands (for the year ended March 31, 2017: Rs. 6,484 thousands).
The accounting policies of the reportable segments are the same as the Group’s accounting policies described in note 3.
Particulars | As at March 31, 2018 | As at March 31, 2017 | |||||
Segment assets | |||||||
- India | 4,839,370 | 2,492,554 | |||||
- America | 989,205 | 708,920 | |||||
Consolidated total assets | 5,828,575 | 3,201,474 | |||||
Segment liabilities | |||||||
- India | 3,375,383 | 2,325,683 | |||||
- America | 17,599 | 51,487 | |||||
Consolidated total liabilities | 3,392,982 | 2,377,170 | |||||
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
Particulars | Depreciation and amortization | |
For the year ended March 31, 2018 | For the year ended March 31, 2017 | |
India | 458,229 | 271,945 |
America | 95,323 | 26,416 |
Total | 553,552 | 298,361 |
Additions to non-current assets* | ||
India | 2,517,667 | 243,087 |
America | 28,655 | 677,796 |
Total | 2,546,322 | 920,883 |
* Non-current assets includes assets other than financial instruments, deferred tax assets and post-employment benefit assets.
The Group’s information about its non-current assets by location of assets are detailed below.
Particulars | Non-current assets* | |
As at March 31, 2018 | As at March 31, 2017 | |
India | 3,249,080 | 1,694,698 |
America | 880,060 | 677,796 |
Total | 4,129,140 | 2,372,494 |
* Non-current assets includes assets other than financial instruments, deferred tax assets and post-employment benefit assets.
No other single customers contributed 10% or more to the Group’s revenue for the year ended March 31, 2018 and for year ended March 31, 2017.
Operating Lease
i) The Group has entered into operating lease arrangements for commercial premises and warehouses 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.
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
Particulars | As at March 31, 2018 | As at March 31, 2017 |
i). Future non-cancellable minimum lease commitments | ||
a) not later than one year | 197,863 | 146,301 |
b) later than one year and not later than five years | 695,573 | 522,263 |
c) later than five years | 1,755,229 | 501,948 |
ii) Expenses recognized in the Statement of profit and loss | ||
a) Minimum lease payments | 112,516 | 43,528 |
Particulars | As at March 31, 2018 | As at March 31, 2017 | ||
Claims against the Group not acknowledged as debt | ||||
a) Service Tax | 14,928 | 14,928 | ||
Notes:
Particulars | As at March 31, 2018 | As at March 31, 2017 | ||
Estimated amount of contracts remaining to be executed on capital account and not provided for | 75,727 | 7,582 | ||
The Group acquired business of SVM, Ahlada and Smaaash Leisure Limited (Formerly known as PVR Bluo Entertainment Ltd) to expand their business in new locations.
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
Shri Venkateshwara Multiplexes Private Limited (SVM) | Ahlada Leisure Private Limited (Ahlada) | Smaaash Leisure Limited (Formerly Known as PVR Bluo Entertainment Ltd) | |||
Cash | 218,661 | 66,971 | 860,000 | ||
218,661 | 66,971 | 860,000 | |||
Acquisition-related costs amounting to Rs. 1,006 thousands for SVM and Ahlada have been excluded from the consideration transferred and have been recognized as an expense in profit or loss in the current year, within the ‘other expenses’ line item.
Acquisition-related costs amounting to Rs. 40,061 thousands for Smaaash Leisure Limited (Formerly known as PVR BluO Entertainment Ltd) have been recognized as transaction cost and added to the cost of the investment.
Particulars | Shri Venkateshwara Multiplexes Private Limited (SVM) | Ahlada Leisure Private Limited (Ahlada) | Smaaash Leisure Limited (Formerly Known as PVR BluO Entertainment Ltd) |
Non-current assets | |||
Computer | 1,119 | 545 | — |
Electronic goods | 6,941 | 1,744 | — |
Furniture & fixtures | 4,422 | 804 | 26,027 |
Leasehold improvement | 19,917 | 6,831 | 191,930 |
Office equipments | 209 | 2 | 6,621 |
Plant & machinery | 76,940 | 39,798 | 378,662 |
Software | 53 | 246 | 1,723 |
Vehicles | 1,456 | — | — |
Brand Buildings | 107,605 | 17,000 | — |
Trademarks, copyrights and license | — | — | 9,730 |
Capital WIP | — | — | 14,822 |
Financial assets | — | — | 46,939 |
Other non-current assets | — | — | 34,406 |
Current assets | |||
Inventories | — | — | 9,773 |
Trade receivables | — | — | 6,764 |
Cash and cash equivalent | — | — | 137,171 |
Other Bank balances | — | — | 927 |
Other financial assets | — | — | 11,561 |
Other current assets | — | — | 13,488 |
Total assets | 218,661 | 66,971 | 890,544 |
Non-current liabilities | |||
Provisions | — | — | 3,252 |
Deferred tax liability | — | — | 7,628 |
Current liabilities | |||
Trade payables | — | — | 43,227 |
Other payables | — | — | 7,899 |
Provisions | — | — | 1,909 |
Other current liabilities | — | — | 25,030 |
Total liabilities | — | — | 88,945 |
Total | 218,661 | 66,971 | 801,599 |
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
The Group has acquired business of SVM and Ahlada without acquiring or controlling the legal entity and they have acquired 100% equity interest in Smaaash Leisure Limited (Formerly known as PVR BluO Entertainment Ltd). Therefore, there is no non-controlling interests (NCI) in these business acquisitions.
Particulars | Shri Venkateshwara Multiplexes Private Limited (SVM) | Ahlada Leisure Private Limited (Ahlada) | Smaaash Leisure Limited (Formerly Known as PVR Bluo Entertainment Ltd) |
Consideration transferred | 218,661 | 66,971 | 860,000 |
Less: fair value of identifiable net assets acquired | (218,661) | (66,971) | (801,599) |
Less: Intangible (Fair value of non-compete asset) | — | — | (44,797) |
Goodwill arising on acquisition | — | — | 13,604 |
Revenue for the year ended March 31, 2018 includes Rs. 75,123 thousands in respect of SVM and Ahlada and Rs. 334,857 thousands in respect of Smaaash Leisure Limited. Included in the loss for the year ended March 31, 2017 is Rs. 9,863 thousands attributable to the additional business generated by Smaaash Leisure Limited (Formerly known as PVR BluO Entertainment Ltd).
Had these business combinations been effected at April 1, 2017, the revenue of the Group from continuing operations would have been Rs. 2,712,336 thousands, and the loss for the period from continuing operations would have been Rs. 348,031 thousands. The directors consider these ‘pro-forma’ numbers to represent an approximate measure of the performance of the combined group on an annualized basis and to provide a reference point for comparison in future periods.
On May 02, 2018, I-AM Capital Acquisition Company (I-AM Capital) has entered into a Definitive agreement with Smaaash Entertainment Private Limited to infuse up to $49 million equity, which translate into a 27.5% ownership interest in Smaaash. Smaaash intends to use the cash proceeds to grow its business, fund inorganic growth initiatives, partly repay debt and for working capital.
I-AM Capital, Co-Founded and led by CEO F. Jacob Cherian and CFO Suhel Kanuga, is a blank check company, also commonly referred to as a Special Purpose Acquisition Company, or SPAC, formed for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses or entities.
Report of Independent Registered Public Accounting Firm
To the shareholders and the board of directors of I-AM Capital Acquisition Company
Opinion on the Financial Statements
We have audited the accompanying balance sheets of I-AM Capital Acquisition Company (the “Company”) as of May 31, 2018 and 2017, the related statements of operations, stockholders’ equity, and cash flows for year ended May 31, 2018 and the period April 17, 2017 (inception) thru May 31, 2017 and the related notes and schedules (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of May 31, 2018 and 2017, and the results of its operations and its cash flows for the year ended May 31, 2018 and the period April 17, 2017 (inception) thru May 31, 2017, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Prager Metis CPAs, LLC | |
Prager Metis CPAs, LLC |
We have served as the Company’s auditor since 2017.
Basking Ridge, New Jersey
July 23, 2018
F-2 |
I-AM CAPITAL ACQUISITION COMPANYBBALANCE SHEETSALANCE SHEETS
May 31, 2018 | May 31, 2017 | May 31, 2018 | May 31, 2017 | |||||||||||||
ASSETS | ||||||||||||||||
Current Assets | ||||||||||||||||
Cash and cash equivalents | $ | 458,063 | $ | 30,000 | $ | 458,063 | $ | 30,000 | ||||||||
Deferred offering costs | — | 25,000 | — | 25,000 | ||||||||||||
Prepaid expenses | 3,168 | — | 3,168 | — | ||||||||||||
Total Current Assets | 461,231 | 55,000 | 461,231 | 55,000 | ||||||||||||
Cash held in Trust Account | 52,895,652 | — | 52,895,652 | — | ||||||||||||
Total Assets | $ | 53,356,883 | $ | 55,000 | $ | 53,356,883 | $ | 55,000 | ||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||
Current Liabilities | ||||||||||||||||
Loan payable - Related party | $ | 81,618 | $ | 30,672 | $ | 81,618 | $ | 30,672 | ||||||||
Accrued expenses | 63,579 | — | 63,579 | — | ||||||||||||
Deferred legal fees | 100,000 | — | 100,000 | — | ||||||||||||
Total current liabilities | 245,197 | 30,672 | 245,197 | 30,672 | ||||||||||||
Deferred underwriting fees | 1,820,000 | — | 1,820,000 | — | ||||||||||||
Total Liabilities | 2,065,197 | 30,672 | 2,065,197 | 30,672 | ||||||||||||
Commitments | ||||||||||||||||
Common stock subject to possible redemption, $.0001 par value; 4,560,757 and -0- shares as of May 31, 2018 and May 31, 2017, respectively, at redemption value | 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 and 1,437,500 shares issued and outstanding (excluding 4,560,757 and -0- shares subject to possible redemption) as of May 31, 2018 and May 31, 2017, respectively | 225 | 144 | 225 | 144 | ||||||||||||
Additional paid-in capital | 5,009,310 | 24,856 | 5,009,310 | 24,856 | ||||||||||||
Accumulated deficit | (9,534 | ) | (672 | ) | (9,534 | ) | (672 | ) | ||||||||
Total stockholders’ equity | 5,000,001 | 24,328 | 5,000,001 | 24,328 | ||||||||||||
Total Liabilities and stockholders’ equity | $ | 53,356,883 | $ | 55,000 | $ | 53,356,883 | $ | 55,000 |
The accompanying notes are an integral part of the financial statements
F-67
F-3 |
I-AM CAPITAL ACQUISITION COMPANYSTATEMENTSSTATEMENTS OF OPERATIONS
Year Ended May 31, 2017 | For the period from April 17, 2017 (Inception) to May 31, 2017 | Year Ended May 31, 2017 | For the period from April 17, 2017 (Inception) to May 31, 2017 | |||||||||||||
Revenues | — | — | — | — | ||||||||||||
Operating expenses | ||||||||||||||||
General and administrative expenses | 530,564 | 672 | 530,564 | 672 | ||||||||||||
Loss from operations | (530,564 | ) | (672 | ) | (530,564 | ) | (672 | ) | ||||||||
Other income: | ||||||||||||||||
Interest income | 521,702 | — | 521,702 | — | ||||||||||||
Loss before provision for taxes | (8,862 | ) | (672 | ) | (8,862 | ) | (672 | ) | ||||||||
Income tax provision | — | — | — | — | ||||||||||||
Net loss | $ | (8,862 | ) | $ | (672 | ) | $ | (8,862 | ) | $ | (672 | ) | ||||
Basic and diluted net loss per share | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | ||||
Weighted average number of common shares outstanding | 2,050,790 | 1,750,000 | 2,050,790 | 1,750,000 |
The accompanying notes are an integral part of the financial statements
F-68
F-4 |
I-AM CAPITAL ACQUISITION COMPANYSTATEMENTSTATEMENT OF STOCKHOLDERS EQUITY
Common Stock | Additional | Total | ||||||||||||||||||||||||||||||||||||||
Paid-In | Accumulated | Stockholder’s | Common Stock | Additional Paid-In | Accumulated | Total Stockholder’s | ||||||||||||||||||||||||||||||||||
Shares | Amount | Capital | Deficit | Equity | Shares | Amount | Capital | Deficit | Equity | |||||||||||||||||||||||||||||||
Balance - April 17, 2017 (inception) | — | $ | — | $ | — | $ | — | $ | — | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||||||
Issuance of common stock to Sponsor(1) | 1,437,500 | 144 | 24,856 | — | 25,000 | 1,437,500 | 144 | 24,856 | — | 25,000 | ||||||||||||||||||||||||||||||
Net Loss for the period | — | — | — | (672 | ) | (672 | ) | — | — | — | (672 | ) | (672 | ) | ||||||||||||||||||||||||||
Balance - May 31, 2017 | 1,437,500 | $ | 144 | $ | 24,856 | $ | (672 | ) | $ | 24,328 | 1,437,500 | $ | 144 | $ | 24,856 | $ | (672 | ) | $ | 24,328 | ||||||||||||||||||||
Sale of 5,200,000 Units, net of underwriting discount and offering expenses | 5,200,000 | 520 | 48,160,700 | — | 48,161,220 | 5,200,000 | 520 | 48,160,700 | — | 48,161,220 | ||||||||||||||||||||||||||||||
Sale of 261,500 Private Units | 261,500 | 26 | 2,614,974 | — | 2,615,000 | 261,500 | 26 | 2,614,974 | — | 2,615,000 | ||||||||||||||||||||||||||||||
Issuance of shares to underwriter | 52,000 | 5 | 499,995 | 500,000 | 52,000 | 5 | 499,995 | 500,000 | ||||||||||||||||||||||||||||||||
Common stock subject to redemption | (4,560,757 | ) | (456 | ) | (46,291,229 | ) | (46,291,685 | ) | (4,560,757 | ) | (456 | ) | (46,291,229 | ) | (46,291,685 | ) | ||||||||||||||||||||||||
Common stock forfeited by Sponsor | (137,500 | ) | (14 | ) | 14 | — | (137,500 | ) | (14 | ) | 14 | — | ||||||||||||||||||||||||||||
Net loss | (8,862 | ) | (8,862 | ) | (8,862 | ) | (8,862 | ) | ||||||||||||||||||||||||||||||||
Balance at May 31, 2018 | 2,252,743 | $ | 225 | $ | 5,009,310 | $ | (9,534 | ) | $ | 5,000,001 | 2,252,743 | $ | 225 | $ | 5,009,310 | $ | (9,534 | ) | $ | 5,000,001 |
(1) | Includes an aggregate of 187,500 shares of common stock that are subject to forfeiture to the extent that the underwriters over-allotment is not exercised in full (note 6). |
The accompanying notes are an integral part of the financial statements
F-69
F-5 |
I-AM CAPITAL ACQUISITION COMPANYSTATEMENTSSTATEMENTS OF CASH FLOWS
Year Ended May 31, 2018 | For the period from April 17, 2017 (Inception) to May 31, 2017 | Year Ended May 31, 2018 | For the period from April 17, 2017 (Inception) to May 31, 2017 | |||||||||||||
Cash Flows from Operating Activities: | ||||||||||||||||
Net loss | $ | (8,862 | ) | $ | (672 | ) | $ | (8,862 | ) | $ | (672 | ) | ||||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||||||
Interest earned on marketable securities held in trust account | (521,702 | ) | (521,702 | ) | ||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||
Accrued expenses | 63,579 | 63,579 | ||||||||||||||
Prepaid expenses | (3,168 | ) | (3,168 | ) | ||||||||||||
Net Cash used in Operating Activities | (470,153 | ) | (672 | ) | (470,153 | ) | (672 | ) | ||||||||
Cash Flows from Investing Activities: | ||||||||||||||||
Investment of cash in Trust Account | (52,780,000 | ) | (52,780,000 | ) | ||||||||||||
Interest Income released from Trust Account | 406,050 | 406,050 | ||||||||||||||
Net Cash used in Investing Activities | (52,373,950 | ) | — | (52,373,950 | ) | — | ||||||||||
Cash flows from Financing Activities | ||||||||||||||||
Proceeds from sale of Units, net of commissions | 50,860,100 | 50,860,100 | ||||||||||||||
Proceeds from sale of Private Units | 2,615,000 | 2,615,000 | ||||||||||||||
Proceeds from note payable - related party, net | 171,035 | 30,672 | 171,035 | 30,672 | ||||||||||||
Repayment of note payable - related party, net | (120,089 | ) | (120,089 | ) | ||||||||||||
Proceeds from issuance of common stock to Sponsor | 25,000 | 25,000 | ||||||||||||||
Payment of offering costs | (253,880 | ) | (25,000 | ) | (253,880 | ) | (25,000 | ) | ||||||||
Net Cash Provided by Financing Activities | 53,272,166 | 30,672 | 53,272,166 | 30,672 | ||||||||||||
Net increase in cash | 428,063 | 30,000 | 428,063 | 30,000 | ||||||||||||
Cash at beginning of period | 30,000 | — | 30,000 | — | ||||||||||||
Cash at end of period | $ | 458,063 | $ | 30,000 | $ | 458,063 | $ | 30,000 | ||||||||
— | ||||||||||||||||
Non-Cash investing and financing activities: | ||||||||||||||||
Deferred underwriting fees charged to additional paid in capital | $ | 1,820,000 | $ | 1,820,000 | ||||||||||||
Deferred legal fees charged to additional paid in capital | $ | 100,000 | $ | 100,000 | ||||||||||||
Issuance of common stock to underwriters charged to additional paid in capital | $ | 500,000 | $ | 500,000 | ||||||||||||
Initial classification of common stock subject to possible redemption | $ | 44,337,271 | $ | 44,337,271 | ||||||||||||
Change in value of common stock subject to possible redemption | $ | 1,954,414 | $ | 1,954,414 | ||||||||||||
Offering costs charged to additional paid in capital | $ | 25,000 | $ | 25,000 |
The accompanying notes are an integral part of the financial statements
I-AM CAPITAL ACQUISITION COMPANY
MAY 31, 2018 and 2017
NOTE 1 — DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS
I-AM Capital Acquisition Company (the “Company”), 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 (“Business Combination”). Although the Company is not limited to a particular industry or geographic region for purposes of consummating a Business Combination, the Company intends to focus on businesses with a connection to India. The Company is an early stage and emerging growth company and, as such, the Company 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”). The Company has selected May 31 as its fiscal year end.
At May 31, 2018, the Company had not commenced any principal operations nor generated revenue to date. All activity for the period from April 17, 2017 (inception) through May 31, 2018 related to the Company’s formation and the initial public offering (the “Initial Public Offering”), which is described below, and identifying a target company for a business combination. The Company will not generate any operating revenues until after completion of its initial Business Combination, at the earliest. The Company will generate non-operating income in the form of interest income from the proceeds held in trust derived from the Initial Public Offering. Accordingly, the Company’s activities are subject to significant risks and uncertainties, including failing to consummate the Initial Business Combination. Organizational costs and administrative expenses that are not related to the Initial Public Offering and concurrent private placement are expensed as incurred.
Financing
The registration statement for the Company’s Initial Public Offering (as described in Note 3) was declared effective by the United States Securities and Exchange Commission (the “SEC”) on August 16, 2017. The Company intends to finance a Business Combination with the net proceeds from the sale of $50,000,000 of units in the Initial Public Offering (the “Public Units”) and the sale of $2,545,000 of units (the “Private Units” and, together with the Public Units, the “Units”) in the simultaneous private placement (the “Private Placement” as described in Note 3). Upon the closing of the Initial Public Offering and the Private Placement on August 22, 2017, $50,750,000 was deposited in a trust account with Continental Stock Transfer and Trust Company acting as trustee (the “Trust Account”) as discussed below.
Contained in the underwriting agreement for the Initial Public Offering is an over-allotment option allowing the underwriters to purchase from the Company up to an additional 750,000 Public Units (the “Over-Allotment Units”) and, in addition, the Company received a commitment from the Sponsor to purchase up to an additional 26,250 Private Units in order to maintain the amount of cash in the Trust Account equal to $10.15 per Public Unit sold in the Initial Public Offering. On September 13, 2017, the underwriters partially exercised their option and purchased 200,000 Over-Allotment Units, which were sold at an offering price of $10.00 per Unit, generating gross proceeds of $2,000,000. Also on September 13, 2017, simultaneously with the sale of the Over-Allotment Units, the Company consummated the sale of an additional 7,000 Placement Units (the “Over-Allotment Placement Units”), generating gross proceeds of $70,000.
Trust Account
The Trust Account will be invested only in U.S. government treasury bills with a maturity of one hundred and eighty (180) days or less or in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act of 1940, which invest only in direct U.S. government obligations. Funds will remain in the Trust Account until the earlier of (i) the consummation of its first Business Combination or (ii) the distribution of the Trust Account as described below. The remaining proceeds outside the Trust Account may be used to pay for business, legal and accounting due diligence on prospective acquisitions and continuing general and administrative expenses.
I-AM CAPITAL ACQUISITION COMPANY
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2018 and 2017
The Company’s amended and restated certificate of incorporation 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 included in the Public Units sold in the Initial Public Offering if the Company 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).
Business Combination
The Company’s management has broad discretion with respect to the specific application of the net proceeds of the Initial Public Offering, although it initially intends to focus its efforts on businesses with a connection to India. Substantially all of the net proceeds of the Initial Public Offering are intended to be generally applied toward consummating a Business Combination with a Target Business. As used herein, “Target Business” must be with one or more target businesses that together have a fair market value equal to at least 80% of the balance in the trust account (less any deferred underwriting commissions and taxes payable on interest earned) at the time of the Company’s signing a definitive agreement in connection with its initial Business Combination. Furthermore, there is no assurance that the Company will be able to successfully effect a Business Combination.
The Company will have until 12 months from the closing of the Initial Public Offering to consummate a Business Combination. However, if the Company anticipates that it may not be able to consummate a Business Combination within 12 months, the Company may extend the period of time to consummate a Business Combination up to three times, each by an additional three months (for a total of up to 21 months to complete a Business Combination). Pursuant to the terms of the Company’s amended and restated certificate of incorporation and the trust agreement entered into between the Company and Continental Stock Transfer & Trust Company, in order to extend the time available for the Company to consummate its initial Business Combination, the Sponsor or its affiliates or designees, upon five days advance notice prior to the applicable deadline, must deposit into the Trust Account approximately $303,160 ($0.0583 per Unit), on or prior to the date of the applicable deadline, for each three month extension, up to an aggregate of approximately $910,000 if extended three times, or $0.1750 per Unit. The Sponsor and its affiliates or designees are not obligated to fund the Trust Account to extend the time for the Company to complete its initial Business Combination. In the event that interest in the trust is available for withdrawal for working capital purposes and has not been used to pay taxes or other working capital expenses, the Company may apply the accrued interest in the Trust Account or such withdrawn interest to the Sponsor’s obligation to loan the Company money in connection with an extension, and the amount that the Sponsor would be obligated to loan the Company in connection with such extension would be reduced by the amount of interest so applied. If the Company does not complete a Business Combination within this period of time (“Combination Period”), it shall, as promptly as reasonably possible but not more than ten business days thereafter, redeem the public shares for a pro rata portion of the funds held in the trust account and as promptly as reasonably possible following such redemption, subject to the approval of its remaining stockholders and its board of directors, dissolve and liquidate, subject in each case to its obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law.
I-AM CAPITAL ACQUISITION COMPANY
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2018 and 2017
In the event of such distribution, it is possible that the per share value of the residual assets remaining available for distribution (including Trust Account assets) will be less than the initial public offering price per Public Unit in the Initial Public Offering. The Company, after signing a definitive agreement for a Business Combination, will either (i) seek stockholder approval of the Business Combination at a meeting called for such purpose in connection with which stockholders may seek to redeem their shares, regardless of whether they vote for or against the Business Combination, for 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 initial Business Combination, including interest but less taxes payable and up to a maximum of $600,000 of working capital released to the Company, or (ii) provide stockholders with the opportunity to sell their shares to the Company by means of a tender offer (and thereby avoid the need for a stockholder vote) for an amount in 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 commencement of the tender offer, including interest but less taxes payable. The decision as to whether the Company will seek stockholder approval of the Business Combination or will allow stockholders to sell their shares in a tender offer will be made by the Company, solely in its discretion, and will be based on a variety of factors such as the timing of the transaction and whether the terms of the transaction would otherwise require the Company to seek stockholder approval unless a vote is required by NASDAQ rules. If the Company seeks stockholder approval, it will complete its Business Combination only if a majority of the outstanding shares of common stock voted are voted in favor of the Business Combination. However, in no event will the Company redeem its public shares in an amount that would cause its net tangible assets to be less than $5,000,001 upon consummation of the initial Business Combination. In such case, the Company would not proceed with the redemption of its public shares and the related Business Combination, and instead may search for an alternate Business Combination.
As a result of the public stockholders’ redemption rights, such shares of common stock will be recorded at redemption amount and classified as temporary equity upon the completion of the Initial Offering, in accordance with FASB ASC 480, “Distinguishing Liabilities from Equity.” The amount in the Trust Account is initially anticipated to be $10.15 per public common share, subject to increase of up to an additional $0.1750 per share in the event that the Sponsor elects to extend the period of time to consummate a Business Combination, as described in more detail in the prospectus. The per-share amount to be distributed to investors who properly redeem their shares will not be reduced by the deferred underwriting commissions paid to the underwriters. There will be no redemption rights upon the completion of the initial Business Combination with respect to the warrants. The initial stockholders have entered into letter agreements, pursuant to which they have agreed to waive their redemption rights with respect to their Founder Shares (defined in Note 4), shares of common stock underlying the Private Units and the Public Units, and any additional shares they may acquire during or after the Initial Public Offering in connection with the completion of the Business Combination. Prior to acquiring any securities from the initial stockholders, permitted transferees must enter into a written agreement with the Company agreeing to be bound by the same restriction.
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements are presented in U.S. dollars in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the SEC.
Emerging Growth Company
Section 102(b)(1) of the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a registration statement under the Securities Act of 1933, as amended (the “Securities Act”), declared effective or do not have a class of securities registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such an election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard.
I-AM CAPITAL ACQUISITION COMPANY
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2018 and 2017
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash accounts in a financial institution, which at times, may exceed the Federal depository insurance coverage of $250,000. The Company has not experienced losses on these accounts and management believes the Company is not exposed to significant risks on such accounts.
Financial Instruments
The fair value of the Company’s assets and liabilities, which qualify as financial instruments under FASB ASC 820, “Fair Value Measurements and Disclosures,” approximates the carrying amounts represented in the balance sheet.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Offering Costs
The Company complies with the requirements of ASC 340-10-S99-1 and SEC Staff Accounting Bulletin (SAB) Topic 5A — “Expenses of Offering”. Offering costs of approximately $3,728,000 consisting principally of underwriter discounts of $3,250,000 (including approximately $1,820,000 of which payment is deferred) and approximately $478,000 of professional, printing, filing, regulatory and other costs have been charged to additional paid in capital upon completion of the Initial Public Offering.
Common stock subject to possible redemption
The Company accounts for its common stock subject to possible redemption in accordance with the guidance in Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” Common stock subject to mandatory redemption (if any) are classified as liability instruments and are measured at fair value. Conditionally redeemable common stock (including common stock that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) are classified as temporary equity. At all other times, common stock are classified as stockholders’ equity. The Company’s common stock features certain redemption rights that are considered to be outside of the Company’s control and subject to occurrence of uncertain future events. Accordingly, at May 31, 2018, 4,560,757 shares of common stock subject to possible redemption at the redemption amount are presented as temporary equity, outside of the stockholders’ equity section of the Company’s balance sheet.
I-AM CAPITAL ACQUISITION COMPANY
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2018 and 2017
Net income (loss) per share
The Company complies with accounting and disclosure requirements ASC Topic 260, “Earnings Per Share.” Net income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding for the period. Shares of common stock subject to possible redemption at May 31, 2018 have been excluded from the calculation of basic income (loss) per share and diluted loss per share year ended May 31, 2018 since such shares, if redeemed, only participate in their pro rata share of the Trust Account earnings. The Company has not considered the effect of (1) warrants sold in the Initial Public Offering and Private Placement to purchase shares of common stock, (2) rights sold in the Initial Public Offering and Private Placement that convert into shares of common stock, and (3) the unit purchase option granted to the underwriters in the calculation of diluted income (loss) per share, since the exercise of the warrants and the conversion of the rights into shares of common stock is contingent upon the occurrence of future events.
Income Taxes
The Company complies with the accounting and reporting requirements of ASC Topic 740, “Income Taxes,” which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed for differences between the financial statements and tax bases of assets and liabilities that will result in future taxable or deductible amounts, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
ASC Topic 740 prescribes a recognition threshold and a measurement attribute for the financial statements recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities.
On December 22, 2017, the U.S. Tax Cuts and Jobs Act of 2017 (“Tax Reform”) was signed into law. As a result of Tax Reform, the U.S. statutory tax rate was lowered from 35% to 21% effective January 1, 2018, among other changes. ASC Topic 740 requires companies to recognize the effect of tax law changes in the period of enactment; therefore, the Company was required to revalue its deferred tax assets and liabilities at the new rate. The SEC issued Staff Accounting Bulletin No. 118 (“SAB 118"118”) to address the application of GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain tax effects of Tax Reform. The ultimate impact may differ from this provisional amount, possibly materially, as a result of additional analysis, changes in interpretations and assumptions the Company has made, additional regulatory guidance that may be issued, and actions the Company may take as a result of Tax Reform.
Recent Accounting Pronouncements
Management does not believe that any recently issued, but not yet adopted accounting pronouncements, would have a material effect on the Company’s financial statements.
NOTE 3 — INITIAL PUBLIC OFFERING AND PRIVATE PLACEMENT
Initial Public Offering
On August 22, 2017, the Company sold 5,000,000 Public Units at a purchase price of $10.00 per Public Unit in the 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 $1.82 million of underwriting fees until the consummation of the initial Business Combination.
I-AM CAPITAL ACQUISITION COMPANY
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2018 and 2017
Each Unit consists of one share of the Company’s common stock, one right to receive one-tenth of one share of the Company’s common stock upon consummation of the Company’s initial Business Combination (“Right”), and one redeemable warrant (“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.
The Company may redeem the Warrants, in whole and not in part, at a price of $0.01 per Warrant upon 30 days’ notice ("(“30-day redemption period”), only in the event that the last sale price of the common stock equals or exceeds $21.00 per share for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date on which notice of redemption is given, provided there is an effective registration statement with respect to the shares of common stock underlying such Warrants and a current prospectus relating to those shares of common stock is available throughout the 30-day redemption period. If the Company calls the Warrants for redemption as described above, the Company’s management will have the option to require all holders that wish to exercise Warrants to do so on a “cashless basis.” In determining whether to require all holders to exercise their warrants on a “cashless basis,” management will consider, among other factors, the Company’s cash position, the number of Warrants that are outstanding and the dilutive effect on the Company’s stockholders of issuing the maximum number of shares of common stock issuable upon the exercise of the Warrants.
Each holder of a Right will receive one-tenth (1/10) of one share of common stock upon consummation of a Business Combination. No fractional shares will be issued upon exchange of the Rights. No additional consideration will be required to be paid by a holder of Rights in order to receive its additional shares upon consummation of a Business Combination as the consideration related thereto has been included in the Unit purchase price paid for by investors in the Initial Public Offering. If the Company enters into a definitive agreement for a Business Combination in which the Company will not be the surviving entity, each holder of a right will be required to affirmatively convert its rights in order to receive the 1/10 share of common stock underlying each right (without paying any additional consideration).
There will be no redemption rights or liquidating distributions with respect to the Warrants and Rights, which will expire worthless if the Company fails to complete it Business Combination within the Combination 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 (“Maxim”), as compensation for the Initial Public Offering, an aggregate of 52,000 shares (including 20,000 shares issued in connection with the partial exercise of the over-allotment option. The Company accounted for the fair value of these shares as an expense of the Initial Public Offering resulting in a charge directly to stockholders’ equity.
Unit Purchase Option
At the time of the closing of the Initial Public Offering, the Company sold to Maxim, for an aggregate of $100, an option (the “UPO”) to purchase 250,000 Units (which increased to 260,000 units upon the partial exercise of the underwriters’ over-allotment option) (See Note 5). The Company has accounted for the fair value of the UPO, inclusive of the receipt of the $100 cash payment, as an expense of the Initial Public Offering resulting in a charge directly to shareholders’ equity. The Company estimates that the fair value of this UPO is approximately $743,600 (or $2.86 per Unit) using the Black-Scholes option-pricing model. The fair value of the UPO is estimated as of the date of grant using the following assumptions: (1) expected volatility of 35%, (2) risk-free interest rate of 1.73% and (3) expected life of five years. The UPO may be exercised for cash or on a “cashless” basis, at the holder’s option (except in the case of a forced cashless exercise upon the Company’s redemption of the Warrants, as described above), such that the holder may use the appreciated value of the UPO (the difference between the exercise prices of the UPO and the underlying Warrants and Rights, and the market price of the Units and underlying shares of common stock) to exercise the UPO without the payment of any cash. The Company will have no obligation to net cash settle the exercise of the UPO or the Warrants or Rights underlying the UPO. The holder of the UPO will not be entitled to exercise the UPO or the Warrants or Rights underlying the UPO unless a registration statement covering the securities underlying the UPO is effective or an exemption from registration is available. If the holder is unable to exercise the UPO or underlying Warrants or Rights, the UPO, Warrants or Rights, as applicable, will expire worthless.
I-AM CAPITAL ACQUISITION COMPANY
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2018 and 2017
The Company granted the holders of the UPO, demand and “piggy back” registration rights for periods of five and seven years, respectively, from the effective date of the registration statement relating to the Initial Public Offering, including securities directly and indirectly issuable upon exercise of the UPO.
Private Placement
Concurrently with the closing of the Initial Public Offering, the Sponsor purchased an aggregate of 254,500 Private Units at $10.00 per Private Unit, generated gross proceeds of $2,545,000 in a Private Placement. The proceeds from the Private Units was added to the proceeds from the Initial Public Offering held in the Trust Account. The Private 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 (the “Private Placement Warrants”) will be non-redeemable so long as they are held by the Sponsor or their permitted transferees. If the Private Placement Warrants are held by someone other than the Sponsor or their permitted transferees, the Private Placement Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Warrants included in the Public Units sold in the Initial Public Offering. Otherwise, the Private Placement Warrants and the Rights underlying the Private Units have terms and provisions that are identical to those of the Warrants and Rights, respectively, sold as part of the Public Units in the Initial Public Offering and have no net cash settlement provisions.
On September 13, 2017, the Sponsor purchased 7,000 additional Private Units for gross proceeds of $70,000 upon partial exercise of the underwriter’s over-allotment option.
If the Company does not complete a Business Combination within the Combination Period, the proceeds of the Private Placement will be part of the liquidating distribution to the public stockholders and the Private Units and their component securities issued to the Sponsor will expire worthless.
NOTE 4 — RELATED PARTY TRANSACTIONS
Founder Shares
On May 31, 2017, the Company issued 1,437,500 shares of the Company’s common stock to the Sponsor (the “Founder Shares”) in exchange for a capital contribution of $25,000. 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 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 the Company 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 the Company extends the period of time to consummate a Business Combination).
I-AM CAPITAL ACQUISITION COMPANY
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2018 and 2017
With certain limited exceptions, the Founder Shares are not transferable, assignable or salable (except to the Company’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 the Company’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 onwhich the Company 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.
Private Units
In addition, the Sponsor purchased, pursuant to a written agreement, an aggregate of 254,500 Private Units at $10.00 per Private 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 be made pursuant to the exemption from registration contained in Section 4(a) (2) of the Securities Act.
On September 13, 2017, the Sponsor purchased 7,000 additional Private Units at $10.00 per Private Unit upon the partial exercise of the underwriter’s over-allotment option.
Administrative Service Fee
The Company has agreed, commencing on the effective date of the Initial Public Offering through the earlier of the Company’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. For the year ended May 31, 2018, the Company has paid an aggregate of $100,000 which is presented as general and administrative expense on the accompanying statement of operations.
Loan
The Sponsor has loaned the Company $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 due at the earlier of December 31, 2017 or the closing of the Initial Public Offering. As of May 31, 2018, $120,089 of the Sponsor’s loan has been repaid. As of May 31, 2018 and 2017 the balance of the sponsor loan is $81,618 and $30,672, respectively.
NOTE 5 — COMMITMENTS AND CONTINGENCIES
Registration Rights
Pursuant to a registration rights agreement the Company entered into with its initial stockholders and initial purchasers of the Private Units (and constituent securities) at the closing of the Initial Public Offering, the Company 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 the Company 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 the Company. The Company will bear the costs and expenses of filing any such registration statements.
I-AM CAPITAL ACQUISITION COMPANY
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2018 and 2017
Unit Purchase Option
The Company sold to the underwriters (and/or their designees), for $100, an option to purchase up to a total of 250,000 Units (which increased to 260,000 Units upon the partial exercise of the underwriters’ over-allotment option), exercisable at $11.50 per Unit (or an aggregate exercise price of $2,990,000) upon the closing of the Initial Public Offering. The UPO may be exercised for cash or on a cashless basis, at the holder’s option, at any time during the period commencing on the later of the first anniversary of the effective date of the registration statement relating to the Initial Public Offering and the closing of the Company’s initial Business Combination, and terminating on the fifth anniversary of such effectiveness date. The Units issuable upon exercise of this UPO are identical to those offered in the Initial Public Offering, except that the exercise price of the warrants underlying the Units sold to the underwriters is $13.00 per share.
Deferred Legal Fees
The Company has committed to pay its attorneys a deferred legal fee of $100,000 upon the consummation of the Initial Business Combination relating to services performed in connection with the IPO. This amount has been accrued in the accompanying balance sheet.
NOTE 6 — STOCKHOLDERS’ EQUITY
Common Stock
The Company is authorized to issue 20,000,000 shares of common stock with a par value of $0.0001 per share. Holders of the shares of the Company’s common stock are entitled to one vote for each share. At May 31, 2018, there were 6,813,500 shares of common stock issued and outstanding, which reflects the 137,500 shares that were forfeited by the Sponsor due to the underwriters’ over-allotment option being exercised in part, and includes 4,560,757 shares of the Company’s common stock subject to possible redemption.
Preferred Stock
The Company is authorized to issue 1,000,000 shares of preferred stock with a par value of $0.0001 per share. At May 31, 2018, there were no shares of preferred stock issued or outstanding.
NOTE 7 — TRUST ACCOUNT AND FAIR VALUE MEASUREMENTS
The Trust Account can be invested in U.S. government securities, within the meaning set forth in the Investment Company Act, having a maturity of 180 days or less or in any open-ended investment company that holds itself out as a money market fund selected by the Company meeting the conditions of Rule 2a-7 of the Investment Company Act.
The Company’s amended and restated certificate of incorporation provides that, other than the withdrawal of interest to pay income taxes and up to $600,000 of interest to pay working capital expenses if any, none of the funds held in the Trust Account will be released until the earlier of: (i) the completion of the Business Combination; (ii) the redemption of 100% of the shares of common stock included in the Public Units sold in the Initial Public Offering if the Company 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).
The Company follows the guidance in ASC 820 for its financial assets and liabilities that are re-measured and reported at fair value at each reporting period, and non-financial assets and liabilities that are re-measured and reported at fair value at least annually.
I-AM CAPITAL ACQUISITION COMPANY
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2018 and 2017
The fair value of the Company’s financial assets and liabilities reflects management’s estimate of amounts that the Company would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:
Level 1: | Quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. |
Level 2: | Observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active. |
Level 3: | Unobservable inputs based on our assessment of the assumptions that market participants would use in pricing the asset or liability. |
The following table presents information about the Company’s assets that are measured at fair value on a recurring basis at May 31, 2018 and May 31, 2017, and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:
Description | Level | May 31,2018 | May 31, 2017 | |||||||||
Assets: | ||||||||||||
Cash and marketable securities held in Trust Account | 1 | $ | 52,895,652 | $ | — |
NOTE 8 - INCOME TAX
The Company’s net deferred tax assets are as follows:
May 31, 2018 | ||||
Deferred tax asset | ||||
Net Operating Loss | $ | 2,000 | ||
Total deferred tax assets | 2,000 | |||
Valuation allowance | (2,000 | ) | ||
Deferred tax asset, net of allowance | $ | — |
As of May 31, 2018, the Company had U.S. federal and state net operating loss carryovers (“NOLs”) of $9,534 available to offset future taxable income. In accordance with Section 382 of the Internal Revenue Code, deductibility of the Company’s NOLs may be subject to an annual limitation in the event of a change in control as defined under the regulations.
In assessing the realization of the deferred tax assets, management considers whether it is more likely than not that some portion of all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences representing net future deductible amounts become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. After consideration of all of the information available, management believes that significant uncertainty exists with respect to future realization of the deferred tax assets and has therefore established a full valuation allowance. For the year ended May 31, 2018, the change in the valuation allowance was $2,000.
A reconciliation of the federal income tax rate to the Company’s effective tax rate at December 31, 2017 is as follows:
Year Ended May 31, 2018 | ||||
Statutory federal income tax rate | 28.0 | % | ||
State taxes, net of federal tax benefit | 0.0 | % | ||
Deferred tax rate change | (7.0 | )% | ||
Change in valuation allowance | (21.0 | )% | ||
Income tax provision | — | % |
On December 22, 2017, the Tax Cuts and Jobs Act was signed into legislation. As part of the legislation, the U.S. corporate income tax rate was reduced to 21%. The Company has a recorded full valuation allowance against its deferred tax assets.
The Company files income tax returns in the U.S. federal jurisdiction in various state and local jurisdictions and is subject to examination by the various taxing authorities.
NOTE 9 – SUBSCRIPTION AGREEMENT
On May 3, 2018, the Company entered into a share subscription agreement (the “Subscription Agreement”), with Smaaash Entertainment Private Limited, a private limited company incorporated under the laws of India (“Smaaash”), Shripal Morakhia (“Morakhia”), and AHA Holdings Private Limited (“AHA Holdings”, and together with Morakhia, the “Smaaash Founders”), pursuant to which the Company agreed to contribute a cash amount of up to $49 million (the “Investment Amount”) to Smaaash in exchange for (i) up to 76,641,157 newly issued equity shares of Smaaash (“Subscription Shares”), (ii) the right to act as the sole distributor of Smaaash’s active entertainment games in North and South America and (iii) the right to act as the master franchisee for Smaaash’s active entertainment centers in North and South America (the transactions contemplated by the Subscription Agreement, collectively, the “Transaction”). Assuming a cash contribution amount of $49 million, the Subscription Agreement provided that the equity shares received by the Company would represent approximately 24.53% of the equity capital of Smaaash; provided that such percentage shall be decreased proportionately depending on the number of shares of the Company’s common stock that the public holders of the Company’s common stock elect to redeem in connection with the vote on the Transaction and the resulting reduction in funds available for contribution to Smaaash. On June 22, 2018, the Company, Smaaash and the Smaaash Founders entered into that certainAmendment Cum Addendum to the Subscription Agreement, pursuant to which the Subscription Agreement was amended to, among other things, increase the number of Subscription Shares that the Company would receive for the full Investment Amount from 76,641,157 shares to89,583,215shares, which shares would represent approximately 27.53% of the equity capital of Smaaash.
SHARE SUBSCRIPTION AGREEMENT
By and AmongSIMPLICITY ESPORTS AND GAMING COMPANY AND SUBSIDIARY
(FORMERLY KNOWN AS I-AM CAPITAL ACQUISITION COMPANY)
CONSOLIDATED BALANCE SHEETS
February 28, 2019 | ||||||||
(Unaudited) | May 31, 2018 | |||||||
ASSETS | ||||||||
Current Assets | ||||||||
Cash and cash equivalents | $ | 1,245,666 | $ | 458,063 | ||||
Prepaid expenses | 54 | 3,168 | ||||||
Total Current Assets | 1,245,720 | 461,231 | ||||||
Other Assets | ||||||||
Goodwill | 6,070,368 | — | ||||||
Property and equipment | 51,350 | — | ||||||
Cash held in trust account | — | 52,895,652 | ||||||
Total Other Assets | 6,121,718 | 52,895,652 | ||||||
TOTAL ASSETS | $ | 7,367,438 | $ | 53,356,883 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current Liabilities | ||||||||
Loan payable- related party | $ | 85,238 | $ | 81,618 | ||||
Private placement funds received | 1,000,003 | — | ||||||
Accrued expenses | 871,315 | 63,579 | ||||||
Convertible note payable | 1,000,000 | — | ||||||
Deferred legal fees | — | 100,000 | ||||||
Total Current Liabilities | 2,956,556 | 245,197 | ||||||
Deferred underwriting fees | — | 1,820,000 | ||||||
Total Liabilities | 2,956,556 | 2,065,197 | ||||||
Commitments | ||||||||
Common stock subject to possible redemption, $0.0001 par value; -0- and 4,560,757 shares as of February 28, 2019 and May 31, 2018, respectively at redemption value | — | 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; 6,313,038 and 2,252,743 shares issued and outstanding as of February 28, 2019 and May 31, 2018, respectively | 632 | 225 | ||||||
Common stock issuable - 2,030,000 shares at February 28, 2019 | 203 | — | ||||||
Additional paid-in capital | 7,515,541 | 5,009,310 | ||||||
Accumulated deficit | (3,105,494 | ) | (9,534 | ) | ||||
Total Stockholders’ Equity (Deficit) | 4,410,882 | 5,000,001 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 7,367,438 | $ | 53,356,883 |
The accompanying notes are an integral part of these unaudited consolidated financial statements
SIMPLICITY ESPORTS AND GAMING COMPANY AND SUBSIDIARY
(FORMERLY KNOWN AS I-AM CAPITAL ACQUISITION COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended February 28, 2019 | Three Months Ended February 28, 2018 | Nine Months Ended February 28, 2019 | Nine Months Ended February 28, 2018 | |||||||||||||
Revenue | ||||||||||||||||
Revenue | $ | 14,070 | $ | — | 14,070 | $ | — | |||||||||
Operating Expenses | ||||||||||||||||
General and Administrative expenses | 430,010 | 114,465 | 3,811,612 | 305,690 | ||||||||||||
Loss from Operations | 415,940 | 114,465 | 3,797,542 | 305,690 | ||||||||||||
Other Income | ||||||||||||||||
Debt Forgiveness Income | 300,000 | — | 300,000 | — | ||||||||||||
Interest Income | 164 | 158,712 | 401,582 | 312,000 | ||||||||||||
Total Other Income | 300,164 | 158,712 | 701,582 | 312,000 | ||||||||||||
Income (Loss) Before Provision for Income Taxes | (115,776 | ) | 44,247 | (3,095,960 | ) | 6,310 | ||||||||||
Less Provision for Income Taxes | — | 15,044 | — | 2,145 | ||||||||||||
Net Income (Loss) | $ | (115,776 | ) | $ | 29,203 | $ | (3,095,960 | ) | $ | 4,165 | ||||||
Basic and Diluted Net Income (Loss) per share | $ | (0.02 | ) | $ | 0.01 | $ | (0.87 | ) | $ | 0.00 | ||||||
Weighted Average Number of common shares outstanding | 5,790,781 | 2,268,539 | 3,575,419 | 2,002,237 |
The accompanying notes are an integral part of these unaudited consolidated financial statements
SIMPLICITY ESPORTS AND GAMING COMPANY AND SUBSIDIARY
(FORMERLY KNOWN AS I-AM CAPITAL ACQUISITION COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE YEAR ENDED MAY 31, 2018 AND THE NINE MONTHS ENDED FEBRUARY 28, 2019
UNAUDITED
Common Stock | Common Stock Issuable | Additional Paid-In | Accumulated | Total Stockholders’ | ||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||
Balance - May 31, 2017 | 1,437,500 | $ | 144 | $ | — | $ | — | $ | 24,856 | $ | (672 | ) | $ | 24,328 | ||||||||||||||
Sale of 5,200,000 Units, net of underwriting discount and offering expenses | 5,200,000 | 520 | — | — | 48,160,700 | — | 48,161,220 | |||||||||||||||||||||
Sale of 261,500 Private Units | 261,500 | 26 | — | — | 2,614,974 | — | 2,615,000 | |||||||||||||||||||||
Issuance of shares to underwriter | 52,000 | 5 | — | — | 499,995 | — | 500,000 | |||||||||||||||||||||
Common Stock Subject to Redemption | (4,560,757 | ) | (456 | ) | — | — | (46,291,229 | ) | — | (46,291,685 | ) | |||||||||||||||||
Common Stock Forfeited by Sponsor | (137,500 | ) | (14 | ) | — | — | 14 | — | — | |||||||||||||||||||
Net loss | — | — | — | — | — | (8,862 | ) | (8,862 | ) | |||||||||||||||||||
Balance - May 31, 2018 | 2,252,743 | $ | 225 | — | — | $ | 5,009,310 | $ | (9,534 | ) | $ | 5,000,001 | ||||||||||||||||
Common Stock Subject to Redemption | 112,497 | 11 | — | — | (6,635,671 | ) | — | (6,635,660 | ) | |||||||||||||||||||
Shares issued for advisory services | 208,000 | 21 | — | — | 2,124,979 | — | 2,125,000 | |||||||||||||||||||||
Common stock issued to Smaaash Founders | 2,000,000 | 200 | — | — | — | 200 | ||||||||||||||||||||||
Rights shares | 546,150 | 55 | — | — | 383,393 | — | 383,448 | |||||||||||||||||||||
Common Shares Issued in Acquisition | 1,000,000 | 100 | — | — | 6,089,900 | — | 6,090,000 | |||||||||||||||||||||
Common Shares Issuable from Acquisition | — | — | 2,000,000 | 200 | — | — | 200 | |||||||||||||||||||||
Common Shares Issuable from Employment Agreements | — | — | 30,000 | 3 | 43,650 | — | 43,653 | |||||||||||||||||||||
— | ||||||||||||||||||||||||||||
Common Shares issued for convertible note | 193,648 | 20 | — | — | 499,980 | — | 500,000 | |||||||||||||||||||||
Net loss | — | — | — | — | — | (3,095,960 | ) | (3,095,960 | ) | |||||||||||||||||||
Balance - February 28, 2019 | 6,313,038 | $ | 632 | 2,030,000 | $ | 203 | $ | 7,515,541 | $ | (3,105,494 | ) | $ | 4,410,882 |
The accompanying notes are an integral part of these unaudited consolidated financial statements
SIMPLICITY ESPORTS AND GAMING COMPANY AND SUBSIDIARY
(FORMERLY KNOWN AS I-AM CAPITAL ACQUISITION COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
Nine Months Ended February 28, 2019 | Nine Months Ended February 28, 2018 | |||||||
Cash flows from operating activities: | ||||||||
Net (loss) income | $ | (3,095,960 | ) | $ | 4,165 | |||
Adjustments to reconcile net (loss) income to net cash (used in) operating activities: | ||||||||
Interest earned on marketable securities held in trust account | (401,582 | ) | (94,359 | ) | ||||
Impairment of cost method investment | 150,000 | — | ||||||
Debt forgiveness income | (300,000 | ) | — | |||||
Issuance of shares for services | 2,169,143 | — | ||||||
Changes in operating assets and liabilities: | ||||||||
Prepaid expenses | 3,114 | — | ||||||
Deferred legal fees | (100,000 | ) | — | |||||
Accrued expenses | 751,438 | 49,750 | ||||||
Income taxes payable | — | 2,145 | ||||||
Net cash used in operating activities | (823,847 | ) | (38,299 | ) | ||||
Cash flows from investing activities: | ||||||||
Investment of cash in Trust Account | — | (52,780,000 | ) | |||||
Cash purchased in acquisition | 75,930 | — | ||||||
Investment at cost | (150,000 | ) | — | |||||
Purchase of property and equipment | (51,350 | ) | — | |||||
Net cash provided by (used in) investing activities | (125,420 | ) | (52,780,000 | ) | ||||
Cash flows from financing activities: | ||||||||
Gross proceeds from sale of Units, net of commissions | — | 50,860,100 | ||||||
Proceeds from sale of Private Units | — | 2,615,000 | ||||||
Proceeds from note payable - related party, net | 3,620 | 171,035 | ||||||
Repayment of note payable - related party, net | — | (120,089 | ) | |||||
Settlement of redeemable common stock | (46,291,685 | ) | — | |||||
Cash held in trust account used to settle common stock redemption obligation | (7,620,432 | ) | — | |||||
Cash in trust | 54,645,364 | — | ||||||
Private placement funds received | 1,000,003 | — | ||||||
Repayment of offering costs | — | (253,880 | ) | |||||
Net cash provided by financing activities | 1,736,870 | 53,272,166 | ||||||
Net change in cash | 787,603 | 453,867 | ||||||
Cash - beginning of period | 458,063 | 30,000 | ||||||
Cash - end of period | $ | 1,245,666 | $ | 483,867 | ||||
Supplemental Disclosures of Cash Flow Information: | ||||||||
Cash paid for interest | $ | — | $ | — | ||||
Cash paid for income taxes | $ | — | $ | — | ||||
Supplemental Non-Cash Investing and Financing Information | ||||||||
Deferred underwriting fees charged to additional paid in capital | $ | — | $ | 1,820,000 | ||||
Deferred legal fees charged to additional paid in capital | $ | — | $ | 100,000 | ||||
Issuance of common stock issued to underwriters charged to additional paid in capital | $ | — | $ | 44,327,271 | ||||
Change in value of common stock subject to possible redemption | $ | — | $ | 1,967,441 | ||||
Offering costs charged to additional paid capital | $ | — | $ | 25,000 | ||||
Common stock issued for consideration in an acquisition | $ | 6,090,000 | $ | — |
The accompanying notes are an integral part of these unaudited consolidated financial statements
F-20 |
SIMPLICITY ESPORTS AND GAMING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 2019
(UNAUDITED)
I-AM CAPITAL ACQUISITION COMPANYNOTE 1 — DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS
And
PROMOTERS
And
SMAAASH ENTERTAINMENT PRIVATE LIMITED
A-1
SHARE SUBSCRIPTION AGREEMENT
This share subscription agreement is executedSimplicity Esports and Gaming Company F/K/A Smaaash Entertainment Inc. (the “Company,” “we,” or “our”), was a newly organized blank check company organized under the laws of the State of Delaware on this 3rd day of May, 2018 at New Delhi:
By and Amongst
April 17, 2017. The Company was formed under the name I-AM Capital Acquisition Company, for the purpose of effecting a company incorporatedmerger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses (“Business Combination”). On November 20, 2018, the Company changed its name from I-AM Capital Acquisition Company to Smaaash Entertainment Inc. On January 2, 2019, the Company changed its name from Smaaash Entertainment Inc. to Simplicity Esports and Gaming Company.
Through our wholly subsidiary, Simplicity Esports, LLC, acquired on January 2, 2019 (see Note 4). The Company has begun to implement a unique approach to ensure the ultimate fan friendly esports experience. Our intention is to have gamers involved at the grassroots level and feel a sense of unity as we compete with top class talent. Our management and players are known within the esports community and we plan to use their skills to create a seamless content creation plan helping gamers feel closer to our brand than any other in the United Statesindustry. Simplicity is an established brand in the Esports industry with an engaged fan base competing in popular games across different genres, including Apex Legends, PUBG, Gears of AmericaWar, Smite, and having its registered office at 1345 AvenueNHL 19. Additionally, the Simplicity stream team encompasses a unique group of casters, influencers, and personalities all of whom connect to Simplicity’s dedicated fan base. Simplicity also plans to open and operate esports gaming centers that will provide the Americas, 11thFloor, New York, NY 10105 (hereinafter referredpublic an opportunity to as the “Investor", which expression shall, unless it be repugnant to the contextexperience and enjoy gaming and Esports in a social setting, regardless of skill or meaning thereof, be deemed to mean and include its successors and permitted assigns) of theFirst Part;experience.
AndThe Company’s sponsor was I-AM Capital Partners LLC (the “Sponsor”). The Company selected May 31 as its fiscal year end.
The Persons listed in SCHEDULE 1 (hereinafter referred to collectively, asOn November 20, 2018, the “Promoters”Company and individually, as a “Promoter", which expression shall, unless it be repugnant or contrary to the context thereof, mean and include each of their heirs, permitted assigns and successors-in-interest, as the case may be) of theSecond Part;
And
Smaaash Entertainment Private Limited,, a private limited company incorporated under the laws of India having(“Smaaash”), consummated the initial Business Combination (the “Closing”) as contemplated by a share subscription agreement dated as of May 3, 2018 (as amended by the Amendment Cum Addendum dated June 22, 2018, the Second Amendment Cum Addendum dated August 2, 2018, the Third Amendment Cum Addendum dated November 1, 2018 and the Fourth Amendment Cum Addendum dated November 15, 2018, the “Subscription Agreement”), following the approval at the special meeting of the stockholders of I-AM Capital held on November 9, 2018 (the “Special Meeting”).
In connection with the Closing, the Company changed its office at 1st Floor, Ambience Mall, Plot no. 2, Phase II, Nelson Mandela Marg, Delhi-110070, India (hereinafter referredname from I-AM Capital Acquisition Company to as the “Smaaash Entertainment Inc.
CompanyFinancing", which expression shall, unless it be repugnant to the context or meaning thereof, be deemed to mean and include its successors and permitted assigns) of theThird Part.
The registration statement for the Company’s initial public offering (as described in Note 3) was declared effective by the United States Securities and Exchange Commission (the “SEC”) on August 16, 2017. The Company financed the InvestorBusiness Combination with the net proceeds from the sale of $50,000,000 of units in the initial public offering (the “Public Units”) and the Promoters shall hereinafter be individually referred tosale of $2,545,000 of units (the “Private Units” and, together with the Public Units, the “Units”) in the simultaneous private placement (the “Private Placement” as described in Note 3). Upon the closing of the Initial Public Offering and the Private Placement on August 22, 2017, $50,750,000 was deposited in a “Party”trust account with Continental Stock Transfer and collectively referred toTrust Company acting as the “Parties".trustee (the “Trust Account”) as discussed below.
WHEREAS:
NOW, THEREFORE,Contained in considerationthe underwriting agreement for the Initial Public Offering was an over-allotment option allowing the underwriters to purchase from the Company up to an additional 750,000 Public Units (the “Over-Allotment Units”) and, in addition, the Company received a commitment from the Sponsor to purchase up to an additional 26,250 Private Units in order to maintain the amount of cash in the Trust Account equal to $10.15 per Public Unit sold in the Initial Public Offering. On September 13, 2017, the underwriters partially exercised their option and purchased 200,000 Over-Allotment Units, which were sold at an offering price of $10.00 per Unit, generating gross proceeds of $2,000,000. Also on September 13, 2017, simultaneously with the sale of the mutual covenants and agreements set forth in this Agreement, and for other good and valuable consideration,Over-Allotment Units, the sufficiencyCompany consummated the sale of which is acknowledged by the Parties, the Parties hereby agree as follows:
In this Agreement, the following words and expressions shall, except where the context otherwise requires, have the following meanings respectively:an additional 7,000 Placement Units (the “Over-Allotment Placement Units”), generating gross proceeds of $70,000.
"AccountsTrust Account" means the IFRS audited financials including balance sheet, income statement, statement of cash flows, for the last two financial years (that is, financial year ended March 31, 2017 and March 31, 2016) and financials for the period from April 1, 2017 to December 31, 2017, prepared by Prager Matis, a copy of each of which is annexed to this Agreement asSCHEDULE 8;
"Accounts Date" means December 31, 2017;The Trust Account was invested only in U.S. government treasury bills with a maturity of one hundred and eighty (180) days or less or in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act of 1940, which invested only in direct U.S. government obligations. Funds were to remain in the Trust Account until the earlier of (i) the consummation of its first Business Combination or (ii) the distribution of the Trust Account as described below. The remaining proceeds outside the Trust Account were allowed to be used to pay for business, legal and accounting due diligence on prospective acquisitions and continuing general and administrative expenses.
"ActBusiness Combination" means the (Indian) Companies Act, 1956, as substituted by the provisions of the Companies Act, 2013 to the extent notified as having become effective and any amendment thereto and, wherever applicable, the rules framed thereunder and any subsequent amendment or re-enactment thereof for the time being in force;
"Action" means any claim, demand, dispute, litigation, petition, suit, investigation, inquiry, proceeding, mediation, arbitration, conciliation, enforcement proceeding, hearing, complaint, assessment, fine, penalty, judgment, order, injunction, decree or award (administrative or judicial (criminal or otherwise)) by or before any Governmental Authority, and shall without limitation include any insolvency proceedings;
"Affiliate" of a Person (the “Subject Person") means, (a) in the case of any Subject Person other than a natural person, any other Person that, either directly or indirectly through one or more intermediate Persons and whether alone or in combination with one or more other Persons, Controls, is Controlled by or is under common Control with the Subject Person, and (b) in the case of any Subject Person that is a natural Person, (i) any other Person that, either directly or indirectly through one or more intermediate Persons and whether alone or in combination with one or more other Persons, is Controlled by the Subject Person, or (ii) any other Person who is a Relative of such Subject Person;
"Agreement" means this share subscription agreement and shall include any schedules, annexures, or exhibits that may be annexed to this agreement now or at a later date and any amendments made to this agreement by all the Parties in writing;
"Applicable Law" means any statute, law, regulation, ordinance, rule, judgment, notification, order, decree, bye-law, permits, licenses, approvals, consents, authorisations, government approvals, directives, guidelines, requirements or other governmental restrictions, or any similar form of decision of, or determination by, or any interpretation, policy or administration, having the force of law of any of the foregoing, by any Governmental Authority, whether in effect as of the date of this Agreement or thereafter;
"Articles" means the articles of association of the Company as modified from time to time;
"Assets" means all assets, properties, rights and interests of every kind, nature, specie or description whatsoever including Intellectual Property, whether movable or immovable, tangible or intangible, owned, leased and/or used by the Company;
"Bank Account" means the bank account maintained by the Company, details of which are set out atSCHEDULE 7;
"Board" means the board of directors of the Company, as constituted from time to time;
"Business" means the business of the Company as described inSCHEDULE 2 to this Agreement;
"Business Plan" shall have the meaning ascribed to it in the Shareholders’ Agreement;
"CCPS” means the compulsorily convertible preference shares of face value of INR 10 (Rupees Ten only) having terms that are recorded in the Articles;
"Closing" shall mean the issuance and allotment of Subscription Shares to the Investor and completion of other actions mentioned in Clause 5.2;
"Closing Date" means the date on which Closing occurs;
"Consents" shall mean any and all authorisations, consents, licences, permits, permissions, ratifications, grant, certificate, no objection certificate, order, registrations, waivers, exemptions, privileges, acknowledgements, agreements, concessions, approvals from Shareholders pursuant to the Prior Agreements and the Articles, third Persons and Governmental Authorities;
"Contract" means any agreement, arrangement, contract, subcontract, understanding, instrument, note, warranty or insurance policy (whether or not the same is absolute, revocable, contingent, conditional, binding or otherwise and whether the same is written, in oral form or created by conduct);
"Control" (including the terms “Controlled” by or under common “Control” with), as usedThe Company’s management had broad discretion with respect to any Person means the direct or indirect beneficial ownership of or the right to vote in respect of, directly or indirectly, more than 50% (fifty percent)specific application of the voting shares or securities of a Person and/or the power to control the majoritynet proceeds of the compositionInitial Public Offering.
On August 21, 2018, the Company deposited into the Trust Account an aggregate of $303,610 (including interest earned on the funds in the Trust Account available for withdrawal), representing $0.058 per public share. As a result of such payment, the Company extended the period of time it had to consummate a Business Combination by three months to November 21, 2018.
On November 20, 2018, the parties consummated the initial Business Combination.
Upon consummation of the boardBusiness Combination, the Company issued 208,000 restricted shares to Chardan Capital Markets in consideration for advisory services provided. These restricted shares are valued at $10.21 per share totaling $2,125,000 and are on the statement of directors of a Person and/or the power to create or direct the management or policies of a Person by contract or otherwise or any or all of the above;operations included in general and administrative expenses.
"Director" means a director duly appointedAt the special meeting of stockholders held on the Board from time to time;
"Disclosure Schedule" means the disclosures set out inSCHEDULE 6;
"Effective Date" means the dateNovember 9, 2018, holders of this Agreement;
"Encumbrance" means (including, the terms “Encumber” and “Encumbered") with respect to any Asset, any mortgage, lien, pledge, hypothecation, charge, option, claim, right of other Persons, security interest, equitable interest, beneficial interest, encumbrance, title retention agreement, voting trust agreement, commitment, restriction or limitation of any nature whatsoever, including restriction on voting, transfer, non-disposal undertaking, rights of pre-emption, or exercise of any other attribute of ownership or any other adverse claim of any kind in respect of such Asset;
"Equity Shares" means equity4,448,260 shares of the Company having face valueCompany’s common stock sold in its Initial Public Offering (“Public Shares”) exercised their right to redeem those shares for cash at a price of INR 10 (Rupee Ten only) each;
"FDI Policy" as on a particular date means the government policy and the regulations (including the applicable provisions$10.2187363 per share, for an aggregate of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2017) issued by the Government of India from time to time;
"Financial Year" means the financial year of the Company, which begins on April 1st of a calendar year and ends on March 31st of the next calendar year;
"Fully Diluted Basis” means the total of Securities (afterapproximately $45,455,596. Immediately after giving effect to any anti-dilution/valuation protection provisions)the initial Business Combination (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 Capital Markets as consideration for services), there were 5,119,390 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 an “as if converted” basis;The Nasdaq Stock Market (“Nasdaq”).
"Fundamental Warranties" meansOn the warranties set outClosing Date, the Company entered into a master franchise agreement (“Master Franchise Agreement”) and a master license and distribution agreement (“Master Distribution Agreement”) with Smaaash, as of February 28, 2019 this master franchise agreement and master distribution agreement are no longer in Paragraph 1 (other than Paragraph 1.6) ofSCHEDULE 3 of this Agreement;effect.
"Governmental Approval" means a permit, license, consent, approval, certificate, qualification, specification, registration or other authorisation including filing of a notification, report, assessment obtained or to be filed as the case may be as per the Applicable Laws in India or such other jurisdictions where the Company/ Subsidiaries have business and operations with any governmental, semi-governmental, administrative, fiscal or judicial body or entity in India or such other jurisdictions where the Company/ Subsidiaries have business and operations;NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
"Governmental Authority" shall mean any international, national or federal governmental authority, city, provisional or statutory authority, regulatory authority, government department, agency, commission, board, rule or regulation making entity/authority having or purporting to have jurisdiction over any Party, or other subdivision thereof or any municipality, district or other subdivision thereof to the extent that the rules, regulations, standards, requirements, procedures or ordersBasis of such authority, body or organisation have the force of any Applicable Law or any court or tribunal having jurisdiction;Presentation
"Indebtedness" means with respect to any Person, all indebtedness of such Person (whether present, future or contingent) and includes without limitation (a) all obligations of such Person for borrowed money or with respect to advances of any kind, whether or not evidenced by a Contract; (b) all obligations of such Person for the deferred purchase price of property, goods or services; (c) all indebtedness of others secured by (or for which the holder of such indebtedness has an existing right, contingent or otherwise, to be secured by) any Encumbrance on property of such Person; (d) all guarantees by such Person; and (e) all liabilities or obligations of such Person to pay any sums or amounts whether under a Contract or otherwise;
"Intellectual Property" means and includes collectively or individually, the following worldwide rights relating to intangible property, whether or not filed, perfected, registered or recorded and whether now or hereafter existing, filed, issued or acquired: (a) rights in trademarks, trademark registrations, and applications therefor, trade names, service marks, service names, logos, or trade dress; (b) rights relating to the protection of confidential information; (c) internet domain names, Internet and World Wide Web (WWW) URLs or addresses; and (d) all other intellectual, information or proprietary rights anywhere in the world including rights of privacy and publicity, rights to publish information and content in any media;
"Investment Amount" means an amount of up to USD 49,000,000 (United States Dollars Forty Nine Million only) proposed to be invested by the Investor in the Company for the subscription of the Subscription Shares,The accompanying unaudited financial statements have been prepared in accordance with this Agreement;
"IFRS" means the international financial reporting standards;
"Key Employees" means Mr. Shripal Morakhia, chief executive officer, chief financial officer, chief operations officer, chief technical officer or any other “CXO’ level employees/department/designated business heads, any key managerial personnel or any other employee whose total annual remuneration is over INR 50,00,000 (Rupees Fifty Lakhs only) (inclusive of all perquisites, allowances and withholdings);
"Liabilities" means all existing Indebtedness and liabilities of any kind or nature whatsoever of the Company, whether actual or contingent, and whether or not of a nature required to be disclosed in the financial statements;
"Material Adverse Effect" means any change or occurrence, the consequence of which is, will, or is likely to materially and adversely affect: (a) the Assets, Business, Liabilities, financial condition, results or operations of the Company; or (b) the ability of the Company and/or the Promoters to perform their obligations under this Agreement or any other Transaction Documents or the Memorandum or the Articles; or (c) the validity or enforceability of this Agreement or of the rights or remedies of the Investor; or (d) the status and validity of any Intellectual Property or material Contracts or approvals required by the Company to carry on its Business; but shall not include any change or occurrence which is caused by: (i) changes in interest rates, exchange rates or securities or commodity prices or in economic, financial, market or political conditions generally; or (ii) changes or effects, including legal, tax or regulatory changes, thataccounting principles generally affect the industry in which the Company or the Business operates; or (iii) change or effect that arise out of or are attributable to the commencement, occurrence, continuation or intensification of any war, armed hostilities or acts of terrorism, hurricanes, nuclear incidents, earthquake, flood, draught, fire, explosion, civil unrest, explosion, or any other natural disaster;
"Memorandum" means the memorandum of association of the Company, as amended from time to time;
"Permitted Encumbrances" means the Encumbrances created pursuant to the financing documents executed by the Company prior to the date of this Agreement and subsisting as on the Effective Date and the Closing Date, as set out in the colum “Details of Security Interest’ in the list attached asANNEXURE A hereto;
"Person" means any natural person, limited or unlimited liability company, corporation, partnership (whether limited or unlimited), proprietorship, Hindu undivided family, trust, union, association, government or any agency or political subdivision thereof or any other entity that may be treated as a person under Applicable Law;
"Prior Agreements" means the agreements set out inANNEXURE B hereto;
"Related Party/ies" means the Company, the Promoters and their respective Affiliates and associates, shareholders, directors and senior management personnel of the foregoing Persons and shall include the Persons considered to be related parties in accordance with the Act;
"Relative" shall have the same meaning as defined under the Act;
"Representations and Warranties” means the express representations and warranties made by each of the Promoters and the Company to the Investor pursuant to Clause 6 andSCHEDULE 3 to this Agreement;
"Restated Articles" means the restated draft of the Articles to be adopted as a Condition Precedent to Closing, including the terms of this Agreement and the Shareholders’ Agreement, in a form satisfactory to the Investor;
"Securities" means any and all classes and series of shares, Equity Shares, options, warrants, preference shares, convertible securities of all kinds, debentures or any other arrangement relating to the Company’s share capital;
"Shareholders" means the holders of Securities in the Company;
"Shareholders’ Agreement” means the agreement of even date executed between the Company, the Promoters, Investor and certain other Shareholders;
"Subscription Shares" means upto 7,66,41,157 (Seven Crores Sixty Six Lakhs Forty One Thousand One Hundred and Fifty Seven) Equity Shares proposed to be subscribed to by the Investor in terms of Clause 3.1 of this Agreement;
"Subsidiaries" shall have the meaning assigned to the term under the Act;
"Tax" or “Taxation” means all direct and indirect taxes, charges or levies recoverable or payable under or by reason of any Applicable Law for the time being in force, including stamp duty, tax on central, state or local income, tax on sales, value added, excise, customs, duties or other taxes, of any kind whatsoever, including any interest, penalties or additions to tax;
"Transaction Documents" means this Agreement, the Shareholders’ Agreement, the Restated Articles and any other contract/document required to be executed and/or delivered pursuant to this Agreement and in respect of the transactions contemplated in this Agreement and the Shareholders’ Agreement;
"Updated Disclosure Schedule” shall have the meaning ascribed to it in Clause 6.1.6.
The authorised share capital of the Company as on the Effective Date is INR 275,00,00,000 (Rupees Two Hundred and Seventy Five Crores only) divided into (a) 21,50,00,000 (Twenty One Crores Fifty Lakhs) Equity Shares; and (b) 6,00,00,000 (Six Crores) CCPS; and the paid-up share capital of the Company as on the Effective Date is INR 235,81,89,450 (Rupees Two Hundred and Thirty Five Crores Eighty One Lakhs Eighty Nine Thousand Four Hundred and Fifty only) comprising 18,57,34,979 (Eighteen Crores Fifty Seven Lakhs Thirty Four Thousand Nine Hundred and Seventy Nine) Equity Shares and 5,00,83,966 (Five Crores Eighty Three Thousand Nine Hundred and Sixty Six) CCPS. The shareholding pattern of the Company as on the Effective Date is set out in Part A ofSCHEDULE 4.
The Company and the Promoters agree and acknowledge that the Investor shall (a) be the sole distributor of Smaaash games in South America and North America; (b) be the master franchise for Smaaash centres in South America and North America; (c) assist in facilitating the consolidation of the active entertainment industryaccepted in the United States of America thereby ensuring that Smaaash centres transition over a period of time from traditional(“GAAP”) for interim financial information and active entertainment tools into more aspirational sports games and virtual/ augmented reality game tools.
The Company and the Promoters jointly and severally undertake to use best endeavours to fulfil the Conditions Precedent as set out in Clause 4.1(Conditions Precedent to Closing) above as soon as possible and no later than the Long Stop Date. If the Company or the Promoters become aware of any event or circumstance that may prevent any of the Conditions Precedent from being satisfied, then the Company and the Promoters shall forthwith nofity the Investor of the same in writing. On fulfilment of the Conditions Precedent, the Company and the Promoters shall deliver to the Investor an original, duly executed certificate, in the form set out inSCHEDULE 5 to this Agreement ("CP Fulfilment Certificate"), certifying that the Conditions Precedent set out in Clause 4.1(Conditions Precedent to Closing) above have been fully satisfied in all respects, together with certified copies of all the requisite documents and instruments evidencing the fulfilment of the same.
During the period between the Effective Date and the Closing Date, the Company shall continue to conduct the Business of the Company in its ordinary course consistent with past practices, and shall not (other than to the extent required under Clause 4.1(Conditions Precedent to Closing)), without the prior written consent of the Investor (which consent shall not be unreasonably withheld):
Where the consent of the Investor is required for any manner set out in Clause 5.1(b) and Clause 5.1(j), the Investor shall provide a response within 7 (seven) Business Days from the date of receipt of the notice from the Company seeking such consent.
The delivery of the CP Fulfilment Certificate shall take place in no event later than 30 (thirty) days from the Effective Date, or such other extended date as may be acceptable to the Investor ("Long Stop Date"). Upon delivery of the CP Fulfilment Certificate and on reasonable satisfaction of the Investor of fulfillment of the Conditions Precedent as per Clause 4.1(Conditions Precedent) above, Closing shall take place at a place and time as may be mutually agreed upon by the Parties within 7 (seven) days of receipt of the CP Fulfilment Certificate or such other date as may be agreed between the Company and the Investor ("Closing Date"). At Closing, the Parties shall do the following simultaneously:
The provisions of this Clause 6.1.7 shall not be applicable to any other Claims that may be made by the Investor pursuant to Clause 7 of this Agreement, including Claims arising out of any fraud by, or wilful misconduct of the Company, and any such Claims may be made by the Investor at any time following the Closing Date.
This Agreement shall come into effect on the date hereof and shall remain valid unless it is terminated pursuant to the Clause 8.2(Termination) below.
The Parties may discuss and mutually terminate this Agreement at any time prior to Closing by expressing the same in writing.
Without prejudice to any other rights that the Investor has under this Agreement, the Investor, shall have the right, but not the obligation, to terminate this Agreement (to the extent of its rights and obligations) with immediate effect (without prejudice to any rights and obligations accrued or incurred prior to such termination and subject to the survival of certain clauses of this Agreement as set out herein) if:
On the termination of this Agreement in accordance with Clause 8.2 above, all rights and obligations of the Parties shall terminate forthwith, save for the rights that are already accrued and the rights and obligations of the Parties under Clause 7 (Indemnification), Clause 8 (Effective Date and Termination), Clause 9(Confidentiality), Clause 10 (Notices), Clause11(Governing Law) and Clause 12(Arbitration)of this Agreement and all such provisions of this Agreement that expressly or by their nature survive termination.
provided that written notice (wherever reasonably possible) of any prospective disclosure of confidential information pursuant to this Clause 9 shall be given to the non-disclosing Parties, and the disclosing Party shall assist the non-disclosing Parties in obtaining an exemption or protective order preventing such disclosure.
If to theInvestor:
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If to theCompany:
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If toAHA Holdings Pvt. Ltd.
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If toMr. Shripal Morakhia
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This Agreement shall be governed and interpreted by, and construed in accordance with the lawsinstructions to Form 10-Q and Article 10 of India, without regard to conflict of law principles. Subject to the provisions of Clause 12 (Arbitration) hereof, the courts of New Delhi shall have jurisdiction in respect of all matters relating to or arising out of this Agreement.
The Company shall bear all stamp duty payable in connection with this Agreement, the Transaction Documents and the subscriptionRegulation S-X of the Subscription Shares. Subject to Closing, all costs related to the transactions contemplated under the Transaction Documents, including appointment of legal andSEC. Certain information or footnote disclosures normally included in financial advisors, preparation of the Transaction Documents shall be borne by the Company at actuals.
The Parties are independent contractors. None of the Parties shall have any right, power or authority to enter into any agreement for or on behalf of, or incur any obligation or liability of, or to otherwise bind, the other Parties except as specifically provided by this Agreement. Nothing in this Agreement shall be interpreted or construed to create an association or partnership between the Parties, deem them to be persons acting in concert or to impose any liability attributable to such relationship upon any of the Parties nor, unless expressly provided otherwise, to constitute any Party as the agent of any of the other Parties for any purpose.
Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, permitted assigns, heirs, executors and administrators of the Parties hereto whose rights or obligations hereunder are affected by such amendments. No Party hereto (except the Investor) shall assign or transfer its rights and liabilities hereunder to any Person without the prior written consent of the Investor. The Investor shall be entitled to assign or transfer its rights and obligations under this Agreement to any of its Affiliates (including the right to subscribe to the Subscription Shares), without requiring prior consent of any other Party.
Any or all provisions of this Agreement may be amended, restated or waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the Investor. Any such amendment, waiver or restatement shall be binding on all Parties to this Agreement.
This Agreement, supercedes all prior discussions and agreements (whether oral or written, including all correspondence) if any, between the Parties with respect to the subject matter of this Agreement, and this Agreement (together with the Schedules and any amendments or modifications thereof read with the other Transaction Documents) contain the sole and entire Agreement between the Parties hereto with respect to the subject matter hereof.
Any provision of this Agreement, which is invalid or unenforceable, shall be ineffective to the extent of such invalidity or unenforceability, without affecting in any way the remaining provisions hereof. The illegality, unenforceability or invalidity of any provision of this Agreement shall not affect the enforceability, legality or validity of the remaining provisions of this Agreement which shall remain in full force and effect to the maximum extent permitted by law. Any invalid or unenforceable provision of this Agreement shall be replaced with a provision, which is valid and enforceable and most nearly reflects the original intent of the unenforceable provision.
It is agreed between the Parties hereto that no publicity or dissemination of information in any manner with regard to the transactions contemplated herein shall be made without the prior written consent of the Investor.
All the provisions of this Agreement and the Shareholders’ Agreement, to the extent relevant, shall be incorporated into the Articles. If and to the extent that there are inconsistencies between the provisions of this Agreement and those of the Articles, the Parties agree to take all actions necessary or advisable, as promptly as practicable after the discovery of such inconsistency, to amend the Articles so as to eliminate such inconsistency.
Each Party shall from time to time and at all times hereafter make, do, execute, or cause or procure to be made, done and executed such further acts, deeds, conveyances, consents, documents and assurances without further consideration, which may be required to effect the transactions contemplated by this Agreement.
The Parties shall use their best efforts to cause the transactions contemplated by this Agreement to be consummated, including without limitation, obtaining, making and causing to become effective all approvals of Governmental Authorities and other Persons as may be necessary or reasonably requested by the Investor and its nominees in order to achieve the objectives of this Agreement.
This Agreement may be executed in any number of counterparts, all of which, taken together, shall constitute one and the same instrument, and any Party (including any duly authorised representative of a Party) may enter into this Agreement by executing a counterpart. The delivery of signed counterparts by facsimile transmission or electronic mail in “portable document format” (".pdf”) shall be as effective as signing and delivering the document in person.
The Persons executing this Agreement on behalf of the respective Parties represent and covenant that they have the authority to sign and execute this document on behalf of the Parties for whom they are signing.
IN WITNESS WHEREOF, the Parties have entered into and executed this SHARE SUBSCRIPTION AGREEMENT as of the day and year first above written.
THIS SIGNATURE PAGE FORMS AN INTEGRAL PART OF THE SHARE SUBSCRIPTION AGREEMENT EXECUTED AMONG (1)I-AMCAPITAL ACQUISITION COMPANY; (2) MR.SHRIPAL MORAKHIA; (3) AHA HOLDINGS PRIVATE LIMITED; AND (4) SMAAASH ENTERTAINMENT PRIVATE LIMITED
Signed and delivered for an on behalf ofSMAAASH ENTERTAINMENT PRIVATE LIMITED
IN WITNESS WHEREOF, the Parties have entered into and executed this SHARE SUBSCRIPTION AGREEMENT as of the day and year first above written.
THIS SIGNATURE PAGE FORMS AN INTEGRAL PART OF THE SHARE SUBSCRIPTION AGREEMENT EXECUTED AMONG (1)I-AMCAPITAL ACQUISITION COMPANY; (2) MR.SHRIPAL MORAKHIA; (3) AHA HOLDINGS PRIVATE LIMITED; AND (4) SMAAASH ENTERTAINMENT PRIVATE LIMITED
Signed and delivered byMR. SHRIPAL MORAKHIA
IN WITNESS WHEREOF, the Parties have entered into and executed this SHARE SUBSCRIPTION AGREEMENT as of the day and year first above written.
THIS SIGNATURE PAGE FORMS AN INTEGRAL PART OF THE SHARE SUBSCRIPTION AGREEMENT EXECUTED AMONG (1)I-AMCAPITAL ACQUISITION COMPANY; (2) MR.SHRIPAL MORAKHIA; (3) AHA HOLDINGS PRIVATE LIMITED; AND (4) SMAAASH ENTERTAINMENT PRIVATE LIMITED
Signed and delivered for an on behalf ofAHA HOLDINGS PRIVATE LIMITED
IN WITNESS WHEREOF, the Parties have entered into and executed this SHARE SUBSCRIPTION AGREEMENT as of the day and year first above written.
THIS SIGNATURE PAGE FORMS AN INTEGRAL PART OF THE SHARE SUBSCRIPTION AGREEMENT EXECUTED AMONG (1)I-AMCAPITAL ACQUISITION COMPANY; (2) MR.SHRIPAL MORAKHIA; (3) AHA HOLDINGS PRIVATE LIMITED; AND (4) SMAAASH ENTERTAINMENT PRIVATE LIMITED
Signed and delivered for an on behalf ofI-AMCAPITAL ACQUISITION COMPANY
IN WITNESS WHEREOF, the Parties have entered into and executed this SHARE SUBSCRIPTION AGREEMENT as of the day and year first above written.
THIS SIGNATURE PAGE FORMS AN INTEGRAL PART OF THE SHARE SUBSCRIPTION AGREEMENT EXECUTED AMONG (1)I-AMCAPITAL ACQUISITION COMPANY; (2) MR.SHRIPAL MORAKHIA; (3) AHA HOLDINGS PRIVATE LIMITED; AND (4) SMAAASH ENTERTAINMENT PRIVATE LIMITED
Signed and delivered for an on behalf ofI-AMCAPITAL ACQUISITION COMPANY
AMENDMENT CUM ADDENDUM TO THE SHARE SUBSCRIPTION AGREEMENT DATED MAY 03, 2018
By and Among
I-AM CAPITAL ACQUISITION COMPANY
And
PROMOTERS
And
SMAAASH ENTERTAINMENT PRIVATE LIMITED
AMENDMENT CUM ADDENDUM TO THE SHARE SUBSCRIPTION AGREEMENT DATED MAY 03, 2018
This amendment cum addendum agreement ("Agreement") to the share subscription agreement dated May 03, 2018 is executed on this 22nd day of June, 2018 at New Delhi:
By and Amongst
I-AM Capital Acquisition Company, a company incorporated in the United States of America and having its registered office at 1345 Avenue of the Americas, 11thFloor, New York, NY 10105 (hereinafter referred to as the “Investor", which expression shall, unless it be repugnant to the context or meaning thereof, be deemed to mean and include its successors and permitted assigns) of theFirst Part;
And
The Persons listed inSCHEDULE 1 (hereinafter referred to collectively, as the “Promoters” and individually, as a “Promoter", which expression shall, unless it be repugnant to the context or meaning thereof, be deemed to mean and include each of their respective heirs, permitted assigns and successors-in-interest, as the case may be) of theSecond Part;
And
Smaaash Entertainment Private Limited, a private limited company incorporated under the laws of India, having its office at 1st Floor, Ambience Mall, Plot no. 2, Phase II, Nelson Mandela Marg, Delhi-110070, India (hereinafter referred to as the “Company", which expression shall, unless it be repugnant to the context or meaning thereof, be deemed to mean and include its successors and permitted assigns) of theThird Part.
The Company, the Investor and the Promoters shall hereinafter be individually referred to as a “Party” and collectively referred to as the “Parties".
WHEREAS:
NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth in this Agreement and the SSA, and for other good and valuable consideration, the sufficiency of which is acknowledged by the Parties, the Parties hereby agree as follows:
"Agreement" means this share subscription agreement, the amendment cum addendum agreement dated May 3, 2018 and shall include any schedules, annexures, or exhibits that may be annexed to such agreement now or at a later date and any further amendments made to any such agreement by all the Parties in writing.
"Subscription Shares” means up to 89,583,215 (Eighty Nine Million Five Hundred Eighty Three Thousand Two Hundred and Fifteen) Equity Shares proposed to be subscribed to by the Investor in terms of Clause 3.1 of this Agreement.
The Company hereby covenants to the Investor that it shall, on the Closing Date, make a lump sum payment of USD250,000 to the Investor to be used as working capital and to set up entertainment centers in North America. The Company further covenants to the Investor that it shall arrange for a line of credit for the Investor under Applicable Law in an amount of up to USD2,000,000, which amount is subject to review from time to time by the board of directors of the Company and the Investor, until such time that the revenue the Investor generates is sufficient to meet its ongoing expenses.
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SCHEDULE 1
DETAILS OF THE PROMOTERS
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SCHEDULE 2
SHAREHOLDING PATTERN OF THE COMPANY ON A FULLY DILUED BASIS AS ON THE CLOSING DATE
[To be inserted]
IN WITNESS WHEREOF, the Parties have entered into and executed this Agreement as of the day and year first above written.
SIGNED AND DELIVERED by the within named Investor, I-AM Capital Acquisition Company
SIGNED AND DELIVERED by the within named Company, Smaaash Entertainment Private Limited by the hand of Shripal Morakhia, authorised signatory.
SIGNED AND DELIVERED by the within named Promoter, AHA Holdings Private Limited by the hand of
Shripal Morakhia, authorised signatory.
SIGNED AND DELIVERED byMr. Shripal Morakhia
SECOND AMENDMENT CUM ADDENDUM TO THE SHARE SUBSCRIPTION AGREEMENT DATED MAY 3, 2018
This second amendment cum addendum agreement ("Agreement") to the share subscription agreement dated May 3, 2018, as amended, is executed on this 2ndday of August, 2018 at New Delhi:
By and Amongst
I-AM Capital Acquisition Company, a company incorporated in the United States of America and having its registered office at 1345 Avenue of the Americas, 11thFloor, New York, NY 10105 (hereinafter referred to as the “Investor", which expression shall, unless it be repugnant to the context or meaning thereof, be deemed to mean and include its successors and permitted assigns) of theFirst Part;
And
The Persons listed inSCHEDULE 1 (hereinafter referred to collectively, as the “Promoters” and individually, as a “Promoter", which expression shall, unless it be repugnant to the context or meaning thereof, be deemed to mean and include each of their respective heirs, permitted assigns and successors-in-interest, as the case may be) of theSecond Part;
And
Smaaash Entertainment Private Limited, a private limited company incorporated under the laws of India, having its office at 1st Floor, Ambience Mall, Plot no. 2, Phase II, Nelson Mandela Marg, Delhi-110070, India (hereinafter referred to as the “Company", which expression shall, unless it be repugnant to the context or meaning thereof, be deemed to mean and include its successors and permitted assigns) of theThird Part.
The Company, the Investor and the Promoters shall hereinafter be individually referred to as a “Party” and collectively referred to as the “Parties".
WHEREAS:
NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth in this Agreement and the SSA, and for other good and valuable consideration, the sufficiency of which is acknowledged by the Parties, the Parties hereby agree as follows:
On the termination of this Agreement in accordance with Clause 8.2 above, all rights and obligations of the Parties shall terminate forthwith, save for the rights that are already accrued and the rights and obligations of the Parties under Clause 7 (Indemnification), Clause 8 (Effective Date and Termination), Clause 9 (Confidentiality), Clause 10 (Notices), and Clause 11 (Governing Law) of this Agreement and all such provisions of this Agreement that expressly or by their nature survive termination.”
This Agreement shall be governed and interpreted by, and construed in accordance with the laws of India, without regard to conflict of law principles. The courts of New Delhi shall have jurisdiction in respect of all matters relating to or arising out of this Agreement.”
“The provisions of Clause 9 (Confidentiality), Clause 10 (Notices), Clause 11 (Governing Law) and Clause 13 (Miscellaneous) of the SSA shall mutatis mutandis apply to this Agreement.”
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SCHEDULE 1
DETAILS OF THE PROMOTERS
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IN WITNESS WHEREOF, the Parties have entered into and executed this Agreement as of the day and year first above written.
SIGNED AND DELIVERED by the within named Investor, I-AM Capital Acquisition Company
SIGNED AND DELIVERED by the within named Company, Smaaash Entertainment Private Limited by the hand of Shripal Morakhia, authorised signatory.
SIGNED AND DELIVERED by the within named Promoter, AHA Holdings Private Limited by the hand of Shripal Morakhia, authorised signatory.
SIGNED AND DELIVERED byMr. Shripal Morakhia
MASTER LICENSE AND DISTRIBUTION AGREEMENT
This Master License and Distribution Agreement ("Agreement") is made and entered into on the [•] day of [•], 2018 (the "Effective Date") at Mumbai, by and between Smaaash Entertainment Private Limited, an Indian company, with an address at Trade View, Level 2, Kamala Mills, Lower Parel, Mumbai 400013, India ("Licensor"), and I-AM Capital Acquisition Company, a company incorporated in the United States of America, with an address at 1345 Avenue of the Americas, 2ndfloor, New York, 10105 ("Licensee”).
RECITALS
A. WHEREAS, Licensor operates entertainment centers throughout India as well as at the Mall of the Americas in Minneapolis Minnesota where Licensor, through its virtual reality and sports simulation technology, provides specialized equipment and related products so that Licensor’s customers may experience the opportunity to experience various sport and recreational activities through the use of such equipment and products, the details of which are morefully set out in Exhibit A to this Agreement (the “Products"); and
B. WHEREAS, Licensee is [•] (add the business of the Licensee); and
C. WHEREAS, Licensor desires to appoint Licensee, and Licensee desires to be so appointed, to act as Licensor’s exclusive licensee and distributor of Products in the territories of North America and South America ("Territory"), upon the terms and subject to the conditions hereinafter provided.
NOW, THEREFORE, the parties agree as follows:
1. Grant of License and Distribution Rights and Grant Limitations
1.1 Grant of License and Distribution Rights. Licensor hereby grants to Licensee the exclusive right to purchase Products directly from Licensor and distribute Products in the Territory in the name of the Licensor and on its own account to customers located in the Territory ("Distribution Right"). All the Products sold by Licensor to Licensee shall be further sold to the third party sub-licensees of Licensee.
1.2 Additional Considerations
(a) Pricing. Licensee shall be entitled to sell the Products further to any third party franchisees of the Licensee at a minimum of 15% (fifteen percent) margin over and above the price at which the Licensor sold the Products to Licensee. If requested by Licensor, Licensee shall furnish to Licensor a list of prices for Products to Licensee’s customers prior to the date Licensee commences distributing any Product to any third party. Although Licensee is free to establish its wholesale prices for Products in its discretion, Licensee’s wholesale prices for Products shall be maintained at a level which would encourage the development of sales of Products while maintaining the image of Products and the Marks (as hereinafter defined).
(b) Operation of Licensee’s Business. Licensee shall maintain good customer relations in accordance with prudent and reasonable business practices. Licensee shall perform its obligations hereunder without using subcontractors, sub-distributors, independent sales representatives, agents, Licensee’s affiliates or other non-employees ("Third Parties") to perform the obligations of Licensee under this Agreement unless they have been approved, in writing, in advance, by Licensor, such approval not to be unreasonably withheld.
2. TermThe term of this Agreement shall commence as of the Effective Date and shall continue until terminated as hereinafter provided (the “Term"). Each calendar year during the Term is sometimes hereinafter referred to as a “Contract Year.”
3. Purchase of Products
3.1 Purchase Price of Products; Risk of Loss. Unless otherwise agreed by the Parties in writing and subject to Section 1.2 (a), Products shall be purchased by Licensee from Licensor at such prices and on such terms as may be agreed by the parties from time to time. Title to and risk of loss of Products purchased by Licensee from Licensor shall pass at the delivery point (on ex-works basis) as specified in the applicable purchase order. Upon sale of the Products, Licensor shall only be responsible for any inherent manufacturing defects in the Products, provided that such manufacturing defect is notified to Licensor at least within a period of 2 (two) months from the date of installation of the Products. Licensor shall also maintain an inventory of the required spare parts for the Products.
3.2 Purchase Orders.
(a) Unless otherwise agreed by the Parties in writing, Licensee shall place with Licensor, Licensee’s orders for Products at regular intervals during each Contract Year sufficiently in advance of Licensor’s order deadlines and scheduled delivery dates.
(b) Licensee shall place its orders for Products upon Licensor through purchase order forms (or purchase order forms acceptable to Licensor), the terms of which shall be applicable thereto except that, if any terms thereof are inconsistent with the terms set forth in this Agreement, the terms set forth herein shall prevail and control. Licensor shall issue its confirmation of such order if Licensor deems such order acceptable, including in such confirmation the anticipated date of delivery and prices of the Products subject to such order.
3.3 Payment Terms. Unless otherwise agreed in writing by Licensor, all invoices from Licensor to Licensee are payable, by wire transfer in U.S. Dollars, to such bank account designated by Licensor to Licensee in writing.
3.4 Maintenance.Licensor shall be responsible for providing all maintenance services with respect to the Products during the first Contract Year, free of any charges. From the second Contract year, the maintenance services shall be provided by Licensor to Licensee on the basis of an annual maintenance contract entered between the parties for this purpose. In the event of any defects in the products including any manufacturing defects brought by the customer / Licensee beyond the time period mentioned in Section 3.1, then any services provided by Licensor shall be covered under the annual maintenance contract, or the customer or Licensee shall be required to purchase the spare parts from Licensor.
4. Grant of License in the Trademarks
4.1 License. Subject to the terms of this Agreement (including all obligations to first obtain Licensor’s written approval), Licensor hereby grants to Licensee the right to use the Trademarks (the details of which are set out in Exhibit B to this Agreement), on a royalty-free basis, for the purpose of promoting the sale of Products in the Territory. Licensee is in particular entitled to:
(a) offer, market and/or distribute Products under the Trademarks; and
(b) use the Trademarks on business stationery and/or in advertising in connection with the advertising, promotion and distribution of Products in the Territory.
4.2 Exclusivity of License. Except as provided in the next sentence, the license granted herein shall be exclusive. “Exclusivity” shall mean that Licensor shall not grant any further licenses to third parties in the Trademarks for use in connection with sales of Products in the Territory, and the Licensee shall not enter into any arrangement or agreement with any third parties for the sale of any products (either directly or indirectly) identical or similar to the Products, in the Territory; provided, however, that Licensor may continue to use the Trademarks in the Territory in connection with the operation of Licensor’s entertainment centers and/or at other locations owned by Licensor or third parties.
4.3 Form of Use. Unless otherwise provided herein or agreed by the parties in writing, Licensee shall use the Trademarks that are registered in the Territory in their registered form.
5. Compliance with LawLicensee shall ensure that all Products will be offered for sale, sold, manufactured, labeled, packaged, distributed, advertised, marketed, promoted, publicized and otherwise exploited, in accordance with all applicable laws and regulations in the Territory, including without limitation, all customs requirements and country of origin regulations, those laws and regulations relating to health and safety.
6. Marketing and Promotional Activities
6.1 Best Efforts.
(a) Licensee shall exercise its best efforts to effectively market, promote, and sell Products throughout the Territory. Licensee shall represent Licensor at IAAPA and any other conferences as may be requested by Licensor.
(b) Unless otherwise agreed by Licensor in writing, throughout the Term, Licensee shall maintain an organizational structure and sales force reasonably necessary to adequately support the advertising, marketing, sales and distribution of Products throughout the Territory. Licensor shall ensure that the services of at least 2 (two) of its employees are provided to Licensee for coordinating and remedying any maintenance claims with respect to the Products.
6.2 Promotional Material and Products. Licensee shall submit to Licensor, for Licensor’s prior written approval, samples of all advertising and promotional materials that Licensee desires to use to promote the Products, including without limitation, print and online advertising designs, trade show display materials, press releases and interviews for publication in any media ("Promotional Material"). Licensee shall modify any disapproved Promotional Material to satisfy Licensor’s reasonable objections so that it is acceptable to Licensor. Licensor shall provide Licensee with the creative elements of any Promotional Materials that Licensor creates or acquires for use in connection with the advertising and sale of Products outside the Territory.
7. Intellectual Property
7.1 Ownership.
(a) Licensor is the sole owner of any intellectual property rights relating to the Products existing as of the Effective Date, including, but not limited to, the Trademarks and all the goodwill relating thereto (the “Licensor Property"). Licensee, by reason of this Agreement, has not acquired any right, title, interest or claim of ownership in any of the Licensor Property in the Territory or elsewhere, except to the extent provided under the license granted under Section 4.
(b) Licensee acknowledges that (i) Licensor is the sole and exclusive owner of all right, title and interest in any Licensor Property; (ii) nothing contained in this Agreement shall give to Licensee any right, title or interest in any Licensor Property; and (iii) Licensee’s use of the Licensor Property, and any associated goodwill, shall inure only to the benefit of Licensor and shall be deemed to be solely the property of Licensor should this Agreement be terminated for any reason.
7.2 Registration and Cooperation. Licensee shall not, directly or indirectly, seek or obtain any new registration for Licensor Property (including without limitation, any colorable imitations, translations, or transliterations thereof), anywhere in the world without Licensor’s prior written consent. If Licensee has obtained or obtains in the future, in any country, any right, title or interest in any Licensor Property notwithstanding the previous sentence (including any colorable imitations, translations, or transliterations thereof), Licensee will be deemed to have so acted as an agent and for the benefit of Licensor for the limited purpose of obtaining such registrations and assigning them to Licensor. Licensee shall execute, for no additional consideration, any and all documents deemed necessary by Licensor or its attorneys to be necessary to transfer such right, title or interest to Licensor.
7.3 No Challenges. Licensee shall not do anything or suffer anything to be done which may adversely affect any rights of Licensor in and to any Licensor Property, or any registrations thereof or which, directly or indirectly, may reduce or dilute the value or distinctiveness of such Licensor Property, in particular the Trademarks, or disparage or detract from Licensor’s reputation. Licensee shall not challenge, directly or indirectly, Licensor’s interest in, or the validity of, any Licensor Property, or any application for registration or trademark registration thereof or any rights of Licensor therein. The provisions of this Section 7.3 shall survive the termination of this Agreement.
8. Third Party Infringements; Attacks on Use of the Marks; Cooperation
8.1 Third Party Infringements.
(a) Mutual Information. Each of the parties shall inform the other without undue delay when such party becomes aware of any infringements of any of the Licensor Property in the Territory.
(b) Initiation of Action. Any actions against infringers of any of the Licensor Property, whether or not such actions involve litigation (including any actions taken to oppose a third party application to register an infringing trademark or a cancellation action against a third party’s infringing trademark registration), shall be exclusively reserved to Licensor, unless otherwise agreed by Licensor in writing. Notwithstanding the foregoing, Licensor shall be under no obligation to initiate any such action. If requested by Licensor, Licensee shall support Licensor, at Licensor’s expense, in any such proceedings and, if requested by Licensor, Licensee shall promptly provide Licensor with any any relevant documentation in Licensee’s possession.
8.2 Attacks on the Use of the Licensor Property. Each of the parties shall inform the other if it becomes aware of a claim by a third party that the use of any of any of the Licensor Property infringes on the rights of such third party. If requested by Licensor, Licensee shall support Licensor, at Licensor’s expense, in connection with Licensor’s defense against any such third party claims. Unless otherwise agreed by Licensor in writing, Licensor shall take the lead in any defense against a third party action, whether brought against Licensor and/or Licensee. The decision whether or not a defense is appropriate shall be in Licensor’s sole discretion. Licensee shall not settle any third party claims against it regarding its use of any of the Licensor Property without the prior written consent of Licensor.
8.3 Indemnity. The Licensee shall indemnify and hold the Licensor, its affiliates and their respective agents and employees harmless from all claims, actions, suits, damages, costs and expenses in relation to or arising out of the breach of any representations, warranties, covenants and obligations of the Licensee as set out in this Agreement. The indemnification rights of the Licensor shall be without prejudice to, and independent of any other rights and remedies that the Licensor may have at law or in equity, including the right to seek specific performance, injunctive relief or restitution, none of which rights or remedies shall be affected or diminished thereby. The provisions of this Section 8.3 shall survive the termination of this Agreement.
9. Termination
9.1 Termination by Mutual Agreement. This Agreement may be terminated at any time upon the mutual written agreement of the parties.
9.2 Termination by Licensor with Notice. Licensor may terminate this Agreement upon thirty (30) days written notice to Licensee upon the occurrence of any of the following:
(a) Licensee fails to make any payment required under or in connection with this Agreement; or
(b) Licensee fails to use its best efforts to market, promote and sell the Products within the Territory and such failure is not cured within thirty (30) days of Licensor’s notification to Licensee of such failure.
9.3 Termination by Licensee with Notice. Licensee may terminate this Agreement, for any reason or no reason, upon not less than one hundred twenty (120) days’ notice to Licensor.
9.4 Termination for Cause. This Agreement may be terminated by either party for “Cause” without the need of providing a notice period prior to such termination becoming effective. “Cause” shall exist if circumstances occur which, taking into consideration the substance and purpose of this Agreement, would make it unreasonable for one or both of the parties to continue the contractual relationship and the other party fails to cure the cause (assuming that such cause is susceptible to cure) within thirty (30) days after the date of receipt of a corresponding written notice ("Remedy Notice"). If such cause by its nature is not curable, then no such Remedy Notice is required. Without limiting the generality of the foregoing, a party may terminate this Agreement for “Cause” if:
(a) the other party to this Agreement is in breach of one or more of its material obligations; or
(b) the other party to this Agreement becomes insolvent, generally cannot pay its obligations when due or otherwise suffers a substantial deterioration of its financial situation, or if insolvency/bankruptcy proceedings are initiated against such party or such party initiates any dissolution or liquidation of its business and/or assets.
9.5 Effects of Termination.
(a) Upon the termination of this Agreement any indebtedness of Licensee to Licensor shall become immediately due and payable. Within ten (10) days after any such termination of this Agreement, Licensee shall furnish to Licensor a full and complete statement setting forth (i) the inventory of Products then on hand, including Licensee’s wholesale price thereof, and (ii) a list of outstanding orders received, accepted and approved by Licensee at the time of the termination of this Agreement, including the relevant details of each such order. Licensee shall cease to accept new orders for Products as of the date of termination of this Agreement. Licensee shall consult with Licensor regarding Licensee’s pending orders for Products and Licensor shall determine whether to permit Licensee to continue distribution of Products to fill the pending orders, to direct Licensee to cancel the pending orders, or to assume or have a third party assume the obligation to fill pending orders.
(b) All benefits which may accrue by reason of the activities of Licensee hereunder shall be deemed transferred automatically to Licensor, and all licenses and other rights granted to Licensee hereunder shall immediately cease. Unless otherwise agreed by Licensor in writing, Licensee shall immediately discontinue the advertising and marketing of Products.
(c) Each of the parties shall continue to maintain in confidence any and all confidential information received from the other party. At Licensor’s election, Licensor may purchase from Licensee any materials used by Licensee for the distribution, sale, advertising, marketing, promotion, publicizing or other exploitation of Products, including all Promotional Materials, Licensor Property, or any other materials which contain any of the Trademarks.
(d) Subject to the provisions of subsections (a) and (e) hereof, upon the termination of this Agreement, Licensee shall have a period of one hundred eighty (180) days to sell and ship to its customers, on a non-exclusive basis, current inventory of Products within the Territory to fill pending orders(“Sell-Off Period”). All sales during the Sell-Off Period are expressly subject to all of the terms and conditions contained in this Agreement, including without limitation, prohibitions against selling Products outside of the Territory (or to parties who may sell Products outside the Territory). Any Products remaining in Licensee’s inventory at the end of the Sell-Off Period shall be shipped to Licensor or its designee at Licensor’s expense. Licensor shall pay to Licensee Licensee’s landed cost for any such Products then remaining in Licensee’s inventory as of the end of the Sell-Off Period.
(e) Notwithstanding the provisions of subsection (d) above, Licensor shall have the right to purchase all or part of Licensee’s inventory of Products then remaining upon the termination of this Agreement, at Licensee’s landed cost for any such Products then remaining in Licensee’s inventory, in which case Licensee shall have no Sell-Off Period for such Products.
(f) The termination of this Agreement for any reason shall not affect obligations accrued prior to the effective date of such termination of this Agreement or any obligations which, either expressly or from the context of this Agreement, are intended to survive the termination of this Agreement.
10. Notices and Other CommunicationsAll reports, approvals, requests, demands, notices and other communications (collectively “Communications") required or permitted by this Agreement shall be in writing and signed by a duly authorized officer of or such other individual designated in writing by a party. Communications will be duly given if delivered personally, if mailed (by registered mail, return receipt requested) or if delivered by nationally-recognized courier or mail service which requires the addressee to acknowledge, in writing, the receipt thereof, to the party concerned at the following addresses (or at any other address as a party may specify by notice in writing to the other):
11. Miscellaneous
11.1 Entire Agreement. This Agreement contains the entire understanding and agreement between the parties with respect to its subject matter, supersedes all prior oral or written understandings and agreements relating thereto and may not be modified, discharged or terminated, nor may any of the provisions hereof be waived, orally.
11.2 Representations and warranties. Each of the parties represents and warrants to the other party that, (i) the Agreement constitutes a valid, legal and binding obligation of such party and is enforceable against such party in accordance with its terms, (ii) it has the power and authority to execute the Agreement and perform all its terms, and (iii) the execution and performance of this Agreement shall not violate any charter documents of such party, contravene any provisions of law as applicable to such party (including any order, decree, injunction of any competent court) or conflict with the provisions of any material agreement or contract executed by such party. The provisions of this Section 11.2 shall survive the termination of this Agreement.
11.3 Governing Law.(a)The parties hereto have expressly agreed that this Agreement shall be governed by, and construed in accordance with, the laws of the State of New York, applicable to contracts executed and fully to be performed therein, to the exclusion of any other applicable body of governing law.
(b) Except as hereafter provided, the parties hereby consent to the jurisdiction of the New York State Supreme Court, County of New York or in the United States District Court for the Southern District of New York to resolve any dispute arising under this Agreement.
(c) In the event of any litigation or other action arising out of this Agreement, the court shall award to the substantially prevailing party all reasonable costs and expenses including reasonable attorneys fees.
11.4 WAIVER OF JURY.THE PARTIES HEREBY WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED UNDER THIS AGREEMENT, WHETHER NOW OR EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE. THE PARTIES AGREE THAT ANY OF THEM MAY FILE A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE KNOWING, VOLUNTARY AND BARGAINED FOR AGREEMENT AMONG THE PARTIES IRREVOCABLY TO WAIVE THE TRIAL BY JURY COURT, AND THAT ANY PROCEEDINGS WHATSOEVER BETWEEN THEM RELATING TO THIS AGREEMENT SHALL INSTEAD BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.
11.5 Force Majeure. The parties will not be liable to each other for any failure or delay in performance, other than failure to make timely payments due under this Agreement, if it is because of earthquake, flood, fire, acts of God, civil unrest, terrorism, acts of any governmental authority or any other reason beyond the reasonable control of either or both of the parties ("Force Majeure"). However, either party may terminate this Agreement by and upon notice to the other if the other is unable to perform any of its material obligations for a period of thirty (30) days by reason of a Force Majeure.
11.6 No Joint Venture. Nothing herein is intended to constitute the parties as partners or as joint venturers, or either as agent of the other, and neither party may obligate or bind the other.
11.7 Headings, Definitions and other particulars. Headings and titles of sections and/or paragraphs are for convenience only. The definitions in this Agreement shall apply equally to both the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The use of ‘including’ in this Agreement shall be construed as illustrative.
11.8 Amendment.This Agreement shall, from the Effective Date, bind the parties to the terms herein and cannot be amended without the consent of the parties. Further, this Agreement cannot be terminated by any party except in accordance with Clause 9 of this Agreement.
11.9 Assignment.The Licensor shall be entitled to assign, transfer, encumber or dispose of any of its rights and or obligations under this Agreement, including to an affiliate, without the prior written consent of the Licensee. The Licensee shall not be entitled to assign, transfer, encumber or dispose of any of its rights and or obligations under this Agreement, including to an affiliate, without the prior written consent of the Licensor.
11.10 Expenses.The Licensee shall bear all the costs and expenses in relation to the execution of this Agreement and the consummation of all the transactions hereunder.
11.11 Counterparts. This Agreement may be executed in two (2) or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument. The delivery of signed counterparts by facsimile transmission or electronic mail in “portable document format” (".pdf”) shall be as effective as signing and delivering the document in person.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement the day and year first above written.
(exhibits follow)
Exhibit A
Products
Products shall include the following:
Exhibit B
Trademarks
Separately annexed.
MASTER FRANCHISE AGREEMENT
This Master Franchise Agreement ("Agreement") is made and entered into on the [•] day of [•], 2018 (the “Effective Date") at Mumbai, by and between Smaaash Entertainment Private Limited, an Indian company, with its address at Trade View, Level 2, Kamala Mills, Lower Parel, Mumbai 400013, India ("Franchisor") and I-AM Capital Acquisition Company, a company incorporated in the United States of America, with an address at 1345 Avenue of the Americas, 2nd floor, New York, 10105 ("Franchisee”).
RECITALS
A. WHEREAS, Franchisor operates entertainment centers and gaming arcades throughout India as well as at the Mall of the Americas in Minneapolis Minnesota where Franchisor, through its virtual reality and sports simulation technology and proprietary gamification technologies provides sport and recreational activities/services; and
B. WHEREAS, Franchisee is [•] (add the business of the Franchisee); and
C. WHEREAS, Franchisor desires to appoint Franchisee, and Franchisee desires to be so appointed, to act as Franchisor’s exclusive Franchisee in the territories of North America and South America ("Territory") in the manner set out in this Agreement, for setting up, managing and operating entertainment centres and gaming arcades involving virtual reality, sports simulation technology and proprietary gamification technologies to provide sport and recreational activities/services to the public ("Smaaash Centres"), upon the terms and subject to the conditions hereinafter provided.
NOW, THEREFORE, the parties agree as follows:
1. Grant of Franchise
1.1 Rights granted to the Franchisee. Subject to Section 1.2, Franchisor hereby grants to Franchisee the exclusive right, (a) to establish and operate Smaaash Centres in the Territory, (b) to sub-license the right to establish and operate Smaaash Centres to third party franchisees in and for the Territory, (c) a license to use the products and other services developed by Franchisor with respect to the Smaaash Centres (including a right to authorise the use of products and services developed by the Franchisor by third party franchisees), in the Territory, and (d) to identify third party franchisees for the Smaaash Centres in the Territory. The rights granted herein include the limited license to use the Trademarks of the Franchisor (the details of which are morefully set out in Exhibit A), as set out in Section 3 of this Agreement, for the purposes of establishing and operating the Smaaash Centres in the Territory. It is clarified that if third party franchisees shall be establishing and operating Smaaash Centres in the manner contemplated under this Agreement, then the Franchisee shall ensure that such third party franchisees complies with all the obligations and duties of the Franchisee, as recorded under this Agreement, and to this extent, Franchisee may enter into relevant agreements with such third party franchisees.
1.2 Notwithstanding the right granted to the Franchisee in Section 1.1, the Franchisor and its affiliates shall retain the right on the terms and conditions that the Franchisor may deem fit and without granting any rights therein to the Franchisee, (i) to own, acquire, establish and / or operate, and to a grant a license to third parties to establish and operate Smaaash Centres at any location outside the Territory, and (ii) to own, acquire, establish and / or operate, and to grant a license to third parties to establish and operate, gaming and entertainment centres under other proprietary marks or other systems, whether such centres are the same, similar or different from the Smaaash Centres, at any location within or outside the Territory.
1.3 This arrangement has been entered into by the parties on an arms’ length basis. All commercials between the parties in relation to the transactions contemplated under this Agreement, if not specifically provided in this Agreement, shall be agreed mutually between the parties.
1.4 Additional Considerations
(a) Pricing. Franchisor and Franchisee shall agree upon and decide the locations at which the Smaaash Centres shall be set up within the Territory. The Franchisee shall not be entitled to set up any new Smaaash Centres without consulting with, and obtaining the prior written consent of Smaaash.
(b) The prices of the products and services offered in each of the Smaaash Centres shall be decided mutually among the parties. Any revision to the agreed fees, including any discounts or prizes or other promotional measures shall require the prior written consent from Franchisor.
(c) Franchisee or the third party franchisee, as the case may be, shall be entitled to receive the revenue generated from each of the Smaaash Centres. If third party franchisees are operating the Smaaash Centres, then the Franchisee shall be entitled to receive, (i) 5% (five percent) of the capital expenditure as agreed among the parties for the particular Smaaash Centre as sign -on fees or upfront advance, and (ii) 5% (five percent) fee or commission of the revenue generated by such third party franchisees from the Smaash Centres on an annual basis.
1.5 Operation of Smaaash Centres. Franchisee or third party sub – franchisees shall be under an obligation to set up at least 6 (six) Smaaash Centres during the first Contract Year or any other time period as may be provided by Franchisor. The Smaaash Centres shall be established and operated in the Territory using the assumed trade name ’Smaaash’ or any other trade name that the Franchisor may designate. Franchisee shall maintain good customer relations in accordance with prudent and reasonable business practices. Franchisee shall perform its obligations hereunder without using subcontractors, sub-distributors, independent sales representatives, agents, Franchisee’s affiliates or other non-employees ("Third Parties") to perform the obligations of Franchisee under this Agreement except to the contrary specifically stated in this Agreement or unless they have been approved, in writing, in advance, by Franchisor, such approval not to be unreasonably withheld.
2. TermThe term of this Agreement shall commence as of the Effective Date and shall continue until terminated as hereinafter provided (the “Term"). Each calendar year during the Term is sometimes hereinafter referred to as a “Contract Year.”
3. Grant of License in the Trademarks
3.1 License. Subject to the terms of this Agreement (including all obligations to first obtain Franchisor’s written approval), Franchisor hereby grants to Franchisee the right to use the Trademarks (the details of which are set out in Exhibit A to this Agreement) (including sub-licensing this right to third party franchisees with the approval of Franchisor), on a royalty-free basis, for the purpose of operating and promoting the Smaaash Centres in the Territory. Franchisee is, in particular entitled to:
(a) offer, market and/or distribute any products and services in connection with the Smaaash Centres under the Trademarks; and
(b) use the Trademarks on business stationery and/or in advertising in connection with the advertising, promotion and distribution of Smaaash Centres in the Territory.
3.2 Exclusivity of License. Except as provided in the next sentence, the license granted herein shall be exclusive. “Exclusivity” shall mean that Franchisor shall not grant any further licenses to third parties in the Trademarks for use in connection with Smaaash Centres in the Territory, and the Franchisee shall not enter into any arrangement or agreement with any third parties for establishing or operating any gaming and entertainment centres identical or similar to Smaaash Centres, in the Territory except as otherwise provided in this Agreement; provided, however, that Franchisor may continue to use the Trademarks in the Territory in connection with the operation of Franchisor’s entertainment centers already set up as of the Effective Date in the Territory. The restriction contained in this Agreement shall apply on the parties throughout the Term.
3.3 Form of Use. Unless otherwise provided herein or agreed by the parties in writing, Franchisee shall use the Trademarks that are registered in the Territory in their registered form.
4. Compliance with LawFranchisee shall ensure that the Smaaash Centres shall be set up, established, operated, managed, advertised, marketed, promoted, publicized and otherwise exploited, in accordance with all applicable laws and regulations in the Territory, including without limitation, all customs requirements and country of origin regulations.
5. Marketing and Promotional Activities
5.1 Best Efforts.
(a) Franchisee shall exercise its best efforts to effectively market, promote, and publicise the Smaaash Centres throughout the Territory.Franchisee shall also be obligated to identify suitable locations to set up the Smaaash Centres.Franchisee shall comply with, and ensure that the third party sub-franchisees comply with the standards prescribed by Franchisor (as provided in the operating manuals which shall be shared by Franchisor with Franchisee) with respect to the services, products and operations of the Smaaash Centres and shall operate the Smaaash Centres in strict conformity with such standards and specifications as Franchisor may from time to time prescribe to Franchisee. Franchisee shall refrain from deviating from such standards and specifications without Franchisor’s prior written consent and from otherwise operating in any manner which reflects adversely on the Trademarks and Smaaash Centres.
(b) Unless otherwise agreed by Franchisor in writing, throughout the Term, Franchisee shall maintain, and shall ensure that the third party sub – franchisees maintain an organizational structure or local management reasonably necessary to adequately support the advertising, marketing and promotion of the Smaaash Centres and the services and products offered by Smaaash Centres throughout the Territory. The third party sub – franchisees shall also be responsible for all employee related compliances as per the relevant applicable laws. Towards this purpose, Franchisee shall appoint a qualified chief operating officer, in consultation with Franchisor, to undertake and manage the obligations of Franchisee as set out in this Agreement. Franchisor shall also be entitled to designate and appoint personnel from its managerial team to assist and train the personnel and staff of the Franchisee or any other third party sub - franchisee in setting up the Smaaash Centres, and further provide technical and design knowledge to the third party sub - franchisees.
5.2 Promotional Material and Products. Franchisee shall submit to Franchisor, for Franchisor’s prior written approval, samples of all advertising and promotional materials that Franchisee desires to use to promote Smaaash Centres, including without limitation, print and online advertising designs, trade show display materials, press releases and interviews for publication in any media ("Promotional Material"). Franchisee shall modify any disapproved Promotional Material to satisfy Franchisor’s reasonable objections so that it is acceptable to Franchisor. Franchisor shall provide Franchisee with the creative elements of any Promotional Materials that Franchisor creates or acquires for use in connection with the advertising and sale of Products outside the Territory.
6. Intellectual Property
6.1 Ownership.
(a) Franchisor is the sole owner of any and all intellectual property rights relating to the Smaaash Centres and their products and services existing as of the Effective Date, including, but not limited to, the Trademarks and all the goodwill relating thereto (the “Franchisor Property"). Franchisee, or any third party franchisee, by reason of this Agreement, has not and shall not acquire any right, title, interest or claim of ownership in any of the Franchisor Property in the Territory or elsewhere, except to the extent provided under the license granted under Sections 1 and 3 of this Agreement.
(b) Franchisee acknowledges that, (i) Franchisor is the sole and exclusive owner of all right, title and interest in any Franchisor Property; (ii) nothing contained in this Agreement shall give to Franchisee any right, title or interest in any Franchisor Property; and (iii) Franchisee’s use of the Franchisor Property, and any associated goodwill, shall inure only to the benefit of Franchisor and shall be deemed to be solely the property of Franchisor should this Agreement be terminated for any reason.
6.2 Registration and Cooperation. Franchisee shall not, directly or indirectly, seek or obtain any new registration for Franchisor Property (including without limitation, any colorable imitations, translations, or transliterations thereof), anywhere in the world without Franchisor’s prior written consent. If Franchisee has obtained or obtains in the future, in any country, any right, title or interest in any Franchisor Property notwithstanding the previous sentence (including any colorable imitations, translations, or transliterations thereof), Franchisee will be deemed to have so acted as an agent and for the benefit of Franchisor for the limited purpose of obtaining such registrations and assigning them to Franchisor. Franchisee shall execute, for no additional consideration, any and all documents deemed necessary by Franchisor or its attorneys to be necessary to transfer such right, title or interest to Franchisor.
6.3 No Challenges. Franchisee shall not do anything or suffer anything to be done which may adversely affect any rights of Franchisor in and to any Franchisor Property, or any registrations thereof or which, directly or indirectly, may reduce or dilute the value or distinctiveness of such Franchisor Property, in particular the Trademarks, or disparage or detract from Franchisor’s reputation. Franchisee shall not challenge, directly or indirectly, Franchisor’s interest in, or the validity of, any Franchisor Property, or any application for registration or trademark registration thereof or any rights of Franchisor therein. The provisions of this Section 6.3 shall survive the termination of this Agreement.
7. Third Party Infringements; Attacks on Use of the TradeMarks; Cooperation
7.1 Third Party Infringements.
(a) Mutual Information. Each of the parties shall inform the other without undue delay when such party becomes aware of any infringements of any of the Franchisor Property in the Territory.
(b) Initiation of Action. Any actions against infringers of any of the Franchisor Property, whether or not such actions involve litigation (including any actions taken to oppose a third party application to register an infringing trademark or a cancellation action against a third party’s infringing trademark registration), shall be exclusively reserved to Franchisor, unless otherwise agreed by Franchisor in writing. Notwithstanding the foregoing, Franchisor shall be under no obligation to initiate any such action. If requested by Franchisor, Franchisee shall support Franchisor, at Franchisor’s expense, in any such proceedings and, if requested by Franchisor, Franchisee shall promptly provide Franchisor with any any relevant documentation in Franchisee’s possession.
7.2 Attacks on the Use of the Franchisor Property. Each of the parties shall inform the other if it becomes aware of a claim by a third party that the use of any of any of the Franchisor Property infringes on the rights of such third party. If requested by Franchisor, Franchisee shall support Franchisor, at Franchisor’s expense, in connection with Franchisor’s defense against any such third party claims. Unless otherwise agreed by Franchisor in writing, Franchisor shall take the lead in any defense against a third party action, whether brought against Franchisor and/or Franchisee. The decision whether or not a defense is appropriate shall be in Franchisor’s sole discretion. Franchisee shall not settle any third party claims against it regarding its use of any of the Franchisor Property without the prior written consent of Franchisor.
7.3 Indemnity. The Franchisee shall indemnify and hold the Franchisor, its affiliates and their respective agents and employees harmless from all claims, actions, suits, damages, costs and expenses in relation to or arising out of the breach of any representations, warranties, covenants and obligations of the Franchisee as set out in this Agreement. The indemnification rights of the Franchisor shall be without prejudice to, and independent of any other rights and remedies that the Franchisor may have at law or in equity, including the right to seek specific performance, injunctive relief or restitution, none of which rights or remedies shall be affected or diminished thereby. The provisions of this Section 7.3 shall survive the termination of this Agreement.
8. Termination
8.1 Termination by Mutual Agreement. This Agreement may be terminated at any time upon the mutual written agreement of the parties.
8.2 Termination by Franchisor with Notice. Franchisor may terminate this Agreement upon thirty (30) days written notice to Franchisee upon the occurrence of any of the following:
(a) Franchisee fails to make any payment required under or in connection with this Agreement;
(b) Franchisee ceases to operate or otherwise abandon the Smaaash Centres without the consent of Franchisor, or otherwise forfeit the right to do or transact business in the Territory;
(c) Franchisee fails to use its best efforts to market and promote Smaaash Centres and the services and products offered by Smaaash Centres within the Territory and such failure is not cured within thirty (30) days of Franchisor’s notification to Franchisee of such failure.
8.3 Termination for Cause. This Agreement may be terminated by either party for “Cause” without the need of providing a notice period prior to such termination becoming effective. “Cause” shall exist if circumstances occur which, taking into consideration the substance and purpose of this Agreement, would make it unreasonable for one or both of the parties to continue the contractual relationship and the other party fails to cure the cause (assuming that such cause is susceptible to cure) within thirty (30) days after the date of receipt of a corresponding written notice ("Remedy Notice"). If such cause by its nature is not curable, then no such Remedy Notice is required. Without limiting the generality of the foregoing, a party may terminate this Agreement for “Cause” if:
(a) the other party to this Agreement is in breach of one or more of its material obligations; or
(b) the other party to this Agreement becomes insolvent, generally cannot pay its obligations when due or otherwise suffers a substantial deterioration of its financial situation, or if insolvency/bankruptcy proceedings are initiated against such party or such party initiates any dissolution or liquidation of its business and/or assets.
8.4 Effects of Termination.
(a) Upon the termination of this Agreement, any indebtedness of Franchisee to Franchisor shall become immediately due and payable. Franchisee shall immediately cease to operate the Smaaash Centres and shall not thereafter, directly or indirectly, represent to the public or hold itself out as as a franchisee of Franchisor. Franchisor shall have the right to suspend the performance of any of their obligations under this Agreement. Franchisor shall have the right to provide the rights and license granted herein to Franchisee to any other third party entity that Franchisor may deem fit.
(b) All benefits which may accrue by reason of the activities of Franchisee hereunder shall be deemed transferred automatically to Franchisor, and all licenses and other rights granted to Franchisee hereunder shall immediately cease. Unless otherwise agreed by Franchisor in writing, Franchisee shall immediately discontinue the advertising and marketing of Smaaash Centres and the products and services offered by Smaaash Centres.
(c) Each of the parties shall continue to maintain in confidence any and all confidential information received from the other party. At Franchisor’s election, Franchisor may purchase from Franchisee any materials used by Franchisee for the advertising, marketing, promotion, publicizing or other exploitation of Smaaash Centres and the products and services offered by the Smaaash Centres, including all Promotional Materials, Franchisor Property, or any other materials which contain any of the Trademarks.
(d) The termination of this Agreement for any reason shall not affect obligations accrued prior to the effective date of such termination of this Agreement or any obligations which, either expressly or from the context of this Agreement, are intended to survive the termination of this Agreement.
9. Notices and Other CommunicationsAll reports, approvals, requests, demands, notices and other communications (collectively “Communications") required or permitted by this Agreement shall be in writing and signed by a duly authorized officer of or such other individual designated in writing by a party. Communications will be duly given if delivered personally, if mailed (by registered mail, return receipt requested) or if delivered by nationally-recognized courier or mail service which requires the addressee to acknowledge, in writing, the receipt thereof, to the party concerned at the following addresses (or at any other address as a party may specify by notice in writing to the other):
10. Miscellaneous
10.1 Entire Agreement. This Agreement contains the entire understanding and agreement between the parties with respect to its subject matter, supersedes all prior oral or written understandings and agreements relating thereto and may not be modified, discharged or terminated, nor may any of the provisions hereof be waived, orally.
10.2 Right to inspect and request information. During the Term, Franchisor shall have the right to conduct audits of Franchisee with respect to the Smaaash Centres, and inspect the Smaaash Centres, after providing a written notice of 5 (five) days. Franchisee shall be under an obligation to provide any information as may be requested by Franchisor with respect to the Smaaash Centres, including the books of accounts and other relevant documents or records maintained in relation to the Smaaash Centres.
10.3 Insurance. During the Term, Franchisee shall maintain policies of insurance as may be requested by Franchisor, subject to applicable law, in relation to the Smaaash Centres.
10.4 Representations and warranties. Each of the parties represents and warrants to the other party that, (i) the Agreement constitutes a valid, legal and binding obligation of such party and is enforceable against such party in accordance with its terms, (ii) it has the power and authority to execute the Agreement and perform all its terms, and (iii) the execution and performance of this Agreement shall not violate any charter documents of such party, contravene any provisions of law as applicable to such party (including any order, decree, injunction of any competent court) or conflict with the provisions of any material agreement or contract executed by such party. The provisions of this Section 10.4 shall survive the termination of this Agreement.
10.5 Governing Law.(a)The parties hereto have expressly agreed that this Agreement shall be governed by, and construed in accordance with, the laws of the State of New York, applicable to contracts executed and fully to be performed therein, to the exclusion of any other applicable body of governing law.
(b) Except as hereafter provided, the parties hereby consent to the jurisdiction of the New York State Supreme Court, County of New York or in the United States District Court for the Southern District of New York to resolve any dispute arising under this Agreement.
(c) In the event of any litigation or other action arising out of this Agreement, the court shall award to the substantially prevailing party all reasonable costs and expenses including reasonable attorneys fees.
10.6 WAIVER OF JURY.THE PARTIES HEREBY WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED UNDER THIS AGREEMENT, WHETHER NOW OR EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE. THE PARTIES AGREE THAT ANY OF THEM MAY FILE A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE KNOWING, VOLUNTARY AND BARGAINED FOR AGREEMENT AMONG THE PARTIES IRREVOCABLY TO WAIVE THE TRIAL BY JURY COURT, AND THAT ANY PROCEEDINGS WHATSOEVER BETWEEN THEM RELATING TO THIS AGREEMENT SHALL INSTEAD BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.
10.7 ForceMajeure. The parties will not be liable to each other for any failure or delay in performance, other than failure to make timely payments due under this Agreement, if it is because of earthquake, flood, fire, acts of God, civil unrest, terrorism, acts of any governmental authority or any other reason beyond the reasonable control of either or both of the parties ("Force Majeure"). However, either party may terminate this Agreement by and upon notice to the other if the other is unable to perform any of its material obligations for a period of thirty (30) days by reason of a Force Majeure.
10.8 NoJoint Venture. Nothing herein is intended to constitute the parties as partners or as joint venturers, or either as agent of the other, and neither party may obligate or bind the other.
10.9 Headings, Definitions and other particulars. Headings and titles of sections and/or paragraphs are for convenience only. The definitions in this Agreement shall apply equally to both the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The use of ‘including’ in this Agreement shall be construed as illustrative.
10.10 Amendment.This Agreement shall, from the Effective Date, bind the parties to the terms herein and cannot be amended without the consent of the parties. Further, this Agreement cannot be terminated by any party except in accordance with Clause 8 of this Agreement.
10.11 Assignment.The Franchisor shall be entitled to assign, transfer, encumber or dispose of any of its rights and or obligations under this Agreement, including to an affiliate, without the prior written consent of the Franchisee. The Franchisee shall not be entitled to assign, transfer, encumber or dispose of any of its rights and or obligations under this Agreement, including to an affiliate, without the prior written consent of the Franchisor.
10.12 Expenses.The Franchisee shall bear all the costs and expenses in relation to the execution of this Agreement and the consummation of all the transactions hereunder.
10.13 Counterparts. This Agreement may be executed in two (2) or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument. The delivery of signed counterparts by facsimile transmission or electronic mail in “portable document format” (".pdf”) shall be as effective as signing and delivering the document in person.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement the day and year first above written.
(exhibits follow)
Exhibit A
Trademarks
Separately annexed
SHAREHOLDERS’ AGREEMENT
By and Among
I-AM CAPITAL ACQUISITION COMPANY
And
FW METIS LIMITED
And
MITESH R GOWANI
And
PROMOTERS
And
SMAAASH ENTERTAINMENT PRIVATE LIMITED
SHAREHOLDERS’ AGREEMENT
ThisSHAREHOLDERS’ AGREEMENTis executed on this 3rd day of May, 2018 at New Delhi;
By and Amongst
I-AM Capital Acquisition Company, a company incorporated in the United States of America and having its registered office at 1345 Avenue of the Americas, 11thFloor, New York, NY 10105 (hereinafter referred to as the “Investor", which expression shall, unless it be repugnant to the context or meaning thereof, be deemed to mean and include its successors and assigns) of theFirst Part;
And
FW Metis Limited, a company incorporated in Mauritius and having its registered office at IFS Court, Twenty Eight, Cybercity, Ebene, Mauritius (hereinafter referred to as “Metis", which expression shall, unless it be repugnant to the context or meaning thereof, be deemed to mean and include its successors and assigns) of theSecond Part;
And
Mitesh R Gowani,a Indian citizen, presently residing at 511, Commerce House, 140, N.M. Road, Fort, Mumbai 400 023, Maharashtra, India (hereinafter referred to as "MRG", which expression shall, unless it be repugnant or contrary to the context thereof, mean and include his heirs, legal representatives, successors and permitted assigns) of theThird Part;
And
The Persons listed inSCHEDULE 1 (hereinafter referred to collectively, as the “Promoters” and individually, as a “Promoter", which expression shall, unless it be repugnant or contrary to the context thereof, mean and include each of their respective heirs and successors-in-interest, as the case may be) of theFourth Part;
And
Smaaash Entertainment Private Limited, a private limited company incorporated under the laws of India, having its office at 1st Floor, Ambience Mall, Plot no. 2, Phase II, Nelson Mandela Marg, Delhi-110070, India (hereinafter referred to as the “Company", which expression shall, unless it be repugnant to the context or meaning thereof, be deemed to mean and include its successors) of theFifth Part.
The Company, the Investor, Metis, MRG and the Promoters shall hereinafter be individually referred to as a “Party” and collectively referred to as the "Parties".
WHEREAS:
NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth in this Agreement, and for other good and valuable consideration, the sufficiency of which is acknowledged by the Parties, the Parties hereby agree as follows:
In this Agreement, the following words and expressions shall, except where the context otherwise requires, have the following meanings respectively:
"Act" means the (Indian) Companies Act, 1956, as substituted by the provisions of the (Indian) Companies Act, 2013 to the extent notified as having become effective and any amendment thereto and, wherever applicable, the rules framed thereunder and any subsequent amendment or re-enactment thereof for the time being in force;
"Affiliate" of a Person (the “Subject Person") means, (a) in the case of any Subject Person other than a natural person, (i) any other Person that, either directly or indirectly through one or more intermediate Persons and whether alone or in combination with one or more other Persons, Controls, is Controlled by or is under common Control with the Subject Person, and (ii) where the Subject Person is the Investor, the term Affiliate, shall be deemed to include any fund, collective investment scheme, trust, partnership (including any co-investment partnership), special purpose or other vehicle or any subsidiary or Affiliate (in accordance with (a) above) of any of the foregoing, which is managed and/or advised by the Investor’s group or the Investor’s investment manager and/or investment advisor and any sub-advisor to such investment advisor or an Affiliate (in accordance with (a) above) of the investment manager and/or investment advisor and any sub-advisor to such investment advisor, or any other fund under the management or advice of the Investor or any of its Affiliates (in accordance with (a) above) or companies/entities under the same management as the Investor; (b) in the case of any Subject Person that is a natural person, (i) any other person that, either directly or indirectly through one or more intermediate persons and whether alone or in combination with one or more other persons, is Controlled by the Subject Person, or (ii) any other person who is a Relative of such Subject Person;
"Agreement" means this Shareholders’ Agreement and shall include any schedules, annexures, or exhibits that may be annexed to this Agreement now or at a later date and any amendments made to this Agreement in accordance with the terms of this Agreement;
"AHA Holdings" means AHA Holdings Private Limited, a company incorporated under the Companies Act, 1956 and having its registered office at 161, Starcity Cinema, 2nd Floor, Manmala Tank Road, Mahim West, Mumbai – 400016, India;
"Applicable Law(s)” means any statute, law, regulation, ordinance, rule, judgment, notification, order, decree, bye-law, permits, licenses, approvals, consents, authorisations, government approvals, directive, guideline, requirement or other governmental restriction, or any similar form of decision of, or determination by, or any interpretation, policy or administration, having the force of law of any of the foregoing, by any Governmental Authority, whether in effect as of the date of this Agreement or thereafter;
"Approved Auditor” means PricewaterhouseCoopers, Deloitte Haskins and Sells, Ernst & Young and KPMG (or their Affiliates or associates as known in India) or any other auditor as acceptable to the Investor and the Promoters;
"Articles of Association" or “Articles” means the articles of association of the Company as modified to reflect the terms of this Agreement and the Share Subscription Agreement;
"Assets" means all assets, properties, rights and interests of every kind, nature, specie or description whatsoever, whether movable or immovable, tangible or intangible including without limitation Intellectual Property Rights, owned, leased and/or used by the Company and its present and/or future subsidiaries;
"BCCL" means Bennett Coleman and Company Limited, a public company having its registered office at Times of India Building, N Road, Mumbai – 400001, Maharashtra, India;
"Board of Directors" or “Board” means the board of directors of the Company, as constituted from time to time;
"Business" means the business of the Company as described inSCHEDULE 2 to this Agreement;
"Business Day" means a day (other than a Saturday or Sunday) on which banks are open for general business in India, Mauritius, Dubai and New York;
"Business Plan" means the detailed business or operating plan for each Financial Year and the annual budget of the Company for each Financial Year which includes a detailed financial plan providing head wise details of projected income, expenditure (including operating and capital expenditure) and earnings by the Company, as approved by the Board in accordance with this Agreement;
"Buyback Notice" shall mean a written notice by the Company to the Investor to buyback all or any of the SPAC Shares as provided in Clause 8.1(e);
"Closing Date" shall have the same meaning ascribed to it in the Share Subscription Agreement;
"Code" means the U.S. Internal Revenue Code of 1986;
"Competitor" means any Person engaged in a business or activity (on its own or together with an Affiliate or associate of such Person, or through any franchise, license or agreement or in any other manner whatsoever), or having any interest in a business or activity, which is, identical to, similar to, connected with or of the same nature as, the Business or is in competition with the Business or any other business or activity being carried on by the Company at the relevant point in time;
"Contract" shall have the same meaning as has been ascribed to it under the Share Subscription Agreement;
"Control" (including the terms “Controlled” by or under common “Control” with), as used with respect to any Person means the direct or indirect beneficial ownership of or the right to vote in respect of, directly or indirectly, more than 50% (fifty percent) of the voting shares or securities of a Person and/or the power to control the majority of the composition of the board of directors of a Person and/or the power to create or direct the management or otherwise or any or all of the above;
"Convertible Instruments" means warrants, convertible preference shares, convertible debentures, bonds, options or any other financial instruments issued by the Company convertible into Equity Shares at a later date;
"Deed of Adherence" means the deed of adherence substantially in the form attached hereto asSCHEDULE 3;
"Director" means a director appointed on the Board of Directors from time to time in accordance with the provisions of this Agreement;
"Effective Date" means the date of execution of this Agreement;
"Eligible Employee" means the employees, officers and Directors of the Company and its subsidiaries;
"Encumbrance" means (including, the terms “Encumber” and “Encumbered") with respect to any property or Asset, any mortgage, lien, pledge, hypothecation, charge, interest, option, claim, prior interest, right of other Persons, security interest, equitable interest, encumbrance, title retention agreement, voting trust agreement, commitment, restriction or limitation of any nature whatsoever, including restriction on use, voting, non-disposal undertaking, rights of pre-emption, receipt of income or exercise of any other attribute of ownership or any other adverse claim of any kind in respect of such property or Asset (excluding any of the above restrictions created pursuant to this Agreement or the Articles);
"Equity Shares" means equity shares of the Company having face value of INR 10 (Rupees Ten only) each;
"ESOP" means a bonafide employee stock option plan adopted by the Company for the issue of options/shares to any Eligible Employee, consisting of 1,01,06,798 Equity Shares (out of which no options have been granted as of the Effective Date);
"Event of Default" means:
"Fair Market Value" means the fair market value of the Securities of the Company as computed in accordance with Clause 9.2 of this Agreement;
"Final Deadline Date” means the date of expiry of 6 (six) months from the Investor Exit Date;
"Financial Year" means the financial year of the Company, which begins on April 1st of a calendar year and ends on March 31st of the next calendar year;
"Financial Statements” includes a balance sheet, income statement, a statement of cash flowsstatements prepared in accordance with IFRS and shall be accompanied by such other documents as may be required under Applicable Law;
"Fully Diluted Basis” means that the total of Securities (after giving effect to any anti-dilution/valuation protection provisions) on an “as if converted” basis, shall be included for the purposes of such calculation;
"Governmental Authority" shall mean any international, nationalGAAP have been condensed or federal governmental authority, city, provisional or statutory authority, regulatory authority, government department, agency, commission, board, rule or regulation making entity/authority having or purporting to have jurisdiction over any Party, or other subdivision thereof or any municipality, district or other subdivision thereof to the extent that the rules, regulations, standards, requirements, procedures or orders of such authority, body or organisation have the force of any Applicable Law or any court or tribunal having jurisdiction;
"Group Companies" means a company which is a wholly owned subsidiary of one or more of AHA Holdings, Mr. Shripal Morakhia, Mrs. Kalpana Morakhia and their Immediate Family Members;
"IFRS" means the international financial reporting standards;
"Immediate Family Members" for each individual, means his/her spouse and his/her natural and adopted children;
"Indebtedness" means with respect to any Person, all indebtedness of such Person (whether present, future or contingent) and includes without limitation (a) all obligations of such Person for borrowed money or with respect to advances of any kind, whether or not evidenced by a Contract; (b) all obligations of such Person for the deferred purchase price of property, goods or services; (c) all indebtedness of others secured by (or for which the holder of such indebtedness has an existing right, contingent or otherwise, to be secured by) any Encumbrance on property of such Person; (d) all guarantees by such Person;
"Intellectual Property Rights” means and includes collectively or individually, the following worldwide rights relating to intangible property, whether or not filed, perfected, registered or recorded and whether now or hereafter existing, filed, issued or acquired: (a) rights in trademarks, trademark registrations, and applications therefor, trade names, service marks, service names, logos, or trade dress; (b) rights relating to the protection of confidential information; (c) internet domain names, Internet and World Wide Web (WWW) URLs or addresses; and (d) all other intellectual, information or proprietary rights anywhere in the world including rights of privacy and publicity, rights to publish information and content in any media;
"Investment Amount" shall have the meaning ascribed to it in the Share Subscription Agreement;
"Investor Exit Date” means March 31, 2022;
"Investor Exit Price” means a price per SPAC Share, which for all of the SPAC Shares aggregates to the higher of (a) the sum of (i) the Investment Amount; and (ii) an amount equal to an IRR of 20% (twenty percent) on the Investment Amount; and (b) the Fair Market Value of the SPAC Shares;
"IRR" means the annual rate of return which, when used as a discount rate for a series of cash flows (including dividends paid by the Company), gives a net present value of zero;
"Key Employees" mean Mr. Shripal Morakhia, chief executive officer, chief financial officer, chief operations officer, chief technical officer or any other ‘CXO’ level employees/department/designated business heads, any key managerial personnel or any other employee whose total annual remuneration is over INR 50,00,000 (Rupees Fifty Lakhs only) (inclusive of all perquisites, allowances and withholdings);
"Liquidation Event" means, in relation to the Company, winding up, liquidation, reconstruction, consolidation, reorganization, amalgamation, merger, sale of assets or business of the Company;
"Memorandum" means the memorandum of association of the Company as amended from time to time;
"Metis Exit Date" means June 30, 2019;
"Metis SHA" means the subscription and shareholders’ agreement dated April 30, 2014 entered into between Metis, Promoter, Company and certain other Persons;
"Non-Transferring Shareholder(s)” (a) in case of any Promoter proposing to Transfer any Promoter Shares under Clause 4.2(a), shall mean the Investor, and (b) in case of the Investor proposing to Transfer SPAC Shares, shall mean only the Promoters;
"Person" means any natural person, limited or unlimited liability company, corporation, partnership (whether limited or unlimited), proprietorship, Hindu undivided family, trust, union, association, government or any agency or political subdivision thereof or any other entity that may be treated as a person under Applicable Law;
"Promoter Sale Shares” means the number of Promoter Shares proposed to be Transferred by the Promoters under Clause 4.3;
"Promoter Shares" shall mean Equity Shares, Convertible Instruments and other Securities held by the Promoters from time to time;
"QIPO" means a public offering, listing of the Equity Shares of the Company and their admission to trading on Bombay Stock Exchange, National Stock Exchange, New York Stock Exchange, NASDAQ, or any other recognised stock exchange;
"Qualified Investors" shall mean a collective reference to the qualified investors (as defined under Part B of the Articles), the qualified investors II (as defined under Part C of the Articles) and the qualified investors III (as defined under Part D of the Articles);
"Related Party" shall have the meaning as defined under the Act;
"Relative" shall have the meaning as defined under the Act;
"Reserved Matters" mean the list of matters which require the consent of the Investor as set out inSCHEDULE 7;
"Restricted Person" means (a) Competitor; and (b) any Person that (i) has been convicted of a criminal offence or an economic offence where the punishment is not less than imprisonment of 6 (Six) months; and (ii) is the resident of North Korea, Iraq, Cuba, Iran, Myanmar, Libya or Sudan or Persons that are the target of U.S. economic sanctions administered by the U.S. Treasury Department Oficce of Foreign Assets Control;
"SEBI" means the Securities and Exchange Board of India;
"Securities" means any and all classes and series of shares, Equity Shares, options, warrants, preference shares, convertible securities of all kinds, debentures or any other arrangement relating to the Company’s share capital;
"Share Subscription Agreement” means the share subscription agreement of even date executed between the Investor, the Promoters and the Company hereto for the subscription of the Subscription Shares by the Investor and shall include any schedules, annexures, or exhibits that may be annexed to Share Subscription Agreement now or at a later date and any amendments made to Share Subscription Agreement by all the parties thereto in writing;
"Shareholders" means the holders of Securities in the Company (which are Equity Shares or convertible into Equity Shares);
"SPAC Issue Price" means INR 41.56 (Rupees forty one and fifty six paise only);
"SPAC Shares" means collective reference to the Equity Shares held by the Investor and includes any other Securities of the Company held from time to time by the Investor;
"SRT" means Mr. Sachin Ramesh Tendulkar;
"Subscription Shares" shall have the meaning ascribed to it in the Share Subscription Agreement;
"Transaction Documents" means this Agreement, the Share Subscription Agreement, Restated Articles (as defined in the Share Subscription Agreement) and any other agreement required to be executed and/or delivered pursuant to this Agreement and in respect of the transactions contemplated in this Agreement and the Share Subscription Agreement;
"Transfer" includes:
but excludes any transmission of Securitiesomitted, pursuant to the Act;
"Transferring Shareholder" shall mean the Promoter proposing to make a Transfer of Shares under Clause 4.2 or the Investor, as the case may be;
The shareholding pattern of the Company onSEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a Fully Diluted Basis immediately precedingcomprehensive presentation of financial position, results of operations, or cash flows. In the Closing Date is, andopinion of management, the shareholding patternaccompanying unaudited consolidated financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the Company as on the Closing Date on a Fully Diluted Basis shall be as set out in Part Aconsolidated financial position, operating results and Part B ofSCHEDULE 4 to this Agreement respectively.
The Company agrees and undertakes that it shall and the Promoters jointly and severally undertake that they shall, exercise all rights and powers available to them to procure that the Company shall utilise the proceeds of the Investment Amount solelycash flows for the purposes identified in the Share Subscription Agreement.
Other than as specifically set out above, the Company shall be prohibited from using the proceeds of the Investment Amount without the prior written consent of the Investor.
Subject to the terms of this Agreement (including without limitation the provisions of Clause 5.15(Reserved Matters)), the Board may, from time to time, determine the additional capital contributions of the Company from existing Shareholders or from third parties (other than a Restricted Person), which shall be in the nature of Equity Shares, preference shares or any other Security. The terms of such issue, including the valuation in respect of any fresh issue of Securities, shall be as determined by the Board subject to Clause 5.15(Reserved Matters) ("New Securities"). Nothing in this Clause 3.1 shall apply to (i) issuance of Equity Shares in accordance with the ESOP plan, and/or (ii) issuance of Equity Shares upon conversion of the Convertible Instruments in accordance with the terms set out in the Articles, and/or (iii) issuance of Securities pursuant to the QIPO; and/or (iv) issuance of additional Equity Shares in order to give effect to the provisions of Clause 3.7 (Valuation Protection); and/or (v) issuance of bonus Shares.
If at any time after the Closing Date, the Company issues to any Person any New Securities or undertakes any action, including effecting any changes in the capital structure of the Company, at a price per Security that is lower than the SPAC Issue Price, then the Investor shall be entitled to broad based weighted average anti-dilution protection in accordance withSCHEDULE 6 hereto. In such an event, the Company and the Promoters shall be bound to co-operate with the Investor to ensure that the Company forthwith takes all necessary steps, subject to Applicable Law, to issue additional Equity Shares to the Investor or its Affiliates (whereby such holders or its Affiliates (as the case may be) are not required to pay any additional amounts for the issuance of the additional Equity Shares or if so required under Applicable Law, pay the lowest price required to be paid under Applicable Law) in accordance with the formula provided inSCHEDULE 6 or the Promoters shall transfer Equity Shares to the Investor at the lowest price permissible under Applicable Law, in accordance with the formula provided inSCHEDULE 6. Nothing in this Clause 3.7 shall apply to (i) issuance of Equity Shares in accordance with the ESOP plan, and/or (ii) issuance of Equity Shares upon conversion of Convertible Instruments in accordance with the terms set out in the Articles, and/or (iii) issuance of Securities pursuant to the QIPO; and/or (iv) issuance of bonus Shares.
Subject to Clause 4.1(e) (Execution of a Deed of Adherence), the Investor is entitled to freely Transfer all or any of the SPAC Shares at any time in the following manner:
The Promoters shall not Transfer any Promoter Shares to any Person, in any manner whatsoever, without the prior approval of the Investor and the Promoter Shares shall stand locked-in till such time as the Investor holds any Shares in the Company subject to Clause 13 of this Agreement; provided however that each of the Promoters shall be entitled to Transfer their shareholding in the Company to 1 (one) or more of the Group Companies or Immediate Family Members ("Permitted Promoter Transferees"); subject to Clause 4.1(e) (Execution of a Deed of Adherence). In the event the Investor provides such approval in accordance with this Clause 4.1(b), then the Promoters shall be entitled to Transfer the Promoter Shares subject to the provisions of Clause 4.1(e) (Execution of a Deed of Adherence), Clause 4.1(f)(Transfer to Restricted Person), Clause 4.2(Right of First Offer) and Clause 4.3(Tag Along Right)below. It is clarified that the transferees of Shares Transferred by the Promoters shall be bound by all obligations of the Promoters under this Agreement. For the avoidance of doubt, it is hereby clarified that any Transfer of the Promoter Shares or issuance of shares by the Company to give effect to any (i) full rachet adjustement under Clause 8.1. of the Metis SHA; (ii) broad based weighted average adjustement under Clause 3.7 (Valuation Protection) of this Agreement; or (iii) drag along right of the Investor and Metis under this Agreement, the Metis SHA and the Articles, shall not be subject to any (i) transfer restrictions on the Promoter Shares under this Agreement, Metis SHA and the Articles, (ii) pre-emptive right to subscribe to securities and veto right of the Investor and/or Metis under this Agreement and/or the Metis SHA and the Articles.
Notwithstanding anything to the contrary in this Agreement, Mr. Shripal Morakhia hereby expressly agrees that:
Any Transfer of Securities which is not in compliance with the provisions of this Clause 4 shall bevoid ab initioand the Company shall not:
Subject to the provisions of this Agreement, all Transfers by the Shareholders will be subject to the transferee entering into a Deed of Adherence. Upon execution of the Deed of Adherence, the Parties agree that this Agreement shall stand automatically novated to the extent of making the transferee a party to this Agreement. Provided that, any Transfer by the Investor to a transferee, after the Metis Fall Away Date or upon the occurrence of an Event of Default or at any time thereafter, will not require such transferee to enter into a Deed of Adherence.
Notwithstanding the terms of this Clause 4 or any other provision of this Agreement or the Articles, no Shareholder (except (i) the Investor who is bound only to the extent provided in Clause 4.1(a) and (ii) Metis who is bound only to the extent provided in Clause 8.3 of the Metis SHA ) shall be entitled to Transfer (whether in the form of gift, sale or otherwise) or Encumber or otherwise dispose of any Securities held by them or any interest in such Securities (including any form of options, warrants, derivatives or arrangements relating to such Securities), to a Restricted Person.
Once issued, a ROFO Exercise Notice shall be irrevocable and shall constitute a binding offer by the Non-Transferring Shareholder(s) to purchase the ROFO Shares as per the terms set out in the ROFO Exercise Notice.
Directors will be nominated by the Shareholders in the manner set out in the Articles and shall be appointed in the manner prescribed under the Act and this Agreement. Subject to Clause 5.2(Number of Directors) below, the Board may also appoint additional Directors from time to time, who will hold office until the next annual general meeting of the Company.
Mr. Shripal Morakhia shall not resign from full time employment of the Company till such time as the Investor hold any Securities.
The Promoters agree, undertake and covenant that they shall not veto nor otherwise obstruct the appointment of the Investor Observer in accordance with this Clause 5.2(g). The Investor Observer will be entitled to receive all documents, communication and information as received by a Director and will be entitled to attend all meetings of the Board and its committee as an observer, without exercising any voting rights.
The Investor Directors shall not be required to hold any qualification shares and shall not be liable to retire by rotation.
In the event of any Investor Director(s) ("Original Director") being likely to be absent from India for a period of not less than 3 (three) months, the Board may at a meeting or by a circular resolution appoint an alternate Director for such Original Director. The Original Director in whose place such alternate Director is to be appointed or the Investor shall designate the Person to be appointed as an alternate Director to the Board.
In the event of a casual vacancy arising on account of the resignation of an Investor Director(s) or the office of the Investor Director(s) becoming vacant for any reason, the Investor shall be entitled to designate a Director to fill the vacancy.
Unless otherwise agreed by a simple majority of the Directors in attendance at any duly convened meeting of the Board, one of the Promoter Directors shall be the chairman of the Board. The chairman shall not have a casting vote.
Subject to the provisions of Clause 5.11(Decision making by the Board)and 5.15(Reserved Matters) below and except as may be otherwise determined by the Board with approval of the Investor:
Subject to Clause 5.15(Reserved Matters) below, resolutions of the Board shall be passed by a simple majority of votes of the Directors entitled to vote thereon and each Director shall be entitled to 1 (one) vote.
The Company shall procure and maintain a directors and officers insurance policy for the Directors on the Board consistent with insurances obtained generally by companies operating in the same or similar industry and line of business as the Company and as acceptable to the Investor. The Company shall get the limits for the directors’ and officers’ insurance policy approved by the Investor Director(s) or the Investor (if the Investor has not appointed Investor Directors).
The Company shall indemnify and keep indemnified all the Investor Directors to the maximum extent permitted by Applicable Law and the Articles shall contain a provision for providing the broadest permissible indemnification by the Company to the Investor Directors.
The term “Partner" means each shareholder, partner, member or other equity holder of the Investor and any person holding an option to acquire a share, partnership interest, membership interest or other equity interest in the Investor and any direct or indirect equity owner of such shareholder, partner, member, other equity holder or option holder.
The Promoters hereby agree and acknowledge that all intellectual property that is developed by, (a) the Promoters, (b) any Group Companies, (c) Immediate Family Members; and (d) employees of the Company, AHA Holdings and the Group Companies, in relation to or in connection with the business of the Company, shall be registered in the name of the Company and the Promoters shall ensure that all such intellectual property shall be registered in the name of the Company.
The Company and the Promoters shall provide the Investor with a certificate of compliance, on a quarterly basis, and within 15 (fifteen) days from the end of the quarter, in relation to compliance with money laundering laws of India and the United States of America, in a form and substance to be intimated by the Investor.
The Investor shall be provided customary registration rights in case of a public offering of its Securities in the USA.
to compute the fair market value of the Securities. The Accounting Firm shall compute the fair market value of the Securities within 30 (thirty) days from the date of its appointment ("Fair Market Value"). The Fair Market Value arrived at by the Accounting Firm shall be finally and conclusively binding on the Investor and the Promoters.
The business of the Company shall be restricted to the Business (as defined in this Agreement). The Promoters shall assist the Company in the procurement of necessary permits, licenses, consents, approvals, financing and guarantees necessary for the Business and operations of the Company.
The financing requirements including working capital requirements of the Company shall be met in the first instance by internal accruals and any external financing shall be availed of only in accordance with the Business Plan or otherwise with the prior consent of the Investor. In the event of any future borrowings or Indebtedness, the Investor shall not be required to provide any guarantees/collaterals or any other security. The Investor shall not be required to pledge their Securities or provide any other support or a negative lien to any third Person, including without limitation the lenders of the Company. The Promoters shall provide all support including without limitation guarantees or any other security in respect of the borrowings and Indebtedness by the Company subject to the provisions of this Agreement.
The Company shall maintain and update all statutory registers required to be maintained under Applicable Laws for disclosing Related Party transactions.
This Agreement shall come into effect on the Closing Date and shall remain valid so long as the Investor holds any Securities unless terminated earlier in accordance with Clause 12.2(Termination).
The Agreement shall automatically terminatevis-à-vis a Shareholder, upon such Shareholder ceasing to hold any Securities.
The Investor shall be entitled to terminate this Agreement forthwith, by giving a notice in writing, upon the occurrence of one or more Events of Default.
If toMetis:
If tothe Investor:
If to theCompany:
If toShripal Morakhia
If toAHA Holdings Pvt. Ltd.
If toMRG:
This Agreement shall be governed and interpreted by, and construed in accordance with the laws of India. Subject to the provisions of Clause 18(Arbitration)hereof, the courts of New Delhi shall have jurisdiction in respect of all matters relating to or arising out of this Agreement.
The Company shall bear all stamp duty payable in connection with this Agreement. Further, all costs related to the transactions contemplated under the Transaction Documents, unless specifically stated in this Agreement, shall be borne in accordance with the provisions of the Share Subscription Agreement.
Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, permitted assigns, heirs, executors and administrators of the Parties hereto whose rights or obligations hereunder are affected by such amendments.
Any or all provisions of this Agreement may be amended, restated or waived (either generally or in a particular instance and either retroactively or prospectively) with the written consent of the Parties. Any such amendment, waiver or restatement shall be binding on all Parties to this Agreement.
This Agreement, supersedes all prior discussions and agreements (whether oral or written, including all correspondence) if any, between the Parties with respect to the right and obligations of the Investor as a Shareholder in the Company and this Agreement (together with the Schedules and any amendments or modifications thereof) together with the otherTransactionDocuments contain the sole and entire agreement between the Parties hereto with respect to the subject matter hereof.
Any provision of this Agreement, which is invalid or unenforceable, shall be ineffective to the extent of such invalidity or unenforceability, without affecting in any way the remaining provisions hereof. The illegality, unenforceability or invalidity of any provision of this Agreement shall not affect the enforceability, legality or validity of the remaining provisions of this Agreement which shall remain in full force and effect to the maximum extent permitted by law. Any invalid or unenforceable provision of this Agreement shall be replaced with a provision, which is valid and enforceable and most nearly reflects the original intent of the unenforceable provision.
It is agreed between the Parties hereto that no publicity or dissemination of information in any manner with regard to the transactions contemplated herein shall be made without the prior written consent of the Investor and the Promoters.
Wherever in this Agreement there is a reference to a specific number of the Subscription Shares or any other shares/Securities, then, upon the occurrence of any subdivision, combination, etc. of the Securities, the specific number of Securities so referenced in this Agreement shall automatically be proportionally adjusted to reflect the effect on the outstanding Securities of such class or series of Securities by such subdivision, combination, etc. All Securities held or acquired by the relevant Affiliated entities or Persons shall be aggregated together for the purpose of determining the availability of any rights of the Investor under this Agreement.
Each Party shall from time to time and at all times hereafter make, do, execute, or cause or procure to be made, done and executed such further acts, deeds, conveyances, consents, documents and assurances without further consideration, which may be required to effect the transactions contemplated by this Agreement.
The Parties shall use their best efforts to cause the transactions contemplated by this Agreement to be consummated, including without limitation, obtaining, making and causing to become effective all approvals of Governmental Authorities and other Persons as may be necessary or reasonably requested by the Investor in order to achieve the objectives of this Agreement.
This Agreement may be executed in any number of counterparts, all of which, taken together, shall constitute one and the same instrument, and any Party (including any duly authorised representative of a Party) may enter into this Agreement by executing a counterpart. The delivery of signed counterparts by facsimile transmission or electronic mail in “portable document format” (".pdf”) shall be as effective as signing and delivering the document in person.
The Parties are independent contractors. None of the Parties shall have any right, power or authority to enter into any agreement for or on behalf of, or incur any obligation or liability of, or to otherwise bind, the other Parties except as specifically provided by this Agreement. Nothing in this Agreement shall be interpreted or construed to create an association or partnership between the Parties, deem them to be persons acting in concert or to impose any liability attributable to such relationship upon any of the Parties nor, unless expressly provided otherwise, to constitute any Party as the agent of any of the other Parties for any purpose.
The persons executing this Agreement on behalf of the respective Parties represent and covenant that they have the authority to sign and execute this document on behalf of the Parties for whom they are signing.
It is hereby agreed between the Parties and the Promoters and Metis specifically undertake not to amend the Metis SHA without the prior written consent of the Investor. Any such amendment to the Metis SHA without the prior written consent of the Investor shall be void ab initio. In case of any conflict between this Clause 19.15 of this Agreement and any provision in the Metis SHA, this Clause 19.15 shall prevail.
IN WITNESS WHEREOF, the Parties have entered into and executed this Shareholders’ Agreement as of the day and year first above written.
THIS SIGNATURE PAGE FORMS AN INTEGRAL PART OF THE SHAREHOLDERS’ AGREEMENT EXECUTED AMONG (1)I-AMCAPITAL ACQUISITION COMPANY; (2) FW METIS LIMITED; (3) MITESH R. GOWANI; (4) MR.SHRIPAL MORAKHIA; (5) AHA HOLDINGS PRIVATE LIMITED; AND (6) SMAAASH ENTERTAINMENT PRIVATE LIMITED
Signed and delivered for an on behalf ofSMAAASH ENTERTAINMENT PRIVATE LIMITED
IN WITNESS WHEREOF, the Parties have entered into and executed this Shareholders’ Agreement as of the day and year first above written.
THIS SIGNATURE PAGE FORMS AN INTEGRAL PART OF THE SHAREHOLDERS’ AGREEMENT EXECUTED AMONG (1)I-AMCAPITAL ACQUISITION COMPANY; (2) FW METIS LIMITED; (3) MITESH R. GOWANI; (4) MR. SHRIPAL MORAKHIA; (5) AHA HOLDINGS PRIVATE LIMITED; AND (6) SMAAASH ENTERTAINMENT PRIVATE LIMITED
Signed and delivered for an on behalf ofAHA HOLDINGS PRIVATE LIMITED
IN WITNESS WHEREOF, the Parties have entered into and executed this Shareholders’ Agreement as of the day and year first above written.
THIS SIGNATURE PAGE FORMS AN INTEGRAL PART OF THE SHAREHOLDERS’ AGREEMENT EXECUTED AMONG (1) I-AMCAPITAL ACQUISITION COMPANY; (2) FW METIS LIMITED; (3) MITESH R. GOWANI; (4) MR. SHRIPAL MORAKHIA; (5) AHA HOLDINGS PRIVATE LIMITED; AND (6) SMAAASH ENTERTAINMENT PRIVATE LIMITED
Signed and delivered byMR. SHRIPAL MORAKHIA
IN WITNESS WHEREOF, the Parties have entered into and executed this Shareholders’ Agreement as of the day and year first above written.
THIS SIGNATURE PAGE FORMS AN INTEGRAL PART OF THE SHAREHOLDERS’ AGREEMENT EXECUTED AMONG (1)I-AMCAPITAL ACQUISITION COMPANY; (2) FW METIS LIMITED; (3) MITESH R. GOWANI; (4) MR. SHRIPAL MORAKHIA; (5) AHA HOLDINGS PRIVATE LIMITED; AND (6) SMAAASH ENTERTAINMENT PRIVATE LIMITED
Signed and delivered for an on behalf ofI-AMCAPITAL ACQUISITION COMPANY
IN WITNESS WHEREOF, the Parties have entered into and executed this Shareholders’ Agreement as of the day and year first above written.
THIS SIGNATURE PAGE FORMS AN INTEGRAL PART OF THE SHAREHOLDERS’ AGREEMENT EXECUTED AMONG (1)I-AMCAPITAL ACQUISITION COMPANY; (2) FW METIS LIMITED; (3) MITESH R. GOWANI; (4) MR. SHRIPAL MORAKHIA; (5) AHA HOLDINGS PRIVATE LIMITED; AND (6) SMAAASH ENTERTAINMENT PRIVATE LIMITED
Signed and delivered for an on behalf ofI-AMCAPITAL ACQUISITION COMPANY
IN WITNESS WHEREOF, the Parties have entered into and executed this Shareholders’ Agreement as of the day and year first above written.
THIS SIGNATURE PAGE FORMS AN INTEGRAL PART OF THE SHAREHOLDERS’ AGREEMENT EXECUTED AMONG (1)I-AMCAPITAL ACQUISITION COMPANY; (2) FW METIS LIMITED; (3) MITESH R. GOWANI; (4) MR. SHRIPAL MORAKHIA; (5) AHA HOLDINGS PRIVATE LIMITED; AND (6) SMAAASH ENTERTAINMENT PRIVATE LIMITED
Signed and delivered for an on behalf ofFW METIS LIMITED
IN WITNESS WHEREOF, the Parties have entered into and executed this Shareholders’ Agreement as of the day and year first above written.
THIS SIGNATURE PAGE FORMS AN INTEGRAL PART OF THE SHAREHOLDERS’ AGREEMENT EXECUTED AMONG (1) I-AMCAPITAL ACQUISITION COMPANY; (2) FW METIS LIMITED; (3) MITESH R. GOWANI; (4) MR. SHRIPAL MORAKHIA; (5) AHA HOLDINGS PRIVATE LIMITED; AND (6) SMAAASH ENTERTAINMENT PRIVATE LIMITED
Signed and delivered byMR. MITESH R. GOWANI
THIRD AMENDED AND RESTATEDCERTIFICATE OF INCORPORATIONOFI-AM CAPITAL ACQUISITION COMPANY
[●], 2018
I-AM Capital Acquisition Company, a corporation organized and existing under the laws of the State of Delaware (the “Corporation"), DOES HEREBY CERTIFY AS FOLLOWS:
1. The name of the Corporation is “I-AM Capital Acquisition Company". The original certificate of incorporation of the Corporation was filed with the Secretary of State of the State of Delaware on April 17, 2017 (the “Original Certificate"). An amended and restated certificate of incorporation was filed with the Secretary of State of the State of Delaware on May 31, 2017 (the “Amended and Restated Certificate").
2. A second amended and restated certificate of incorporation which restated and amended the provisions of the Amended and Restated Certificate was filed with the Secretary of State of the State of Delaware on August 16, 2017 (the “Second Amended and Restated Certificate").
3. This Third Amended and Restated Certificate of Incorporation (the “Third Amended and Restated Certificate"), which restates and amends the provisions of the Second Amended and Restated Certificate, was duly adopted in accordance with Sections 228, 242 and 245 of the General Corporation Law of the State of Delaware, as amended from time to time (the “DGCL").
4. This Third Amended and Restated Certificate shall become effective on the date of filing with Secretary of State of Delaware.
5. The text of the Second Amended and Restated Certificate is hereby restated and amended in its entirety to read as follows:
ARTICLE INAMEperiods presented.
The nameaccompanying unaudited consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K as filed with the SEC on July 24, 2018. The interim results for the three and nine months ended February 28, 2019 are not necessarily indicative of the Corporation is Smaaash Entertainment Inc.results to be expected for the year ending May 31, 2019 or for any future interim periods.
ARTICLE IIPURPOSEEmerging Growth Company
The purposeSection 102(b)(1) of the CorporationJumpstart Our Business Startups Act of 2012 (the “JOBS Act”) exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, to engage in any lawful act or activity for which corporations may be organizedthose that have not had a registration statement under the DGCL.
ARTICLE IIIREGISTERED AGENT
The addressSecurities Act of the Corporation’s registered office in the State of Delaware is 1013 Center Road, Suite 403-B, Wilmington, DE 19805 in the County of New Castle. The name of the Corporation’s registered agent at such address is Vcorp Services, LLC.
ARTICLE IVCAPITALIZATION
Section 4.1 Authorized Capital Stock. The total number of shares of all classes of capital stock which the Corporation is authorized to issue is 21,000,000 shares, consisting of (a) 20,000,000 shares of common stock, par value $0.0001 per share1933, as amended (the “Common Stock"“Securities Act”) and (b) 1,000,000 shares of preferred stock, par value $0.0001 per share (the “Preferred Stock").
Section 4.2 Preferred Stock. The Board of Directors of the Corporation (the “Board") is hereby expressly authorized to provide out of the unissued shares of the Preferred Stock for one, declared effective or more series of Preferred Stock and to establish from time to time the number of shares to be included in each such series and to fix the voting rights, if any, designations, powers, preferences and relative, participating, optional, special and other rights, if any, of each such series and any qualifications, limitations and restrictions thereof, as shall be stated in the resolution or resolutions adopted by the Board providing for the issuance of such series and included indo not have a certificate of designation (a “Preferred Stock Designation") filed pursuant to the DGCL, and the Board is hereby expressly vested with the authority to the full extent provided by law, now or hereafter, to adopt any such resolution or resolutions.
Section 4.3 Common Stock.
(a) Voting.
(i) Except as otherwise required by law or this Third Amended and Restated Certificate (including any Preferred Stock Designation), the holders of the shares of Common Stock shall exclusively possess all voting power with respect to the Corporation.
(ii) Except as otherwise required by law or this Third Amended and Restated Certificate (including any Preferred Stock Designation), the holders of shares of Common Stok shall be entitled to one vote for each such share on each matter properly submitted to the stockholders of the Corporation on which the holders of the shares of Common Stock are entitled to vote.
(iii) Except as otherwise required by law or this Third Amended and Restated Certificate (including any Preferred Stock Designation), at any annual or special meeting of the stockholders of the Corporation, the holders of the shares of Common Stock shall have the exclusive right to vote for the election of directors and on all other matters properly submitted to a vote of the stockholders of the Corporation. Notwithstanding the foregoing, except as otherwise required by law or this Third Amended and Restated Certificate (including any Preferred Stock Designation), the holders of the shares of Common Stock shall not be entitled to vote on any amendment to this Third Amended and Restated Certificate (including any amendment to any Preferred Stock Designation) that relates solely to the terms of one or more outstanding series of Preferred Stock if the holders of such affected series of Preferred Stock are entitled, either separately or together with the holders of one or more other such series, to vote thereon pursuant to this Third Amended and Restated Certificate (including any Preferred Stock Designation) or the DGCL.
(b) Dividends. Subject to applicable law, the rights, if any, of the holders of any outstanding series of the Preferred Stock, the holders of the shares of Common Stock shall be entitled to receive such dividends and other distributions (payable in cash, property or capital stock of the Corporation) when, as and if declared thereon by the Board from time to time out of any assets or funds of the Corporation legally available therefor and shall share equally on a per share basis in such dividends and distributions.
(c) Liquidation, Dissolution or Winding Up of the Corporation. Subject to applicable law, the rights, if any, of the holders of any outstanding series of the Preferred Stock, in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, after payment or provision for payment of the debts and other liabilities of the Corporation, the holders of the shares of Common Stock shall be entitled to receive all the remaining assets of the Corporation available for distribution to its stockholders, ratably in proportion to the number of shares of Common Stock held by them.
Section 4.4 Rights and Options. The Corporation has the authority to create and issue rights, warrants and options entitling the holders thereof to acquire from the Corporation any shares of its capital stock of any class or classes, with such rights, warrants and options to be evidenced by or in instrument(s) approved by the Board. The Board is empowered to set the exercise price, duration, times for exercise and other terms and conditions of such rights, warrants or options; provided, however, that the consideration to be received for any shares of capital stock issuable upon exercise thereof may not be less than the par value thereof.
ARTICLE VBOARD OF DIRECTORS
Section 5.1 Board Powers. The business and affairs of the Corporation shall be managed by, or under the direction of, the Board. In addition to the powers and authority expressly conferred upon the Board by statute, this Third Amended and Restated Certificate or the Bylaws of the Corporation ("Bylaws"), the Board is hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation, subject, nevertheless, to the provisions of the DGCL, this Third Amended and Restated Certificate, and any Bylaws adopted by the stockholders of the Corporation; provided, however, that no Bylaws hereafter adopted by the stockholders of the Corporation shall invalidate any prior act of the Board that would have been valid if such Bylaws had not been adopted.
Section 5.2 Number, Election and Term.
(a) The number of directors of the Corporation, other than those who may be elected by the holders of one or more series of the Preferred Stock voting separately by class or series, shall be fixed from time to time exclusively by the Board pursuant to a resolution adopted by a majority of the Board.
(b) Subject to Section 5.5 hereof, the Board shall be divided into two classes, as nearly equal in number as possible and designated Class I and Class II. The Board is authorized to assign members of the Board already in office to Class I or Class II. The term of the current Class I Directors shall expire at the second annual meeting of the stockholders of the Corporation following the effectiveness of this Third Amended and Restated Certificate and the term of the current Class II Directors shall expire at the first annual meeting of the stockholders of the Corporation following the effectiveness of Third Amended and Restated Certificate. At each succeeding annual meeting of the stockholders of the Corporation, beginning with the first annual meeting of the stockholders of the Corporation following the effectiveness of this Third Amended and Restated Certificate, each of the successors elected to replace the class of directors whose term expires at that annual meeting shall be elected for a two-year term or until the election and qualification of their respective successors in office, subject to their earlier death, resignation or removal. Subject to Section 5.5 hereof, if the number of directors that constitutes the Board is changed, any increase or decrease shall be apportioned by the Board among the classes so as to maintain the number of directors in each class as nearly equal as possible, but in no case shall a decrease in the number of directors constituting the Board shorten the term of any incumbent director. Subject to the rights of the holders of one or more series of Preferred Stock, voting separately by class or series, to elect directors pursuant to the terms of one or more series of Preferred Stock, the election of directors shall be determined by a plurality of the votes cast by the stockholders present in person or represented by proxy at the meeting and entitled to vote thereon. The Board is hereby expressly authorized, by resolution or resolutions thereof, to assign members of the Board already in office to the aforesaid classes at the time this Third Amended and Restated Certificate (and therefore such classification) becomes effective in accordance with the DGCL.
(c) Subject to Section 5.5 hereof, a director shall hold office until the annual meeting for the year in which his or her term expires and until his or her successor has been elected and qualified, subject, however, to such director’s earlier death, resignation, retirement, disqualification or removal.
(d) Unless and except to the extent that the Bylaws shall so require, the election of directors need not be by written ballot. The holders of shares of Common Stock shall not have cumulative voting rights.
Section 5.3 Newly Created Directorships and Vacancies. Subject to Section 5.5 hereof, newly created directorships resulting from an increase in the number of directors and any vacancies on the Board resulting from death, resignation, retirement, disqualification, removal or other cause may be filled solely and exclusively by a majority vote of the remaining directors then in office, even if less than a quorum, or by a sole remaining director (and not by stockholders), and any director so chosen shall hold office for the remainder of the full term of the class of directors to which the new directorship was added or in which the vacancy occurred and until his or her successor has been elected and qualified, subject, however, to such director’s earlier death, resignation, retirement, disqualification or removal.
Section 5.4 Removal. Subject to Section 5.5 hereof, any or all of the directors may be removed from office at any time, but only for cause and only by the affirmative vote of holders of a majority of the voting power of all then outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class.
Section 5.5 Preferred Stock - Directors. Notwithstanding any other provision of this Article V, and except as otherwise required by law, whenever the holders of one or more series of the Preferred Stock shall have the right, voting separately by class or series, to elect one or more directors, the term of office, the filling of vacancies, the removal from office and other features of such directorships shall be governed by the terms of such series of the Preferred Stock as set forth in this Third Amended and Restated Certificate (including any Preferred Stock Designation) and such directors shall not be included in any of the classes created pursuant to this Article V unless expressly provided by such terms.
ARTICLE VIBYLAWS
In furtherance and not in limitation of the powers conferred upon it by law, the Board shall have the power and is expressly authorized to adopt, amend, alter or repeal the Bylaws by the affirmative vote of a majority of the total number of directors present at a regular or special meeting of the Board at which there is a quorum or by unanimous written consent. The Bylaws also may be adopted, amended, altered or repealed by the stockholders of the Corporation; provided, however, that in addition to any vote of the holders of any class or series of capital stock of the Corporation required by law or by this Third Amended and Restated Certificate (including any Preferred Stock Designation), the affirmative vote of the holders of at least a majority of the voting power of all then outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required for the stockholders of the Corporation to adopt, amend, alter or repeal the Bylaws; and provided further, however, that no Bylaws hereafter adopted by the stockholders of the Corporation shall invalidate any prior act of the Board that would have been valid if such Bylaws had not been adopted.
ARTICLE VIISPECIAL MEETINGS OF STOCKHOLDERS; ACTION BY WRITTEN CONSENT
Section 7.1 Special Meetings. Subject to the rights, if any, of the holders of any outstanding series of the Preferred Stock, and to the requirements of applicable law, special meetings of stockholders of the Corporation may be called only by the Chairman of the Board, Chief Executive Officer of the Corporation, or the Board pursuant to a resolution adopted by a majority of the Board, and the ability of the stockholders of the Corporation to call a special meeting is hereby specifically denied. Except as provided in the foregoing sentence, special meetings of stockholders of the Corporation may not be called by another person or persons.
Section 7.2 Advance Notice. Advance notice of stockholder nominations for the election of directors and of business to be brought by stockholders before any meeting of the stockholders of the Corporation shall be given in the manner provided in the Bylaws.
Section 7.3 Action by Written Consent. Except as may be otherwise provided for or fixed pursuant to this Third Amended and Restated Certificate (including any Preferred Stock Designation) relating to the rights of the holders of any outstanding series of Preferred Stock, any action required or permitted to be taken by the stockholders of the Corporation must be effected by a duly called annual or special meeting of such stockholders and may not be effected by written consent of the stockholders of the Corporation.
ARTICLE VIIILIMITED LIABILITY; INDEMNIFICATION
Section 8.1 Limitation of Director Liability. A director of the Corporation shall not be personally liable to the Corporation 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 under the DGCL as the same exists or may hereafter be amended unless a director violated its duty of loyalty to the Corporation or its stockholders, acted in bad faith, knowingly or intentionally violated the law, authorized unlawful payments of dividends, unlawful stock purchases or unlawful redemptions, or derived improper personal benefit from its actions as a director. Any amendment, modification or repeal of the foregoing sentence shall not adversely affect any right or protection of a director of the Corporation hereunder in respect of any act or omission occurring prior to the time of such amendment, modification or repeal.
Section 8.2 Indemnification and Advancement of Expenses.
(a) To the fullest extent permitted by applicable law, as the same exists or may hereafter be amended, the Corporation shall indemnify and hold harmless each person who is or was made a party or is threatened to be made a party to or is otherwise involved in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (a “proceeding") by reason of the fact that he or she is or was a director or officer of the Corporation or, while a director or officer of the Corporation, is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust, other enterprise or nonprofit entity, including service with respect to an employee benefit plan (an “indemnitee"), whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent, or in any other capacity while serving as a director, officer, employee or agent, against all liability and loss suffered and expenses (including, without limitation, attorneys’ fees, judgments, fines, ERISA excise taxes and penalties and amounts paid in settlement) reasonably incurred by such indemnitee in connection with such proceeding. The Corporation shall to the fullest extent not prohibited by applicable law pay the expenses (including attorneys’ fees) incurred by an indemnitee in defending or otherwise participating in any proceeding in advance of its final disposition; provided, however, that, to the extent required by applicable law, such payment of expenses in advance of the final disposition of the proceeding shall be made only upon receipt of an undertaking, by or on behalf of the indemnitee, to repay all amounts so advanced if it shall ultimately be determined that the indemnitee is not entitled to be indemnified under this Section 8.2 or otherwise. The rights to indemnification and advancement of expenses conferred by this Section 8.2 shall be contract rights and such rights shall continue as to an indemnitee who has ceased to be a director, officer, employee or agent and shall inure to the benefit of his or her heirs, executors and administrators. Notwithstanding the foregoing provisions of this Section 8.2(a), except for proceedings to enforce rights to indemnification and advancement of expenses, the Corporation shall indemnify and advance expenses to an indemnitee in connection with a proceeding (or part thereof) initiated by such indemnitee only if such proceeding (or part thereof) was authorized by the Board.
(b) The rights to indemnification and advancement of expenses conferred on any indemnitee by this Section 8.2 shall not be exclusive of any other rights that any indemnitee may have or hereafter acquire under law, this Third Amended and Restated Certificate, the Bylaws, an agreement, vote of stockholders or disinterested directors, or otherwise.
(c) Any repeal or amendment of this Section 8.2 by the stockholders of the Corporation or by changes in law, or the adoption of any other provision of this Third Amended and Restated Certificate inconsistent with this Section 8.2, shall, unless otherwise required by law, be prospective only (except to the extent such amendment or change in law permits the Corporation to provide broader indemnification rights on a retroactive basis than permitted prior thereto), and shall not in any way diminish or adversely affect any right or protection existing at the time of such repeal or amendment or adoption of such inconsistent provision in respect of any proceeding (regardless of when such proceeding is first threatened, commenced or completed) arising out of, or related to, any act or omission occurring prior to such repeal or amendment or adoption of such inconsistent provision.
(d) This Section 8.2 shall not limit the right of the Corporation, to the extent and in the manner authorized or permitted by law, to indemnify and to advance expenses to persons other than indemnitees.
ARTICLE IXAMENDMENT OF THE SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
The Corporation reserves the right at any time and from time to time to amend, alter, change or repeal any provision contained in this Third Amended and Restated Certificate (including any Preferred Stock Designation), and other provisions authorized by the laws of the State of Delaware at the time in force that may be added or inserted, in the manner now or hereafter prescribed by this Third Amended and Restated Certificate and the DGCL; and, except as set forth in Article VIII, all rights, preferences and privileges of whatever nature herein conferred upon stockholders, directors or any other persons by and pursuant to this Third Amended and Restated Certificate in its present form or as hereafter amended are granted subject to the right reserved in this Article IX.
ARTICLE X
EXCLUSIVE FORUM FOR CERTAIN LAWSUITS
Section 10.1 Forum. Unless the Corporation consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for any stockholder (including a beneficial owner) to bring (i) any derivative action or proceeding brought on behalf of the Corporation, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the Corporation to the Corporation or the Corporation’s stockholders, (iii) any action asserting a claim against the Corporation, its directors, officers or employees arising pursuant to any provision of the DGCL or this Third Amended and Restated Certificate or the Bylaws, or (iv) any action asserting a claim against the Corporation, its directors, officers or employees governed by the internal affairs doctrine, except for, as to each of (i) through (iv) above, any claim as to which the Court of Chancery determines that there is an indispensable party not subject to the jurisdiction of the Court of Chancery (and the indispensable party does not consent to the personal jurisdiction of the Court of Chancery within ten days following such determination), which is vested in the exclusive jurisdiction of a court or forum other than the Court of Chancery, or for which the Court of Chancery does not have subject matter jurisdiction.
Section 10.2 Consent to Jurisdiction. If any action the subject matter of which is within the scope of Section 10.1 immediately above is filed in a court other than a court located within the State of Delaware (a “Foreign Action") in the name of any stockholder, such stockholder shall be deemed to have consented to (i) the personal jurisdiction of the state and federal courts located within the State of Delaware in connection with any action brought in any such court to enforce Section 10.1 immediately above (an “FSC Enforcement Action") and (ii) having service of process made upon such stockholder in any such FSC Enforcement Action by service upon such stockholder’s counsel in the Foreign Action as agent for such stockholder.
ARTICLE XISEVERABILITY
If any provision or provisions (or any part thereof) of this Third Amended and Restated Certificate shall be held to be invalid, illegal or unenforceable as applied to any person, entity or circumstance for any reason whatsoever, then, to the fullest extent permitted by law, (i) the validity, legality and enforceability of such provisions in any other circumstance and of the remaining provisions of this Third Amended and Restated Certificate (including, without limitation, each portion of any paragraph of this Third Amended and Restated Certificate containing any such provision held to be invalid, illegal or unenforceable that is not itself held to be invalid, illegal or unenforceable) and the application of such provision to other persons or entities and circumstances shall not in any way be affected or impaired thereby, and (ii) the provisions of this Third Amended and Restated Certificate (including, without limitation, each portion of any paragraph of this Third Amended and Restated Certificate containing any such provision held to be invalid, illegal or unenforceable) shall be construed so as to permit the Corporation to protect its directors, officers, employees and agents from personal liability in respect of their good faith service or for the benefit of the Corporation to the fullest extent permitted by law.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, I-AM Capital Acquisition Company has caused this Third Amended and Restated Certificate to be duly executed and acknowledged in its name and on its behalf by an authorized officer as of the date first set forth above.
[Signature Page to Third Amended and Restated Certificate of Incorporation]
I-AM CAPITAL ACQUISITION COMPANY
2018 EQUITY INCENTIVE PLAN
1. Purpose. The purpose of the I-AM Capital Acquisition Company 2018 Equity Incentive Plan is to provide a means through which the Company and its Affiliates may attract and retain key personnel and to provide a means whereby directors, officers, managers, employees, consultants and advisors of the Company and its Affiliates can acquire and maintain an equity interest in the Company, or be paid incentive compensation, which may (but need not) be measured by reference to the value of Common Shares, thereby strengthening their commitment to the welfare of the Company and its Affiliates and aligning their interests with those of the Company’s stockholders.
2. Definitions. The following definitions shall be applicable throughout this Plan:
(a) "Affiliate” means (i) any person or entity that directly or indirectly controls, is controlled by or is under common control with the Company and/or (ii) to the extent provided by the Committee, any person or entity in which the Company has a significant interest as determined by the Committee in its discretion. The term “control” (including, with correlative meaning, the terms “controlled by” and “under common control with”), as applied to any person or entity, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such person or entity, whether through the ownership of voting or other securities by contract or otherwise.
(b) "Award” means, individually or collectively, any Incentive Stock Option, Nonqualified Stock Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit, Stock Bonus Award or Performance Compensation Award granted under this Plan.
(c) "Award Agreement” means an agreement made and delivered in accordance with Section 15(a) of this Plan evidencing the grant of an Award hereunder.
(d) "Board” means the Board of Directors of the Company.
(e) "Business Day" means any day other than a Saturday, a Sunday or a day on which banking institutions in New York City are authorized or obligated by federal law or executive order to be closed.
(f) "Cause" means, in the case of a particular Award, unless the applicable Award Agreement states otherwise, (i) the Company or an Affiliate having “cause” to terminate a Participant’s employment or service, as defined in any employment or consulting agreement or similar document or policy between the Participant and the Company or an Affiliate in effect at the time of such termination or (ii) in the absence of any such employment or consulting agreement, document or policy (or the absence of any definition of “Cause” contained therein), (A) a continuing material breach or material default (including, without limitation, any material dereliction of duty) by Participant of any agreement between the Participant and the Company, except for any such breach or default which is caused by the physical disability of the Participant (as determined by a neutral physician), or a continuing failure by the Participant to follow the direction of a duly authorized representative of the Company; (B) gross negligence, willful misfeasance or breach of fiduciary duty to the Company or Affiliate of the Company by the Participant; (C) the commission by the Participant of an act of fraud, embezzlement or any felony or other crime of dishonesty in connection with the Participant’s duties to the Company or Affiliate of the Company; or (D) conviction of the Participant of a felony or any other crime that would materially and adversely affect: (i) the business reputation of the Company or Affiliate of the Company or (ii) the performance of the Participant’s duties to the Company or an Affiliate of the Company. Any determination of whether Cause exists shall be made by the Committee in its sole discretion.
(g) "Change in Control” shall, in the case of a particular Award, unless the applicable Award Agreement states otherwise or contains a different definition of “Change in Control,” be deemed to occur upon:
(i) A tender offer (or series of related offers) shall be made and consummated for the ownership of 50% or more of the outstanding voting securities of the Company, unless as a result of such tender offer more than 50% of the outstanding voting securities of the surviving or resulting corporation or entity shall be owned in the aggregate by (A) the stockholders of the Company (as of the time immediately prior to the commencement of such offer), or (B) any employee benefit plan of the Company or its Subsidiaries, and their Affiliates;
(ii) The Company shall be merged or consolidated with another corporation, unless as a result of such merger or consolidation more than 50% of the outstanding voting securities of the surviving or resulting corporation or entity shall be owned in the aggregate by (A) the stockholders of the Company (as of the time immediately prior to such transaction); provided, that a merger or consolidation of the Company with another company which is controlled by persons owning more than 50% of the outstanding voting securities of the Company shall constitute a Change in Control unless the Committee, in its discretion, determine otherwise, or (B) any employee benefit plan of the Company or its Subsidiaries, and their Affiliates;
(iii) The Company shall sell substantially all of its assets to another entity that is not wholly owned by the Company, unless as a result of such sale more than 50% of such assets shall be owned in the aggregate by (A) the stockholders of the Company (as of the time immediately prior to such transaction), or (B) any employee benefit plan of the Company or its Subsidiaries, and their Affiliates;
(iv) A Person (as defined below) shall acquire 50% or more of the outstanding voting securities of the Company (whether directly, indirectly, beneficially or of record), unless as a result of such acquisition more than 50% of the outstanding voting securities of the surviving or resulting corporation or entity shall be owned in the aggregate by (A) the stockholders of the Company (as of the time immediately prior to the first acquisition of such securities by such Person), or (B) any employee benefit plan of the Company or its Subsidiaries, and their Affiliates; or
(v) Theindividuals who, as of the date hereof, constitute the members of the Board (the “Current Board Members”) cease, by reason of a financing, merger, combination, acquisition, takeover or other non-ordinary course transaction affecting the Company, to constitute at least a majority of the members of the Board unless such change is approved by the Current Board Members.
For purposes of this Section 2(g), ownership of voting securities shall take into account and shall include ownership as determined by applying the provisions of Rule 13d-3(d)(I)(i) (as in effect on the date hereof)registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In addition, for such purposes, “Person” shall have, are required to comply with the meaning given in Section 3(a)(9)new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the Exchange Act, as modifiedextended transition period and used in Sections 13(d)comply with the requirements that apply to non-emerging growth companies but any such an election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and 14(d) thereof; however, a Person shall not include (A)it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or anyrevised standard at the time private companies adopt the new or revised standard.
Basis of its Subsidiaries; (B) a trustee or other fiduciary holding securities under an employee benefit planConsolidation
The consolidated financial statements include the operations of the Company and its wholly-owned subsidiary, Simplicity Esports, LLC.
All significant intercompany accounts and transactions have been eliminated in consolidation.
Cash and cash equivalents
The Company considers short-term interest bearing investments with initial maturities of three months or less to be cash equivalents. The Company has no cash equivalents.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash accounts in a financial institution, which at times, may exceed the Federal depository insurance coverage of $250,000. The Company has not experienced losses on these accounts and management believes the Company is not exposed to significant risks on such accounts.
Financial Instruments
The fair value of the Company’s assets and liabilities, which qualify as financial instruments under FASB ASC 820, “Fair Value Measurements and Disclosures,” approximates the carrying amounts represented in the consolidated balance sheet.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Revenue Recognition
As of January 1, 2018, the Company adopted Revenue from Contracts with Customers (Topic 606) (“ASC 606”). The new guidance sets forth a new five-step revenue recognition model which replaces the prior revenue recognition guidance in its entirety and is intended to eliminate numerous industry-specific pieces of revenue recognition guidance that have historically existed in U.S. GAAP. The underlying principle of the new standard is that a business or other organization will recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects what it expects to receive in exchange for the goods or services. The standard also requires more detailed disclosures and provides additional guidance for transactions that were not addressed completely in the prior accounting guidance. The Company adopted the standard using the modified retrospective method and the adoption did not have a material impact on its financial statements.
The Company recognizes revenue when performance obligations under the terms of a contract with the customer are satisfied. Product sales occur once control is transferred upon delivery to the customer. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods and services. Our revenue is derived from two sources, the first is from the sale of the rights to our players to third parties and second from participation and prize money awarded at gaming tournaments.
Property, plant and equipment
Property, plant and equipment and leasehold improvements are recorded at its historical cost. The cost of property, plant, and equipment is depreciated over the estimated useful lives, when placed in service, (ranging from 5 -39 years) of the related assets utilizing the straight-line method of depreciation. The cost of leasehold improvements is depreciated (amortized) over the lesser of the length of the related leases or the estimated useful lives of the assets. Ordinary repairs and maintenance are expensed when incurred and major repairs will be capitalized and expensed if it benefits future periods.
During the three months ended February 29, 2019, the Company paid approximately $50,000 for the construction of their first gaming center. These amounts have been capitalized and are on the balance sheet under the caption property and equipment, net. This asset has not been placed into service as of February 28, 2019 so no depreciation expense has been recorded.
Intangible Assets and impairment
Intangible assets that are subject to amortization are reviewed for potential impairment whenever events or circumstances indicate that carrying amounts may not be recoverable. Assets not subject to amortization are tested for impairment at least annually. The Company had intangible assets subject to amortization related to its asset purchase of a team logo and name. These costs were included in intangible assets on our balance sheet and amortized on a straight-line basis when placed into service over the estimated useful lives of the costs, which is 5 years.
The Company periodically reviews its intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less that the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value.
Goodwill
Goodwill is the excess of our purchase cost over the fair value of the net assets of acquired businesses. We do not amortize goodwill, but we assess our goodwill for impairment at least annually. Our assessment date was January 31, 2019 and qualitative considerations indicated no impairment.
Restricted Cash Held in Escrow and Common Stock Redemption Obligations
This amount is held in escrow with respect to a certain stock purchase agreement with Polar Asset Management Partners Inc. (“Polar”), pursuant to which Polar agreed to sell up to 490,000 shares of the Company’s common stock to the Company thirty days after the consummation of the transactions and a separate certain stock purchase agreement with the K2 Principal Fund L.P. (“K2”), pursuant to which K2 agreed to sell up to 220,000 shares of the Company’s common stock to the Company thirty days after the consummation of the Transactions. These purchase agreements were subsequently amended as of December 20, 2018, pursuant to which, among other things, the Company distributed to Polar and K2 an aggregate of $5,133,300 out of the escrow. See Note 8 to the consolidated financial statements – “Amendments to Forward Purchase Agreements and Warrants,” for a more detailed description of the amendment. Under the terms of the purchase agreements, as amended, the Company will use the funds held in escrow to pay for such shares; however, the Company is only required to repurchase shares that were not previously sold by Polar and K2. Therefore, if the investors had already sold such shares by the determination date, then the Company would be able to keep a portion of the remaining funds held in escrow, depending on the prices at which the shares were sold by the investors.
Amendments to Forward Purchase Agreements and Warrants
On December 20, 2018, the Company, Polar, K2 and the Escrow Agent, entered into an Amendment (the “Amendment”), pursuant to which, among other things, the stock purchase agreements with Polar and K2 were amended to (x) reduce the purchase price per share payable by the Company at the closing of the Stock Sales from $11.23 per share to (1) first $6.00 per share up to 20% of the original number of Shares (as defined in the respective Purchase Agreement), (2) then $5.00 per remaining share up to 20% of the original number of Shares, (3) then $4.00 per remaining share up to 20% of the original number of Shares, (4) then $3.00 per remaining Share up to 20% of the original number of Shares, and (5) then $2.00 per remaining Share up to 20% of the original number of Shares, (y) to extend the outside date of the closing of the Stock Sales until January 18, 2019, and (z) to authorize the issuance of $3,542,700 and $1,590,600 from the Escrow Account to Polar and K2, respectively, as partial payment for the Shares prior to the final closing of the Stock Sales.
Investments
Investments in non-consolidated entities are accounted for using the equity method or cost basis depending upon the level of ownership and/or the Company’s ability to exercise significant influence over the operating and financial policies of the investee. When the equity method is used, investments are recorded at original cost and adjusted periodically to recognize the Company’s proportionate share of the investees’ net income or losses after the date of investment. When net losses from an investment accounted for under the equity method exceed its carrying amount, the investment balance is reduced to zero and additional losses are not provided for. The Company resumes accounting for the investment under the equity method if the entity subsequently reports net income and the Company’s share of that net income exceeds the share of net losses not recognized during the period the equity method was suspended. Investments are written down only when there is clear evidence that a decline in value that is other than temporary has occurred.
Investments in equity securities that do not have readily determinable fair values and do not qualify for consolidation or the equity method are carried at cost. Dividends received from those companies are included in other income. Dividends received in excess of the Company’s proportionate share of accumulated earnings are applied as a reduction of the cost of the investment. Other than temporary impairments to fair value are charged against current period income. Our investments in privately held entities are accounted for under the cost method. During the quarter ended February 28, 2019 the Company recognized $150,000 of impairment expense related to the Smaaash acquisition.
Offering Costs
The Company complies with the requirements of ASC 340-10-S99-1 and SEC Staff Accounting Bulletin (SAB) Topic 5A — “Expenses of Offering”. Offering costs of approximately $3,728,000 consisting principally of underwriter discounts of $3,250,000 (including approximately $1,800,000 of which payment was deferred until the Company issued the underwriter a secured demand promissory note in the amount of $1,800,000) and approximately $478,000 of professional, printing, filing, regulatory and other costs have been charged to additional paid in capital upon completion of the Initial Public Offering.
Common stock subject to possible redemption
The Company accounts for its common stock subject to possible redemption in accordance with the guidance in Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” Common stock subject to mandatory redemption (if any) are classified as liability instruments and are measured at fair value. Conditionally redeemable common stock (including common stock that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) are classified as temporary equity. At all other times, common stock are classified as stockholders’ equity. The Company’s common stock features certain redemption rights that are considered to be outside of the Company’s control and subject to occurrence of uncertain future events.
Net income (loss) per share
The Company complies with accounting and disclosure requirements ASC Topic 260, “Earnings Per Share.” Net income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding for the period. Shares of common stock subject to possible redemption at February 28, 2019 have been excluded from the calculation of basic income (loss) per share and diluted loss per share for the three and nine months ended February 28, 2019 since such shares, if redeemed, only participate in their pro rata share of the Trust Account earnings. The Company has not considered the effect of (1) warrants sold in the Initial Public Offering and Private Placement to purchase shares of common stock (2) rights sold in the Initial Public Offering and Private Placement that convert into shares of common stock, and (3) the unit purchase option granted to the underwriter in the calculation of diluted income (loss) per share, since the exercise of the warrants and the conversion of the rights into shares of common stock is contingent upon the occurrence of future events.
Income Taxes
The Company complies with the accounting and reporting requirements of ASC Topic 740, “Income Taxes,” which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed for differences between the financial statements and tax bases of assets and liabilities that will result in future taxable or deductible amounts, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
ASC Topic 740 prescribes a recognition threshold and a measurement attribute for the financial statements recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities.
On December 22, 2017, the U.S. Tax Cuts and Jobs Act of 2017 (“Tax Reform”) was signed into law. As a result of Tax Reform, the U.S. statutory tax rate was lowered from 35% to 21% effective January 1, 2018, among other changes. ASC Topic 740 requires companies to recognize the effect of tax law changes in the period of enactment; therefore, the Company was required to revalue its deferred tax assets and liabilities at the new rate. The SEC issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain tax effects of Tax Reform. The ultimate impact may differ from this provisional amount, possibly materially, as a result of additional analysis, changes in interpretations and assumptions the Company has made, additional regulatory guidance that may be issued, and actions the Company may take as a result of Tax Reform.
Recent Accounting Pronouncements
Accounting standards promulgated by the FASB are subject to change. Changes in such standards may have an impact on the Company’s future financial statements. The following are a summary of recent accounting developments.
In February 2016, the FASB issued authoritative guidance, which is included in ASC 842, “Leases.” This guidance requires lessees to recognize most leases on the balance sheet by recording a right-of-use asset and a lease liability. This guidance is effective for the Company as of January 1, 2019. Based on the completed analysis, the Company has determined the adjustment will not have a material impact on the financial statements.
In June 2018, the FASB issued ASU 2018-07,Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which aligns accounting for share-based payments issued to nonemployees to that of employees under the existing guidance of Topic 718, with certain exceptions. This update supersedes previous guidance for equity-based payments to nonemployees underSubtopic 505-50, Equity—Equity-Based Payments to Non-Employees.This guidance is effective for the Company as of January 1, 2019. Based on the completed analysis, the Company has determined the adjustment will not have a material impact on the financial statements.
The Company periodically reviews new accounting standards that are issued. Although some of these accounting standards may be applicable to the Company, the Company has not identified any other new standards that it believes merit further discussion, and the Company expects that none would have a significant impact on its financial statements.
Going Concern
The Company’s consolidated financial statements have been prepared assuming that it will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.
As reflected in the consolidated financial statements, the Company has an accumulated deficit at February 28, 2019, a net loss and net cash used in operating activities for the reporting period then ended. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
The Company is attempting to commence operations and generate sufficient revenue; however, the Company’s cash position may not be sufficient to support the Company’s daily operations. Management intends to raise additional funds by way of a private or public offering. While the Company believes in the viability of its Subsidiaries; (C) an underwriter temporarily holding securities pursuantstrategy to an offering of such securities; or (D) a corporation owned, directly or indirectly, by the stockholderscommence operations and generate sufficient revenue and in its ability to raise additional funds, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to further implement its business plan and generate sufficient revenue and its ability to raise additional funds by way of a public or private offering.
The financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
NOTE 3 — INITIAL PUBLIC OFFERING AND PRIVATE PLACEMENT
Initial Public Offering
On August 22, 2017, the Company sold 5,000,000 Public Units at a purchase price of $10.00 per Public Unit in substantiallythe 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 $1.82 million of underwriting fees until the consummation of the initial Business Combination.
Each Unit consisted of one share of the Company’s common stock, one right to receive one-tenth of one share of the Company’s common stock upon consummation of the Company’s initial Business Combination (“Right”), and one redeemable warrant (“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 became exercisable 30 days after the completion of the initial Business Combination and will expire five years after the completion of the initial Business Combination or earlier upon redemption or liquidation.
The Company may redeem the Warrants, in whole and not in part, at a price of $0.01 per Warrant upon 30 days’ notice (“30-day redemption period”), only in the event that the last sale price of the common stock equals or exceeds $21.00 per share for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date on which notice of redemption is given, provided there is an effective registration statement with respect to the shares of common stock underlying such Warrants and a current prospectus relating to those shares of common stock is available throughout the 30-day redemption period. If the Company calls the Warrants for redemption as described above, the Company’s management will have the option to require all holders that wish to exercise Warrants to do so on a “cashless basis.” In determining whether to require all holders to exercise their warrants on a “cashless basis,” management will consider, among other factors, the Company’s cash position, the number of Warrants that are outstanding and the dilutive effect on the Company’s stockholders of issuing the maximum number of shares of common stock issuable upon the exercise of the Warrants.
Each holder of a Right received one-tenth (1/10) of one share of common stock upon consummation of the Business Combination. No fractional shares were issued upon exchange of the Rights. No additional consideration was paid by a holder of Rights in order to receive its additional shares upon consummation of the Business Combination as the consideration related thereto has been included in the Unit purchase price paid for by investors in the Initial Public Offering.
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 (“Maxim”), as compensation for the Initial Public Offering, an aggregate of 52,000 shares, including 2,000 shares issued in connection with the partial exercise of the over-allotment option. The Company accounted for the fair value of these shares as an expense of the Initial Public Offering resulting in a charge directly to stockholders’ equity.
Settlement Agreement
On November 20, 2018, the Company entered into a settlement and release agreement (“Settlement Agreement”) with Maxim. Pursuant to the Settlement Agreement, the Company made a cash payment of $20,000 to Maxim and issued the Note in favor of Maxim in order to settle the payment obligations of the Company under the underwriting agreement dated August 16, 2017, by and between the Company and Maxim. The Company also agreed to remove the restrictive legends on an aggregate of 52,000 shares of its common stock held by Maxim and its affiliate. See “Note Payable” under Note 2 above.
Unit Purchase Option
At the time of the closing of the Initial Public Offering, the Company sold to Maxim, for an aggregate of $100, an option (the “UPO”) to purchase 250,000 Units (which increased to 260,000 units upon the partial exercise of the underwriters’ over-allotment option) (See Note 5). The Company has accounted for the fair value of the UPO, inclusive of the receipt of the $100 cash payment, as an expense of the Initial Public Offering resulting in a charge directly to shareholders’ equity. The Company estimates that the fair value of this UPO is approximately $743,600 (or $2.86 per Unit) using the Black-Scholes option-pricing model. The fair value of the UPO is estimated as of the date of grant using the following assumptions: (1) expected volatility of 35%, (2) risk-free interest rate of 1.73% and (3) expected life of five years. The UPO may be exercised for cash or on a “cashless” basis, at the holder’s option (except in the case of a forced cashless exercise upon the Company’s redemption of the Warrants, as described above), such that the holder may use the appreciated value of the UPO (the difference between the exercise prices of the UPO and the underlying Warrants and Rights, and the market price of the Units and underlying shares of common stock) to exercise the UPO without the payment of any cash. The Company will have no obligation to net cash settle the exercise of the UPO or the Warrants or Rights underlying the UPO. The holder of the UPO will not be entitled to exercise the UPO or the Warrants or Rights underlying the UPO unless a registration statement covering the securities underlying the UPO is effective or an exemption from registration is available. If the holder is unable to exercise the UPO or underlying Warrants or Rights, the UPO, Warrants or Rights, as applicable, will expire worthless.
The Company granted the holders of the UPO, demand and “piggy back” registration rights for periods of five and seven years, respectively, from the effective date of the registration statement relating to the Initial Public Offering, including securities directly and indirectly issuable upon exercise of the UPO.
Private Placement
Concurrently with the closing of the Initial Public Offering, the Sponsor purchased an aggregate of 254,500 Private Units at $10.00 per Private Unit, generated gross proceeds of $2,545,000 in a Private Placement. The proceeds from the Private Units was added to the proceeds from the Initial Public Offering held in the Trust Account. The Private Units (including their component securities) were not transferable, assignable or salable until 30 days after the completion of the initial Business Combination and the warrants included in the Private Units (the “Private Placement Warrants”) will be non-redeemable so long as they are held by the Sponsor or their permitted transferees. If the Private Placement Warrants are held by someone other than the Sponsor or their permitted transferees, the Private Placement Warrants will be redeemable by the Company and exercisable by such holders on the same proportionbasis as the Warrants included in the Public Units sold in the Initial Public Offering. Otherwise, the Private Placement Warrants and the Rights underlying the Private Units have terms and provisions that are identical to those of the Warrants and Rights, respectively, sold as part of the Public Units in the Initial Public Offering and have no net cash settlement provisions.
On September 13, 2017 the Sponsor purchased 7,000 additional Private Units for gross proceeds of $70,000 upon the partial exercise of the over-allotment option.
NOTE 4 - ACQUISITIONS
The Simplicity Esports, LLC Acquisition
On January 4, 2019, the Company consummated the transactions contemplated by the share exchange agreement, dated December 21, 2018 (as amended by Amendment No. 1 to Share Exchange Agreement, dated December 28, 2018 and by Amendment No. 2 to Share Exchange Agreement, dated December 30, 2018, the “Share Exchange Agreement”) by and among the Company, Smaaash Entertainment, Inc. (“Smaaash”), each of the equity holders of Simplicity (“Simplicity Owners”) and Jed Kaplan, in the capacity as the representative of the Simplicity Owners (the “Representative”). Pursuant to the Share Exchange Agreement the Simplicity Owners transferred all the issued and outstanding equity interests of Simplicity to the Company in exchange for newly issued shares of common stock of the Company (the “Acquisition”).
The Simplicity Owners received an aggregate of 300,000 shares of common stock at the closing of the Acquisition and an additional aggregate of 700,000 shares of common stock on January 7, 2019. The Simplicity Owners are entitled to receive an additional 2,000,000 shares upon the Company’s receipt of the approval of its stockholders to such issuance. This provision was removed as the stockholder approval was only necessary due to the Company’s stock being listed on NASDAQ. Upon completion of the Simplicity Esports, LLC acquisition, the Company decided that moving off the NASDAQ was appropriate and, the 2,000,000 shares are included on the balance sheet as common stock issuable at February 28, 2019.
The acquisition of Simplicity, in an all-stock deal, creates a pure play esports team and entertainment platform opportunity, which we believe will increase shareholder value and boost our growth strategy as we endeavor the build out of our brick and mortar esports centers.
The acquisition was accounted for by the Company using the acquisition method under business combination accounting. Under this method, the purchase price paid by the acquirer is allocated to the assets acquired and liabilities assumed as of the acquisition date based on the fair value. Determining the fair value of certain assets and liabilities assumed is judgmental in nature and often involves the use of significant estimates and assumptions. Certain amounts below are provisional based on our best estimates using information available as of the reporting date. The Company is waiting for information to become available to finalize its valuation of certain elements of this transaction. Specifically, the assigned values for intellectual property, trade names and trademarks, customer relationships, and goodwill are provisional in nature and subject to change upon the completion of the final valuation of such elements. All fair value measurements of acquired assets and liabilities assumed are non-recurring in nature and classified as level 3 on the fair value hierarchy.
The aggregate purchase price consisted of the following:
Restricted stock consideration | 6,090,000 | |||
Total | $ | 6,090,000 |
As noted in the table above, the Company issued 3,000,000 restricted shares of common stock as consideration which was valued at market at the date of the closing, fair value of approximately $6,090,000.
The following table summarizes the estimated fair value of The Simplicity Esports, LLC assets acquired and liabilities assumed at the date of acquisition:
Cash | 76,000 | |||
Property, plant and equipment (provisional) | 0 | |||
Trade names and trademarks (provisional) | 0 | |||
Customer relationships (provisional) | 0 | |||
Accounts payable and accrued liabilities | (56,000 | ) | ||
Goodwill (provisional) | 6,070,000 | |||
Total | $ | 6,090,000 |
Revenue and net loss included in the nine months ended February 28, 2019 consolidated financial statements attributable to Simplicity Esports, LLC is approximately $14,000 and $100,000, respectively.
The following unaudited pro forma information below presents the consolidated results operations data as if the acquisition of Simplicity Esports, LLC took place on June 1, 2017:
Nine Months Ended February 28 2019 | Nine Months Ended February 28, 2018 | |||||||
Total Revenue | $ | 45,883 | $ | — | ||||
Net (Loss) Income | $ | (3,330,960 | ) | $ | 4,165 | |||
Basic Net Loss Per Share | $ | (0.93 | ) | $ | 0.00 |
NOTE 5 — RELATED PARTY TRANSACTIONS
Founder Shares
On May 31, 2017, the Company issued 1,437,500 shares of the Company’s common stock to the Sponsor (the “Founder Shares”) in exchange for a capital contribution of $25,000. 137,500 of the 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 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 the Company 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 the Company 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 the Company’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 the Company’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 the Company completes a liquidation, merger, stock exchange or other similar transaction that results in all stockholders having the right to exchange their ownershipshares of common stock for cash, securities or other property.
Private Units
In addition, the Sponsor purchased an aggregate of 254,500 Private Units at $10.00 per Private 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 be made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act.
The Sponsor committed to purchase from the Company up to an additional 26,250 Private Units if the underwriters’ over-allotment option was exercised in full.
On September 13, 2017, 7,000 additional Private Units were purchased by the Sponsor at $10.00 per Private Unit upon the partial exercise of the over-allotment option.
Administrative Service Fee
The Company agreed, commencing on the effective date of the Initial Public Offering through the earlier of the Company’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. For the three months ended November 30, 2018, the Company has paid $30,080 which is presented as general and administrative expense on the accompanying statement of operations. In December 2018, this monthly administrative service fee agreement was terminated.
Loan
The Sponsor loaned the Company $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 due at the earlier of December 31, 2017 or the closing of the Initial Public Offering. As of November 30, 2018, $120,089 of the Sponsor’s loan has been repaid. As of February 28, 2019, the balance of the Sponsor loan is $85,238.
The Company maintains its cash balance at a financial services company that is owned by an officer of the Company.
(h) "Code” means the Internal Revenue Code of 1986, as amended, and any successor thereto. References in this Plan to any section of the Code shall be deemed to include any regulations or other interpretative guidance issued by any governmental authority under such section, and any amendments or successor provisions to such section, regulations or guidance.NOTE 6 — COMMITMENTS AND CONTINGENCIES
(i) "CommitteeNasdaq Delisting” means
On December 10, 2018, the Company received a committeewritten notice (the “Notice”) from the Listing Qualifications Division of The Nasdaq Stock Market LLC (“Nasdaq”) indicating that the Company has not complied with the requirements of IM-5101-2 of the listing rules of Nasdaq (the “Listing Rules”).
The Notice stated that after its Business Combination, the Company had not demonstrated that its common stock met Listing Rule 5505(b)(1) that requires a market value of publicly held shares of at least two people$15 million. Additionally, the Company has not provided evidence that its common stock has at least 300 round lot holders as required by Listing Rule 5505(a)(3) and that its warrant has at least 400 round lot holders as required by Listing Rule 5515(a)(4). Finally, the Board may appointCompany does not comply with Listing Rule 5515(a)(2) which requires that for initial listing of a warrant the underlying security must be listed on Nasdaq.
On January 7, 2019, the Company received a second written notice from Nasdaq informing it that the Company failed to administer this Plan or, if no such committee has been appointed bycomply with Listing Rule 5250(e)(2) which requires companies listed on Nasdaq to timely file notification forms for the Board,Listing of Additional Shares (the “LAS Notification”).
The Company was required to submit the Board. Unless altered by an actionLAS Notification 15 days prior to the issuance of the Board,securities, however, the Committee shall beCompany filed the Compensation CommitteeLAS Notification for the issuance of the Board.Series A-1 Note and Series A-2 Note and for the share exchange under our Share Exchange Agreement after such 15-day periods. Nasdaq notified the Company that each of these matters serves as an additional and separate basis for delisting the Company’s securities and that the review panel will consider these matters in rendering a determination regarding the Company’s continued listing on Nasdaq.
Management of Simplicity Esports and Gamily Company has decided that moving from The Nasdaq Stock Market (“Nasdaq”) to the OTCQB is more appropriate for the Company at this time, while the Company builds out its planned network of retail esport centers.
On April 1, 2019, the Company was notified by Nasdaq that it would delist the Company’s common stock and warrants. The Company’s common stock and warrants were previously suspended from trading on Nasdaq, effective January 25, 2019.
On April 2, 2019, Nasdaq filed a Notification of Removal from Listing and/or Registration under Section 12(b) of the Securities and Exchange Act of 1934 on Form 25 with the Securities and Exchange Commission relating to the Company’s common stock and warrants. As a result, the Company’s common stock and warrants were delisted from Nasdaq effective April 2, 2019.
The Company’s common stock and warrants currently have been quoted on the OTCQB under the symbols “WINR” and “WINRW,” respectively.
Registration Rights
(j) "Common Shares” meansPursuant to a registration rights agreement the common stock, par value $0.0001Company entered into with its initial stockholders and initial purchasers of the Private Units (and constituent securities) at the closing of the Initial Public Offering, the Company 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 the Company 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 the Company. The Company will bear the costs and expenses of filing any such registration statements.
Unit Purchase Option
The Company sold to the underwriters (and/or their designees), for $100, an option to purchase up to a total of 250,000 Units (which increased to 260,000 Units upon the partial exercise of the underwriters’ over-allotment option), exercisable at $11.50 per share,Unit (or an aggregate exercise price of $2,990,000) upon the closing of the Initial Public Offering. The UPO may be exercised for cash or on a cashless basis, at the holder’s option, at any time during the period commencing on the later of the first anniversary of the effective date of the registration statement relating to the Initial Public Offering and the closing of the Company’s initial Business Combination and terminating on the fifth anniversary of such effectiveness date. The Units issuable upon exercise of this UPO are identical to those offered in the Initial Public Offering, except that the exercise price of the warrants underlying the Units sold to the underwriters is $13.00 per share.
Note Payable
On November 20, 2018, the Company paid its underwriter $20,000 and issued its underwriter a secured demand promissory note (the “Note”) in the amount of $1,800,000. The Note accrued interest at 8% per annum from the date of the Note through and including May 20, 2019, 12% per annum from and including May 21, 2019 through and including August 20, 2019, and 15% per annum from and including August 21, 2019, through and including November 20, 2019. If a late payment had occurred and continued, the interest rate would have increased to 12% per annum from the date of the Note through and including August 20, 2019 and 18% per annum from after August 21, 2019. If a late payment had remained outstanding for over 48 hours, Maxim could have required the Company to redeem all or any part of the Note at a redemption price equal to 125% of the Alternate Payment Amount.
The principal and interest of the Note was payable upon demand by Maxim or from time to time, in accordance the following schedule:
(i) | one third of the principal, accrued and unpaid interest and any late charges on May 20, 2019; | |
(ii) | one third of the principal, accrued and unpaid interest and any late charges on August 20, 2019; and | |
(iii) | one third of the principal, accrued and unpaid interest and any late charges on November 20, 2019. |
The Note was secured by a first priority security interest in all personal property and assets of the Company (and anyexcluding the assets held in escrow with respect to (i) that certain stock or other securities intopurchase agreement with Polar, pursuant to which suchPolar agreed to sell up to 490,000 shares of the Company’s common stock to the Company thirty days after the consummation of the Business Combination and (ii) that certain stock purchase agreement with K2, pursuant to which K2 agreed to sell up to 220,000 shares may be converted or into which they may be exchanged).
(k) "Company” means I-AM Capital Acquisitionof the Company’s common stock to the Company a Delaware corporation, together with its successors and assigns.thirty days after the consummation of the Business Combination.
(l) "Current Board Members” hasThe amount payable under the meaning given such termNote could also have been paid in the definitionshares of “Change in Control.”
(m) "Date of Grant” means the date on which the granting of an Award is authorized, or such other date as may be specified in such authorization.
(n) "Disability” means a “permanent and total” disability incurred by a Participant while in the employ or servicecommon stock of the Company or an Affiliate. For this purpose, a permanentsecurities convertible or exercisable into shares of common stock of the Company (the “Alternate Equity Payment”) if and total disability shall mean thatonly if the Participant is unable to engageCompany and Maxim mutually agree on both the purchase price and, if applicable, the conversion and/or exercise price of each security of the Company issued in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months. The determination of whether a Participant has incurred a permanent and total disability shallsuch Alternative Equity Payment. Otherwise, the payment should be made by a physician designatedin cash only.
So long as any amount under the Note remained outstanding, all cash proceeds received by the Committee, whose determination shallCompany from any sales of its securities was to be final and binding.used to repay this Note.
Convertible Note Payable
On December 20, 2018, the Company entered into a securities exchange agreement (“Exchange Agreement”) with Maxim Group LLC (the “Holder”). Pursuant to the terms of the Exchange Agreement, the Holder agreed to surrender and exchange the Note. In exchange, the Company issued to the Holder a Series A-1 Exchange Convertible Note in the principal amount of $500,000 (the “Series A-1 Note”) and a Series A-2 Exchange Convertible Note in the principal amount of $1,000,000 (the “Series A-2 Note,” and collectively with Series A-1 Note, the “Exchange Notes”).
(o) "EffectiveThe original amount of the promissory note was $1,800,000, the total amount of the two exchange notes is $1,500,000, and the difference of $300,000 has been recorded as debt forgiveness income.
The Series A-1 Note bears interest at 2.67% per annum, payable quarterly and has a maturity date of the earlier of the closing date of the Acquisition (as defined below) or June 20, 2020 (the “Maturity Date”). The Company may pay the interest in cash or at its sole discretion, in shares of its common stock or a combination of cash and common stock. However, the Company may only pay the interest in shares of its common stock if (i) all the equity conditions specified in the note (“Equity Conditions”) have been met (unless waived by the Holder in writing) during the 20 trading days immediately prior to the interest payment date (“Interest Notice Period”), (ii) the Company has provided proper notice pursuant to the terms of the note and (iii) the Company has delivered to the Holder’s account certain number of shares of its common stock to be applied against such interest payment prior to (but no more than five trading days before) the Interest Notice Period.
The Series A-1 Note is convertible into shares of the Company’s common stock (“Conversion Shares”) at an initial conversion price of $1.93 per share, subject to adjustment for any stock dividends and splits, rights offerings, distributions, combinations or similar transactions. Upon the closing of the Acquisition, the conversion price will be automatically adjusted to equal the arithmetic average of the volume weighted average price (“VWAP”) of the Company’s common stock in the five trading days prior to the closing date of the Acquisition. The Holder may convert the Series A-1 Note at any time, in whole or in part, provided that upon receipt of a notice of conversion from the Holder, the Company has the right to repay all or any portion of the Series A-1 Note included in the notice of conversion.
Additionally, the Series A-1 Note will automatically convert into shares of the Company’s common stock on the earlier of the Maturity Date” means or the closing date of the Acquisition provided that (i) no event of default then exists, and (ii) solely if such automatic conversion date is also the Maturity Date, each of the Equity Conditions have been met (unless waived in writing by the Holder) on each trading day during the 20 trading day period ending on the trading day immediately prior to the automatic conversation date.
At any time prior to the Maturity Date, the Company may also elect to redeem some or all of the outstanding principal amount for cash in an amount (the “Optional Redemption Amount”) equal to the sum of (a) 100% of the then outstanding principal amount of the note, (b) accrued but unpaid interest and (c) all liquidated damages and other amounts due in respect of the note (the “Optional Redemption”). The Company may only effect an Optional Redemption if each of the Equity Conditions have been met (unless waived in writing by the Holder) on each trading day during the period commencing on the date when the notice of the Optional Redemption is delivered to the date of the Optional Redemption and through and including the date payment of the Optional Redemption Amount is actually made in full.
Except as otherwise provided in the Series A-1 Note, including, without limitation, an Option Redemption, the Company may not prepay any portion of the principal amount of the note without the prior written consent of the Holder.
The Company is not permitted to convert any portion of the Series A-1 Note if doing so results in the Holder beneficially owning more than 4.99% of the outstanding common stock of the Company after giving effect to such conversion, provided that on 61 days’ prior written notice from the Holder to the Company, that percentage may increase to 9.99%. However, if there is an automatic conversion, and the conversion would result in the Company issuing a number of shares in excess of the beneficial ownership limitation, then any such shares in excess of the beneficial ownership limitation will be held in abeyance for the benefit of the Holder until such time or times, if ever, as its right thereto would not result in the Holder exceeding the beneficial ownership limitation, at which time or times the Holder will be issued such shares to the same extent as if there had been no such limitation.
The Series A-1 Note contains restrictive covenants which, among other things, restrict the Company’s ability to repay or repurchase any indebtedness, make distributions on or repurchase its common stock or enter into transactions with its affiliates.
The Series A-2 Note has terms substantially similar to those of the Series A-1 Note except that the Series A-2 Note has a maturity date of June 20, 2020 and an initial conversion price of $1.93 which will be automatically adjusted to the lower of (i) the conversion price then in effect and (ii) the greater of the arithmetic average of the VWAP of the Company’s common stock in the five trading days prior to the notice of conversion and $0.50.
As of December 31, 2018, upon the closing of the Acquisition, the Series A-1 Note automatically converted into 193,648 shares of the Company’s common stock.
Private Placement
During the quarter ended February 28, 2019, the Company raised $1,000,003 in a Private Placement. As of February, 28, 2019 this Planoffering was not closed and the $1,000,003 is adopted byincluded on the Board, subject to Section 3 of this Plan.Balance Sheet under Current Liabilities as Private Placement funds received.
NOTE 7 — STOCKHOLDERS’ EQUITY
(p) "Eligible DirectorCommon Stock” means a person who is a “non-employee director” within the meaning of Rule 16b-3 under the Exchange Act.
(q) "Eligible Person” means any (i) individual employed by theThe Company or an Affiliate;provided,however, that no such employee covered byis authorized to issue 20,000,000 shares of common stock with a collective bargaining agreement shall be an Eligible Person unless and to the extent that such eligibility is set forth in such collective bargaining agreement or in an agreement or instrument relating thereto; (ii) directorpar value of $0.0001 per share. Holders of the Company or an Affiliate; or (iii) consultant or advisorshares of the Company’s common stock are entitled to the Company or an Affiliate, provided that if the Securities Act applies such persons must be eligible to be offered securities registrable on Form S-8 under the Securities Act.one vote for each share. At February 28, 2019, there were 6,313,038 shares of common stock issued and outstanding.
Preferred Stock
(r) "Exchange Act” has the meaning given such term in the definitionThe Company is authorized to issue 1,000,000 shares of “Change in Control,” and any reference in this Plan to any sectionpreferred stock with a par value of (or rule promulgated under) the Exchange Act shall be deemed to include any rules, regulations$0.0001 per share. At November 30, 2018, there were no shares of preferred stock issued or other interpretative guidance issued by any governmental authority under such section or rule, and any amendments or successor provisions to such section, rules, regulations or guidance.outstanding.
NOTE 8 — TRUST ACCOUNT AND FAIR VALUE MEASUREMENTS
(s) "Exercise Price” has the meaning given such termThe Trust Account was invested in Section 7(b) of this Plan.
(t) "Fair Market Value", unless otherwise provided by the Committee in accordance with all applicable laws, rules regulations and standards, means, on a given date, (i) if the Common Shares are listed on a nationalU.S. government securities, exchange, the closing sales price on the principal exchange of the Common Shares on such date or, in the absence of reported sales on such date, the closing sales price on the immediately preceding date on which sales were reported, or (ii) if the Common Shares are not listed on a national securities exchange, the mean between the bid and offered prices as quoted by any nationally recognized interdealer quotation system for such date, provided that if the Common Shares are not quoted on an interdealer quotation system or it is determined that the fair market value is not properly reflected by such quotations, Fair Market Value will be determined by such other method as the Committee determines in good faith to be reasonable and in compliance with Code Section 409A, if applicable.
(u) "Immediate Family Members” shall havewithin the meaning set forth in Section 15(b)the Investment Company Act, had a maturity of this Plan.180 days or less or in any open-ended investment company that held itself out as a money market fund selected by the Company meeting the conditions of Rule 2a-7 of the Investment Company Act.
The Company’s amended and restated certificate of incorporation provided that, other than the withdrawal of interest to pay income taxes and up to $600,000 of interest to pay working capital expenses if any, none of the funds held in the Trust Account would be released until the earlier of: (i) the completion of the Business Combination; (ii) the redemption of 100% of the shares of common stock included in the Public Units sold in the Initial Public Offering if the Company was 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). The funds were released from the Trust Account on November 20, 2018 upon the Closing of the initial Business Combination.
The Company followed the guidance in ASC 820 for its financial assets and liabilities that are re-measured and reported at fair value at each reporting period, and non-financial assets and liabilities that are re-measured and reported at fair value at least annually.
The fair value of the Company’s financial assets and liabilities reflects management’s estimate of amounts that the Company would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company sought to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities). The following fair value hierarchy was used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:
Level 1: | Quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. |
Level 2: | Observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active. |
Level 3: | Unobservable inputs based on our assessment of the assumptions that market participants would use in pricing the asset or liability. |
The following table presents information about the Company’s assets that are measured at fair value on a recurring basis at November 30, 2018 and May 31, 2018, and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:
Description | Level | February 28, 2019 | May 31, 2018 | |||||||||
Assets: | ||||||||||||
Cash and marketable securities held in Trust Account | 1 | $ | -0 | - | $ | 52,895,652 |
NOTE 9 — SUBSEQUENT EVENTS
(v) "Incentive Stock Option” means an Option that is designated by the Committee as an incentive stock option as described in Section 422 of the Code and otherwise meets the requirements set forth in this Plan.
(w) "Indemnifiable Person” shall have the meaning set forth in Section 4(e) of this Plan.
(x) "Negative Discretion” shall mean the discretion authorized by this Plan to be applied by the Committee to eliminate or reduce the size of a Performance Compensation Award consistent with Section 162(m) of the Code.
(y) "Nonqualified Stock Option” means an Option that is not designated by the Committee as an Incentive Stock Option.
(z) "Option” means an Award granted under Section 7 of this Plan.
(aa) "Option Period” has the meaning given such term in Section 7(c) of this Plan.
(bb) "Participant” means an Eligible Person who has been selected by the Committee to participate in this Plan and to receive an Award pursuant to Section 6 of this Plan.
(cc) "Performance Compensation Award” shall mean any Award designated by the Committee as a Performance Compensation Award pursuant to Section 11 of this Plan.
(dd) "Performance Criteria” shall mean the criterion or criteria that the Committee shall select for purposes of establishing the Performance Goal(s) for a Performance Period with respect to any Performance Compensation Award under this Plan.
(ee) "Performance Formula” shall mean, for a Performance Period, the one or more objective formulae applied against the relevant Performance Goal to determine, with regard to the Performance Compensation Award of a particular Participant, whether all, some portion but less than all, or none of the Performance Compensation Award has been earned for the Performance Period.
(ff) "Performance Goals” shall mean, for a Performance Period, the one or more goals established by the Committee for the Performance Period based upon the Performance Criteria.
(gg) "Performance Period” shall mean the one or more periods of time, as the Committee may select, over which the attainment of one or more Performance Goals will be measured for the purpose of determining a Participant’s right to, and the payment of, a Performance Compensation Award.
(hh) "Permitted Transferee” shall have the meaning set forth in Section 15(b) of this Plan.
(ii) "Person” has the meaning given such term in the definition of “Change in Control.”
(jj) "Plan” means this I-AM Capital Acquisition Company 2018 Equity Incentive Plan, as amended from time to time.
(kk) "Retirement” means the fulfillment of each of the following conditions: (i) the Participant is in good standing withOn March 27, 2019, the Company and/orsold an Affiliateaggregate of 812,500 units (the “Units”) at a purchase price of $2.00 per Unit to 11 accredited investors in exchange for receipt of $1,625,000. Each unit consists of (i) one share of common stock, and (ii) a 5-year warrant to purchase one share of common stock at a purchase price of $4.00. The Company sold the Company as determinedUnits in reliance on the exemption from registration afforded by the Committee; (ii) the voluntary termination by a ParticipantSection 4(a)(2) of such Participant’s employment or service to the Company and/or an Affiliate and (iii) that at the time of such voluntary termination, the sum of: (A) the Participant’s age (calculated to the nearest month, with any resulting fraction of a year being calculated as the number of months in the year divided by 12) and (B) the Participant’s years of employment or service with the Company (calculated to the nearest month, with any resulting fraction of a year being calculated as the number of months in the year divided by 12) equals at least 62 (provided that, in any case, the foregoing shall only be applicable if, at the time of such Retirement, the Participant shall be at least 55 years of age and shall have been employed by or served with the Company for no less than five years).
(ll) "Restricted Period” means the period of time determined by the Committee during which an Award is subject to restrictions or, as applicable, the period of time within which performance is measured for purposes of determining whether an Award has been earned.
(mm) "Restricted Stock Unit” means an unfunded and unsecured promise to deliver Common Shares, cash, other securities or other property, subject to certain restrictions (including, without limitation, a requirement that the Participant remain continuously employed or provide continuous services for a specified period of time), granted under Section 9 of this Plan.
(nn) "Restricted Stock” means Common Shares, subject to certain specified restrictions (including, without limitation, a requirement that the Participant remain continuously employed or provide continuous services for a specified period of time), granted under Section 9 of this Plan.
(oo) "SAR Period” has the meaning given such term in Section 8(c) of this Plan.
(pp) "Securities Act” means the Securities Act of 1933, as amended (the “Securities Act”) and any successor thereto. Reference inRule 506 of Regulation D promulgated under the Securities Act.
In March of 2019, the Company entered into a settlement agreement with its prior attorney. As of February 28, 2019, the Company owed this Planattorney approximately $900,000. The settlement agreement called for $200,000 to any sectionbe paid upon signing the settlement agreement and then another approximate $525,000 to be paid over time.
On March 27, 2019, pursuant to a Restricted Stock Award, the Company granted Jed Kaplan, the Company’s Chief Executive Officer and interim Chief Financial Officer and a member of the Securities Act shall be deemedCompany’s board of directors, 120,000 shares of Company restricted stock. Such shares vest over the next nine months.Also on March 27, 2019, pursuant to include any rules, regulations or other official interpretative guidance issued by any governmental authority under such section,a Restricted Stock Award, the Company granted Roman Franklin, the Company President and any amendments or successor provisionsa member of the Company’s board of directors, 36,000 shares of Company restricted stock. Such shares vest over the next nine months also. Lastly, on March 27, 2019, pursuant to such section, rules, regulations or guidance.a Restricted Stock Award and collectively with the Kaplan Restricted Stock Award and the Franklin Restricted Stock Award, the Company granted Steve Grossman, President of Simplicity Esports, LLC, a wholly owned subsidiary of the Company, 24,000 shares of Company restricted stock. Such shares also vest over the next nine months.
(qq) "Stock Appreciation Right” or"SAR" means an Award granted under Section 8 of this Plan which meets allEach of the requirementsRestricted Stock Awards was entered into in connection with entry into employment agreements with each of Section 1.409A-1(b)(5)(i)(B)Messrs. Kaplan, Franklin and Grossman on December 31, 2018.
F-36 |
SIMPLICITY ESPORTS AND GAMING COMPANY
6,449,000 Shares of the Treasury Regulations.Common Stock Underlying Warrants
6,360,617Shares of Common Stock for Resale by Securityholders
261,500 Warrants to Purchase Common Stock for Resale by Securityholders
PROSPECTUS
(rr) "Stock Bonus Award” means an Award granted under Section 10 of this Plan.__________, 2019
(ss) "Strike Price” means, except as otherwise provided by the Committee in the case of Substitute Awards, (i) in the case of a SAR granted in tandem with an Option, the Exercise Price of the related Option, or (ii) in the case of a SAR granted independent of an Option, the Fair Market Value of Common Shares on the Date of Grant.
(tt) "Subsidiary” means, with respect to any specified Person:
(i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of voting securities (without regard to the occurrence of any contingency and after giving effect to any voting agreement or stockholders’ agreement that effectively transfers voting power) is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person (or a combination thereof); and
(ii) any partnership or limited liability company (or any comparable foreign entity) (a) the sole general partner or managing member (or functional equivalent thereof) or the managing general partner of which is such Person or Subsidiary of such Person or (b) the only general partners or managing members (or functional equivalents thereof) of which are that Person or one or more Subsidiaries of that Person (or any combination thereof).
(uu) "Substitute Award” has the meaning given such term in Section 5(e).
(vv) "Treasury Regulations” means any regulations, whether proposed, temporary or final, promulgated by the U.S. Department of Treasury under the Code, and any successor provisions.
3. Effective Date; Duration. The Plan shall be effective upon its approval by the stockholders of the Company, which date shall be within twelve (12) months before orUntil _______, 2019 (25 days after the date of the closing of the Share Subscription Agreement, dated May 3, 2018, by and among the Company, Smaaash Entertainment Private Limited, Shripal Morakhia and AHA Holdings Private Limited. The expiration date of this Plan, on and after which date no Awardsprospectus) all dealers that effect transactions in these securities, whether or not participating in this offering, may be granted hereunder, shall berequired to deliver a prospectus. This is in addition to the tenth anniversary of the date on which the Plan was approved by the stockholders of the Company;provided,however, that such expiration shall not affect Awards then outstanding,dealers’ obligation to deliver a prospectus when acting as underwriters and the terms and conditions of this Plan shall continuewith respect to apply to such Awards.their unsold allotments or subscriptions.
PART II
4. Administration.INFORMATION NOT REQUIRED IN PROSPECTUS
(a) The Committee shall administer this Plan. To the extent required to comply with the provisions of Rule 16b-3 promulgated under the Exchange Act (if the Board is not acting as the Committee under this Plan), it is intended that each member of the Committee shall, at the time he takes any action with respect to an Award under this Plan, be an Eligible Director. However, the fact that a Committee member shall fail to qualify as an Eligible Director shall not invalidate any Award granted by the Committee that is otherwise validly granted under this Plan. The acts of a majority of the members present at any meeting at which a quorum is present or acts approved in writing by a majority of the Committee shall be deemed the acts of the Committee. Whether a quorum is present shall be determined based on the Committee’s charter as approved by the Board.
Item 13. | Other Expenses of Issuance and Distribution. |
(b) Subject toThe following table sets forth the provisions of this Plan and applicable law, the Committee shall have the sole and plenary authority, in addition to other express powers and authorizations conferred on the Committee by this Plan and its charter, to: (i) designate Participants; (ii) determine the type or types of Awardsvarious expenses to be granted to a Participant; (iii) determine the number of Common Shares to be covered by, or with respect to which payments, rights, or other matters are to be calculated in connection with, Awards; (iv) determine the terms and conditions of any Award; (v) determine whether, to what extent, and under what circumstances Awards may be settled or exercised in cash, Common Shares, other securities, other Awards or other property, or canceled, forfeited, or suspended, and the method or methods by which Awards may be settled, exercised, canceled, forfeited, or suspended; (vi) determine whether, to what extent, and under what circumstances the delivery of cash, Common Shares, other securities, other Awards or other property and other amounts payable with respect to an Award shall be made; (vii) interpret, administer, reconcile any inconsistency in, settle any controversy regarding, correct any defect in and/or complete any omission in this Plan and any instrument or agreement relating to, or Award granted under, this Plan; (viii) establish, amend, suspend, or waive any rules and regulations and appoint such agents as the Committee shall deem appropriate for the proper administration of this Plan; (ix) accelerate the vesting or exercisability of, payment for or lapse of restrictions on, Awards; (x) to reprice existing Awards or to grant Awards in connection with or in consideration of the cancellation of an outstanding Award with a higher price; and (xi) make any other determination and take any other action that the Committee deems necessary or desirable for the administration of this Plan.
(c) The Committee may, by resolution, expressly delegate to a special committee, consisting of one or more directors who may but need not be officers of the Company, the authority, within specified parameters as to the number and types of Awards, to (i) designate officers and/or employees of the Company or any of its Affiliates to be recipients of Awards under this Plan, and (ii) to determine the number of such Awards to be received by any such Participants; provided, however, that such delegation of duties and responsibilities may not be made with respect to grants of Awards to persons (i) subject to Section 16 of the Exchange Act or (ii) who are, or who are reasonably expected to be, “covered employees” for purposes of Section 162(m) of the Code. The acts of such delegates shall be treated as acts of the Committee, and such delegates shall report regularly to the Board and the Committee regarding the delegated duties and responsibilities and any Awards granted.
(d) Unless otherwise expressly provided in this Plan, all designations, determinations, interpretations, and other decisions under or with respect to this Plan or any Award or any documents evidencing Awards granted pursuant to this Plan shall be within the sole discretion of the Committee, may be made at any time and shall be final, conclusive and binding upon all persons or entities, including, without limitation, the Company, any Affiliate, any Participant, any holder or beneficiary of any Award, and any stockholder of the Company.
(e) No member of the Board, the Committee, delegate of the Committee or any employee, advisor or agent of the Company or the Board or the Committee (each such person, an “Indemnifiable Person") shall be liable for any action taken or omitted to be taken or any determination made in good faith with respect to this Plan or any Award hereunder. Each Indemnifiable Person shall be indemnified and held harmless by the Company against and from (and the Company shall pay or reimburse on demand for) any loss, cost, liability, or expense (including court costs and attorneys’ fees) that may be imposed upon or incurred by such Indemnifiable Person in connection with or resulting from any action, suit or proceeding to which such Indemnifiable Person may be a party or in which such Indemnifiable Person may be involved by reason of any action taken or omitted to be taken under this Plan or any Award Agreement and against and from any and all amounts paid by such Indemnifiable Person with the Company’s approval, in settlement thereof, or paid by such Indemnifiable Person in satisfaction of any judgment in any such action, suit or proceeding against such Indemnifiable Person,provided, that the Company shall have the right, at its own expense, to assume and defend any such action, suit or proceeding and once the Company gives notice of its intent to assume the defense, the Company shall have sole control over such defense with counsel of the Company’s choice. The foregoing right of indemnification shall not be available to an Indemnifiable Person to the extent that a final judgment or other final adjudication (in either case not subject to further appeal) binding upon such Indemnifiable Person determines that the acts or omissions of such Indemnifiable Person giving rise to the indemnification claim resulted from such Indemnifiable Person’s bad faith, fraud or willful criminal act or omission or that such right of indemnification is otherwise prohibited by law or by the Company’s Certificate of Incorporation or Bylaws. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which any such Indemnifiable Person may be entitled under the Company’s Certificate of Incorporation or Bylaws, as a matter of law, or otherwise, or any other power that the Company may have to indemnify such Indemnifiable Persons or hold them harmless.
(f) Notwithstanding anything to the contrary contained in this Plan, the Board may, in its sole discretion, at any time and from time to time, grant Awards and administer this Plan with respect to such Awards. In any such case, the Board shall have all the authority granted to the Committee under this Plan.
5. Grant of Awards; Shares Subject to this Plan; Limitations.
(a) The Committee may, from time to time, grant Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Stock Bonus Awards and/or Performance Compensation Awards to one or more Eligible Persons. Subject to Section 12 of this Plan, the Committee is authorized to deliver under this Plan an aggregate of 500,000 Common Shares.
(b) Common Shares underlying Awards under this Plan that are forfeited, cancelled, expire unexercised, or are settled in cash shall be available again for Awards under this Plan at the same ratio at which they were previously granted. Notwithstanding the foregoing, the following Common Shares shall not be available again for Awards under the Plan: (i) shares tendered or held back upon the exercise of an Option or settlement of an Award to cover the Exercise Price of an Award; (ii) shares that are used or withheld to satisfy tax withholding obligations of the Participant; and (iii) shares subject to a Stock Appreciation Right that are not issued in connection with the stock settlementregistration of the SAR upon exercise thereof.
(c) Awards that do not entitlesecurities being registered hereby, all of which will be borne by us. All amounts shown are estimates except the holder thereof to receive or purchase Common Shares shall not be counted against the aggregate number of Common Shares available for Awards under the Plan.
(d) Common Shares delivered by the Company in settlement of Awards may be authorized and unissued shares, shares held in the treasury of the Company, shares purchased on the open market or by private purchase, or any combination of the foregoing.
(e) Subject to compliance with Section 1.409A-3(f) of the Treasury Regulations, Awards may, in the sole discretion of the Committee, be granted under this Plan in assumption of, or in substitution for, outstanding awards previously granted by an entity acquired by the Company or with which the Company combines ("Substitute Awards"). The number of Common Shares underlying any Substitute Awards shall be counted against the aggregate number of Common Shares available for Awards under this Plan; provided, however that Common Shares issued under Substitute Awards granted in substitution for awards previously granted by an entity that is acquired by or merged with the Company or an Affiliate shall not be counted against the aggregate number of Common Shares available for Awards under the Plan.
(f) Notwithstanding any provision in the Plan to the contrary (but subject to adjustment as provided in Section 12), the Committee shall not grant to any one Eligible Person in any one calendar year Awards (i) for more than 10% of the Available Shares in the aggregate or (ii) payable in cash in an amount exceeding $5,000,000 in the aggregate.
6. Eligibility. Participation shall be limited to Eligible Persons who have entered into an Award Agreement or who have received written notification from the Committee, or from a person designated by the Committee, that they have been selected to participate in this Plan.
7. Options.
(a) Generally. Each Option granted under this Plan shall be evidenced by an Award Agreement (whether in paper or electronic medium (including email or the posting on a web site maintained by the Company or a third party under contract with the Company)). Each Option so granted shall be subject to the conditions set forth in this Section 7, and to such other conditions not inconsistent with this Plan as may be reflected in the applicable Award Agreement. All Options granted under this Plan shall be Nonqualified Stock Options unless the applicable Award Agreement expressly states that the Option is intended to be an Incentive Stock Option. Notwithstanding any designation of an Option, to the extent that the aggregate Fair Market Value of Common Shares with respect to which Options designated as Incentive Stock Options are exercisable for the first time by any Participant during any calendar year (under all plans of the Company or any Subsidiary) exceeds $100,000, such excess Options shall be treated as Nonqualified Stock Options. Incentive Stock Options shall be granted only to Eligible Persons who are employees of the Company and its Affiliates, and no Incentive Stock Option shall be granted to any Eligible Person who is ineligible to receive an Incentive Stock Option under the Code. No Option shall be treated as an Incentive Stock Option unless this Plan has been approved by the stockholders of the Company in a manner intended to comply with the stockholder approval requirements of Section 422(b)(1) of the Code, provided that any Option intended to be an Incentive Stock Option shall not fail to be effective solely on account of a failure to obtain such approval, but rather such Option shall be treated as a Nonqualified Stock Option unless and until such approval is obtained. In the case of an Incentive Stock Option, the terms and conditions of such grant shall be subject to and comply with such rules as may be prescribed by Section 422 of the Code. If for any reason an Option intended to be an Incentive Stock Option (or any portion thereof) shall not qualify as an Incentive Stock Option, then, to the extent of such nonqualification, such Option or portion thereof shall be regarded as a Nonqualified Stock Option appropriately granted under this Plan.
(b) Exercise Price. The exercise price ("Exercise Price") per Common Share for each Option shall not be less than 100% of the Fair Market Value of such share determined as of the Date of Grant;provided, however, that in the case of an Incentive Stock Option granted to an employee who, at the time of the grant of such Option, owns shares representing more than 10% of the voting power of all classes of shares of the Company or any Affiliate, the Exercise Price per share shall not be less than 110% of the Fair Market Value per share on the Date of Grant;and, provided further, that notwithstanding any provision herein to the contrary, the Exercise Price shall not be less than the par value per Common Share.
(c) Vesting and Expiration. Options shall vest and become exercisable in such manner and on such date or dates determined by the Committee and as set forth in the applicable Award Agreement, and shall expire after such period, not to exceed ten (10) years from the Date of Grant, as may be determined by the Committee (the “Option Period");provided,however, that the Option Period shall not exceed five (5) years from the Date of Grant in the case of an Incentive Stock Option granted to a Participant who on the Date of Grant owns shares representing more than 10% of the voting power of all classes of shares of the Company or any Affiliate;and,provided,further, that notwithstanding any vesting dates set by the Committee, the Committee may, in its sole discretion, accelerate the exercisability of any Option, which acceleration shall not affect the terms and conditions of such Option other than with respect to exercisability. Unless otherwise provided by the Committee in an Award Agreement:
(i) an Option shall vest and become exercisable with respect to one-third of the Common Shares subject to such Option on each of the first three anniversaries of the Date of Grant;provided, however, that the Committee may designate a purchase price below Fair Market Value on the date of grant if the Option is granted in substitution for a stock option previously granted by an entity that is acquired by or merged with the Company or an Affiliate;
(ii) the unvested portion of an Option shall expire upon termination of employment or service of the Participant granted the Option, and the vested portion of such Option shall remain exercisable for:
(A) one year following termination of employment or service by reason of such Participant’s death or Disability (with the determination of Disability to be made by the Committee on a case by case basis), but not later than the expiration of the Option Period;
(B) for directors, officers and employees of the Company only, for ninety (90) days following termination of employment or service by reason of such Participant’s Retirement;
(C) 90 calendar days following termination of employment or service for any reason other than such Participant’s death, Disability or Retirement, and other than such Participant’s termination of employment or service for Cause, but not later than the expiration of the Option Period; and
(iii) both the unvested and the vested portion of an Option shall immediately expire upon the termination of the Participant’s employment or service by the Company for Cause.
Notwithstanding the foregoing provisions of Section 7(c) and consistent with the requirements of applicable law, the Committee, in its sole discretion, may extend the post-termination of employment period during which a Participant may exercise vested Options.
(d) Method of Exercise and Form of Payment. No Common Shares shall be delivered pursuant to the exercise of an Option until payment in full of the Exercise Price therefor is received by the Company and the Participant has paid to the Company an amount equal to any applicable federal, state, local and/or foreign income and employment taxes withheld. Options that have become exercisable may be exercised by delivery of written or electronic notice of exercise to the Company in accordance with the terms of the Award Agreement accompanied by payment of the Exercise Price. The Exercise Price shall be payable (i) in cash, check (subject to collection), cash equivalent and/or vested Common Shares valued at the Fair Market Value at the time the Option is exercised (including, pursuant to procedures approved by the Committee, by means of attestation of ownership of a sufficient number of Common Shares in lieu of actual delivery of such shares to the Company);provided, however, that such Common Shares are not subject to any pledge or other security interest and; (ii) by such other method as the Committee may permit in accordance with applicable law, in its sole discretion, including without limitation: (A) in other property having a fair market value (as determined by the Committee in its discretion) on the date of exercise equal to the Exercise Price or (B) if there is a public market for the Common Shares at such time, by means of a broker-assisted “cashless exercise” pursuant to which the Company is delivered a copy of irrevocable instructions to a stockbroker to sell the Common Shares otherwise deliverable upon the exercise of the Option and to deliver promptly to the Company an amount equal to the Exercise Price or (C) by a “net exercise” method whereby the Company withholds from the delivery of the Common Shares for which the Option was exercised that number of Common Shares having a Fair Market Value equal to the aggregate Exercise Price for the Common Shares for which the Option was exercised. Any fractional Common Shares shall be settled in cash.
(e) Notification upon Disqualifying Disposition of an Incentive Stock Option. Each Participant awarded an Incentive Stock Option under this Plan shall notify the Company in writing immediately after the date he makes a disqualifying disposition of any Common Shares acquired pursuant to the exercise of such Incentive Stock Option. A disqualifying disposition is any disposition (including, without limitation, any sale) of such Common Shares before the later of (A) two years after the Date of Grant of the Incentive Stock Option or (B) one year after the date of exercise of the Incentive Stock Option. The Company may, if determined by the Committee and in accordance with procedures established by the Committee, retain possession of any Common Shares acquired pursuant to the exercise of an Incentive Stock Option as agent for the applicable Participant until the end of the period described in the preceding sentence.SEC registration fee.
(f) Compliance with Laws, etc. Notwithstanding the foregoing, in no event shall a Participant be permitted to exercise an Option in a manner that the Committee determines would violate the Sarbanes-Oxley Act of 2002, if applicable, or any other applicable law or the applicable rules and regulations of the Securities and Exchange Commission or the applicable rules and regulations of any securities exchange or inter-dealer quotation system on which the securities of the Company are listed or traded.
8. Stock Appreciation Rights.
(a) Generally. Each SAR granted under this Plan shall be evidenced by an Award Agreement (whether in paper or electronic medium (including email or the posting on a web site maintained by the Company or a third party under contract with the Company)). Each SAR so granted shall be subject to the conditions set forth in this Section 8, and to such other conditions not inconsistent with this Plan as may be reflected in the applicable Award Agreement. Any Option granted under this Plan may include tandem SARs (i.e., SARs granted in conjunction with an Award of Options under this Plan). The Committee also may award SARs to Eligible Persons independent of any Option.
(b) Exercise Price.The Exercise Price per Common Share for each Option granted in connection with a SAR shall not be less than 100% of the Fair Market Value of such share determined as of the Date of Grant; provided, however, that the Committee may designate a purchase price below Fair Market Value on the date of grant if the SAR is granted in substitution for an appreciation right previously granted by an entity that is acquired by or merged with the Company or an Affiliate.
(c) Vesting and Expiration. A SAR granted in connection with an Option shall become exercisable and shall expire according to the same vesting schedule and expiration provisions as the corresponding Option. A SAR granted independent of an Option shall vest and become exercisable and shall expire in such manner and on such date or dates determined by the Committee and shall expire after such period, not to exceed ten years, as may be determined by the Committee (the “SAR Period");provided, however, that notwithstanding any vesting dates set by the Committee, the Committee may, in its sole discretion, accelerate the exercisability of any SAR, which acceleration shall not affect the terms and conditions of such SAR other than with respect to exercisability. Unless otherwise provided by the Committee in an Award Agreement:
(i) a SAR shall vest and become exercisable with respect to one-third of the Common Shares subject to such SAR on each of the first three anniversaries of the Date of Grant;
SEC registration fee | $ | 9,632.79 | ||
Transfer agent’s fees and expenses | $ | * | ||
Printing expenses | $ | * | ||
Legal fees and expenses | $ | * | ||
Accounting fees and expenses | $ | * | ||
Miscellaneous | $ | * | ||
Total expenses | $ | * |
(ii) the unvested portion of a SAR shall expire upon termination of employment or service of the Participant granted the SAR, and the vested portion of such SAR shall remain exercisable for:
* | Estimated expenses not presently known. |
(A) one year following termination of employment or service by reason of such Participant’s death or Disability (with the determination of Disability to be made by the Committee on a case by case basis), but not later than the expiration of the SAR Period;
(B) for directors, officers and employees of the Company only, for the remainder of the SAR Period following termination of employment or service by reason of such Participant’s Retirement;
(C) 90 calendar days following termination of employment or service for any reason other than such Participant’s death, Disability or Retirement, and other than such Participant’s termination of employment or service for Cause, but not later than the expiration of the SAR Period; and
(iii) both the unvested and the vested portion of a SAR shall expire immediately upon the termination of the Participant’s employment or service by the Company for Cause.
(d) Method of Exercise. SARs that have become exercisable may be exercised by delivery of written or electronic notice of exercise to the Company in accordance with the terms of the Award, specifying the number of SARs to be exercised and the date on which such SARs were awarded. Notwithstanding the foregoing, if on the last day of the Option Period (or in the case of a SAR independent of an Option, the SAR Period), the Fair Market Value exceeds the Strike Price, the Participant has not exercised the SAR or the corresponding Option (if applicable), and neither the SAR nor the corresponding Option (if applicable) has expired, such SAR shall be deemed to have been exercised by the Participant on such last day and the Company shall make the appropriate payment therefor.
(e) Payment. Upon the exercise of a SAR, the Company shall pay to the Participant an amount equal to the number of Common Shares subject to the SAR that are being exercised multiplied by the excess, if any, of the Fair Market Value of one Common Share on the exercise date over the Strike Price, less an amount equal to any applicable federal, state, local and non-U.S. income and employment taxes withheld. The Company shall pay such amount in cash, in Common Shares valued at Fair Market Value, or any combination thereof, as determined by the Committee. Any fractional Common Share shall be settled in cash.
9. Restricted Stock and Restricted Stock Units.
(a) Generally. Each grant of Restricted Stock and Restricted Stock Units shall be evidenced by an Award Agreement (whether in paper or electronic medium (including email or the posting on a web site maintained by the Company or a third party under contract with the Company)). Each such grant shall be subject to the conditions set forth in this Section 9, and to such other conditions not inconsistent with this Plan as may be reflected in the applicable Award Agreement. Restricted Stock and Restricted Stock Units shall be subject to such restrictions on transferability and other restrictions as the Committee may impose (including, for example, limitations on the right to vote Restricted Stock or the right to receive dividends on the Restricted Stock). These restrictions may lapse separately or in combination at such times, under such circumstances, in such installments, upon the satisfaction of Performance Goals or otherwise, as the Committee determines at the time of the grant of an Award or thereafter. Except as otherwise provided in an Award Agreement, a Participant shall have none of the rights of a stockholder with respect to Restricted Stock Units until such time as Common Shares are paid in settlement of such Awards.
(b) Restricted Accounts; Escrow or Similar Arrangement. Unless otherwise determined by the Committee, upon the grant of Restricted Stock, a book entry in a restricted account shall be established in the Participant’s name at the Company’s transfer agent and, if the Committee determines that the Restricted Stock shall be held by the Company or in escrow rather than held in such restricted account pending the release of the applicable restrictions, the Committee may require the Participant to additionally execute and deliver to the Company (i) an escrow agreement satisfactory to the Committee, if applicable, and (ii) the appropriate share power (endorsed in blank) with respect to the Restricted Stock covered by such agreement. If a Participant shall fail to execute an agreement evidencing an Award of Restricted Stock and, if applicable, an escrow agreement and blank share power within the amount of time specified by the Committee, the Award shall be null and voidab initio. Subject to the restrictions set forth in this Section 9 and the applicable Award Agreement, the Participant generally shall have the rights and privileges of a stockholder as to such Restricted Stock, including without limitation the right to vote such Restricted Stock and the right to receive dividends, if applicable. To the extent shares of Restricted Stock are forfeited, any share certificates issued to the Participant evidencing such shares shall be returned to the Company, and all rights of the Participant to such shares and as a stockholder with respect thereto shall terminate without further obligation on the part of the Company.
(c) Vesting; Acceleration of Lapse of Restrictions. Unless otherwise provided by the Committee in an Award Agreement: (i) the Restricted Period shall lapse with respect to one-third of the Restricted Stock and Restricted Stock Units on each of the first three anniversaries of the Date of Grant ; and (ii) the unvested portion of Restricted Stock and Restricted Stock Units shall terminate and be forfeited upon the termination of employment or service of the Participant granted the applicable Award.
(d) Delivery of Restricted Stock and Settlement of Restricted Stock Units. (i) Upon the expiration of the Restricted Period with respect to any shares of Restricted Stock, the restrictions set forth in the applicable Award Agreement shall be of no further force or effect with respect to such shares, except as set forth in the applicable Award Agreement. If an escrow arrangement is used, upon such expiration, the Company shall deliver to the Participant, or his beneficiary, without charge, the share certificate evidencing the shares of Restricted Stock that have not then been forfeited and with respect to which the Restricted Period has expired (rounded down to the nearest full share). Dividends, if any, that may have been withheld by the Committee and attributable to any particular share of Restricted Stock shall be distributed to the Participant in cash or, at the sole discretion of the Committee, in shares of Common Stock having a Fair Market Value equal to the amount of such dividends, upon the release of restrictions on such shares of Restricted Stock and, if such shares of Restricted Stock are forfeited, the Participant shall have no right to such dividends (except as otherwise set forth by the Committee in the applicable Award Agreement).
(ii) Unless otherwise provided by the Committee in an Award Agreement, upon the expiration of the Restricted Period with respect to any outstanding Restricted Stock Units and no later than the 75th day of the calendar year following the calendar year in which such expiration occurs, the Company shall deliver to the Participant, or his beneficiary, without charge, one Common Share for each such outstanding Restricted Stock Unit;provided,however, that the Committee may, in its sole discretion and subject to the requirements of Section 409A of the Code, elect to (i) pay cash or part cash and part Common Share in lieu of delivering only Common Shares in respect of such Restricted Stock Units or (ii) defer the delivery of Common Shares (or cash or part Common Shares and part cash, as the case may be) beyond the 75th day of the calendar year following the calendar year in which the expiration of the Restricted Period occurs if such delivery would result in a violation of applicable law until such time as is no longer the case. If a cash payment is made in lieu of delivering Common Shares, the amount of such payment shall be equal to the Fair Market Value of the Common Shares as of the date on which the Restricted Period lapsed with respect to such Restricted Stock Units, less an amount equal to any applicable federal, state, local and non-U.S. income and employment taxes withheld. Notwithstanding anything contained herein to the contrary, the Committee in an Award Agreement may, in a manner consistent with the applicable requirements of Section 409A of the Code, enable a Participant to elect to defer the date on which settlement of the Restricted Stock Units shall occur.
10. Stock Bonus Awards. The Committee may issue unrestricted Common Shares, or other Awards denominated in Common Shares, under this Plan to Eligible Persons, either alone or in tandem with other awards, in such amounts as the Committee shall from time to time in its sole discretion determine. Each Stock Bonus Award granted under this Plan shall be evidenced by an Award Agreement (whether in paper or electronic medium (including email or the posting on a web site maintained by the Company or a third party under contract with the Company)). Each Stock Bonus Award so granted shall be subject to such conditions not inconsistent with this Plan as may be reflected in the applicable Award Agreement.
11. Performance Compensation Awards.
(a) Discretion of Committee with Respect to Performance Compensation Awards. With regard to a particular Performance Period, the Committee shall have sole discretion to select the length of such Performance Period, the type(s) of Performance Compensation Awards to be issued, the Performance Criteria that will be used to establish the Performance Goal(s), the kind(s) and/or level(s) of the Performance Goals(s) that is (are) to apply and the Performance Formula. Within the first 90 calendar days of a Performance Period, the Committee shall, with regard to the Performance Compensation Awards to be issued for such Performance Period, exercise its discretion with respect to each of the matters enumerated in the immediately preceding sentence and record the same in writing.
(b) Performance Criteria. The Performance Criteria that will be used to establish the Performance Goal(s) shall be based on the attainment of specific levels of performance of the Company and/or one or more Affiliates, divisions or operational units, or any combination of the foregoing, as determined by the Committee, which criteria may be based on one or more of the following business criteria: (i) revenue; (ii) sales; (iii) profit (net profit, gross profit, operating profit, economic profit, profit margins or other corporate profit measures); (iv) earnings (EBIT, EBITDA, earnings per share, or other corporate earnings measures); (v) net income (before or after taxes, operating income or other income measures); (vi) cash (cash flow, cash generation or other cash measures); (vii) stock price or performance; (viii) total stockholder return (stock price appreciation plus reinvested dividends divided by beginning share price); (ix) economic value added; (x) 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); (xi) market share; (xii) improvements in capital structure; (xiii) expenses (expense management, expense ratio, expense efficiency ratios or other expense measures); (xiv) business expansion or consolidation (acquisitions and divestitures); (xv) internal rate of return or increase in net present value; (xvi) working capital targets relating to inventory and/or accounts receivable; (xvii) inventory management; (xviii) service or product delivery or quality; (xix) customer satisfaction; (xx) employee retention; (xxi) safety standards; (xxii) productivity measures; (xxiii) cost reduction measures; and/or (xxiv) strategic plan development and implementation. Any one or more of the Performance Criteria adopted by the Committee may be used on an absolute or relative basis to measure the performance of the Company and/or one or more Affiliates as a whole or any business unit(s) of the Company and/or one or more Affiliates or any combination thereof, as the Committee may deem appropriate, or any of the above Performance Criteria may be compared to the performance of a selected group of comparison companies, or a published or special index that the Committee, in its sole discretion, deems appropriate, or as compared to various stock market indices. The Committee also has the authority to provide for accelerated vesting of any Award based on the achievement of Performance Goals pursuant to the Performance Criteria specified in this paragraph. To the extent required under Section 162(m) of the Code, the Committee shall, within the first 90 calendar days of a Performance Period (or, if longer or shorter, within any maximum period allowed under Section 162(m) of the Code), define in an objective fashion the manner of calculating the Performance Criteria it selects to use for such Performance Period and thereafter promptly communicate such Performance Criteria to the Participant.
(c) Modification of Performance Goal(s). In the event that applicable tax and/or securities laws change to permit Committee discretion to alter the governing Performance Criteria without obtaining stockholder approval of such alterations, the Committee shall have sole discretion to make such alterations without obtaining stockholder approval. For purposes of clarity and without limiting the Committee’s authority set forth above, at the time it establishes Performance Criteria to be used with any Performance Compensation Award, the Committee may specify one or more events requiring an adjustment to the calculation of the Performance Goal, including but not limited to: (i) asset write-downs; (ii) litigation or claim judgments or settlements; (iii) the effect of changes in tax laws, accounting principles, or other laws or regulatory rules affecting reported results; (iv) any reorganization and restructuring programs; (v) acquisitions or divestitures; (vi) any other specific items that are unusual in nature or infrequently occurring, or objectively determinable category thereof; (viii) foreign exchange gains and losses; and (ix) a change in the Company’s fiscal year. The Committee may reserve discretion to make or not make one or more adjustments as specified in a Performance Compensation Award, but only to the extent that such discretion is Negative Discretion.
(d) Payment of Performance Compensation Awards.
(i) Condition to Receipt of Payment. Unless otherwise provided in the applicable Award Agreement, a Participant must be employed by, or in service to, the Company on the last day of a Performance Period to be eligible for payment in respect of a Performance Compensation Award for such Performance Period.
(ii) Limitation. A Participant shall be eligible to receive payment in respect of a Performance Compensation Award only to the extent that: (A) the Performance Goals for such period are achieved; and (B) all or some of the portion of such Participant’s Performance Compensation Award has been earned for the Performance Period based on the application of the Performance Formula to such achieved Performance Goals.
(iii) Certification. Following the completion of a Performance Period, the Committee shall review and certify in writing whether, and to what extent, the Performance Goals for the Performance Period have been achieved and, if so, calculate and certify in writing that amount of the Performance Compensation Awards earned for the period based upon the Performance Formula. The Committee shall then determine the amount of each Participant’s Performance Compensation Award actually payable for the Performance Period and, in so doing, may apply Negative Discretion.
(iv) Use of Negative Discretion. In determining the actual amount of an individual Participant’s Performance Compensation Award for a Performance Period, the Committee may reduce or eliminate the amount of the Performance Compensation Award earned under the Performance Formula in the Performance Period through the use of Negative Discretion if, in its sole judgment, such reduction or elimination is appropriate. The Committee shall not have the discretion, except as is otherwise provided in this Plan, to (A) grant or provide payment in respect of Performance Compensation Awards for a Performance Period if the Performance Goals for such Performance Period have not been attained; or (B) increase a Performance Compensation Award above the applicable limitations set forth in Section 5 of this Plan.
(e) Timing of Award Payments. Performance Compensation Awards granted for a Performance Period shall be paid to Participants as soon as administratively practicable following completion of the certifications required by this Section 11, but in no event later than two-and-one-half months following the end of the fiscal year during which the Performance Period is completed in order to comply with the short-term deferral rules under Section 1.409A-1(b)(4) of the Treasury Regulations. Notwithstanding the foregoing, payment of a Performance Compensation Award may be delayed, as permitted by Section 1.409A-2(b)(7)(i) of the Treasury Regulations, to the extent that the Company reasonably anticipates that if such payment were made as scheduled, the Company’s tax deduction with respect to such payment would not be permitted due to the application of Section 162(m) of the Code.
12. Changes in Capital Structure and Similar Events. In the event of (a) any dividend or other distribution (whether in the form of cash, Common Shares, other securities or other property), recapitalization, stock split, reverse stock split, reorganization, merger, amalgamation, consolidation, split-up, split-off, combination, repurchase or exchange of Common Shares or other securities of the Company, issuance of warrants or other rights to acquire Common Shares or other securities of the Company, or other similar corporate transaction or event (including, without limitation, a Change in Control) that affects the Common Shares, or (b) unusual or nonrecurring events (including, without limitation, a Change in Control) affecting the Company, any Affiliate, or the financial statements of the Company or any Affiliate, 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, such that in either case an adjustment is determined by the Committee in its sole discretion to be necessary or appropriate in order to prevent dilution or enlargement of rights, then the Committee shall make any such adjustments that are equitable, including without limitation any or all of the following:
(i) adjusting any or all of (A) the number of Common Shares or other securities of the Company (or number and kind of other securities or other property) that may be delivered in respect of Awards or with respect to which Awards may be granted under this Plan (including, without limitation, adjusting any or all of the limitations under Section 5 of this Plan) and (B) the terms of any outstanding Award, including, without limitation, (1) the number of Common Shares or other securities of the Company (or number and kind of other securities or other property) subject to outstanding Awards or to which outstanding Awards relate, (2) the Exercise Price or Strike Price with respect to any Award or (3) any applicable performance measures (including, without limitation, Performance Criteria and Performance Goals);
(ii) subject to the requirements of Section 409A of the Code, providing for a substitution or assumption of Awards, accelerating the exercisability of, lapse of restrictions on, or termination of, Awards or providing for a period of time for exercise prior to the occurrence of such event; and
(iii) subject to the requirements of Section 409A of the Code, canceling any one or more outstanding Awards and causing to be paid to the holders thereof, in cash, Common Shares, other securities or other property, or any combination thereof, the value of such Awards, if any, as determined by the Committee (which if applicable may be based upon the price per Common Share received or to be received by other stockholders of the Company in such event), including without limitation, in the case of an outstanding Option or SAR, a cash payment in an amount equal to the excess, if any, of the Fair Market Value (as of a date specified by the Committee) of the Common Shares subject to such Option or SAR over the aggregate Exercise Price or Strike Price of such Option or SAR, respectively (it being understood that, in such event, any Option or SAR having a per share Exercise Price or Strike Price equal to, or in excess of, the Fair Market Value of a Common Share subject thereto may be canceled and terminated without any payment or consideration therefor);provided,however, that in the case of any “equity restructuring” (within the meaning of the Financial Accounting Standards Board Statement of Financial Accounting Standards No. 123 (revised 2004) or ASC Topic 718, or any successor thereto), the Committee shall make an equitable or proportionate adjustment to outstanding Awards to reflect such equity restructuring. Any adjustment in Incentive Stock Options under this Section 12 (other than any cancellation of Incentive Stock Options) shall be made only to the extent not constituting a “modification” within the meaning of Section 424(h)(3) of the Code, and any adjustments under this Section 12 shall be made in a manner that does not adversely affect the exemption provided pursuant to Rule 16b-3 under the Exchange Act. The Company shall give each Participant notice of an adjustment hereunder and, upon notice, such adjustment shall be conclusive and binding for all purposes.
13. Effect of Change in Control. Except to the extent otherwise provided in an Award Agreement, in the event of a Change in Control, notwithstanding any provision of this Plan to the contrary, with respect to all or any portion of a particular outstanding Award or Awards:
(a) 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;
(b) the Restricted Period shall expire as of a time prior to the Change in Control (including without limitation a waiver of any applicable Performance Goals);
(c) Performance Periods in effect on the date the Change in Control occurs shall end on such date, and the Committee shall (i) 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 (ii) cause the Participant to receive partial or full payment of Awards for each such Performance Period based upon the 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 Committee.
To the extent practicable, any actions taken by the Committee under the immediately preceding clauses (a) through (c) 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 Common Shares subject to their Awards.
14. Amendments and Termination.
(a) Amendment and Termination of this Plan. The Board may amend, alter, suspend, discontinue, or terminate this Plan or any portion thereof at any time;provided, that (i) no amendment to the definition of Eligible Person in Section 2(q), Section 5(b), Section 11(b) or Section 14(b) (to the extent required by the proviso in such Section 14(b)) shall be made without stockholder approval and (ii) no such amendment, alteration, suspension, discontinuation or termination shall be made without stockholder approval if such approval is necessary to comply with any tax or regulatory requirement applicable to this 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 Common Shares may be listed or quoted or to prevent the Company from being denied a tax deduction under Section 162(m) of the Code);and,provided,further, that any such amendment, alteration, suspension, discontinuance or termination that would materially and adversely affect the rights of any Participant or any holder or beneficiary of any Award theretofore granted shall not to that extent be effective without the prior written consent of the affected Participant, holder or beneficiary.
(b) Amendment of Award Agreements. The Committee may, to the extent consistent with the terms of any applicable Award Agreement, waive any conditions or rights under, amend any terms of, or alter, suspend, discontinue, cancel or terminate, any Award theretofore granted or the associated Award Agreement, prospectively or retroactively;provided, however, that any such waiver, amendment, alteration, suspension, discontinuance, cancellation or termination that would materially and adversely affect the rights of any Participant with respect to any Award theretofore granted shall not to that extent be effective without the consent of the affected Participant.
15. General.
(a) Award Agreements. Each Award under this Plan shall be evidenced by an Award Agreement, which shall be delivered to the Participant (whether in paper or electronic medium (including email or the posting on a web site maintained by the Company or a third party under contract with the Company)) and shall specify the terms and conditions of the Award and any rules applicable thereto, including without limitation, the effect on such Award of the death, Disability or termination of employment or service of a Participant, or of such other events as may be determined by the Committee. The Company’s failure to specify any term of any Award in any particular Award Agreement shall not invalidate such term, provided such terms was duly adopted by the Board or the Committee.
(b) Nontransferability; Trading Restrictions.
(i) Each Award shall be exercisable only by a Participant during the Participant’s lifetime, or, if permissible under applicable law, by the Participant’s legal guardian or representative. No Award may be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by a Participant other than by will or by the laws of descent and distribution and any such purported assignment, alienation, pledge, attachment, sale, transfer or encumbrance shall be void and unenforceable against the Company or an Affiliate; provided that the designation of a beneficiary shall not constitute an assignment, alienation, pledge, attachment, sale, transfer or encumbrance.
(ii) Notwithstanding the foregoing, the Committee may, in its sole discretion, permit Awards (other than Incentive Stock Options) to be transferred by a Participant, with or without consideration, subject to such rules as the Committee may adopt consistent with any applicable Award Agreement to preserve the purposes of this Plan, to: (A) any person who is a “family member” of the Participant, as such term is used in the instructions to Form S-8 under the Securities Act (collectively, the “Immediate Family Members"); (B) a trust solely for the benefit of the Participant and his or her Immediate Family Members; or (C) a partnership or limited liability company whose only partners or stockholders are the Participant and his or her Immediate Family Members; or (D) any other transferee as may be approved either (I) by the Board or the Committee in its sole discretion, or (II) as provided in the applicable Award Agreement (each transferee described in clauses (A), (B), (C) and (D) above is hereinafter referred to as a “Permitted Transferee");provided, that the Participant gives the Committee advance written notice describing the terms and conditions of the proposed transfer and the Committee notifies the Participant in writing that such a transfer would comply with the requirements of this Plan.
(iii) The terms of any Award transferred in accordance with subparagraph (ii) above shall apply to the Permitted Transferee and any reference in this Plan, or in any applicable Award Agreement, to a Participant shall be deemed to refer to the Permitted Transferee, except that (A) Permitted Transferees shall not be entitled to transfer any Award, other than by will or the laws of descent and distribution; (B) Permitted Transferees shall not be entitled to exercise any transferred Option unless there shall be in effect a registration statement on an appropriate form covering the Common Shares to be acquired pursuant to the exercise of such Option if the Committee determines, consistent with any applicable Award Agreement, that such a registration statement is necessary or appropriate; (C) the Committee or the Company shall not be required to provide any notice to a Permitted Transferee, whether or not such notice is or would otherwise have been required to be given to the Participant under this Plan or otherwise; and (D) the consequences of the termination of the Participant’s employment by, or services to, the Company or an Affiliate under the terms of this Plan and the applicable Award Agreement shall continue to be applied with respect to the Participant, including, without limitation, that an Option shall be exercisable by the Permitted Transferee only to the extent, and for the periods, specified in this Plan and the applicable Award Agreement.
(iv) The Committee shall have the right, either on an Award-by-Award basis or as a matter of policy for all Awards or one or more classes of Awards, to condition the delivery of vested Common Shares received in connection with such Award on the Participant’s agreement to such restrictions as the Committee may determine.
(c) Tax Withholding.
(i) A Participant shall be required to pay to the Company or any Affiliate, or the Company or any Affiliate shall have the right and is hereby authorized to withhold, from any cash, Common Shares, other securities or other property deliverable under any Award or from any compensation or other amounts owing to a Participant, the amount (in cash, Common Shares, other securities or other property) of any required withholding taxes in respect of an Award, its exercise, or any payment or transfer under an Award or under this Plan and to take such other action as may be necessary in the opinion of the Committee or the Company to satisfy all obligations for the payment of such withholding and taxes. In addition, the Committee, in its discretion, may make arrangements mutually agreeable with a Participant who is not an employee of the Company or an Affiliate to facilitate the payment of applicable income and self-employment taxes.
(ii) Without limiting the generality of clause (i) above, the Committee may, in its sole discretion, permit a Participant to satisfy, in whole or in part, the foregoing withholding liability by (A) the delivery of Common Shares (which are not subject to any pledge or other security interest) owned by the Participant having a fair market value equal to such withholding liability or (B) having the Company withhold from the number of Common Shares otherwise issuable or deliverable pursuant to the exercise or settlement of the Award a number of shares with a fair market value equal to such withholding liability (but no more than the maximum individual statutory rate for the applicable tax jurisdiction).
(d) No Claim to Awards; No Rights to Continued Employment; Waiver. No employee of the Company or an Affiliate, or other person, shall have any claim or right to be granted an Award under this Plan or, having been selected for the grant of an Award, to be selected for a grant of any other Award. There is no obligation for uniformity of treatment of Participants or holders or beneficiaries of Awards. The terms and conditions of Awards and the Committee’s determinations and interpretations with respect thereto need not be the same with respect to each Participant and may be made selectively among Participants, whether or not such Participants are similarly situated. Neither this Plan nor any action taken hereunder shall be construed as giving any Participant any right to be retained in the employ or service of the Company or an Affiliate, nor shall it be construed as giving any Participant any rights to continued service on the Board. The Company or any of its Affiliates may at any time dismiss a Participant from employment or discontinue any consulting relationship, free from any liability or any claim under this Plan, unless otherwise expressly provided in this Plan or any Award Agreement. By accepting an Award under this Plan, a Participant shall thereby be deemed to have waived any claim to continued exercise or vesting of an Award or to damages or severance entitlement related to non-continuation of the Award beyond the period provided under this Plan or any Award Agreement, notwithstanding any provision to the contrary in any written employment contract or other agreement between the Company and its Affiliates and the Participant, whether any such agreement is executed before, on or after the Date of Grant.
(e) International Participants. With respect to Participants who reside or work outside of the United States of America and who are not (and who are not expected to be) “covered employees” within the meaning of Section 162(m) of the Code, the Committee may in its sole discretion amend the terms of this Plan or outstanding Awards (or establish a sub-plan) with respect to such Participants in order to conform such terms with the requirements of local law or to obtain more favorable tax or other treatment for such Participants, the Company or its Affiliates.
(f) Designation and Change of Beneficiary. Unless otherwise provided by the Committee in an Award Agreement, each Participant may file with the Committee a written designation of one or more persons as the beneficiary(ies) who shall be entitled to receive the amounts payable with respect to an Award, if any, due under this Plan upon his or her death. A Participant may, from time to time, revoke or change his or her beneficiary designation without the consent of any prior beneficiary by filing a new designation with the Committee. The last such designation filed with the Committee shall be controlling;provided,however, that no designation, or change or revocation thereof, shall be effective unless received by the Committee prior to the Participant’s death, and in no event shall it be effective as of a date prior to such receipt. If no beneficiary designation is filed by a Participant, the beneficiary shall be deemed to be his or her spouse or, if the Participant is unmarried at the time of death, his or her estate. Upon the occurrence of a Participant’s divorce (as evidenced by a final order or decree of divorce), any spousal designation previously given by such Participant shall automatically terminate.
(g) Termination of Employment/Service. Unless determined otherwise by the Committee at any point following such event: (i) neither a temporary absence from employment or service due to illness, vacation or leave of absence nor a transfer from employment or service with the Company to employment or service with an Affiliate (or vice-versa) shall be considered a termination of employment or service with the Company or an Affiliate; and (ii) if a Participant’s employment with the Company and its Affiliates terminates, but such Participant continues to provide services to the Company and its Affiliates in a non-employee capacity (or vice-versa), such change in status shall not be considered a termination of employment with the Company or an Affiliate for purposes of this Plan unless the Committee, in its discretion, determines otherwise.
(h) No Rights as a Stockholder. Except as otherwise specifically provided in this Plan or any Award Agreement, no person shall be entitled to the privileges of ownership in respect of Common Shares that are subject to Awards hereunder until such shares have been issued or delivered to that person.
(i) Government and Other Regulations.
(i) The obligation of the Company to settle Awards in Common Shares or other consideration shall be subject to all applicable laws, rules, and regulations, and to such approvals by governmental agencies as may be required. Notwithstanding any terms or conditions of any Award to the contrary, the Company shall be under no obligation to offer to sell or to sell, and shall be prohibited from offering to sell or selling, any Common Shares pursuant to an Award unless such shares have been properly registered for sale pursuant to the Securities Act with the Securities and Exchange Commission or unless the Company has received an opinion of counsel, satisfactory to the Company, that such shares may be offered or sold without such registration pursuant to an available exemption therefrom and the terms and conditions of such exemption have been fully complied with. The Company shall be under no obligation to register for sale under the Securities Act any of the Common Shares to be offered or sold under this Plan. The Committee shall have the authority to provide that all certificates for Common Shares or other securities of the Company or any Affiliate delivered under this Plan shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under this Plan, the applicable Award Agreement, the federal securities laws, or the rules, regulations and other requirements of the Securities and Exchange Commission, any securities exchange or inter-dealer quotation system upon which such shares or other securities are then listed or quoted and any other applicable federal, state, local or non-U.S. laws, and, without limiting the generality of Section 9 of this Plan, the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions. Notwithstanding any provision in this Plan to the contrary, the Committee reserves the right to add any additional terms or provisions to any Award granted under this Plan that it in its sole discretion deems necessary or advisable in order that such Award complies with the legal requirements of any governmental entity to whose jurisdiction the Award is subject.
(ii) The Committee may cancel an Award or any portion thereof if it determines, in its sole discretion, that legal or contractual restrictions and/or blockage and/or other market considerations would make the Company’s acquisition of Common Shares from the public markets, the Company’s issuance of Common Shares to the Participant, the Participant’s acquisition of Common Shares from the Company and/or the Participant’s sale of Common Shares to the public markets, illegal, impracticable or inadvisable. If the Committee determines to cancel all or any portion of an Award in accordance with the foregoing, unless doing so would violate Section 409A of the Code, the Company shall pay to the Participant an amount equal to the excess of (A) the aggregate Fair Market Value of the Common Shares subject to such Award or portion thereof canceled (determined as of the applicable exercise date, or the date that the shares would have been vested or delivered, as applicable), over (B) the aggregate Exercise Price or Strike Price (in the case of an Option or SAR, respectively) or any amount payable as a condition of delivery of Common Shares (in the case of any other Award). Such amount shall be delivered to the Participant as soon as practicable following the cancellation of such Award or portion thereof. The Committee shall have the discretion to consider and take action to mitigate the tax consequence to the Participant in cancelling an Award in accordance with this clause.
(j) Payments to Persons Other Than Participants. If the Committee shall find that any person to whom any amount is payable under this Plan is unable to care for his affairs because of illness or accident, or is a minor, or has died, then any payment due to such person or his estate (unless a prior claim therefor has been made by a duly appointed legal representative) may, if the Committee so directs the Company, be paid to his spouse, child, relative, an institution maintaining or having custody of such person, or any other person deemed by the Committee to be a proper recipient on behalf of such person otherwise entitled to payment. Any such payment shall be a complete discharge of the liability of the Committee and the Company therefor.
(k) Nonexclusivity of this Plan. Neither the adoption of this Plan by the Board nor the submission of this Plan to the stockholders of the Company for approval shall be construed as creating any limitations on the power of the Board to adopt such other incentive arrangements as it may deem desirable, including, without limitation, the granting of stock options or other equity-based awards otherwise than under this Plan, and such arrangements may be either applicable generally or only in specific cases.
(l) No Trust or Fund Created. Neither this Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any Affiliate, on the one hand, and a Participant or other person or entity, on the other hand. No provision of this Plan or any Award shall require the Company, for the purpose of satisfying any obligations under this Plan, to purchase assets or place any assets in a trust or other entity to which contributions are made or otherwise to segregate any assets, nor shall the Company maintain separate bank accounts, books, records or other evidence of the existence of a segregated or separately maintained or administered fund for such purposes. Participants shall have no rights under this Plan other than as general unsecured creditors of the Company, except that insofar as they may have become entitled to payment of additional compensation by performance of services, they shall have the same rights as other employees under general law.
(m) Reliance on Reports. Each member of the Committee and each member of the Board shall be fully justified in acting or failing to act, as the case may be, and shall not be liable for having so acted or failed to act in good faith, in reliance upon any report made by the independent public accountant of the Company and/or its Affiliates and/or any other information furnished in connection with this Plan by any agent of the Company or the Committee or the Board, other than himself.
(n) Relationship to Other Benefits. No payment under this Plan shall be taken into account in determining any benefits under any pension, retirement, profit sharing, group insurance or other benefit plan of the Company except as otherwise specifically provided in such other plan.
(o) Governing Law. The Plan shall be governed by and construed in accordance with the internal laws of the State of Delaware, without giving effect to the conflict of laws provisions.
(p) Severability. If any provision of this Plan or any Award or Award Agreement is or becomes or is deemed to be invalid, illegal, or unenforceable in any jurisdiction or as to any person or entity or Award, or would disqualify this Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to the applicable laws in the manner that most closely reflects the original intent of the Award or the Plan, or if it cannot be construed or deemed amended without, in the determination of the Committee, materially altering the intent of this Plan or the Award, such provision shall be construed or deemed stricken as to such jurisdiction, person or entity or Award and the remainder of this Plan and any such Award shall remain in full force and effect.
(q) Obligations Binding on Successors. The obligations of the Company under this Plan shall be binding upon any successor corporation or organization resulting from the merger, amalgamation, consolidation or other reorganization of the Company, or upon any successor corporation or organization succeeding to substantially all of the assets and business of the Company.
(r) Expenses; Gender; Titles and Headings. The expenses of administering this Plan shall be borne by the Company and its Affiliates. Masculine pronouns and other words of masculine gender shall refer to both men and women. The titles and headings of the sections in this Plan are for convenience of reference only, and in the event of any conflict, the text of this Plan, rather than such titles or headings shall control.
(s) Other Agreements. Notwithstanding the above, the Committee may require, as a condition to the grant of and/or the receipt of Common Shares under an Award, that the Participant execute lock-up, stockholder or other agreements, as it may determine in its sole and absolute discretion.
(t) Section 409A.The Plan and all Awards granted hereunder are intended to comply with, or otherwise be exempt from, the requirements of Section 409A of the Code. The Plan and all Awards granted under this Plan shall be administered, interpreted, and construed in a manner consistent with Section 409A of the Code to the extent necessary to avoid the imposition of additional taxes under Section 409A(a)(1)(B) of the Code. Notwithstanding anything in this Plan to the contrary, in no event shall the Committee exercise its discretion to accelerate the payment or settlement of an Award where such payment or settlement constitutes deferred compensation within the meaning of Section 409A of the Code unless, and solely to the extent that, such accelerated payment or settlement is permissible under Section 1.409A-3(j)(4) of the Treasury Regulations. If a Participant is a “specified employee” (within the meaning of Section 1.409A-1(i) of the Treasury Regulations) at any time during the twelve (12)-month period ending on the date of his termination of employment, and any Award hereunder subject to the requirements of Section 409A of the Code is to be satisfied on account of the Participant’s termination of employment, satisfaction of such Award shall be suspended until the date that is six (6) months after the date of such termination of employment.
(u) Payments.Participants shall be required to pay, to the extent required by applicable law, any amounts required to receive Common Shares under any Award made under this Plan.
PROXY STATEMENT/PROSPECTUS OF
I-AM CAPITAL ACQUISITION COMPANY
600,000 Shares
of
Common Stock
PART IIINFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The estimated expenses payable by us in connection with the offering described in this registration statement will be as follows:
Legal fees and expenses | 50,000 | |||
Printing expenses | 5,000 | |||
Accounting fees and expenses | 20,000 | |||
SEC filing fee | 792 | |||
Miscellaneous expenses | 5,000 | |||
Total offering expenses | $ | 80,792 |
Item 14. Indemnification of Directors and Officers.
Item 14. | Indemnification of Directors and Officers. |
Our secondthird amended and restated certificate of incorporation provideswill provide that all of our directors, officers, employees and agents shall be entitled to be indemnified by us to the fullest extent permitted by Section 145 of the Delaware General Corporation Law (“DGCL”(the “DGCL”).
Section 145 of the DGCL concerning indemnification of officers, directors, employees and agents is set forth below.
Section 145. Indemnification of officers, directors, employees and agents; insurance.
(a) A corporation shall have power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with such action, suit or proceeding if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe the person’s conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which the person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that the person’s conduct was unlawful.
(b) A corporation shall have power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys’ fees) actually and reasonably incurred by the person in connection with the defense or settlement of such action or suit if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.
(a) | A corporation shall have power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with such action, suit or proceeding if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe the person’s conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which the person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that the person’s conduct was unlawful. | |
(b) | A corporation shall have power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys’ fees) actually and reasonably incurred by the person in connection with the defense or settlement of such action or suit if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. |
II-1 |
(c) To the extent that a present or former director or officer of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in subsections (a) and (b) of this section, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section (unless ordered by a court) shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the present or former director, officer, employee or agent is proper in the circumstances because the person has met the applicable standard of conduct set forth in subsections (a) and (b) of this section. Such determination shall be made, with respect to a person who is a director or officer at the time of such determination, (1) by a majority vote of the directors who are not parties to such action, suit or proceeding, even though less than a quorum, or (2) by a committee of such directors designated by majority vote of such directors, even though less than a quorum, or (3) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion, or (4) by the stockholders.
(e) Expenses (including attorneys’ fees) incurred by an officer or director in defending any civil, criminal, administrative or investigative action, suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit or 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 such person is not entitled to be indemnified by the corporation as authorized in this section. Such expenses (including attorneys’ fees) incurred by former officers and directors or other employees and agents may be so paid upon such terms and conditions, if any, as the corporation deems appropriate.
(f) The indemnification and advancement of expenses provided by, or granted pursuant to, the other subsections of this section shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such person’s official capacity and as to action in another capacity while holding such office. A right to indemnification or to advancement of expenses arising under a provision of the certificate of incorporation or a bylaw shall not be eliminated or impaired by an amendment to such provision after the occurrence of the act or omission that is the subject of the civil, criminal, administrative or investigative action, suit or proceeding for which indemnification or advancement of expenses is sought, unless the provision in effect at the time of such act or omission explicitly authorizes such elimination or impairment after such action or omission has occurred.
(g) A corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person’s status as such, whether or not the corporation would have the power to indemnify such person against such liability under this section.
(h) For purposes of this section, references to “the corporation” shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under this section with respect to the resulting or surviving corporation as such person would have with respect to such constituent corporation if its separate existence had continued.
(i) For purposes of this section, references to “other enterprises” shall include employee benefit plans; references to “fines” shall include any excise taxes assessed on a person with respect to any employee benefit plan; and references to “serving at the request of the corporation” shall include any service as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner such person reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner “not opposed to the best interests of the corporation” as referred to in this section.
(c) | To the extent that a present or former director or officer of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in subsections (a) and (b) of this section, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection therewith. | |
(d) | Any indemnification under subsections (a) and (b) of this section (unless ordered by a court) shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the present or former director, officer, employee or agent is proper in the circumstances because the person has met the applicable standard of conduct set forth in subsections (a) and (b) of this section. Such determination shall be made, with respect to a person who is a director or officer at the time of such determination, (1) by a majority vote of the directors who are not parties to such action, suit or proceeding, even though less than a quorum, or (2) by a committee of such directors designated by majority vote of such directors, even though less than a quorum, or (3) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion, or (4) by the stockholders. | |
(e) | Expenses (including attorneys’ fees) incurred by an officer or director in defending any civil, criminal, administrative or investigative action, suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit or 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 such person is not entitled to be indemnified by the corporation as authorized in this section. Such expenses (including attorneys’ fees) incurred by former officers and directors or other employees and agents may be so paid upon such terms and conditions, if any, as the corporation deems appropriate. | |
(f) | The indemnification and advancement of expenses provided by, or granted pursuant to, the other subsections of this section shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such person’s official capacity and as to action in another capacity while holding such office. A right to indemnification or to advancement of expenses arising under a provision of the certificate of incorporation or a bylaw shall not be eliminated or impaired by an amendment to such provision after the occurrence of the act or omission that is the subject of the civil, criminal, administrative or investigative action, suit or proceeding for which indemnification or advancement of expenses is sought, unless the provision in effect at the time of such act or omission explicitly authorizes such elimination or impairment after such action or omission has occurred. | |
(g) | A corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person’s status as such, whether or not the corporation would have the power to indemnify such person against such liability under this section. | |
(h) | For purposes of this section, references to “the corporation” shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under this section with respect to the resulting or surviving corporation as such person would have with respect to such constituent corporation if its separate existence had continued. |
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(j) The indemnification and advancement of expenses provided by, or granted pursuant to, this section shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person.
(k) The Court of Chancery is hereby vested with exclusive jurisdiction to hear and determine all actions for advancement of expenses or indemnification brought under this section or under any bylaw, agreement, vote of stockholders or disinterested directors, or otherwise. The Court of Chancery may summarily determine a corporation’s obligation to advance expenses (including attorneys’ fees).
(i) | For purposes of this section, references to “other enterprises” shall include employee benefit plans; references to “fines” shall include any excise taxes assessed on a person with respect to any employee benefit plan; and references to “serving at the request of the corporation” shall include any service as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner such person reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner “not opposed to the best interests of the corporation” as referred to in this section. | |
(j) | The indemnification and advancement of expenses provided by, or granted pursuant to, this section shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. | |
(k) | The Court of Chancery is hereby vested with exclusive jurisdiction to hear and determine all actions for advancement of expenses or indemnification brought under this section or under any by law, agreement, vote of stockholders or disinterested directors, or otherwise. The Court of Chancery may summarily determine a corporation’s obligation to advance expenses (including attorneys’ fees). |
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers, and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment of expenses incurred or paid by a director, officer or controlling person in a successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to the court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
In accordance with Section 102(b)(7) of the DGCL, our secondthird amended and restated certificate of incorporation, as amended, will provide that no director shall be personally liable to us or any of our stockholders for monetary damages resulting from breaches of their fiduciary duty as directors, except to the extent such limitation on or exemption from liability is not permitted under the DGCL. The effect of this provision of our secondthird amended and restated certificate of incorporation, as amended, is to eliminate our rights and those of our stockholders (through stockholders’ derivative suits on our behalf) to recover monetary damages against a director for breach of the fiduciary duty of care as a director, including breaches resulting from negligent or grossly negligent behavior, except, as restricted by Section 102(b)(7) of the DGCL. However, this provision does not limit or eliminate our rights or the rights of any stockholder to seek non-monetary relief, such as an injunction or rescission, in the event of a breach of a director’s duty of care.
If the DGCL is amended to authorize corporate action further eliminating or limiting the liability of directors, then, in accordance with our secondthird amended and restated certificate of incorporation, as amended, the liability of our directors to us or our stockholders will be eliminated or limited to the fullest extent authorized by the DGCL, as so amended. Any repeal or amendment of provisions of our third amended and restated certificate of incorporation, as amended, limiting or eliminating the liability of directors, whether by our stockholders or by changes in law, or the adoption of any other provisions inconsistent therewith, will (unless otherwise required by law) be prospective only, except to the extent such amendment or change in law permits us to further limit or eliminate the liability of directors on a retroactive basis.
Our secondthird amended and restated certificate of incorporation, as amended, will also provide that we will, to the fullest extent authorized or permitted by applicable law, indemnify our current and former officers and directors, as well as those persons who, while directors or officers of our corporation, are or were serving as directors, officers, employees or agents of another entity, trust or other enterprise, including service with respect to an employee benefit plan, in connection with any threatened, pending or completed proceeding, whether civil, criminal, administrative or investigative, against all expense, liability and loss (including, without limitation, attorney’s fees, judgments, fines, ERISA excise taxes and penalties and amounts paid in settlement) reasonably incurred or suffered by any such person in connection with any such proceeding.
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Notwithstanding the foregoing, a person eligible for indemnification pursuant to our secondthird amended and restated certificate of incorporation, as amended, will be indemnified by us in connection with a proceeding initiated by such person only if such proceeding was authorized by our board of directors, except for proceedings to enforce rights to indemnification.
The right to indemnification which will be conferred by our secondthird amended and restated certificate of incorporation, as amended, is a contract right that includes the right to be paid by us the expenses incurred in defending or otherwise participating in any proceeding referenced above in advance of its final disposition, provided, however, that if the DGCL requires, an advancement of expenses incurred by our officer or director (solely in the capacity as an officer or director of our corporation) will be made only upon delivery to us of an undertaking, by or on behalf of such officer or director, to repay all amounts so advanced if it is ultimately determined that such person is not entitled to be indemnified for such expenses under our secondthird amended and restated certificate of incorporation, as amended, or otherwise.
The rights to indemnification and advancement of expenses will not be deemed exclusive of any other rights which any person covered by our secondthird amended and restated certificate of incorporation, as amended, may have or hereafter acquire under law, our third amended and restated certificate of incorporation, as amended, our bylaws, an agreement, vote of stockholders or disinterested directors, or otherwise.
Any repeal or amendment of provisions of our secondthird amended and restated certificate of incorporation, as amended, affecting indemnification rights, whether by our stockholders or by changes in law, or the adoption of any other provisions inconsistent therewith, will (unless otherwise required by law) be prospective only, except to the extent such amendment or change in law permits us to provide broader indemnification rights on a retroactive basis, and will not in any way diminish or adversely affect any right or protection existing at the time of such repeal or amendment or adoption of such inconsistent provision with respect to any act or omission occurring prior to such repeal or amendment or adoption of such inconsistent provision. Our secondthird amended and restated certificate of incorporation, as amended, will also permitspermit us, to the extent and in the manner authorized or permitted by law, to indemnify and to advance expenses to persons other thanthat those specifically covered by our secondthird amended and restated certificate of incorporation.incorporation, as amended.
Our bylaws, include the provisions relating to advancement of expenses and indemnification rights consistent with those which will be set forth in our secondthird amended and restated certificate of incorporation.incorporation, as amended. In addition, our bylaws provide for a right of indemnity to bring a suit in the event a claim for indemnification or advancement of expenses is not paid in full by us within a specified period of time. Our bylaws also permit us to purchase and maintain insurance, at our expense, to protect us and/or any director, officer, employee or agent of our corporation or another entity, trust or other enterprise against any expense, liability or loss, whether or not we would have the power to indemnify such person against such expense, liability or loss under the DGCL.
Any repeal or amendment of provisions of our bylaws affecting indemnification rights, whether by our board of directors, stockholders or by changes in applicable law, or the adoption of any other provisions inconsistent therewith, will (unless otherwise required by law) be prospective only, except to the extent such amendment or change in law permits us to provide broader indemnification rights on a retroactive basis, and will not in any way diminish or adversely affect any right or protection existing thereunder with respect to any act or omission occurring prior to such repeal or amendment or adoption of such inconsistent provision. We have entered
The registrant also intends to enter into indemnification agreements with eachits future directors and executive officers. The registrant has purchased directors’ and officers’ liability insurance. The registrant believes that this insurance is necessary to attract and retain qualified directors and officers.
Item 15. | Recent Sales of Unregistered Securities. |
The following is a summary of transactions by us since our inception on April 17, 2018 involving sales of our officers and directors. These agreements require us to indemnify these individuals tosecurities that were not registered under the fullest extent permitted under Delaware law against liabilities that may arise by reason of their service to us, and to advance expenses incurred as a result of any proceeding against them as to which they could be indemnified.Securities Act.
Item 15. Recent Sales of Unregistered Securities.
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On May 31, 2017, I-AMwe issued 1,437,500 founder sharesFounder Shares to the Sponsor in exchange for a capital contribution of $25,000. 137,500 of the founder shares were forfeited by the Sponsor uponUpon the partial exercise of the underwriters’ over-allotment option. The founder sharesoption on September 13, 2017, 137,500 Founder Shares were forfeited by the Sponsor, for a balance of 1,300,000 Founder Shares held by our Sponsor. Such securities were issued in connection with I-AM Capital’sour organization pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act. The SponsorOur sponsor is an accredited investor for purposes of Rule 501 of Regulation D. No underwriting discounts or commissions were paid with respect to such sales.
SimultaneouslyOn August 22, 2017, simultaneously with the consummation of the IPO and the sale of the public units, I-AM CapitalPublic Units, we consummated the private placement of 254,500 private placement unitsPrivate Placement Units at a price of $10.00 per unit, generating total gross proceeds of $2,545,000. Each unit consisted of (i) one share of Common Stock, (ii) one right receive one-tenth (1/10) of one share of Common Stock upon the consummation of an initial business combination, and (iii) one 5-year warrant to purchase one share of Common Stock at an exercise price of $11.50 per share. The private placement units,Private Placement Units, which were purchased by the Sponsor, are identical to the public units,Public Units, except the private placement warrantsPrivate Placement Warrants underlying the private placement unitsPrivate Placement Units will be non-redeemable and exercisable on a cashless basis so long as they are held by the Sponsor or its affiliates or designees. If the private placement unitsPrivate Placement Units are held by someone other than the initial holder, or its permitted transferees, the private placement warrantsPrivate Placement Warrants will be redeemable by us and exercisable by such holders on the same basis as the public warrants.Public Warrants. The issuance of the private placement unitsPrivate Placement Units was made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act.
On August 22, 2017, I-AM Capitalwe issued 50,000 shares of common stockCommon Stock to Maxim Group LLC in connection with its services as underwriter for the IPO. Such shares of common stockCommon Stock were issued pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act.
On September 13, 2017, simultaneously with the underwriter’s partial exercise of the over-allotment option, I-AM Capitalwe consummated the sale of an additional 7,000 private placement units,Private Placement Units, generating gross proceeds of $70,000. The issuance of additional private placement unitsPrivate Placement Units was made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act.
Item 16. Exhibits and Financial Statement Schedules.On September 13, 2018, we issued Maxim an additional 2,000 shares of our Common Stock upon partial exercise of the over-allotment. These shares were issued in reliance on Section 4(a)(2) of the Securities Act.
(a) Exhibits.On November 20, 2018, we issued 2,000,000 shares of our Common Stock to AHA Holdings Private Limited as an upfront portion of the Transferred Company Shares to be exchange for Additional Smaaash Shares within 6 months after the closing of the Business Combination. These shares were issued in reliance on Section 4(a)(2) of the Securities Act.
On November 20, 2018, we issued 208,000 shares of Common Stock to Chardan in consideration of services rendered. These shares were issued in reliance on Section 4(a)(2) of the Securities Act. The listshares issued to Chardan are subject to the same lock-up and will have the same registration rights as the shares of exhibits following the signature page of this registration statement is incorporated hereinCompany held by reference.the Sponsor.
(b) Financial Statements.On November 20, 2018, upon the consummation of the Business Combination with Smaaash Private, we issued 26,150 shares of Common Stock underlying the Private Placement Rights to the holders of the Private Placement Rights.
See page F-1 for an indexIn connection with the closing of the Acquisition of Simplicity Esports LLC, we issued 300,000, 700,000, and 2,000,000 shares of Common Stock, respectively, to the financial statements includedSimplicity Owners on January 4, 2019, January 7, 2019, and March 27, 2019 in exchange for all of the registration statement.issued and outstanding equity interest of Simplicity Esports LLC held by Simplicity Owners.
Item 17. Undertakings.On January 4, 2019, upon the closing of the Acquisition of Simplicity Esports LLC, the Series A-1 Note automatically converted into 193,648 shares of Common Stock.
In 2019, we sold an aggregate of 987,500 units at a purchase price of $2.00 per unit to 12 accredited investors in exchange for receipt of $1,975,000. Each unit consists of (i) one share of Common Stock, and (ii) a 5-year warrant to purchase one share of Common Stock at a purchase price of $4.00. We sold the Units in reliance on the exemption from registration afforded by Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D promulgated under the Securities Act.
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On March 27, 2019, pursuant to a Restricted Stock Award, we granted Jed Kaplan, our Chief Executive Officer and interim Chief Financial Officer and a member of our board of directors, 120,000 shares of our restricted Common Stock.Such shares vest over a nine month period. As of July 12, 2019, 50,000 of such shares have vested.
On March 27, 2019, pursuant to a Restricted Stock Award, we granted Roman Franklin, our President and a member of our board of directors, 36,000 shares of our restricted Common Stock. Such shares vest over a nine month period. As of July 12, 2019, 15,000 of such shares have vested.
On March 27, 2019, pursuant to a Restricted Stock Award, we granted Steve Grossman, President of Simplicity Esports, LLC, a wholly owned subsidiary of our company, 24,000 shares of our restricted Common Stock.Such shares vest over a nine month period. As of July 12, 2019, 10,000 of such shares have vested.
Each of the Restricted Stock Awards was entered into in connection with entry into employment agreements with each of Messrs. Kaplan, Franklin and Grossman on December 31, 2018. These shares were issued in reliance on Section 4(a)(2) of the Securities Act.
On May 31, 2019, we issued 100,000 shares of Common Stock to Polar in exchange for Polar Asset Management Partners Inc.’s (“Polar”) forgiveness of $143,476 owed by us to Polar under that that certain Stock Purchase Agreement, dated as of November 2, 2018, between Polar and us. These shares were issued in reliance on Section 4(a)(2) of the Securities Act.
Item 16. | Exhibits and Financial Statement Schedules |
(a) | Exhibits. The list of exhibits preceding the signature page of this registration statement is incorporated herein by reference. | |
(b) | Financial Statements. See page F-1 for an index to the financial statements and schedules included in the registration statement. |
Item 17. | Undertakings |
The undersigned registrant hereby undertakes as follows:undertakes:
(1) |
(i) | To include any prospectus required by Section 10(a)(3) of | |
(ii) | To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information |
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(iii) | To include any material information with respect to |
(2) |
(3) | ||
(4) | That, for |
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreements, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.
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EXHIBIT INDEX
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* Filed herewith
† Includes management contracts and compensation plans and arrangements
(1) | Incorporated by reference to exhibits to the Company’s Current Report on Form 8-K filed on November 30, 2018 |
(2) | Incorporated by reference to exhibits to the Company’s Registration Statement on Form S-1 filed on July 12, 2017 |
(3) | Incorporated by reference to exhibits to the Company’s Current Report on Form 8-K filed on August 22, 2017. |
(4) | Incorporated by reference to exhibits to Amendment No. 1 to the Company’s Registration Statement on Form S-1 filed on July 31, 2017 |
(5) | Incorporated by reference to exhibits to the Company’s Current Report on Form 8-K filed on May 9, 2018 |
(6) | Incorporated by reference to exhibits to Amendment No. 2 to the Company’s Registration Statement on Form S-1 filed on August 14, 2017 |
(7) | Incorporated by reference to exhibits to the Company’s Current Report on Form 8-K filed on November 7, 2018 |
(8) | Incorporated by reference to exhibits to the Company’s Current Report on Form 8-K filed on December 26, 2018 |
(9) | Incorporated by reference to exhibits to the Company’s Current Report on Form 8-K filed on December 28, 2018 |
(10) | Incorporated by reference to exhibits to the Company’s Current Report on Form 8-K filed on January 7, 2019. |
(11) | Incorporated by reference to exhibits to the Company’s Current Report on Form 8-K filed on April 2, 2019. |
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this Amendment No. 1 to Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, New York, on the 24th day of August, 2018.July 12, 2019.
By: | |||
Chief Executive Officer and (principal executive officer and principal financial officer) |
SIGNATURES AND POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature appears below constitutes and appoints F. Jacob Cherian and Suhel Kanuga, and each of them acting singly,Jed Kaplan his true and lawful attorney-in-fact, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities to sign any and all amendments including post-effective amendments to this registration statement and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact or his substitute may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act, this Amendment No. 1 to Registration Statement has been signed by the following persons in the capacities held on August 24, 2018.July 12, 2019.
Name | Position | Date | ||
/s/ | Chief Executive Officer, interim | July 12, 2019 | ||
Jed Kaplan | Chief Financial Officer, and Director (Principal Executive Officer and Principal Financial and Accounting Officer) |
/s/ Donald R. Caldwell | Chairman | July 12, 2019 | ||
Donald R. Caldwell | ||||
/s/ F. Jacob Cherian | Director | |||
F. Jacob Cherian | ||||
/s/ Suhel Kanuga | ||||
Suhel Kanuga | ||||
/s/ Roman Franklin | Director | |||
Roman Franklin | ||||
/s/ Max Hooper | Director | |||
Max Hooper | ||||
/s/ Frank Leavy | Director | |||
Frank Leavy | ||||
/s/ Edward | Director | |||
Edward | ||||
/s/ William H. Herrmann | Director | |||
William H. Herrmann |
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EXHIBIT INDEX
* To be filed by amendment