AERT 10-Q
Aeries Technology, Inc. (AERT)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(MARK ONE)
For the quarterly period ended
For the transition period from __________ to __________
Commission file number:
(Exact Name of Registrant as Specified in Its Charter)
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| The Stock Market | ||||
| The Stock Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
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 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 | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check mark 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 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
As of October 15, 2024, there were Class A ordinary shares, $0.0001 par value and 1 Class V ordinary share, $0.0001 par value, issued and outstanding.
AERIES TECHNOLOGY, INC.
FORM 10-Q
For the quarterly period ended June 30, 2024
TABLE OF CONTENTS
i
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements contained in this report may constitute “forward-looking statements” for purposes of the federal securities laws. Our forward-looking statements include, but are not limited to, statements regarding our or our management team’s expectations, hopes, beliefs, intentions or strategies regarding the future. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking.
The forward-looking statements contained in this report are based on current expectations and beliefs concerning future developments and their potential effects on us. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. The following factors, among others, could cause actual results and the timing of events to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:
| ● | the market opportunity of Aeries; | |
| ● | our ability to maintain the listing of the Class A ordinary shares and the warrants on Nasdaq, and the potential liquidity and trading of such securities; | |
| ● | our ability to recognize the anticipated benefits of the Business Combination, which may be affected by, among other things, competition, our ability to grow and manage growth profitably and retain our key employees; | |
| ● | our business development efforts to maximize our potential value and to retain and expand our customer base; | |
| ● | our estimates regarding expenses, future revenue, capital requirements and needs for additional financing; | |
| ● | our financial performance; | |
| ● | our ability to continue as a going concern; | |
| ● | the sufficiency of our existing cash and cash equivalents to fund our operating expenses and capital expenditure requirements; | |
| ● | our success in retaining or recruiting officers, key employees or directors, or any necessary changes to these positions; | |
| ● | changes in applicable laws or regulations in the United States and foreign jurisdictions; | |
| ● | our ability to develop and maintain effective internal controls; | |
| ● | risks related to cybersecurity and data privacy; | |
| ● | general economic and political conditions, such as the effects of the Russia-Ukraine and the Israel-Hamas conflicts, pandemics such as the COVID-19 outbreak, recessions, interest rates, inflation, local and national elections, fuel prices, international currency fluctuations, changes in diplomatic and trade relationships, political instability, acts of war or terrorism and natural disasters; and | |
| ● | other factors discussed in this report. |
Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. Some of these risks and uncertainties may be amplified in the future and there may be additional risks that we currently consider immaterial or which are unknown. It is not possible to predict or identify all such risks. We do not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
ii
PART 1 – INTERIM FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
AERIES TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
As of June 30, 2024 and March 31,2024
(in thousands of United States dollars, except share and per share amounts)
| |
|
JUNE 30, 2024 |
|
|
MARCH 31, 2024 |
| ||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net of allowance of $ |
||||||||
| Prepaid expenses and other current assets, net of allowance of $ |
||||||||
| Total current assets | $ | $ | ||||||
| Property and equipment, net | ||||||||
| Operating right-of-use assets | ||||||||
| Deferred tax assets | ||||||||
| Long-term investments, net of allowance of $ |
||||||||
| Other assets, net of allowance of $ |
||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND SHAREHOLDERS’ EQUITY (DEFICIT) | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued compensation and related benefits, current | ||||||||
| Operating lease liabilities, current | ||||||||
| Short-term borrowings | ||||||||
| Forward purchase agreement put option liability | ||||||||
| Other current liabilities | ||||||||
| Total current liabilities | $ | $ | ||||||
| Long term debt | ||||||||
| Operating lease liabilities, noncurrent | ||||||||
| Derivative warrant liabilities | ||||||||
| Deferred tax liabilities | ||||||||
| Other liabilities | ||||||||
| Total liabilities | $ | $ | ||||||
| Commitments and contingencies (Note 10) | ||||||||
| Redeemable noncontrolling interest | ||||||||
| Shareholders’ equity (deficit) | ||||||||
| Preference shares, $ par value; shares authorized; issued or outstanding | ||||||||
| Class A ordinary shares, $ par value; shares authorized; shares issued and outstanding as of June 30, 2024; shares issued and outstanding as of March 31, 2024 | ||||||||
| Class V ordinary shares, $ par value; share authorized, issued and outstanding | ||||||||
| Net shareholders’ investment and additional paid-in capital | ||||||||
| Accumulated other comprehensive loss | ( |
) | ( |
) | ||||
| Accumulated deficit | ( |
) | ( |
) | ||||
| Total Aeries Technology, Inc. shareholders’ deficit | $ | ( |
) | $ | ( |
) | ||
| Noncontrolling interest | ||||||||
| Total shareholders’ equity (deficit) | ( |
) | ||||||
| Total liabilities, redeemable noncontrolling interest and shareholders’ equity (deficit) | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
1
AERIES TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended June 30, 2024 and 2023
(in thousands of United States dollars, except share and per share amounts)
(Unaudited)
| Three Months Ended June 30, 2024 |
Three Months Ended June 30, 2023 |
|||||||
| Revenue, net | $ | $ | ||||||
| Cost of revenue | ||||||||
| Gross profit | ||||||||
| Operating expenses | ||||||||
| Selling, general & administrative expenses | ||||||||
| Total operating expenses | ||||||||
| Income from operations | ( |
) | ||||||
| Other income/ (expense) | ||||||||
| Change in fair value of forward purchase agreement put option liability | ( |
) | ||||||
| Change in fair value of derivative warrant liabilities | ||||||||
| Interest income | ||||||||
| Interest expense | ( |
) | ( |
) | ||||
| Other income/(expense), net | ( |
) | ||||||
| Total other income/(expense), net | ( |
) | ||||||
| Income/(loss) before income taxes | ( |
) | ||||||
| Income tax (expense) / benefit | ( |
) | ||||||
| Net income / (loss) | $ | ( |
) | $ | ||||
| Less: Net income / (loss) attributable to noncontrolling interests | ( |
) | ||||||
| Less: Net income attributable to redeemable noncontrolling interests | ||||||||
| Net income / (loss) attributable to shareholders’ of Aeries Technology, Inc. | $ | ( |
) | $ | ||||
| Weighted average shares outstanding of Class A ordinary shares, basic and diluted(1) | ||||||||
| Basic and Diluted net loss per Class A ordinary share(1) | $ | ) | ||||||
| (1) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
AERIES TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME / (LOSS)
For the three months ended June 30, 2024 and 2023
(in thousands of United States dollars, except share and per share amounts)
(Unaudited)
| Three Months Ended June 30, 2024 |
Three Months Ended June 30, 2023 |
|||||||
| Net income / (loss) | $ | ( |
) | $ | ||||
| Other comprehensive income / (loss), net of tax | ||||||||
| Foreign currency translation adjustments | ( |
) | ||||||
| Unrecognized actuarial gain / (loss) on employee benefit plan obligations | ( |
) | ( |
) | ||||
| Total other comprehensive loss, net of tax | ( |
) | ( |
) | ||||
| Comprehensive income / (loss), net of tax | $ | ( |
) | $ | ||||
| Less: Comprehensive income / (loss) attributable to noncontrolling interests | ( |
) | ||||||
| Less: Comprehensive income attributable to redeemable noncontrolling interests | ||||||||
| Total comprehensive income / (loss) attributable to shareholders’ of Aeries Technology, Inc. | $ | ( |
) | $ | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
AERIES TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE
NONCONTROLLING INTEREST AND SHAREHOLDERS’ EQUITY (DEFICIT)
For the three months ended June 30, 2024 and 2023
(in thousands of United States dollars except share and per share amounts)
(Unaudited)
| Redeemable | Ordinary Shares Class A/ | Ordinary Shares | Net shareholders’ investment and additional |
Accumulated other | Total Aeries Technology, Inc. | Total Shareholders’ |
||||||||||||||||||||||||||||||||||||||
| noncontrolling | Common shares | Class V | paid-in | Accumulated | comprehensive | shareholders | Noncontrolling | Equity | ||||||||||||||||||||||||||||||||||||
| interest | Shares | Amount | Shares | Amount | Capital | deficit | loss | deficit | interest | (deficit) | ||||||||||||||||||||||||||||||||||
| Balance as at April 1, 2024 | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | $ | ( |
) | ||||||||||||||||||||||||||||
| Net loss for the period prior to share exchange | - | - | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||
| Other comprehensive loss for the period prior to share exchange | - | - | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||
| Issuance of Class A ordinary shares with respect to share exchange agreement | - | ( |
) | |||||||||||||||||||||||||||||||||||||||||
| Issuance of Class A ordinary shares in connection with private placement | - | |||||||||||||||||||||||||||||||||||||||||||
| Settlement of accounts payable through issuance of Class A ordinary shares | - | |||||||||||||||||||||||||||||||||||||||||||
| Stock based compensation | - | |||||||||||||||||||||||||||||||||||||||||||
| Net income / (loss) for the period post share exchange | - | - | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||
| Other comprehensive loss for the period post share exchange | ( |
) | - | - | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||
| Balance as at June 30, 2024 | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | $ | ||||||||||||||||||||||||||||||
Ordinary Shares Class A/ Common stock |
Net stockholders’ investment and Additional paid-in |
Retained | Accumulated
other comprehensive |
Total
Aark Singapore Pte.Ltd.’s stockholders’ |
Noncontrolling | Total stockholders’ |
||||||||||||||||||||||||||
| Shares* | Amount | Capital | earnings | loss | equity | Interest | equity | |||||||||||||||||||||||||
| Balance as of April 1, 2023 | $ | $ | $ | $ | ( |
) | $ | $ | $ | |||||||||||||||||||||||
| Transition period adjustment pursuant to ASC 326, net of tax | - | ( |
) | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||
| Adjusted Balance as of April 1, 2023 | ( |
) | ||||||||||||||||||||||||||||||
| Net income for the period | - | |||||||||||||||||||||||||||||||
| Other comprehensive loss | - | ( |
) | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||||||||||
| Net changes in net stockholders’ investment | - | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||||
| Balance as of June 30, 2023 | $ | $ | $ | $ | ( |
) | $ | $ | $ | |||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
AERIES TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended June 30, 2024, and 2023
(in thousands of United States dollars except share and per share amounts)
(Unaudited)
| Three Months Ended June 30, 2024 |
Three Months Ended June 30, 2023 |
|||||||
| Cash flows from operating activities | ||||||||
| Net income / (loss) | $ | ( |
) | $ | ||||
| Adjustments to reconcile net income / (loss) to net cash (used in) / provided by operating activities: | ||||||||
| Depreciation and amortization expense | ||||||||
| Stock-based compensation expense | ||||||||
| Deferred tax (benefit) / expense | ( |
) | ||||||
| Accrued income from long-term investments | ( |
) | ( |
) | ||||
| Provision for expected credit loss | ||||||||
| Profit on sale of property and equipment | ( |
) | ||||||
| Sundry balances written back | ( |
) | ||||||
| Change in fair value of forward purchase agreement put option liability | ( |
) | ||||||
| Change in fair value of derivative warrant liabilities | ||||||||
| Loss on issuance of shares against accounts payable | ||||||||
| Unrealized exchange (gain) / loss | ( |
) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( |
) | ||||||
| Prepaid expenses and other current assets | ( |
) | ( |
) | ||||
| Operating right-of-use assets | ( |
) | ||||||
| Other assets | ( |
) | ( |
) | ||||
| Accounts payable | ( |
) | ||||||
| Accrued compensation and related benefits, current | ( |
) | ( |
) | ||||
| Other current liabilities | ||||||||
| Operating lease liabilities | ( |
) | ||||||
| Other liabilities | ||||||||
| Net cash (used in) / provided by operating activities | ( |
) | ||||||
| Cash flows from investing activities | ||||||||
| Acquisition of property and equipment | ( |
) | ( |
) | ||||
| Sale of property and equipment | ||||||||
| Issuance of loans to affiliates | ( |
) | ( |
) | ||||
| Payments received for loans to affiliates | ||||||||
| Net cash used in investing activities | ( |
) | ( |
) | ||||
| Cash flows from financing activities | ||||||||
| Net proceeds from short term borrowings | ( |
) | ||||||
| Payment of insurance financing liability | ( |
) | ||||||
| Proceeds from long-term debt | ||||||||
| Repayment of long-term debt | ( |
) | ( |
) | ||||
| Payment of finance lease obligations | ( |
) | ( |
) | ||||
| Payment of deferred transaction costs | ( |
) | ( |
) | ||||
| Net changes in net shareholders’ investment | ( |
) | ||||||
| Proceeds from issuance of Class A ordinary shares, net of issuance cost | ||||||||
| Net cash provided by financing activities | ||||||||
| Effect of exchange rate changes on cash and cash equivalents | ( |
) | ||||||
| Net increase in cash and cash equivalents | ||||||||
| Cash and cash equivalents at the beginning of the period | ||||||||
| Cash and cash equivalents at the end of the period | $ | $ | ||||||
| Supplemental cash flow disclosure: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes, net of refunds | $ | $ | ||||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Unpaid deferred transaction costs included in accounts payable and other current liabilities | $ | $ | ||||||
| Equipment acquired under finance lease obligations | $ | $ | ||||||
| Property and equipment purchase included in accounts payable | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
AERIES TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of United States dollars except share and per share amounts)
(Unaudited)
Note 1- Nature of Operations
Unless the context otherwise requires, Aeries Technology, Inc. (formerly Worldwide Webb Acquisition Corp. (“WWAC”), formed in the Cayman Islands on March 5, 2021) and its subsidiaries, excluding the fintech and investing business activities, is herein referred to as the “Company”, “ATI”, the “registrant”, “us,” “we” and “our” in these consolidated financial statements. Aark Singapore Pte. Ltd., a Singapore private company limited by shares (“AARK”) and its subsidiaries, excluding the fintech and investing business activities, is herein referred to as the “Carve-out Entity”. The Company is a global provider of professional and management services and technology consulting, specializing in the establishment and management of dedicated delivery centers known as “Global Capability Centers” (“GCCs”) for portfolio companies of private equity firms and mid-market enterprises. Our engagement models are designed to provide a mix of deep vertical specialty, functional expertise, and digital systems and solutions to scale, optimize and transform a client’s business operations. The Company has subsidiaries in India, Mexico, Singapore, UAE and the United States.
Demerger and Business Combination
On March 11, 2023, WWAC entered into a Business Combination Agreement (as amended, the “Merger Agreement”) with WWAC Amalgamation Sub Pte. Ltd., a Singapore private company limited by shares and a direct wholly-owned subsidiary of WWAC (“Amalgamation Sub”), and AARK. Pursuant to the Merger Agreement, Amalgamation Sub and AARK amalgamated and continued as one company, with AARK being the surviving entity, and as a result thereof, Aeries Technology Group Business Accelerators Pvt. Ltd., an Indian private company limited by shares became an indirect subsidiary of WWAC (the “Amalgamation” and, together with the other transactions contemplated by the Merger Agreement, the “Business Combination”). Following the closing of the Business Combination, WWAC changed its corporate name to Aeries Technology, Inc.
AARK was engaged in management consulting, fintech and investing business. However, only the management consulting business was subject to the Merger Agreement and therefore in connection with the Business Combination, AARK entered into a Demerger Agreement with Aarx Singapore Pte. Ltd. and their respective shareholders on March 25, 2023 to spin off the fintech business which was a part of AARK but not subject to the Merger Agreement. Subsequently, the board of directors of AARK ratified two resolutions on May 24, 2023. These resolutions effectively spun off the investing business which was part of AARK but not subject to the Merger Agreement. These transactions will collectively be referred to as “Demerger Transactions”.
Pursuant to the Merger Agreement, all AARK ordinary shares that were issued and outstanding prior to the effective time of the Amalgamation remained issued and outstanding following the Amalgamation and continued to be held by the former sole shareholder of AARK. The Company issued a Class V ordinary share to NewGen Advisors and Consultants DWC-LLC (“NewGen”). NewGen is a business associate of Mr. Raman Kumar (the “Former AARK Sole Shareholder”). NewGen has agreed to hold the Class V ordinary share to protect the interest of the Former AARK Sole Shareholder, in the event of certain extraordinary events as described in ATI’s amended and restated memorandum and articles of association, including a hostile takeover or the appointment or removal of directors at ATI level. While the Class V ordinary share does not carry any direct economic rights, it does carry voting rights equal to 1.3% which will ratchet up to 51% voting rights upon occurrence of the extraordinary events described above at the ATI level. All of the shares of Amalgamation Sub that were issued and outstanding as of the transaction date were converted into a number of newly issued AARK ordinary shares. In accordance with principles of Financial Accounting Standards Board’s Accounting Standards Codification Topic 805, Business Combinations (“ASC 805”) and based on the economic interest held by the shareholders post the transaction as well as the underlying rights, it was assessed that AARK is the accounting acquirer and WWAC is the accounting acquiree. The Business Combination closed on November 6, 2023 (“Closing Date”) and resulted in ATI owning
6
Reverse Recapitalization
As mentioned above – Demerger and Business Combination, the Business Combination was closed on November 6, 2023 and has been accounted for as a reverse recapitalization because AARK has been determined to be the accounting acquirer under ASC 805 based on the evaluation of the following facts and circumstances taken into consideration:
| ● | The Former AARK Sole Shareholder, who controlled AARK prior to the Business Combination, will retain a majority of the outstanding shares of ATI after giving effect to the Exchange Agreements. The Exchange Agreements are further discussed in Note 10; |
| ● | AARK has the ability to elect a majority of the members of ATI’s governing body; |
| ● | AARK’s executive team makes up the executive team of ATI; |
| ● | AARK represents an operating entity (group) with operating assets, revenues, and earnings significantly larger than WWAC. |
Under a reverse recapitalization, while ATI was the legal acquirer, it has been treated as the “acquired” company for financial reporting purposes. Accordingly, for accounting purposes, the Business Combination was treated as the equivalent of pre-combination AARK issuing stock for the net assets of ATI, accompanied by a recapitalization. The net assets of ATI have been stated at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the Business Combination are those of pre-combination AARK and relate to the management consulting business.
Immediately following the Business Combination, there were Class A ordinary shares outstanding with a par value of $. Additionally, there were Private Placement Warrants (defined below) and Public Warrants (defined below) outstanding with a right to purchase
Upon closing of the Business Combination, the total number of ATI’s Class A ordinary shares issued and outstanding was . Further, certain Class A ordinary shareholders entered into non-redemption agreements executed on November 3, 2023 and November 5, 2023, to reverse redemptions for an aggregate of 1,652,892 Class A ordinary shares while waiving their right to receive any “Bonus Shares” issued under the Merger Agreement. In connection with the closing, holders of Class A ordinary shares of ATI were redeemed at a price per share of approximately $10.69. AARK incurred approximately $
The number of Class A ordinary shares issued and outstanding immediately following the consummation of the Business Combination were:
| Public Shareholders (Redeemable Class A ordinary shares), including Bonus Shares(1) | ||||
| Shares held by Worldwide Webb Acquisition Sponsor, LLC (the “Sponsor”) and other initial holders(2)(3) | ||||
| Shares held by Innovo Consultancy DMCC(4) | ||||
| Shares held by FPA (as defined below) Holders(5) | ||||
| Total(6) |
| (1) | |
| (2) |
7
| (3) | |
| (4) | |
| (5) | |
| (6) |
As a result of the Business Combination, the Company’s Class A ordinary shares trades under the ticker symbol “AERT” and its public warrants (the “Public Warrants”) trade under the ticker symbol “AERTW” on the Nasdaq Stock Market. Prior to the consummation of the Business Combination, the Company’s Class A ordinary shares were traded on Nasdaq Stock Market under the symbol “WWAC.”
Note 2 - Summary of Significant Accounting Policies
Basis of Preparation
The information presented below supplements the Significant Accounting Policies information presented in the annual report on Form 10-K for the year ended March 31, 2024. There have been no changes in accounting policies during the three months ended June 30, 2024, from those disclosed in the annual consolidated financial statements and related notes for the year ended March 31, 2024, except for those described below and also as described in “Recently Adopted Accounting Pronouncements” below.
All intercompany balances and transactions have been eliminated in consolidation.
Periods prior to demerger transactions
These condensed consolidated financial statements were extracted from the accounting records of AARK on a carve-out basis prior to May 24, 2023, including interim period ended December 31, 2022, i.e., these condensed consolidated financial statements exclude the financial results of the fintech and investing businesses that are unrelated to the merger with ATI pursuant to the Merger Agreement. The condensed consolidated financial statements have been derived from the historical accounting records of Aark Singapore Pte. Ltd., Aeries Technology Group Business Accelerators Pvt Ltd. (“ATGBA”), its subsidiaries and controlled trust. Only those assets and liabilities that are specifically identifiable to the management consultancy business activities are included in the Company’s condensed consolidated balance sheets. The Company’s condensed consolidated statements of operations and comprehensive income consist of all the revenue and expenses of the management consultancy business activities, excluding allocations of certain expenses of the excluded fintech and investing business activities. These allocations were based on methodologies that management believes to be reasonable; however, amounts derecognized by the Carve-out Entity are not necessarily representative of the amounts that would have been reflected in the condensed consolidated financial statements had the excluded businesses operated independently of the Carve-out Entity.
The condensed consolidated financial statements for the period prior to the Demerger Transactions exclude the following: (a) cash and cash equivalents that were utilized solely to fund activities undertaken by the investing business of AARK, (b) long-term debt and related interest payable/expense that were solely related to financing of the fintech and investing businesses, (c) amounts due from related parties related to the fintech and investing businesses, (d) investments made by the investing business, (e) trade and other receivables of the fintech business, and (f) revenue, cost of sales, other income, advisory fees, bank charges and withholding taxes attributable to the fintech and investing businesses and allocations of certain expenses of the excluded businesses; these allocations were based on methodologies that management believes to be reasonable; however, amounts derecognized by AARK are not necessarily representative of the amounts that would have been reflected in the condensed consolidated financial statements had the excluded businesses operated independently of AARK.
8
Differences between allocations in the condensed consolidated statements of operations and condensed consolidated balance sheets are reflected in equity as a part of “Net shareholders’ investment and additional paid-in-capital” in the condensed consolidated financial statements.
Non-controlling interests represent the equity interest not owned by the Company and are recorded for condensed consolidated entities in which the Company owns less than 100% of the interests. Changes in a parent’s ownership interest while the parent retains its controlling interest are accounted for as equity transactions.
Periods after the Demerger Transactions
Beginning May 25, 2023 and for the interim period ended June 30, 2024, following the demerger of the fintech and investing businesses, the condensed consolidated financial statements of ATI have been prepared from the financial records of Aark Singapore Pte. Ltd., ATGBA, its subsidiaries and controlled trust on a condensed consolidated basis.
Emerging Growth Company
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it 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 attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.
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 Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that an emerging growth 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. 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. This may make comparison of the Company’s condensed consolidated 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.
Going Concern
The accompanying unaudited condensed consolidated financial statements have been prepared using the going concern basis of accounting, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The going concern basis of presentation assumes that the Company will continue in operation one year after the date these financial statements are issued and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business.
For the three months ended June 30, 2024, the Company has reported a net loss. This may raise a substantial doubt regarding the Company’s ability to continue as a going concern for at least 12 months from the date when these financial statements are available to be filed with the SEC. As at June 30, 2024 the Company had a balance of $
The Company has historically financed its operations and expansions with cash generated from operations, a revolving credit facility from Kotak Mahindra Bank, and loans from related parties. Management expects to have sufficient cash from the operations, cash reserves and debt capacity for the next 12 months and for the foreseeable future to finance our operations, our growth, expansion plans.
9
The Company’s ability to continue as a going concern is dependent upon, among other things, successfully executing our mitigation plan, which includes, (i) raising additional funds from existing or new credit facilities, (ii) raising funds through FPAs or private placements, and (iii) restructure the current liabilities into equity or long-term liabilities. The Company is hopeful of accomplishing its objectives through these measures in the anticipated time frame and also expects that the funds available through the above-mentioned arrangements will be sufficient to alleviate the doubts about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary if the Company is unable to continue as a going concern.
These financial statements have been prepared on a going concern basis, which assumes that the Company will continue to operate for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of business.
Use of Estimates
The preparation of condensed consolidated financial statements in accordance with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods. Significant items subject to such estimates and assumptions include, but are not limited to, revenue recognition, allowance for credit losses, stock-based compensation, fair valuation of FPA put option liabilities and private warrant liabilities, useful lives of property and equipment, accounting for income taxes, determination of incremental borrowing rates used for operating lease liabilities and right-of-use assets, obligations related to employee benefits and carve-out of financial statements, including the allocation of assets, liabilities and expenses. Management believes that the estimates and judgments upon which it relies, are reasonable based upon information available to the Company at the time that these estimates and judgments were made. Actual results could differ from those estimates.
Segment Reporting
The Company operates as one operating segment. The Company’s chief operating decision maker is its chief executive officer, who reviews financial information presented on a consolidated basis for the purposes of making operating decisions, assessing financial performance and allocating resources.
Forward Purchase Agreement
On November 3, 2023, and November 5, 2023, WWAC entered into Forward Purchase Agreements with Sandia Investment Management LP, Sea Otter Trading, LLC, YA II PN, Ltd and Meteora Capital Partners, LP (collectively known as “FPA holders”) for an over-the-counter (OTC) Equity Prepaid Forward Transaction. A Subscription Agreement (the “Subscription Agreement”) was also executed alongside the FPA for subscription of the underlying FPA shares by the FPA holders either through a new issuance or purchase of shares from existing holders (“Recycled Shares”). The FPAs and Subscription Agreements have been accounted for separately as discussed subsequently.
The FPAs stipulate a new issuance of Class A ordinary shares to the FPA holders at the redemption price (i.e., $10.69 per share) and, purchase of Recycled Shares through redemption reversals. The amount to be received by ATI from the FPA holders on such issuance of around 3,711,667, shares, are held with the FPA holders as prepaid with respect to the forward transaction. Pursuant to the FPA, ATI was obligated to pay a prepayment amount of $
| ● | $ |
| ● | $ |
10
At the end of the contract period of one year, for each unsold share held by the FPA holders, ATI is obligated to pay FPA holders an amount of $
The Optional Termination Right held by the FPA holders economically results in the prepaid forward contract being akin to a written put option with the FPA holders’ right to sell all or a portion of the Class A ordinary shares to ATI. ATI is entitled over the 12-month maturity period to either a return of the prepayment or the underlying shares, which the FPA holders will determine at their sole discretion depending on the movement in ATI’s stock price.
On April 8, 2024, the Company completed a Private Investment in Public Equity (“PIPE”) transaction, with the Class A ordinary shares quoted at approximately $2.21 per share at that time. The Company has Forward Purchase Agreements with Sandia Investment Management LP, Sea Otter Trading, LLC, YA II PN, Ltd, and Meteora Capital Partners, LP (collectively, the “FPA Holders”). These agreements contain a price reset feature that allows for adjustments to the share price based on certain predefined conditions, including those triggered by the PIPE transaction. As of the reporting date, this price reset feature was activated, resulting in a new share price of $2.21 per share for the over-the-counter (OTC) Equity Prepaid Forward Transaction.
This adjustment has implications for the fair value of the derivative liability initially recorded on the balance sheet. Future fluctuations in this fair value will be recognized in earnings. For more details, please refer to Note 13: Fair Value Measurement
The FPAs consist of two freestanding financial instruments that are accounted for as follows:
| 1) | The total prepayment of $42,760 (“Prepayment Amount”) which includes a net cash outflow of $3,083 as discussed above. The Prepayment Amount has been accounted for as a reduction to equity to reflect the substance of the overall arrangement as a net repurchase of the Recycled Shares and sale of newly issued shares to the FPA holders pursuant to a subscription agreement without receipt of the underlying consideration of $39,678. |
| 2) | The “FPA Put Option” includes both the in-substance written put option and the expected Maturity Consideration. The FPA Put Option is a derivative instrument that the Company has recorded as a liability and measured at fair value in accordance with ASC 480-10. The instrument is subject to remeasurement at each balance sheet date, with changes in fair value recognized in the condensed consolidated statements of operations. See Note 13. |
Derivative Financial Instruments and FPA Put Option Liability
The Company accounts for the Warrants (defined below) in accordance with the guidance contained in ASC 815-40 under which the Instruments (as defined below) do not meet the criteria for equity treatment and must be recorded as liabilities. The Company accounts for the FPA put option liability as a financial liability in accordance with the guidance in ASC 480-10. Warrants and FPA are collectively referred as the “Instruments”. The Instruments are subjected to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in the Company’s condensed consolidated statement of operations. See Note 11 for further discussion of the pertinent terms of the Warrants and Note 13 for further discussion of the methodology used to determine the value of the Warrants and FPA.
In December 2023, the Company settled vendor balances mounting to $ owed to certain vendors by issuing Class A ordinary shares. If the volume weighted average price (“VWAP”) of the Class A ordinary shares over the three trading days immediately preceding the agreement date is higher than the VWAP over the three trading days immediately preceding the six-month anniversary from the agreement date, additional Class A ordinary shares of ATI would need to be issued for the difference. This represents a derivative financial instrument written by the Company which has been accounted for in accordance with the guidance contained in ASC 815-40 including subsequent re-measurement at fair value with the changes being recognized in Company’s condensed consolidated statement of operations.
11
For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value at inception and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative liabilities are classified in the condensed consolidated balance sheets as current or noncurrent based on whether or not net-cash settlement or conversion of the instrument could be required within 12 months of the balance sheet date.
Fair Value Measurements
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value should maximize the use of observable inputs and minimize the use of unobservable inputs. Assets and liabilities recorded at fair value in the condensed consolidated financial statements are categorized based upon the level of judgment associated with the inputs used to measure their fair value.
Hierarchical levels which are directly related to the amount of subjectivity associated with the inputs to the valuation of these assets or liabilities are as follows:
Level 1 – Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.
Level 2 – Inputs that are observable, either directly or indirectly. Such prices may be based upon quoted prices for identical or comparable securities in active markets or inputs not quoted on active markets but corroborated by market data.
Level 3 – Unobservable inputs that are supported by little or no market activity and reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.
A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
Fair Value of Financial Instruments
Except for the Warrants and FPA as described above, the fair value of the Company’s assets and liabilities, which qualify as financial instruments under the Financial Accounting Standards Board (the “FASB”) ASC 820, “Fair Value Measurements and Disclosures,” approximates the carrying amounts represented in the condensed consolidated balance sheets.
Cash and Cash Equivalents
Cash consists of the Company’s cash and bank balances. The Company considers cash equivalents to be highly liquid investments with original maturities of three months or less.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to credit risk consist primarily of cash and cash equivalents, accounts receivable, loans to affiliates, and investments. The Company holds cash at financial institutions that the Company believes are high credit quality financial institutions and limits the amount of credit exposure with any one bank and conducts ongoing evaluations of the creditworthiness of the banks with which it does business. As of June 30, 2024 and March 31, 2024, there was one customer that represented 10% or greater of the Company’s accounts receivable balance. The Company expects limited credit risk arising from its long-term investments as these primarily entail investments in the Company’s affiliates that have a credit rating that is above the minimum allowable credit rating defined in the Company’s investment policy. As a part of its risk management process, the Company limits its credit risk with respect to long-term investments by performing periodic evaluations of the credit standing of counterparties to its investments.
12
In respect of the Company’s revenue, there were four and three customers that each accounted for more than
| Three Months Ended June 30, |
||||||||
| 2024 | 2023 | |||||||
| Customer 1 | % | % | ||||||
| Customer 2 | % | % | ||||||
| Customer 3 | % | % | ||||||
| Customer 4 | % | n/a | ||||||
Accounts receivable, net
The Company records a receivable when an unconditional right to consideration exists, such that only the passage of time is required before payment of consideration is due. Timing of revenue recognition may differ from the timing of invoicing to customers. If revenue recognized on a contract exceeds the billings, then the Company records an unbilled receivable for that excess amount, which is included as part of accounts receivable, net in the Company’s condensed consolidated balance sheets.
Prior to the Company’s adoption of ASU 2016-13, Topic 326 Financial Instruments – Credit Losses (“Topic 326”), the accounts receivable balance was reduced by an allowance for doubtful accounts that was determined based on the Company’s assessment of the collectability of customer accounts. Under Topic 326, accounts receivable are recorded at the invoiced amount, net of allowance for credit losses. The Company regularly reviews the adequacy of the allowance for credit losses based on a combination of factors. In establishing any required allowance, management considers historical losses adjusted for current market conditions, the current receivables aging, current payment terms and expectations of forward-looking loss estimates. Allowance for credit losses was $
The following tables provides details of the Company’s allowance for credit losses (in thousands):
| Three months Ended June 30, |
||||||||
| 2024 | 2023 | |||||||
| Opening balance as of April 1 | $ | $ | ||||||
| Transition period adjustment on accounts receivables (through retained earnings) pursuant to ASC 326 | ||||||||
| Adjusted balance as of April 1 | $ | $ | ||||||
| Additions charged to cost and expense | ||||||||
| Closing balance as of June 30 | $ | $ | ||||||
Long-Term Investments
The Company’s long-term investments consist of debt and non-marketable equity investments in privately held companies in which the Company does not have a controlling interest or significant influence, which have maturities in excess of one year and the Company does not intend to sell.
Debt investments of mandatorily redeemable preference shares, which are classified as held-to-maturity since the Company has the intent and contractual ability to hold these securities to maturity. These investments are reported at amortized cost and are subject to an ongoing impairment evaluation. Income from these investments is recorded in “Interest income” in the condensed consolidated statements of operations.
13
Under Topic 326, expected credit losses are recorded and reduced from the amortized cost of the held-to-maturity securities. Expected credit losses for long-term investments are calculated using a probability of default method. Credit losses are recorded within “Selling, general & administrative expenses” in the condensed consolidated statements of operations when an event or circumstance indicates a decline in value has occurred. Allowance for credit losses was $
The following tables provides details of the Company’s allowance for credit losses:
| Three months Ended June 30, |
||||||||
| 2024 | 2023 | |||||||
| Opening balance as of April 1 | $ | $ | ||||||
| Transition period adjustment on long term investments (through retained earnings) pursuant to ASC 326 | ||||||||
| Adjusted balance as of April 1 | $ | $ | ||||||
| Additions charged to change in provision for credit losses | ( |
) | ||||||
| Closing balance as of June 30 | $ | $ | ||||||
The Company includes these long-term investments in “Long-term investments” on the condensed consolidated balance sheets.
Basic net loss per share is computed by dividing income/(loss) available to ordinary shareholders by the weighted-average number of common shares outstanding during the period. Diluted net loss per share is computed using the weighted-average number of common and potential dilutive common shares outstanding during the period. The Company has not considered the effect of the Warrants sold in its initial public offering (the “Initial Public Offering”) and private placement to purchase ordinary shares, and impact of FPA put option liability in the calculation of diluted net loss per share, since the instruments are not dilutive.
Recent Accounting Pronouncements Adopted
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (“Topic 326”): Measurement of Credit Losses on Financial Instruments. Topic 326 requires measurement and recognition of expected credit losses for financial assets measured at amortized cost as well as certain off balance sheet commitments (loan commitments, standby letters of credit, financial guarantees, and other similar instruments). The Company had an off-balance sheet guarantee at the April 1, 2023 adoption date (see Note 10 – Commitment and Contingencies). The expected credit loss for this guarantee was estimated using the probability of default method. The Company adopted ASU 2016-13 on April 1, 2023 using a modified retrospective approach. Results for reporting periods beginning April 1, 2023 are presented under Accounting Standards Codification (“ASC”) 326 while prior period amounts continue to be reported in accordance with previously applicable US GAAP.
Expense related to credit losses is classified within “Selling, general & administrative expenses” in the condensed consolidated statements of operations.
Recent Accounting Pronouncements not yet Adopted
In August 2020, the FASB issued a new standard (ASU 2020-06) to reduce the complexity of accounting for convertible debt and other equity-linked instruments. For certain convertible debt instruments with a cash conversion feature, the changes are a trade-off between simplifications in the accounting model (no separation of an “equity” component to impute a market interest rate, and simpler analysis of embedded equity features) and a potentially adverse impact to diluted EPS by requiring the use of the if-converted method. The new standard will also impact other financial instruments commonly issued by both public and private companies. For example, the separation model for beneficial conversion features is eliminated simplifying the analysis for issuers of convertible debt and convertible preferred stock. Also, certain specific requirements to achieve equity classification and/ or qualify for the derivative scope exception for contracts indexed to an entity’s own equity are removed, enabling more freestanding instruments and embedded features to avoid mark-to-market accounting. The new standard is effective for companies that are SEC filers (except for Smaller Reporting Companies) for fiscal years beginning after December 31, 2021 and interim periods within that year, and two years later for other companies. Companies can early adopt the standard at the start of a fiscal year beginning after December 15, 2020. The standard can either be adopted on a modified retrospective or a full retrospective basis. The Company is currently reviewing the issued standard and does not believe it will materially impact the Company.
14
In October 2023, the FASB issued ASU 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative, which amends the disclosure or presentation requirements related to various subtopics in the FASB Accounting Standards Codification (the “Codification”). The effective date for each amendment will be the date on which the SEC’s removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited. If by June 30, 2027, the SEC has not removed the applicable requirement from Regulation S-X or Regulation S-K, the pending content of the related amendment will be removed from the Codification and will not become effective for any entity. The Company is in the process of evaluating the Impact of the amendments this ASU will have on the financial statements and related disclosures.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740) Improvements to Income Tax Disclosures, which requires public entities to disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold on an annual basis. ASU 2023-09 is effective for the Company for the fiscal year ended March 31, 2025. The Company is currently evaluating the effect of the update.
In March 2024, FASB issued ASU No. 2024-01, Compensation-Stock Compensation (“ASC Topic 718”) Scope Application of Profits Interests and Similar Awards was issued to address diversity in practice in determining whether profits interests and similar awards should be accounted for in accordance with Topic 718 or Topic 710. The update doesn’t change the scope for either Topic 718 or Topic 710; however, it provides implementation guidance and examples to assist entities in determining if profits interests or similar awards are within the scope of Topic 718. The ASU will be effective for annual periods beginning from April 1, 2025, including interim periods within those years. The Company is currently evaluating the impact of this ASU on its unaudited consolidated financial statements.
The Company is currently evaluating the effect of the updates.
Note 3 - Short-term borrowings
| June 30, 2024 |
March 31, 2024 |
|||||||
| Short-term borrowings | $ | $ | ||||||
| Current portion of vehicle loan | ||||||||
| $ | $ | |||||||
In May 2023, the Company amended its revolving credit facility (“Amended Credit Facility”), whereby the total borrowing capacity was increased from INR
Prior to the Closing Date, WWAC modified the terms of payment owed to Shearman & Sterling LLP, a multinational law firm providing legal consultancy services to WWAC. This resulted in a reduction in the total amount owed by WWAC to Shearman & Sterling LLP from $4,800 of accounts payable to $4,000 promissory note, payable in four equal tranches. Subsequently, the promissory note was amended upon payment of $1,500, wherein the balance $2,500 was promised to be paid in two equal tranches. $2,500 owed to Sherman & Sterling LLP has been disclosed as short-term debt, as ATI has an unconditional obligation to settle it within a period of less than twelve months from June 30, 2024.
For additional information on the vehicle loan see Note 4 – Long-term debt.
15
Note 4 - Long-term debt
Long-term debt consists of the following:
|
June 30, 2024 |
March 31, 2024 |
|||||||
| Loan from the director of ATGBA | $ | $ | ||||||
| Loan from an affiliate | ||||||||
| Non-current portion of vehicle loan | ||||||||
| $ | $ | |||||||
For additional information on the loan from the director of ATGBA, Mr. Vaibhav Rao, to a subsidiary company and loan from an affiliate, see Note 8 – Related Party Transactions - point (g) and (d), respectively.
Vehicle loan
On December 7, 2022, the Company entered into a vehicle loan, secured by the vehicle, for INR 11,450 (or approximately $
As of June 30, 2024, the future maturities of debt by fiscal year are as follows:
| 2025 | $ | |||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Total future maturities of debt | $ |
Note 5 - Revenue
Disaggregation of Revenue
The Company presents and discusses revenues by customer location. The Company believes this disaggregation best depicts how the nature, amount, timing and uncertainty of our revenues and cash flows are affected by industry, market and other economic factors.
The following table shows the disaggregation of the Company’s revenues by major customer location. Revenues are attributed to geographic regions based upon billed client location. Substantially all of the revenue in our North America region relates to operations in the United States.
| Three Months Ended June 30, |
||||||||
| 2024 | 2023 | |||||||
| North America | $ | $ | ||||||
| Asia Pacific and Other | ||||||||
| Total revenue | $ | $ | ||||||
16
Contract balances
Contract assets comprise amounts where the Company’s right to bill is contingent on something other than the passage of time. As of June 30, 2024 and March 31, 2024, the Company’s contract assets were $
Contract liabilities, or deferred revenue, comprise amounts collected from the Company’s customers for revenues not yet earned and amounts which are anticipated to be recorded as revenues when services are performed. The amount of revenue recognized in the three months ended June 30, 2024 and 2023 that was included in deferred revenue at the beginning of each period was $
As of June 30, 2024 and March 31, 2024 the Company’s deferred revenue was $
Note 6 - Employee Compensation and Benefits
The Company has employee benefit plans in the form of certain statutory and other programs covering its employees.
Defined Benefit Plan - Gratuity
The Company’s subsidiaries in India have defined benefit plans comprising of gratuity under Payments of Gratuity Act, 1972 covering eligible employees in India. The present value of the defined benefit obligations and other long-term employee benefits is determined based on actuarial valuation using the projected unit credit method. The rate used to discount defined benefit obligation is determined by reference to market yields at the balance sheet date on Indian government bonds for the estimated term of obligations.
Actuarial gains or losses arising on account of experience adjustment and the effect of changes in actuarial assumptions are initially recognized in the condensed consolidated statements of comprehensive income, and the unrecognized actuarial loss is amortized to the condensed consolidated statements of operations over the average remaining service period of the active employees expected to receive benefits under the plan.
Changes in “Other comprehensive income/ (loss)” during the three months ended June 30, 2024 and 2023 were as follows:
| Three Months Ended June 30, |
||||||||
| 2024 | 2023 | |||||||
| Net actuarial loss | $ | $ | ||||||
| Amortization of net actuarial loss | ( |
) | ( |
) | ||||
| Deferred tax benefit | ( |
) | ( |
) | ||||
| Unrecognized actuarial loss on employee benefit plan obligations | $ | $ | ||||||
Net defined benefit plan costs for the three months ended June 30, 2024 and 2023 include the following components:
| Three Months Ended June 30, |
||||||||
| 2024 | 2023 | |||||||
| Service costs | $ | $ | ||||||
| Interest costs | ||||||||
| Amortization of net actuarial loss | ||||||||
| Net defined benefit plan costs | $ | $ | ||||||
17
Note 7 - Income Taxes
The Company determines its tax provision for interim periods using an estimate of its annual effective tax rate adjusted for discrete items, if any, that are considered in the relevant period. The Company updated its estimate of the annual effective tax rate, and if its estimated tax rate changes, the Company will be making a cumulative adjustment.
The Company’s effective tax rate (“ETR”) is
The change in ETR was primarily due to significant increase in recognition of deferred tax benefit on losses in certain subsidiaries having a lower jurisdictional tax rates along with a reduction in taxable income resulting in lower current tax during the three months ended June 30, 2024, as compared to the three months ended June 30, 2023.
Note 8 - Related Party Transactions
| Name of the related party | Relationship | |
Summary of significant transactions and balances due to and from related parties are as follows:
| Three Months Ended June 30, |
||||||||
| 2024 | 2023 | |||||||
| Cost sharing arrangements | ||||||||
| Aeries Financial Technologies Private Limited (b) | ||||||||
| Bhanix Finance And Investment Limited (b) | ||||||||
| Corporate guarantee commission | ||||||||
| Bhanix Finance And Investment Limited | ||||||||
| Corporate guarantee expense | ||||||||
| Aeries Technology Products And Strategies Private Limited (j) | ||||||||
| Interest expense | ||||||||
| Aeries Technology Products And Strategies Private Limited (d) | ||||||||
| Mr. Vaibhav Rao (g) | ||||||||
| Interest income | ||||||||
| Aeries Financial Technologies Private Limited (f), (h) | ||||||||
| Aeries Technology Products And Strategies Private Limited (e), (h) | ||||||||
| Legal and professional fees paid | ||||||||
| Ralak Consulting LLP (c) | ||||||||
| Management consultancy service | ||||||||
| Aark II Pte Limited (a) | ||||||||
| Office management and support services expense | ||||||||
| Aeries Technology Products And Strategies Private Limited (i) | ||||||||
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| June 30, | March 31, | |||||||
| 2024 | 2024 | |||||||
| Accounts payable | ||||||||
| Aeries Technology Products And Strategies Private Limited (i) | $ | $ | ||||||
| Accounts receivable | ||||||||
| Aark II Pte Limited (a) | ||||||||
| Aeries Financial Technologies Private Limited (b) | ||||||||
| Bhanix Finance And Investment Limited (b) | ||||||||
| TSLC Pte Limited (a) | ||||||||
| Interest payable (classified under other current liabilities) | ||||||||
| Aeries Technology Products And Strategies Private Limited (d) | ||||||||
| Interest receivable (classified under prepaid expenses and other current assets) | ||||||||
| Aeries Technology Products And Strategies Private Limited (e) | ||||||||
| Investment in 0.001% Series-A Redeemable preference share | ||||||||
| Aeries Financial Technologies Private Limited (h) | ||||||||
| Investment in 10% Cumulative redeemable preference shares | ||||||||
| Aeries Technology Products And Strategies Private Limited (h) | ||||||||
| Loan from Members of immediate families of Venu Raman Kumar | ||||||||
| Mr. Vaibhav Rao (g) | ||||||||
| Loans from affiliates | ||||||||
| Aeries Technology Products and Strategies Private Limited (d) | ||||||||
| Loans to affiliates (classified under other assets) | ||||||||
| Aeries Financial Technologies Private Limited (f) | ||||||||
| Aeries Technology Products And Strategies Private Limited (e) | ||||||||
| (a) | |
| (b) | |
| (c) | |
| (d) | |
| (e) | |
| (f) | |
| (g) | |
| (h) | |
| (i) | |
| (j) |
The Company has also executed two Exchange Agreements: (1) with AARK and Mr. Raman Kumar in his capacity as a shareholder of AARK; and (2) with ATGBA and Mr. Sudhir Appukuttan Panikassery, Mr. Ajay Khare, and Mr. Unnikrishnan Balakrishnan Nambiar, key managerial personnel of ATGBA in their capacity as shareholders of ATGBA (together referred to as “counterparties”). Under the Exchange Agreements, the counterparties would have a right to exchange the shares held by them in AARK or ATGBA into shares of ATI or cash subject to the conditions specified in the Exchange Agreement. Refer Note 10 for details. Additionally, pursuant to the Business Combination, 5,638,530 Class A ordinary shares have been issued to Innovo Consultancy DMCC, which is wholly owned by Mr. Kumar.
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Note 9 - Stock-Based Compensation
Aeries Technology, Inc. 2023 Equity Incentive Plan
The board of directors of WWAC approved the Aeries Technology, Inc. 2023 Equity Incentive Plan (the “Plan”) on March 11, 2023, subject to approval by WWAC’s shareholders’. The Plan was approved by WWAC’s shareholders on November 2, 2023 and the Plan became effective upon the consummation of the Business Combination. The maximum number of Class A ordinary shares that may be issued under the Plan may not exceed Class A ordinary shares, subject to certain adjustments set forth in the Plan.
Pursuant to the Plan, Company granted Mr. Sudhir Appukuttan Panikassery an option to purchase on or prior to the expiration date, June 7, 2034, all or part of 5,151,005 Class A ordinary shares, par value $0.0001 per share. The option was fully vested and exercisable on the grant date, June 8, 2024. The entire option was exercised on June 25, 2024. Accordingly, the Company recorded stock-based compensation expense of $7,314 within “Selling, general & administrative expenses” in the Condensed Consolidated statements of operations.
Restricted Share Unit Award
Compensation cost for stock awards, which include restricted stock units (“RSUs”), is measured at the fair value on the grant date and recognized as expense, net of estimated forfeitures. The fair value of stock awards is based on the quoted price of our common stock on the grant date. We measure the fair value of RSUs using fair value of our quoted stock due to grant date and vesting date being same. Compensation cost for RSUs is recognized on a straight line over vesting period.
The following table summarizes the activities for vested RSUs for the quarter ending June 30, 2024:
| Restricted Stock Units | ||||||||
| Number of Shares |
Grant Date Fair Value |
|||||||
| Unvested as of April 1, 2024 | ||||||||
| Granted | $ | |||||||
| Vested | ( |
) | $ | |||||
| Forfeited / Canceled | ||||||||
| Unvested as of June 30, 2024 | ||||||||
The fair value of RSUs granted during the three months ended June 30, 2024 and 2023, as of the grant date and vesting date (i.e. May 22, 2024), was $5,432 and $0, respectively.
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Aeries Employees Stock Option Plan, 2020
On August 1, 2020, ATGBA’s board of directors approved and executed the Aeries Employees Stock Option Plan (“ESOP”), which was subsequently amended on July 22, 2022. Under ESOP, the company has authorized to grant up to options to eligible employees in one or more tranches. The company granted options to eligible employees during the year ended March 31, 2023.
The options issued under the ESOP generally are subject to service conditions. The service condition is typically one year. The stock-based compensation expense is recognized in the condensed consolidated statements of comprehensive income using the straight-line attribution method over the requisite service period.
The following table summarizes the ESOP stock option activity for the three months ended June 30, 2024:
| Shares | Weighted average exercise price |
Weighted-average remaining contractual term (in years) |
Aggregate intrinsic value |
|||||||||||||
| Options outstanding at April 1, 2024 | $ | - | $ | |||||||||||||
| Options granted | - | - | - | |||||||||||||
| Options exercised | - | - | ||||||||||||||
| Options canceled, forfeited or expired | - | - | - | |||||||||||||
| Options outstanding at June 30, 2024 | $ | $ | ||||||||||||||
| Vested and exercisable at June 30, 2024 | $ | $ | ||||||||||||||
Aeries Management Stock Option Plan, 2019
On September 23, 2019, ATGBA’s board of directors approved and executed the Aeries Management Stock Option Plan 2019 (“MSOP”), which was subsequently amended on December 31, 2022. Under MSOP, ATGBA has authorized to grant up to options to eligible employees in one or more tranches.
The options issued under the MSOP generally are subject to both service and performance conditions. The service condition is typically one year, and the performance conditions are based on the condensed consolidated revenue and adjusted profit before tax of ATGBA. The stock-based compensation expense is recognized in the condensed consolidated statements of comprehensive income using the straight-line attribution method over the requisite service period if it is probable that the performance target will be achieved.
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The following table summarizes the MSOP stock option activity for the three months ended June 30, 2024:
| Shares | Weighted average exercise price |
Weighted-average remaining contractual term (in years) |
Aggregate intrinsic value |
|||||||||||||
| Options outstanding at April 1, 2024 | $ | - | $ | |||||||||||||
| Options granted | - | - | - | - | ||||||||||||
| Options exercised | - | - | - | - | ||||||||||||
| Options canceled, forfeited or expired | - | - | - | - | ||||||||||||
| Options outstanding at June 30, 2024 | $ | $ | ||||||||||||||
| Vested and exercisable at June 30, 2024 | $ | $ | ||||||||||||||
The Company uses the BSM option-pricing model to determine the grant-date fair value of stock options. The determination of the fair value of stock options on the grant date is affected by the estimated underlying share price, as well as assumptions regarding a number of complex and subjective variables. These variables include expected stock price volatility over the term of the awards, actual and projected employee stock option exercise behaviors, risk-free interest rates, and expected dividends. The grant date fair value of the Company’s stock options granted to employees were estimated using the Black-Scholes option-pricing model with the following weighted average assumptions:
| 2022 Grants |
||||
| Expected term | years | |||
| Expected volatility | % | |||
| Risk free interest rate | % | |||
| Annual dividend yield | % | |||
During the three months ended June 30, 2024, and 2023, the Company recorded stock-based compensation expense of $
As of June 30, 2024, there was
Note 10 - Commitments and Contingencies
Corporate Guarantees
The Company had an outstanding guarantee of INR (approximately $
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Indemnification obligations
In the normal course of business, the Company is a party to a variety of agreements under which it may be obligated to indemnify the other party for certain matters. These obligations typically arise in contracts where the Company customarily agrees to hold the other party harmless against losses arising from a breach of representations or covenants for certain matters, infringement of third-party intellectual property rights, data privacy violations, and certain tortious conduct in the course of providing services. The duration of these indemnifications varies, and in certain cases, is indefinite.
The Company is unable to reasonably estimate the maximum potential amount of future payments under these or similar agreements due to the unique facts and circumstances of each agreement and the fact that certain indemnifications provide for no limitation to the maximum potential future payments under the indemnification. Management is not aware of any such matters that would have a material effect on the condensed consolidated financial statements of the Company.
Legal Proceedings
From time to time, the Company may be involved in proceedings and litigation, claims and other legal matters arising in the ordinary course of business. Some of these claims, lawsuits, and other proceedings may involve highly complex issues that are subject to substantial uncertainties, and could result in damages, fines, penalties, nonmonetary sanctions, or relief. Management is not currently aware of any material pending legal proceedings, except for ordinary routine litigation incidental to the business, in which we or any of our subsidiaries are involved, or where our property is subject to such proceedings.
Exchange Agreements
Upon consummation of the Business Combination, the holders of AARK ordinary shares and ATGBA ordinary shares each entered into the Exchange Agreements. Pursuant to the Exchange Agreements, from and after the date of the Exchange Agreements and prior to April 1, 2024 and subject to certain exercise conditions, each holder of AARK ordinary shares and ATGBA ordinary shares may exchange up to 20% of the number of AARK ordinary shares and ATGBA ordinary shares, as applicable, held by such holder for Class A ordinary shares of the Company or cash, in each case as provided in the Exchange Agreements. From and after April 1, 2024 and subject to certain exercise conditions, the Company shall have the right to acquire all of the AARK or ATGBA ordinary Share for Class A ordinary shares or cash. In addition, after April 1, 2024 and subject to certain exercise condition, each shareholder of ATGBA and AARK ordinary shares shall have the right to require the Company to provide Class A ordinary shares or cash in exchange for up to all of the AARK or ATGBA ordinary share. Each share of AARK may be exchanged for 2,246 Class A ordinary shares the Company and each ATGBA ordinary share may be exchanged for 14.40 Class A ordinary shares of the Company, in each case subject to certain adjustments. The cash exchange payment may only be elected in the event approval from the Reserve Bank of India is not obtained for exchange of shares and provided that the Company has reasonable cash flow to be able to pay the cash exchange payment and such payment would not be prohibited by any then outstanding debt agreements or arrangements of the Company.
Class A ordinary shares issuance to certain vendors
As set out in the section on Derivative Financial Instruments and FPA Put Option Liability under Note 2, in December 2023, ATI settled the amounts owed to certain vendors by issuance of Class A ordinary shares. If the VWAP of the Class A ordinary shares over the three trading days immediately preceding the agreement date is higher than the VWAP over the three trading days immediately preceding the six-month anniversary from the agreement date, ATI would need to issue additional Class A ordinary shares for the difference.
This represents a derivative financial instrument, fair value of which as at June 30, 2024 has been assessed to be insignificant. Refer Note 13 for details on Fair Value Measurements.
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Note 11 - Warrant Liabilities
On October 22, 2021, pursuant to
The Company accounted for the Warrants in accordance with the guidance contained in ASC 815-40 given that certain provisions within the warrant agreement either preclude the warrants from being considered indexed to the ATI’s own stock or the fixed-for-fixed option criteria are not met. On this basis the Public and Private Placement Warrants are classified as a liability and are measured at fair value. This liability is subject to re-measurement at each balance sheet date. With each such re-measurement, the warrant liability will be adjusted to fair value, with the change in fair value recognized in the Company’s condensed consolidated statement of operations.
Each whole Warrant entitles the holder thereof to purchase one Class A ordinary share of the Company, par value $0.0001 per share, for $
the Company may redeem the outstanding Warrants:
| ● | in whole and not in part; |
| ● | at a price of $0.01 per Public Warrant; |
| ● | upon not less than 30 days’ prior written notice of redemption to each Warrant holder; and |
| ● | if, and only if, the last reported sales price of the Class A ordinary shares for any 20 trading days within a 30-trading day period ending on third trading day prior to the date on which the Company sends the notice of redemption to the Warrant holders (the “Reference Value”) equals or exceeds $ |
The Company may also redeem the outstanding Warrants:
| ● | in whole and not in part; |
| ● | at $0.10 per warrant |
| ● | upon a minimum of 30 days’ prior written notice of redemption provided that holders will be able to exercise their warrants on a cashless basis prior to redemption and receive that number of shares based on the redemption date and the fair market value of the Class A ordinary shares; |
| ● | if, and only if, the Reference Value equals or exceeds $10.00 per Class A ordinary share (as adjusted); provided that if the Reference Value equals or exceeds $ |
No fractional Class A ordinary shares will be issued upon redemption. If, upon redemption, a holder would be entitled to receive a fractional interest in a share, the Company will round down to the nearest whole number of the number of Class A ordinary shares to be issued to the holder.
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Note 12 - Redeemable Noncontrolling Interest and Shareholders’ Equity (Deficit)
The condensed consolidated statements of changes in Redeemable Noncontrolling Interest and Shareholders’ Equity (Deficit) reflect the reverse recapitalization and Business Combination as mentioned in Note 1, on Demerger and Business Combination, and Reverse Recapitalization. As AARK was deemed to be the acquirer in the Business Combination, all periods prior to the completion of the Business Combination reflect the balances and activity of AARK. The consolidated balances as of March 31, 2023 from the audited financial statements of AARK as of that date, share activity (Class A ordinary shares) and per share amounts in the condensed consolidated statement of change in shareholders’ equity (deficit) were not retroactively adjusted given that the exchange of all the shares held by the owners of AARK as contemplated under the Exchange Agreements as set out in Note 10 has not been completed.
Preference shares
The Company is authorized to issue shares of preference shares, par value $ per share, with such designations, voting and other rights and preferences as may be determined from time to time by the Company’s board of directors. As of June 30, 2024, there were no shares of preference shares issued or outstanding.
Class A ordinary shares
The Company is authorized to issue Class A ordinary shares with a par value of $ per share. As of June 30, 2024, there were Class A ordinary shares issued and outstanding, including Class A ordinary shares subject to the FPAs. Each Class A ordinary share carries one vote and entitles the shareholders’ to ratable rights in dividends and distributions as well as in the event of liquidation.
Class V ordinary shares
The Company is authorized to issue Class V ordinary share with a par value of $ per share. As of June 30, 2024, there was Class V ordinary share issued and outstanding. The Class V share does not carry any direct economic rights in dividends and other distributions or in an event of liquidation. It does carry voting rights equal to 1.3% which will ratchet up to 51% voting rights upon occurrence of “extraordinary events” at the ATI level.
Common stock
Pre-combination AARK had only one class of ordinary shares having no par value. Holders of ordinary shares were entitled to one vote per share held. As of June 14, 2023 (immediately prior to the effective date of a stock split), there were ordinary shares outstanding, and the number of ordinary shares outstanding after a stock split was . As a result of stock split, AARK’s shares were retroactively restated as if the transaction occurred at the beginning of the earliest periods presented. Consequently, as of April 1 2023 and 2022, the AARK’s ordinary shares consisted of shares, all of which were issued and fully paid. Upon the liquidation, dissolution or winding up of AARK, ordinary shareholders were entitled to receive a ratable share of the available net assets of AARK after payment of all debts and other liabilities. The ordinary shares had no preemptive, subscription, redemption or conversion rights.
Equity financing
On April 8, 2024, the Company entered into a private placement transaction (the “Private Placement”), pursuant to a Share Subscription Agreement (the “Subscription Agreement”) with an institutional accredited investor (the “Investor”) for aggregate gross proceeds of $
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As of the closing of the Private Placement, the Company issued an aggregate of Class A ordinary shares at a purchase price of $ per share and reserved 320,820 Class A ordinary shares in adherence to the Beneficial Ownership Limitation. On July 10, 2024, the Company issued an additional shares from the previously reserved shares.
Exchange Pursuant to Exchange Agreement
Upon consummation of the Business Combination, the holders of AARK ordinary shares and ATGBA ordinary shares each entered into the Exchange Agreements. Pursuant to the Exchange Agreements, from the date of the Exchange Agreements and after April 1, 2024, and subject to certain exercise condition, each shareholder of AARK ordinary shares shall have the right to require the Company to provide Class A ordinary shares or cash in exchange for up to all of the AARK ordinary share. Each share of AARK may be exchanged for Class A ordinary shares the Company subject to certain adjustments.
Pursuant to the Exchange Agreements, on April 5, 2024,
Shares issued to vendors
In December 2023, ATI settled the amounts owed to certain vendors by issuance of Class A ordinary shares. If the VWAP of the Class A ordinary shares over the three trading days immediately preceding the agreement date is higher than the VWAP over the three trading days immediately preceding the six-month anniversary from the agreement date, ATI would need to issue additional Class A ordinary shares for the difference.
Pursuant to the abovementioned clause, the Company has issued in total Class A ordinary shares to the vendors on May 24, 2024.
Redeemable noncontrolling interest
As of June 30, 2024, the prior investors of AARK owns
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Note 13 - Fair Value Measurements
As of June 30, 2024, the Company had financial instruments which were measured at fair value on a recurring basis using significant unobservable inputs (Level 3). Significant changes in the inputs could result in a significant change in the fair value measurements. See each respective footnote for information on the assumptions used in calculating the fair value of financial instruments.
The following tables present information about the Company’s liabilities that are measured at fair value on a recurring basis as of June 30, 2024 and March 31, 2024, including the fair value hierarchy of the valuation techniques that the Company utilized to determine such fair value.
Summary of Liabilities Measured at Fair Value on a Recurring Basis
| June 30, 2024 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Liabilities: | ||||||||||||||||
| Forward Purchase Agreement put option liability | $ | $ | $ | $ | ||||||||||||
| Public Warrants | ||||||||||||||||
| Private Placement Warrants | ||||||||||||||||
| Total liabilities | $ | $ | $ | $ | ||||||||||||
| March 31, 2024 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Liabilities: | ||||||||||||||||
| Forward Purchase Agreement put option liability | $ | $ | $ | $ | ||||||||||||
| Public Warrants | ||||||||||||||||
| Private Placement Warrants | ||||||||||||||||
| Total liabilities | $ | $ | $ | $ | ||||||||||||
The change in the fair value of the forward purchase agreement put option liability of $
The valuation of the forward purchase agreement put option liability was made using the following assumptions as of June 30, 2024:
| Expected Term (Years) | ||||
| Risk free Interest Rate | % | |||
| Volatility | % | |||
| Reference Price for one Class A ordinary share | $ |
| Note: | The private placement announced and completed on April 8, 2024. Quoted share price of Class A ordinary shares of the Company when PIPE (Private Investment in Public Entity) transaction took place was $2.21 approx. |
Given that the Public Warrants have a listed price available, the Company classified them as Level 1. The Company has classified the privately placed warrants within Level 3 of the hierarchy as the fair value derived using the Black-Scholes option pricing model, which uses a combination of observable (Level 2) and unobservable (Level 3) inputs. There were no transfers between fair value levels during the three months ended June 30, 2024.
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The valuation of the liability for the Private Placement Warrants was made using the following assumptions as of June 30, 2024:
| Term (years) | ||||
| Risk-free interest rate | % | |||
| Stock price at measurement date | $ |
The following table presents a summary of the changes in the fair value of Derivative Liabilities:
| Forward Purchase Agreement Put Option Liability |
Public Warrant Liability |
Private Placement Liability |
Total | |||||||||||||
| Fair value at April 1, 2024 | $ | $ | $ | $ | ||||||||||||
| Change in fair value (gain) / loss | ( |
) | ( |
) | ( |
) | ||||||||||
| Fair value as of June 30, 2024 | $ | $ | $ | $ | ||||||||||||
Based on the expected VWAP as at inception as well as June 30, 2024 it is not expected that ATI would be required to issue additional Class A ordinary shares to certain vendors. On this basis, fair value of the derivative financial instrument representing ATI’s obligation to issue additional Class A ordinary shares has been determined to be insignificant on initial recognition as well as at June 30, 2024 and accordingly the quantitative disclosures in relation to the fair value have not been provided.
Basic consolidated net loss per share (“EPS”) is calculated using the Company’s share of its subsidiaries earnings/ net loss as well as ATI stand-alone earnings/ net loss and the weighted number of shares outstanding during the reporting period. Diluted consolidated EPS includes the dilutive effect of vested and unvested stock options of the Company’s subsidiaries.
The Company analyzed the calculation of net loss per share for periods prior to the Business Combination on November 6, 2023 and determined that it resulted in values that would not be meaningful to the users of the condensed consolidated financial statements, as the capital structure completely changed as a result of the Business Combination. Therefore, net loss per share information has not been presented for periods prior to the Business Combination.
The Company’s Class V ordinary share does not participate in the earnings or losses of the Company and are therefore not participating securities. As such, separate presentation of basic and diluted net loss per Class V ordinary share under the two-class method has not been presented.
The following table sets forth the computation of basic and diluted net loss per share for the period from April 1, 2024 through June 30, 2024 (in thousands, except share and per share amounts):
| Numerator: | ||||
| Net Loss attributable to controlling interest for the period from April 1, 2024 through June 30, 2024 | $ | ( |
) | |
| Denominator: | ||||
| Weighted average shares outstanding of Class A ordinary shares, basic and diluted for the period from April 1, 2024 through June 30, 2024 | ||||
| Net earnings per share Ordinary Shares – Basic and Diluted | $ | ) |
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Note 16 - Subsequent Events
Notice from The Nasdaq Stock Market LLC
On September 5, 2024, the Company received a notice from The Nasdaq Stock Market LLC (“Nasdaq”) notifying the Company that, the Company did not comply with Nasdaq Listing Rule 5250(c)(1), because the Company had not filed its Form 10-K for the fiscal year ended March 31, 2024 (the “Form 10-K”) and Form 10-Q for the period ended June 30, 2024 (the “Form 10-Q”), respectively. The Company filed the Form 10-K on September 27, 2024, and thus the Company has partially regained compliance with the rule. Further, based on further review and the materials submitted on September 30, 2024 by the Company, Nasdaq has granted additional time until October 15, 2024, for the Company to file the Form 10-Q and regain full compliance with the rule.
Change of Auditors
On August 11, 2024, the Audit Committee of the Board of Directors of the Company approved the dismissal of, and dismissed, KNAV CPA LLP (“KNAV”) as the Company’s independent registered public accounting firm. KNAV was the independent registered public accounting firm of the Company since February 1, 2024. Prior to the completion of the Company’s business combination with AARK, KNAV had been the independent registered public accounting firm of AARK since 2022.
On the same day, the Audit Committee appointed Manohar Chowdhry & Associates (“MCA”) as the successor independent registered public accounting firm. MCA will serve as the Company’s independent registered public accounting firm for the fiscal years ended March 31, 2024 and 2023.
Equity financing
On April 8, 2024, the Company entered into a private placement transaction, pursuant to a Share Subscription Agreement with an institutional accredited investor for aggregate gross proceeds of $
As of the closing of the Private Placement, the Company issued an aggregate of Class A ordinary shares at a purchase price of $ per share. The Company reserved Class A ordinary shares in adherence to the Beneficial Ownership Limitation. On July 10, 2024, the Company issued an additional shares from the previously reserved shares.
Shares issued to vendors
In September 2024, the Company issued Class A ordinary shares and Class A ordinary shares, each valued on the relevant dates of the respective agreements, to two separate vendors, as compensation for their respective services.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis together with our condensed consolidated financial statements and the related notes included elsewhere in this Form 10-Q. Among other things, the condensed consolidated financial statements include more detailed information regarding the basis of presentation for the financial data than included in the following discussion.
In addition to historical information, the following discussion contains forward-looking statements, including, but not limited to, statements regarding our expectations for future performance, liquidity and capital resources that involve risks, uncertainties and assumptions that could cause actual results to differ materially from our expectations. Our actual results may differ materially from those contained in or implied by any forward-looking statements. Factors that could cause such differences include those identified below and those described under “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements,” discussed in this quarterly report and our Annual Report on Form 10-K for the fiscal year ended March 31,2024. You should consider these factors carefully in evaluating forward-looking statements and are cautioned not to place undue reliance on such statements, which speak only as of the date of this quarterly report. It is impossible for us to predict new events or circumstances that may arise in the future or how they may affect us. Unless otherwise required by law, we undertake no obligation to update forward looking statements to reflect events or circumstances occurring after the date of this quarterly report.
Unless the context otherwise requires, references in this section to “we,” “us,” “our,” “Aeries,” “Aeries Technology,” and “the Company” refer to the business and operations of AARK and its consolidated subsidiaries prior to the Business Combination (excluding the associated legacy financial technology and investing business activities) and to Aeries Technology, Inc. and its consolidated subsidiaries, following the consummation of the Business Combination.
Overview
Aeries Technology is a global provider of professional and management services and technology consulting, specializing in the establishment and management of dedicated delivery centers known as “Global Capability Centers” (“GCCs”) for portfolio companies of private equity firms and mid-market enterprises. Our engagement models are designed to provide a mix of deep vertical specialty, functional expertise, and digital systems and solutions to scale, optimize and transform a client’s business operations. By leveraging AI, implementing process improvements, and recruiting talent in cost-effective geographies, we are positioned to deliver significant cost savings to our clients. With over a decade of experience, we are committed to delivering transformative business solutions that drive operational efficiency, innovation, and strategic growth.
We support and drive our clients’ global growth by providing a range of services, including professional advisory services and operations management services, to build and manage GCCs in suitable and cost-effective locations based on client business needs. With a focus towards digital enterprise enablement, these GCCs are designed to act as seamless extensions of the client organization, providing access to top-tier resources. We believe this empowers our clients to remain competitive and nimble and to achieve their goals of enduring cost efficiencies, operational excellence, and value creation, without sacrificing functional control and flexibility.
Our advisory services involve the active participation of senior leadership, recommending strategies and best practices related to operating model design, consultation on various areas, market availability for resources with appropriate skillsets required for specific roles contemplated in the service model, regulatory compliance, optimization of tax structure, and more. Our clients can customize the services based on options we provide, and we subsequently firm up the execution plan with the clients.
A key aspect of our service is our focus on digital transformation. We aim to leverage cutting-edge technologies, including AI, to drive innovation and streamline operations. Our technology services are designed to enhance decision-making, automate processes, and deliver significant business value. We believe this approach through GCC set-up improves operational efficiencies, enabling us to deliver digital transformation services that align with our clients’ growth strategies and support their competitiveness in an evolving digital landscape.
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Our clients also use our services to manage their organizational operations, including software development, information technology, data analytics, cybersecurity, finance, human resources, customer service and operations. We hire appropriate talent and personnel on our payroll for deployment on client operations. We work with our clients collaboratively to select the appropriate candidates and create functional alignment with the clients’ organizations. While our talent becomes an extension of our clients’ team, Aeries continues to provide them with the opportunity for promotion, recognition and career path progression, which we believe results in higher employee satisfaction and lower voluntary attrition rates. We manage the regulatory, tax, recruiting, human resources compliance and branding for each of our GCCs.
Our purpose-built business model aims to create a more flexible and cost-effective talent pool for deployment on clients’ operations, while fostering innovation through strategic alignment at senior levels and visibility across the organization. The model also aims to insulate our clients from regulatory and tax issues and provides flexibility in scaling teams up or down based on their changing business needs. We are committed to delivering best practices and success factors by leveraging our visibility into successful strategies from multiple companies, addressing many of the deficiencies associated with the traditional outsourcing and offshoring models.
As of June 30, 2024, Aeries had more than 30 clients spanning across industry segments, including companies in the industries of e-commerce, telecom, security, healthcare, engineering and others.
Key Factors Affecting Performance and Comparability
Market Opportunity
Our current markets are North America, Asia Pacific, and the Middle East, with a primary focus on the United States. Within these regions we are focused on two primary areas, the private equity ecosystem and the mid-market enterprises.
Companies are looking out for service providers who not only have the experience and expertise in providing the right-sized solution in this age of ever shortening business cycles but also a trusted partner with a transparent engagement model to lead the customers through the digital transformation journey. Aeries’ model is purpose-built to provide this experience, expertise and transparent engagement model to accelerate and enhance our clients’ businesses.
Private Markets
As private market investing evolves and the landscape of venture-backed and late-stage private growth companies transforms, our service offerings will adapt accordingly, aligning with the shifting dynamics of potential investors and portfolio companies seeking our expertise. While periods of macroeconomic growth in the United States, particularly in private equity markets, typically foster an upsurge in overall investment activity, any economic slowdowns, downturns, or volatility in the broader market and private equity landscape could potentially dampen this growth momentum.
Macro-economic headwinds
Our operational performance is influenced by prevailing economic conditions, including macroeconomic conditions, the overall inflationary climate, and business sentiment. During the three months ended June 30, 2024, there was persistent economic and geopolitical uncertainty in many markets around the world, including concerns over wage inflation, the potential of decelerating global economic growth, and increased volatility in foreign currency exchange rates. These factors have impacted and may continue to impact our business operations.
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Customer Retention and Early Termination of Long-Term Contracts
Maintaining long-term customer relationships is important to our business, as a significant portion of our revenue is derived from these contracts. Although we have auto-renewal service agreements with clients, they may choose to terminate or not renew, in which case they must provide a notice period, typically ranging from 90 to 180 days, and pay a termination fee based on the commercial margin if termination occurs without cause. There is an increasing likelihood that clients may choose to terminate our service agreements after we have established and operated delivery centers for them, as it becomes more feasible and cost-efficient for them to take over. While the above-described contractual provisions provide some financial protection, the termination fee may not fully offset the long-term revenue loss, and replacing clients can be challenging due to the lengthy customer acquisition cycle. To mitigate this risk, we focus on maintaining strong relationships, expanding our customer base, diversifying service offerings, and delivering high-quality service to encourage renewals or alternative service arrangements when terminations occur. Our operational results and financial condition may still be negatively affected if multiple key customers terminate their agreements around the same time, as replacing this revenue can take time.
Income Taxes
We are incorporated in the Cayman Islands and have operations in India, Mexico, Singapore and the United States. Our effective tax rate has historically varied and will continue to vary from year to year based on the tax rate in the jurisdiction of our organization, the geographical sources of our earnings and the tax rates in those countries, the tax relief and incentives available to us, the financing and tax planning strategies employed by us, changes in tax laws or the interpretation thereof, and movements in our tax reserves, if any.
Currently, the Company is liable to pay income tax in India, Mexico, Singapore, and the United States. In India, the Company has chosen to pay taxes according to the newly introduced tax regime in 2019 while forgoing some exemptions and deductions. Consequently, the Company calculates its consolidated provision for income taxes based on the asset and liability method. This involves determining deferred tax assets and liabilities based on temporary differences between the condensed consolidated financial statements and income tax bases of assets and liabilities. These deferred tax assets and liabilities are measured using the enacted tax rates that are expected to apply to taxable income in the year in which these temporary differences are anticipated to be settled or recovered. If there is evidence that indicates some portion or all of the recorded deferred tax assets will not be realized in future periods, the deferred tax assets are recorded net of a valuation allowance. The Company evaluates uncertain tax positions to determine if they are likely to be sustained upon examination, and a liability is recorded when such uncertainties fail to meet the “more likely than not” threshold.
Financing Costs
We regularly evaluate our variable and fixed-rate debt obligations. We have historically used short and long-term debt to finance our working capital requirements, capital expenditures and other investments. In May 2023, Aeries amended its revolving credit facility (“Amended Credit Facility”), whereby the total borrowing capacity was increased to $3.8 million (at the exchange rate in effect on June 30, 2024), with Kotak Mahindra Bank. The revolving facility is available for Aeries’ operational requirements. The interest rate is equal to the 6 months Marginal Cost of Funds based Lending Rate (“MCLR”) plus a margin of 0.80% as of June 30, 2024 and March 31, 2024, respectively. Aeries is required to pay interest on the outstanding balance of the credit facility at this financing cost basis, calculated based on the actual number of days for which the funds are utilized. Any changes in the prevailing MCLR rates and the interest rate charged by the bank will affect the financing cost basis and the overall cost of borrowing.
Aeries also has an outstanding unsecured loan from director of Aeries Technology Group Business Accelerators Pvt Ltd., Mr. Vaibhav Rao, amounting to $0.8 million at an interest rate of 10% per annum. The principal amount of the loan was outstanding in entirety as of and for the period ended June 30, 2024 and 2023, and year ended March 31, 2024.
The Company also has an outstanding four-year vehicle loan of $0.1 million at the exchange rate in effect on June 30, 2024 at 10.75% per annum.
Refer to the notes to our condensed consolidated financial statements titled “Short-term borrowings” and “Long-term debt” included elsewhere in this Quarterly Report on Form 10-Q for additional information on our indebtedness.
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Results of Operations
Overview
The Company has one operating segment and presents and discusses revenues by customer location. The Company believes this disaggregation best depicts how the nature, amount, timing and uncertainty of our revenues and cash flows are affected by industry, market and other economic factors.
The following table shows the disaggregation of the Company’s revenues by major customer location. Substantially all of the revenue in our North America region relates to business with customers in the United States.
| Three months Ended June 30, |
||||||||
| 2024 | 2023 | |||||||
| North America | $ | 15,507 | $ | 12,487 | ||||
| Asia Pacific and Other | 1,160 | 3,843 | ||||||
| Total revenue | $ | 16,667 | $ | 16,330 | ||||
Our revenues were primarily earned in U.S. dollars. Our costs were primarily incurred in Indian rupees, U.S. dollars and Mexican pesos. We bear a substantial portion of the risk of inflation and fluctuations in currency exchange rates, and therefore our operating results could be negatively affected by adverse changes in inflation rates and foreign currency exchange rates.
Comparison of the Three Months Ended June 30, 2024 and June 30, 2023
The following table presents selected financial data for the three months ended June 30, 2024, and 2023 (in thousands, except percentages):
| Three months Ended June 30, |
||||||||||||||||
| 2024 | 2023 | $ Change | % Change | |||||||||||||
| Revenues, net | $ | 16,667 | $ | 16,330 | $ | 337 | 2 | % | ||||||||
| Cost of Revenue | 12,657 | 11,883 | 774 | 7 | % | |||||||||||
| Gross Profit | $ | 4,010 | $ | 4,447 | $ | (437 | ) | (10 | )% | |||||||
| Gross Profit Margin | 24 | % | 27 | % | ||||||||||||
| Operating expenses | ||||||||||||||||
| Selling, general & administrative expenses | 20,430 | 3,670 | 16,760 | 457 | % | |||||||||||
| Total operating expenses | $ | 20,430 | $ | 3,670 | $ | 16,760 | 457 | % | ||||||||
| Income from operations | $ | (16,420 | ) | $ | 777 | $ | (17,197 | ) | (2,213 | )% | ||||||
| Other income (expense) | ||||||||||||||||
| Change in fair value of derivative liabilities | 61 | - | 61 | 100 | % | |||||||||||
| Interest income | 79 | 64 | 15 | 23 | % | |||||||||||
| Interest expense | (147 | ) | (123 | ) | (24 | ) | 20 | % | ||||||||
| Other income, net | 19 | (6 | ) | 25 | (417 | )% | ||||||||||
| Total other income (expense) | 12 | (65 | ) | 77 | (118 | )% | ||||||||||
| Income / (loss) before income taxes | (16,408 | ) | 712 | (17,120 | ) | (2,404 | )% | |||||||||
| Income tax (expenses) / benefit | 1,091 | (218 | ) | 1,309 | (600 | )% | ||||||||||
| Net income / (loss) | $ | (15,317 | ) | $ | 494 | $ | (15,811 | ) | (3,201 | )% | ||||||
| Less: Net income / (loss) attributable noncontrolling interest | (506 | ) | 73 | (579 | ) | (793 | )% | |||||||||
| Less: Net income attributable to redeemable noncontrolling interests | 10 | - | 10 | 100 | % | |||||||||||
| Net income / (loss) attributable to the shareholders’ of Aeries Technology, Inc. | $ | (14,821 | ) | $ | 421 | $ | (15,242 | ) | (3,620 | )% | ||||||
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Revenue, net
For the three months ended June 30, 2024, our revenue on a consolidated basis increased by $0.3 million or 2%, to $16.7 million from $16.3 million for the three months ended June 30, 2023. We experienced revenue growth of $3.3 million primarily due to the addition of new clients, which was offset by a $2.9 million decrease in revenue due to the ramp-down in our existing client engagements and the completion and closure of certain consulting projects.
Cost of Revenue
For the three months ended June 30, 2024, our cost of revenue increased by $0.8 million or 7%, to $12.7 million from $11.9 million for the three months ended June 30, 2023. The primary drivers of the increase included a $1.6 million increase in employee compensation and benefits, reflecting an expansion in client-serving headcount to support revenue growth. These cost increases were offset by a $0.9 million decrease in cost related to fees to external consultants.
Gross Profit
For the three months ended June 30, 2024, our gross profit decreased by $0.4 million or 10%, compared to the three months ended June 30, 2023. The lower gross profit was primarily due to flat revenue showing 0.3 million increase, against increase of $0.8 million in cost of revenue mainly due to the increased compensation costs and benefits offset by decrease in cost related to fees to external consultants.
Gross Profit Margin
For the three months ended June 30, 2024, our gross profit margin decreased by 300 basis points compared to the three months ended June 30, 2023. The decrease was primarily attributed to decrease in business from the project-based consulting business, which typically yield higher margins due to billing being based on fixed hourly rates.
Selling, general and administrative expenses
Selling, general and administrative expenses (“SG&A expenses”) increased by $16.8 million, or 457% to $20.4 million for the three months ended June 30, 2024, compared to $3.7 million for the three months ended June 30, 2023. This significant increase was primarily driven by a $11.4 million increase in stock-based compensation related expense, a $1.5 million increase in legal and professional charges related to the Business Combination, and a $1 million provision for expected credit loss on customer receivables. Additionally, employee compensation and benefits increased by $2.8 million due to the expansion of operations, which required increased hiring, resulting in increased personnel related costs, and travel expenses.
Total Other Income (expense), net
Total other income / (expense), net was $0.01 million for the three months ended June 30, 2024 compared to total other expense, net of $(0.07) million for the three months ended June 30, 2023, a $0.08 and 118% change.
Income tax expenses / (benefit)
Income tax expense / (benefit) for the three months ended June 30, 2024, was $(1.1) million, a $1.3 million or 600% decrease compared to provision of income taxes of $0.2 million for the three months ended June 30, 2023. The decrease was primarily due to significant increase in recognition of deferred tax benefit on losses in certain subsidiaries having a lower jurisdictional tax rates along with a reduction in taxable income resulting in lower current tax.
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Non-GAAP Financial Measures
We use non-GAAP financial information and believe it is useful to investors as it provides additional information to facilitate comparisons of historical operating results, identify trends in our underlying operating results and provide additional insight and transparency on how we evaluate the business. We use non-GAAP financial measures to budget, make operating and strategic decisions, and evaluate our performance. We have detailed the non-GAAP adjustments that we make in our non-GAAP definitions below. The adjustments generally fall within the categories of non-cash items, other than costs related to the Business Combination. We believe the non-GAAP measures presented herein should always be considered along with, and not as a substitute for or superior to, the related US GAAP financial measures. We have provided the reconciliations between the US GAAP and non-GAAP financial measures below, and we also discuss our underlying US GAAP results throughout the Management’s Discussion and Analysis of Financial Condition and Results of Operations section. The non-GAAP financial measures we present may differ from similarly captioned measures presented by other companies. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures, and not to rely on any single financial measure to evaluate our business.
Adjusted EBITDA
We define Adjusted EBITDA as net income from operations before interest, income taxes, depreciation and amortization, further adjusted to exclude stock-based compensation, business combination-related costs, and changes in fair value of derivative liabilities. Adjusted EBITDA is a key performance indicator that we use to evaluate our operating performance and in making financial, operating, and planning decisions.
We define Adjusted EBITDA margin as Adjusted EBITDA divided by revenue for the reporting period.
We believe these non-GAAP measures are useful insight to investors by offering a clearer view of Aeries’ operating performance. This information is frequently utilized by securities analysts and other stakeholders as a measure of financial information and debt service capabilities, and it has been used by our management for internal reporting and planning procedures, including aspects of our consolidated operating budget and capital expenditures.
The following table provides a reconciliation from net income (US GAAP measure) to Adjusted EBITDA and Adjusted EBITDA margin (Non-GAAP measures) for the three months ended June 30, 2024, and 2023 (in thousands):
| Three Months Ended June 30, |
||||||||
| 2024 | 2023 | |||||||
| Net income | $ | (15,317 | ) | $ | 494 | |||
| Income tax expense | (1,091 | ) | 218 | |||||
| Interest income | (79 | ) | (64 | ) | ||||
| Interest expenses | 147 | 123 | ||||||
| Depreciation and amortization | 374 | 327 | ||||||
| EBITDA | $ | (15,966 | ) | $ | 1,098 | |||
| Adjustments | ||||||||
| (+) Stock-based compensation | 12,746 | 1,374 | ||||||
| (+) Business Combination and transaction related costs | 3,682 | 430 | ||||||
| (+) Change in fair value of derivative liabilities | (61 | ) | - | |||||
| Adjusted EBITDA | $ | 401 | $ | 2,902 | ||||
| (/) Revenue | 16,667 | 16,330 | ||||||
| Adjusted EBITDA Margin | 2.4 | % | 17.8 | % | ||||
Some of the limitations of adjusted EBITDA include: it does not reflect (i) our cash expenditures or future requirements for capital expenditures or contractual commitments or foreign exchange gain/loss; (ii) changes in, or cash requirements for, working capital; (iii) significant interest expense or the cash requirements necessary to service interest or principal payments on our outstanding debt; (iv) payments made or future requirements for income taxes; and (v) cash requirements for future replacement or payment in depreciated or amortized assets; (vi) stock based compensation costs, (vii) Business Combination and transaction related costs, which represent non-recurring legal, professional, personnel and other fees and expenses incurred in connection with potential mergers and acquisitions related activities for the three months ended June 30, 2024, and Business Combination related costs for the three months related June 30, 2023, and (viii) change in fair value of derivative liabilities.
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Liquidity and Capital Resources
The accompanying condensed consolidated financial statements have been prepared using the going concern basis of accounting, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The going concern basis of presentation assumes that the Company will continue in operation one year after the date these financial statements are issued and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business. For the three months ended June 30, 2024, the Company has reported a net loss of $15.3 million. This may raise substantial doubt regarding the Company’s ability to continue as a going concern for at least 12 months from the date when these financial statements are available to be filed with the SEC.
The Company acquired approximately $8.7 million in cash shortly following the closing of the Business Combination. The outflow of cash since the closing is primarily attributed to payments of transaction expenses related to the Business Combination. In addition, pursuant to the FPAs entered in connection with the closing of the Business Combination, at the end of the contract period of one year under the FPAs, we may be required to pay the maturity consideration (approximately up to $8 million in cash or a number of Class A ordinary shares valued at $2.50 per share, at the option of the FPA holders) in respect of the FPA Shares held by the FPA holders. We may not have sufficient cash from operations or cash reserves to pay the maturity consideration in the event the FPA holders elect to receive the maturity consideration in cash. Therefore, we may need to rely on our available debt capacity to pay some or all of the maturity consideration. Payment of the maturity consideration in cash would reduce the amount of cash on hand or available debt capacity to fund our operations, which could adversely affect our ability to make necessary investments, and, therefore, could affect our results of operations.
Our working capital needs are primarily to finance our payroll and other administrative and information technology expenses in advance of the receipt of accounts receivable, as well as increased expenses due to being a public reporting company. Our primary capital requirements include expanding existing operations to support our growth, financing acquisitions and enhancing capabilities, including building certain digital solutions.
The Company has historically financed its operations and expansions with cash generated from operations, the revolving credit facility from Kotak Mahindra Bank, and loans from related parties. As of June 30, 2024, the Company had $4.2 million in cash and cash equivalents, and the Company also generated overall positive cash flows totalling $2.1 million for the three months ended June 30, 2024. Management expects to have sufficient cash from the operations, cash reserves and debt capacity for the next 12 months and for the foreseeable future to finance our operations, our growth and expansion plans. In addition, we may attempt to raise additional funds through public or private debt or equity financing. In April 2024, we received net proceeds of $4.68 million by selling 2,261,778 newly issued Class A ordinary shares in a private placement at a purchase price of $2.21 per share. Also, we are in ongoing negotiations with relevant parties to potentially restructure the current liabilities into equity or long-term liabilities. The Company is hopeful of accomplishing its objectives through these measures in the anticipated time frame and also expects that the funds available through the above-mentioned arrangements will be sufficient to alleviate the doubts about the Company’s ability to continue as a going concern. However, there is no guarantee that these measures will achieve the desired objectives, and these is no assurance that we may raise additional financing on terms acceptable to us or at all.
Cash Flow for the Three Months ended June 30, 2024, and 2023
The following table presents net cash provided by operating activities, investing activities and financing activities for the three months ended June 30, 2024, and 2023 (in thousands):
| Three Months Ended June 30, |
||||||||||||
| 2024 | 2023 | $ Change | ||||||||||
| Cash at the beginning of period | $ | 2,084 | $ | 1,131 | $ | 953 | ||||||
| Net cash (used in) / provided by operating activities | (1,720 | ) | 101 | (1,821 | ) | |||||||
| Net cash used in investing activities | (608 | ) | (566 | ) | (42 | ) | ||||||
| Net cash provided by financing activities | 4,385 | 1,006 | 3,379 | |||||||||
| Effects of exchange rates on cash | 56 | (8 | ) | 64 | ||||||||
| Cash at the end of period | $ | 4,197 | $ | 1,664 | $ | 2,533 | ||||||
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Analysis of Cash Flow Changes between the three months ended June 30, 2024, and 2023
Operating Activities - The decrease of $1.8 million in net cash used in operating activities for the three months ended June 30, 2024 was primarily due to decrease in net income by $15.8 million as a result of higher cost of revenue and selling, general and administrative expenses; partially offset by increase in adjustment by $11.1 million mainly pertaining to stock-based compensation, and increase due to better working capital management by $2.9 million.
Investing Activities - Net cash used in investing activities during the three months ended June 30, 2024 was $0.6 million, of which $0.4 million was used for the purchase of property and equipment and $0.3 million was used for the issuance of loans to affiliates, offset by $0.04 million generated from loan repayments received from affiliates.
Net cash used in investing activities during the three months ended June 30, 2023 was $0.6 million, of which $0.3 million was used for the purchase of property and equipment and $0.7 million was used for the issuance of loans to affiliates, offset by $0.4 million generated from loan repayments received from affiliates.
Financing Activities - Net cash provided by financing activities during the three months ended June 30, 2024 was $4.4 million, primarily from proceeds of the PIPE transaction of $4.7 million, and proceeds from long-term debt of $0.2 million; offset by the repayment of short-term debt of $0.2 million, payment of insurance financing liability of $0.2 million and payment of finance lease obligation of $0.1 million.
Net cash provided by financing activities during the three months ended June 30, 2023, was $1 million, primarily due to net proceeds from short-term borrowings of $1.2 million, proceeds from long-term debt of $0.5 million; partially offset by payment of deferred transaction costs of $0.4 million and payment of finance lease obligations and long-term debt of $0.3 million.
Off-balance Sheet Arrangements
As of June 30, 2024 and currently, we do not have any material off-balance sheet arrangements, other than as disclosed in “Commitments and Contingencies” in the notes to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
New Accounting Pronouncements
See “Summary of Significant Accounting Policies”, in the notes to the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Application of Significant Accounting Policies and Estimates
General
The following is a summary of the basis of preparation and significant accounting policies which have been applied in the preparation of the accompanying condensed consolidated financial statements. The accounting policies have been applied consistently in preparation of these condensed consolidated financial statements. A full description of significant accounting policies is provided in our consolidated carve-out financial statements for the fiscal years ended March 31, 2024 and 2023.
Critical Accounting Policies and Management Estimates
Our discussion and analysis of financial condition and results of operations are based upon our condensed consolidated financial statements included elsewhere in this Quarterly Report. The preparation of our condensed consolidated financial statements in accordance with US GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. Our critical accounting policies are those that materially affect our condensed consolidated financial statements and involve difficult, subjective or complex judgments by management. A thorough understanding of these critical accounting policies is essential when reviewing our condensed consolidated financial statements. We believe the current assumptions, judgments and estimates used to determine amounts reflected in our condensed consolidated financial statements are appropriate; however, actual results may differ under different conditions. This discussion and analysis should be read in conjunction with our condensed consolidated financial statements and related notes included in this document. Refer to “Critical Accounting Policies and Estimates” contained in Part II, Item 7 of our annual report on Form 10-K for the year ended March 31, 2024 (the “2024 Form 10-K”) for a complete discussion of our critical accounting estimates. There have been no material changes to the Company’s critical accounting estimates since the 2024 Form 10-K.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, we are not required to provide this information.
ITEM 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the fiscal quarter ended June 30, 2024. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of June 30, 2024, our disclosure controls and procedures were not effective due to the material weaknesses in our internal control over financial reporting described below.
Material Weaknesses in Internal Control Over Financial Reporting
On December 11, 2023, the Company concluded that it should restate certain of its previously issued carve-out consolidated financial statements of AARK and subsidiaries to correct the misreporting of basic and diluted earnings per share and number of issued and paid-up common stock, resulting from one of the material weaknesses described below.
In connection with this restatement, our management identified material weaknesses in internal control over financial reporting that are primarily attributable to improper segregation of duties, inadequate processes for timely recording of significant events and material transactions, and inadequate design and implementation of information and communication policies, procedures, and monitoring activities.
Remediation Plan
In light of these facts, our management, including our Chief Executive Officer and Chief Financial Officer, is in the process of implementing processes and controls and other post-closing procedures and has concluded that, notwithstanding the material weaknesses in our internal control over financial reporting described above, the unaudited interim condensed consolidated financial statements for the periods covered by and included in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with US GAAP.
To address our material weaknesses, we are improving our processes of reviewing financial statements, increasing our communication with third-party service providers and implementing additional procedures to ensure that the review of the Company’s financial statements is supported by sufficient documentation to determine accuracy. We will not be able to fully remediate these material weaknesses until these steps have been completed and the controls have been operating effectively for a sufficient period of time.
Inherent Limitations on Effectiveness of Controls
While management is working to remediate the material weaknesses, there is no assurance that these remediation efforts, when economically feasible and sustainable, will successfully remediate the identified material weaknesses. If we are unable to establish and maintain an effective system of internal control over financial reporting, the reliability of our financial reporting, investor confidence in us and the value of our Class A ordinary shares could be materially and adversely affected and the Company could be subject to sanctions or investigations by the SEC or other regulatory authorities. Effective process and controls over financial reporting is necessary for us to provide reliable and timely financial reports and are designed to reasonably detect and prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their implementation could cause us to fail to meet our reporting obligations. For as long as we are a “smaller reporting company” under the U.S. securities laws, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404. An independent assessment of the effectiveness of internal control over financial reporting could detect problems that our management’s assessment might not. Undetected material weaknesses in our internal control over financial reporting could lead to financial statement restatements and require us to incur the expense of remediation.
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Moreover, we do not expect that process and controls over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. The failure of our control systems to prevent error or fraud could materially adversely impact us.
Changes in Internal Control Over Financial Reporting
In light of the material weaknesses described above, we are taking the actions described above to remediate such material weaknesses. Except as described above, there was not any change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
From time to time, we may be involved in various proceedings and litigation, claims and other legal matters arising in the ordinary course of business. Some of these claims, lawsuits, and other proceedings may involve highly complex issues that are subject to substantial uncertainties, and could result in damages, fines, penalties, nonmonetary sanctions, or relief. Management is not currently aware of any material pending legal proceedings, except for ordinary routine litigation incidental to the business, in which we or any of our subsidiaries are involved, or where our property is subject to such proceedings.
ITEM 1A. RISK FACTORS.
Summary Risk Factors
A description of the risk factors associated with our business is contained in the “Risk Factors” section of the 2024 Form 10-K. There have been no material changes to our Risk Factors as therein previously reported.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Unregistered Sales of Equity Securities
The following list sets forth information as to all of our securities sold in the quarter ended June 30, 2024 that were not registered under the Securities Act.
Recent Private Placement
On April 8, 2024, the Company entered into a Share Subscription Agreement with an institutional accredited investor, pursuant to which the Company agreed to sell an aggregate of 2,261,778 newly issued Class A ordinary shares at a purchase price of $2.21 per share; provided, that the issuance of delivery of the shares thereunder shall be subject to a 4.99% beneficial ownership limitation as describe in the agreement, as elected by the investor. At the closing of the private placement, the Company received net proceeds of approximately $4.68 million, after deducting a 6.5% commission paid to a placement agent. The issuance of the shares to the investor pursuant to the Share Subscription Agreement has been conducted in reliance on an exemption from registration provided by Section 4(a)(2) of the Securities Act.
Issuance of Adjustment Shares
In December 2023, the Company settled vendor balances amounting to $0.9 million owed to certain vendors by issuing 361,338 Class A ordinary shares. If the VWAP of the Class A ordinary shares over the three trading days immediately preceding the agreement date is higher than the VWAP over the three trading days immediately preceding the six-month anniversary from the agreement date, additional Class A ordinary shares of the Company would need to be issued for the difference (the “Adjustment Shares”). Following the six-month anniversary, the Company issued 54,074 Adjustment Shares to the vendors, in reliance on an exemption from registration provided by Section 4(a)(2) of the Securities Act.
Purchase of Equity Securities by the Issuer and Affiliated Purchasers
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
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ITEM 5. OTHER INFORMATION.
| (a) | None. |
| (b) | None. |
| (c) | Rule 10b5-1 Trading Plans. |
During the quarter ended June 30, 2024,
ITEM 6. EXHIBITS
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.
| Exhibit | Incorporation by Reference | |||||||||
| Number | Exhibit Title | Form | File No. | Exhibit | Filing Date | |||||
| 3.1 | Amended & Restated Memorandum and Articles of Association of Aeries Technology, Inc.. | 8-K | 001-40920 | 3.1 | 11/13/2023 | |||||
| 10.1 | Share Subscription Agreement, dated April 8, 2024, by and between Aeries Technology Inc. and Oyster Bay Fund Limited. | 8-K | 001-40920 | 10.1 | 4/12/2024 | |||||
| 10.2† | Amendment No. 1 to the 2023 Equity Incentive Plan. | 8-K | 001-40920 | 10.1 | 6/11/2024 | |||||
| 31.1 | Certification of Principal Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | Filed herewith | ||||||||
| 31.2 | Certification of Principal Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | Filed herewith | ||||||||
| 32.1* | Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | Furnished herewith | ||||||||
| 32.2* | Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | Furnished herewith | ||||||||
| 101.INS | XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | Filed herewith | ||||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document. | Filed herewith | ||||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | Filed herewith | ||||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | Filed herewith | ||||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | Filed herewith | ||||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | Filed herewith | ||||||||
| 104 | Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101). | Filed herewith | ||||||||
| † | Indicates management contract or compensatory plan or arrangement. |
| * | The certifications furnished in Exhibits 32.1 and 32.2 hereto are deemed to accompany this Quarterly Report on Form 10-Q and are not deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, nor shall they be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act, irrespective of any general incorporation language contained in such filing. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| AERIES TECHNOLOGY, INC. | ||
| Date: October 15, 2024 | By: | /s/ Rajeev Nair |
| Name: | Rajeev Nair | |
| Title: | Chief Financial Officer | |
| (Principal Financial and Accounting Officer) | ||
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