10-Q 1 aeriestech_10q.htm 10-Q
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us-gaap:FairValueMeasurementsRecurringMember 2023-03-31 0001853044 us-gaap:FairValueMeasurementsRecurringMember 2023-03-31 0001853044 AERT:ForwardPurchaseAgreementDerivativeLiabilitiesMember 2023-04-01 2023-12-31 0001853044 AERT:ForwardPurchaseAgreementDerivativeLiabilitiesMember 2023-03-31 0001853044 AERT:PublicWarrantsMember 2023-03-31 0001853044 AERT:PrivatePlacementWarrantsMember 2023-03-31 0001853044 AERT:PublicWarrantsMember 2023-04-01 2023-12-31 0001853044 AERT:PrivatePlacementWarrantsMember 2023-04-01 2023-12-31 0001853044 AERT:ForwardPurchaseAgreementDerivativeLiabilitiesMember 2023-12-31 0001853044 AERT:PrivatePlacementWarrantsMember 2023-12-31 0001853044 us-gaap:SubsequentEventMember 2024-01-04 iso4217:USD xbrli:shares iso4217:USD xbrli:shares xbrli:pure AERT:INDIA

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

FORM 10-Q

 

 

 

(MARK ONE)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended December 31, 2023

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from __________ to __________

 

Commission file number: 001-40920

 

 

 

Aeries Technology, Inc.

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

Cayman Islands   98-1587626
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification No.)

 

60 Paya Lebar Road, #08-13    
Paya Lebar Square    
Singapore   409051
(Address of principal executive offices)   (Zip Code)

 

(919) 228-6404

(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
Class A ordinary shares, par value $0.0001 per share   AERT   The Nasdaq Stock Market
Redeemable warrants, each whole warrant exercisable for one Class A ordinary share at an exercise price of $11.50   AERTW   The Nasdaq 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. Yes ☒   No ☐

 

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). Yes ☒   No ☐

 

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
Non-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 ☐   No ☒

 

As of February 16, 2024, there were 15,619,004 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

 

TABLE OF CONTENTS

 

    Page
PART 1 - FINANCIAL INFORMATION    
     
Item 1.   Interim Financial Statements   1
         
    Condensed Consolidated Balance Sheets as of December 31, 2023 (unaudited) and March 31, 2023   1
         
    Condensed Consolidated Statements of Operations for the three and nine months ended December 31, 2023 and 2022 (unaudited)   2
         
    Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended December 31, 2023 and 2022 (unaudited)   3
         
    Condensed Consolidated Statements of Changes in Redeemable Noncontrolling interest and Shareholders’ Equity (Deficit) for the three and nine months ended December 31, 2023 and 2022 (unaudited)   4
         
    Condensed Consolidated Statements of Cash Flows for the nine months ended December 31, 2023 and 2022 (unaudited)   6
         
    Notes to Unaudited Condensed Consolidated Financial Statements   7
         
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations   33
         
Item 3.   Quantitative and Qualitative Disclosures about Market Risk   47
         
Item 4.   Controls and Procedures   48
         
PART II - OTHER INFORMATION    
     
Item 1.   Legal Proceedings   50
         
Item 1A.   Risk Factors   50
         
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds   77
         
Item 3.   Defaults Upon Senior Securities   77
         
Item 4.   Mine Safety Disclosures   77
         
Item 5.   Other Information   77
         
Item 6.   Exhibits   78
         
SIGNATURES       80

 

i

 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q contains statements that constitute “forward-looking statements” for purposes of the federal securities laws, including within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. The use of words “anticipate,” “believe,” “can,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will,” “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. In addition, any statements that refer to projections, predictions, forecasts, trends or other characterizations of future events or circumstances or that are not statements of historical matters, including any underlying assumptions, are forward-looking statements. Our forward-looking statements include, but are not limited to, statements regarding our or our management team’s expectations, hopes, beliefs, intentions expectations concerning, among other things, results of operations, financial condition, liquidity, capital expenditures, prospects, growth, strategies and the markets in which we operate, including expectations of financial and operational metrics, projections of market opportunity, market share, expectations and timing related to future strategies and offering, sales channels and strategies, expansion and the potential success of our go-to-market strategy, our financial and operating outlook, future market launches and international expansion. Such forward-looking statements are based on available current market material and our current expectations, beliefs and forecasts concerning future developments.

 

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:

 

changes in the business, market, financial, political and legal conditions in India, Singapore, the United States and other countries, including developments with respect to inflation, interest rates and the global supply chain, including with respect to economic and geopolitical uncertainty in many markets around the world, the potential of decelerating global economic growth and increased volatility in foreign currency exchange rates.

 

the potential for our business development efforts to maximize our potential value;

 

the ability to recognize the anticipated benefits of the business combination with Worldwide Webb Acquisition Corp. (the “Business Combination”), which may be affected by, among other things, competition, our ability to grow and manage growth profitably and retain its key employees;

 

the ability to maintain the listing of the Class A ordinary shares and our public warrants on Nasdaq, and the potential liquidity and trading of such securities;

 

  changes in applicable laws or regulations and other regulatory developments in the United States, India, Singapore, Mexico, Cayman Islands and other countries;

 

our ability to develop and maintain effective internal controls, including our ability to remediate the material weakness in our internal controls over financial reporting;

 

our success in retaining or recruiting, or changes required in, our officers, key employees or directors;

 

our financial performance;
     
  our ability to continue as a going concern;

 

our ability to make acquisitions, divestments or form joint ventures or otherwise make investments and the ability to successfully complete such transactions and integrate with our business;

 

the period over which we anticipate our existing cash and cash equivalents will be sufficient to fund our operating expenses and capital expenditure requirements;

 

ii

 

 

the conflicts between Russia and Ukraine, and Israel and Hamas, and any restrictive actions that have been or may be taken by the U.S. and/or other countries in response thereto, such as sanctions or export controls;

 

risks related to cybersecurity and data privacy;

 

the impact of inflation;

 

the impact of the COVID-19 pandemic and other similar pandemics and disruptions in the future; and

 

other factors detailed under the section entitled “Risk Factors” in this Report or our other filings with the Securities and Exchange Commission (the “SEC”).

 

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. These risks and uncertainties include, but are not limited to, those factors described under the heading “Risk Factors.” 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 in the future be amplified by the COVID-19 outbreak and there may be additional risks that we 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.

 

iii

 

 

PART I - FINANCIAL INFORMATION

 

Item 1. Interim Financial Statements

 

AERIES TECHNOLOGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

 

                 
    DECEMBER 31,     MARCH 31,  
    2023     2023  
    (Unaudited)        
ASSETS                
Current assets:                
Cash and cash equivalents   $ 6,543     $ 1,131  
Accounts receivable, net of allowance of $1,233 and $0, as of December 31, 2023 and March 31, 2023, respectively     18,152       13,416  
Prepaid expenses and other current assets, net of allowance of $6 and $0, as of December 31, 2023 and March 31, 2023, respectively     7,302       4,117  
Deferred transaction costs     -       1,921  
Total current assets   $ 31,997     $ 20,585  
Property and equipment, net     3,538       3,125  
Operating right-of-use assets     6,320       5,627  
Deferred tax assets     1,484       1,237  
Long-term investments, net of allowance of $129 and $0, as of December 31, 2023 and March 31, 2023, respectively     1,558       1,564  
Other assets, net of allowance of $1 and $0, as of December 31, 2023 and March 31, 2023, respectively     1,812       2,259  
Total assets   $ 46,709     $ 34,397  
                 
LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND SHAREHOLDERS’ EQUITY (DEFICIT)                
Current liabilities:                
Accounts payable   $ 7,771     $ 2,474  
Accrued compensation and related benefits, current     2,782       2,823  
Operating lease liabilities, current     1,861       1,648  
Short-term borrowings     6,238       1,376  
Forward purchase agreement put option liability     42,256       -  
Other current liabilities     7,210       4,201  
Total current liabilities   $ 68,118     $ 12,522  
Long term debt     1,141       969  
Operating lease liabilities, noncurrent     4,825       4,261  
Derivative warrant liabilities     1,917       -  
Deferred tax liabilities     114       168  
Other liabilities     3,923       3,008  
Total liabilities   $ 80,038     $ 20,928  
                 
Commitments and contingencies (Note 11)                
Redeemable noncontrolling interest     9,743       -  
                 
Shareholders’ equity (deficit)                
Preference shares, $0.0001 par value; 5,000,000 shares authorized; none issued or outstanding     -       -  
Class A ordinary shares, $0.0001 par value; 500,000,000 shares authorized; 15,619,004 shares issued and outstanding as of December 31, 2023     2       -  
Common stock, no par value; 10,000 shares issued and paid-up as of March 31, 2023, no share issued and outstanding as of December 31, 2023     -       -  
Class V ordinary shares, $0.0001 par value; 1 share authorized, issued and outstanding as of December 31, 2023     -       -  
Net shareholders’ investment and additional paid-in capital     -       7,221  
Accumulated other comprehensive loss     (578 )     (1,349 )
(Accumulated deficit) retained earnings     (42,496 )     6,318  
Total Aeries Technology, Inc. shareholders’ equity (deficit)   $ (43,072 )   $ 12,190  
Noncontrolling interest     -       1,279  
Total shareholders’ equity (deficit)     (43,072 )     13,469  
Total liabilities, redeemable noncontrolling interest and shareholders’ equity (deficit)   $ 46,709     $ 34,397  

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

1

 

 

AERIES TECHNOLOGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

(Unaudited)

 

                                 
    Three Months Ended
December 31,
2023
    Three Months Ended
December 31,
2022
    Nine Months Ended
December 31,
2023
    Nine Months Ended
December 31,
2022
 
                      (Restated)  
Revenue, net   $ 18,897     $ 12,691     $ 52,805     $ 38,027  
Cost of revenue     12,851       10,373       37,488       28,685  
Gross profit     6,046       2,318       15,317       9,342  
Operating expenses                                
Selling, general & administrative expenses     5,313       2,025       12,321       7,898  
Total operating expenses     5,313       2,025       12,321       7,898  
Income from operations     733       293       2,996       1,444  
Other income/ (expense)                                
Change in fair value of forward purchase agreement put option liability     (17,247 )     -       (17,247 )     -  
Change in fair value of derivative warrant liabilities     852       -       852       -  
Interest income     83       80       217       175  
Interest expense     (115 )     (52 )     (314 )     (166 )
Other income/(expense), net     (50 )     106       70       518  
Total other income/(expense), net     (16,477 )     134       (16,422 )     527  
Income/(loss) before income taxes     (15,744 )     427       (13,426 )     1,971  
Income tax expense     (557 )     (742 )     (1,454 )     (1,150 )
Net income / (loss)   $ (16,301 )   $ (315 )   $ (14,880 )   $ 821  
Less: Net income / (loss) attributable to noncontrolling interests     (44 )     (45 )     137       125  
Less: Net income attributable to redeemable noncontrolling interests     154       -       154       -  
Net income / (loss) attributable to shareholders’ of Aeries Technology, Inc.   $ (16,411 )   $ (270 )   $ (15,171 )   $ 696  
                                 
Net loss per share attributable to shareholders’ of Aeries Technology, Inc.                                
Weighted average shares outstanding of Class A ordinary shares, basic and diluted(1)     15,389,062               15,389,062          
                                 
Basic net loss per Class A ordinary share(1)   $ (1.08 )           $ (1.08 )        
Diluted net loss per Class A ordinary share(1)   $ (1.08 )           $ (1.08 )        

 

 
(1) For the three and nine months ended December 31, 2023, net loss per Class A ordinary share and weighted average Class A ordinary shares outstanding is representative of the period from November 6, 2023 through December 31, 2023, the period following the Business Combination, as defined in Note 1. For more information refer to Note 15.

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

2

 

 

AERIES TECHNOLOGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2023

(in thousands)

(Unaudited)

 

                                 
    Three Months Ended
December 31,
2023
    Three Months Ended
December 31,
2022
    Nine Months Ended
December 31,
2023
    Nine Months Ended
December 31,
2022
 
                      (Restated)  
Net income / (loss)   $ (16,301 )   $ (315 )   $ (14,880 )   $ 821  
Other comprehensive income / (loss), net of tax                                
Foreign currency translation adjustments     (6 )     (143 )     (159 )     (788 )
Unrecognized actuarial gain / (loss) on employee benefit plan obligations     26       76       (27 )     73  
Total other comprehensive income / (loss), net of tax     20       (67 )     (186 )     (715 )
Comprehensive income / (loss), net of tax   $ (16,281 )   $ (382 )   $ (15,066 )   $ 106  
Less: Comprehensive income / (loss) attributable to noncontrolling interests   $ (43 )   $ (55 )   $ 108     $ 20  
Less: Comprehensive income attributable to redeemable noncontrolling interests   $ 162     $ -     $ 162     $ -  
Total comprehensive income / (loss) attributable to shareholders’ of Aeries Technology, Inc.   $ (16,400 )   $ (327 )   $ (15,336 )   $ 86  

 

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 AND NINE MONTHS ENDED DECEMBER 31, 2023

(in thousands, except share and per share data)

(Unaudited)

 

                                                                                         
    Redeemable     Ordinary Shares Class A/     Ordinary Shares     Net
shareholders’
investment
and
additional
    (Accumulated deficit)     Accumulated other     Total shareholders’           Total  
    noncontrolling     Common shares     Class V     paid-in     Retained     comprehensive     equity     Noncontrolling     Shareholders’  
    interest     Shares     Amount     Shares     Amount     capital     Earnings     loss     (deficit)     interest     equity  
Balance as at April 1, 2023   $ -       10,000     $ -       -     $ -     $ 7,221     $ 6,318     $ (1,349 )   $ 12,190     $ 1,279     $ 13,469  
Transition period adjustment pursuant to ASC 326, net of tax     -       -       -       -       -       -       (190 )     -       (190 )     (33 )     (223 )
Adjusted Balance as of April 1, 2023     -       10,000       -       -       -       7,221       6,128       (1,349 )     12,000       1,246       13,246  
Net income for the period     -       -       -       -       -       -       421       -       421       73       494  
Other comprehensive loss     -       -       -       -       -       -       -       (12 )     (12 )     (2 )     (14 )
Stock-based compensation     -       -       -       -       -       1,374       -       -       1,374       -       1,374  
Net changes in net shareholders’ investment     -       -       -       -       -       (10 )     -       -       (10 )     -       (10 )
Balance as at June 30, 2023   $ -       10,000     $ -       -     $ -     $ 8,585     $ 6,549     $ (1,361 )   $ 13,773     $ 1,317     $ 15,090  
Net income for the period     -       -       -       -       -       -       819       -       819       108       927  
Other comprehensive loss     -       -       -       -       -       -       -       (164 )     (164 )     (28 )     (192 )
Stock-based compensation     -       -       -       -       -       252       -       -       252       -       252  
Net changes in net shareholders’ investment     -       -       -       -       -       -       -       -       -       -       -  
Balance as at September 30, 2023   $ -       10,000     $ -       -     $ -     $ 8,837     $ 7,368     $ (1,525 )   $ 14,680     $ 1,397     $ 16,077  
Share in Pre-Merger net income     -       -       -       -       -       -       238       -       238       (44 )     194  
Share in Pre-Merger other comprehensive income     -       -       -       -       -       -       -       7       7       1       8  
Reverse Recapitalization, net of transaction expenses (Note 1)     9,581       15,247,666       2       1       -       (38,492 )     (4,701 )     936       (42,255 )     (1,354 )     (43,609 )
Settlement of accounts payable through issuance of shares     -       361,338       -       -       -       903       -       -       903       -       903  
Net income for the period post Business Combination     154       -       -       -       -       -       (16,649 )     -       (16,649 )     -       (16,649 )
Other comprehensive loss post Business Combination     8       -       -       -       -       -       -       4       4       -       4  
Reclassification of negative additional paid-in capital     -       -       -       -       -       28,752       (28,752 )             -       -       -  
Balance as at December 31, 2023   $ 9,743       15,619,004     $ 2       1     $ -     $ -     $ (42,496 )   $ (578 )   $ (43,072 )   $ -     $ (43,072 )

 

4

 

 

AERIES TECHNOLOGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE
NONCONTROLLING INTEREST AND SHAREHOLDERS’ EQUITY (DEFICIT)

FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2022

(in thousands, except share and per share data)

(Unaudited)

 

                                                       
    Redeemable     Ordinary Shares     Ordinary Shares     Net
shareholders’
investment
and
additional
    (Accumulated deficit)     Accumulated other     Total shareholders’           Total  
    noncontrolling     Class A     Class V     paid-in     Retained     comprehensive     equity     Noncontrolling     Shareholders’  
    interest     Shares     Amount     Shares     Amount     capital     Earnings     loss     (deficit)     interest     equity  
Balance as at April 1, 2022   $ -       10,000     $ 0       -     $ -     $ 3,328     $ 4,872     $ (644 )   $ 7,556     $ 1,140     $ 8,696  
Net income for the period     -       -       -       -       -       -       1,158       -       1,158       200       1,358  
Other comprehensive loss     -       -       -       -       -       -       -       (274 )     (274 )     (47 )     (321 )
Balance as at June 30, 2022   $ -       10,000     $ 0       -     $ -     $ 3,328     $ 6,030     $ (918 )   $ 8,440     $ 1,293     $ 9,733  
Net income for the period     -       -       -       -       -       -       (192 )     -       (192 )     (30 )     (222 )
Other comprehensive loss     -       -       -       -       -       -       -       (279 )     (279 )     (48 )     (327 )
Stock-based compensation     -       -       -       -       -       1,057       -       -       1,057       -       1,057  
Net changes in net shareholders’ investment     -       -       -       -       -       6       -       -       6       -       6  
Balance as at September 30, 2022   $ -       10,000     $ 0       -     $ -     $ 4,391     $ 5,838     $ (1,197 )   $ 9,032     $ 1,215     $ 10,247  
Net income for the period     -       -       -       -       -       -       (270 )     -       (270 )     (45 )     (315 )
Other comprehensive loss     -       -       -       -       -       -       -       (57 )     (57 )     (10 )     (67 )
Stock-based compensation     -       -       -       -       -       1,425       -       -       1,425       -       1,425  
Net changes in net shareholders’ investment     -       -       -       -       -       12       -       -       12       -       12  
Balance as at December 31, 2022 (restated)   $ -       10,000     $ 0       -     $ -     $ 5,828     $ 5,568     $ (1,254 )   $ 10,142     $ 1,160     $ 11,302  

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

5

 

 

AERIES TECHNOLOGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

 

                 
    For The
Nine Months Ended
December 31,
2023
    For The
Nine Months Ended
December 31,
2022
(Restated)
 
Cash flows from operating activities                
Net (loss) / income   $ (14,880 )   $ 821  
Adjustments to reconcile net (loss) / income to net cash (used in) / provided by operating activities:                
Depreciation and amortization expense     1,004       873  
Stock-based compensation expense     1,626       2,482  
Deferred tax benefit     (230 )     (146 )
Accrued income from long-term investments     (141 )     (129 )
Provision for expected credit loss     1,074       -  
Gain on lease termination     (13 )     -  
Others     (50 )     (1 )
Change in fair value of forward purchase agreement put option liability     17,247       -  
Change in fair value of derivative warrant liabilities     (852     -  
Loss on issuance of shares against accounts payable     48       -  
                 
Changes in operating assets and liabilities:                
Accounts receivable     (6,070 )     (2,630 )
Prepaid expenses and other current assets     (623 )     (505 )
Operating right-of-use assets     (825 )     (6,200 )
Other assets     416       (1,737 )
Accounts payable     451       (177 )
Accrued compensation and related benefits, current     (22 )     (1,397 )
Other current liabilities     29       4,174  
Operating lease liabilities     926       6,452  
Other liabilities     910       438  
Net cash provided by operating activities     25       2,318  
                 
Cash flows from investing activities                
Acquisition of property and equipment     (1,062 )     (1,388 )
Issuance of loans to affiliates     (1,730 )     (1,041 )
Payments received for loans to affiliates     1,722       1,011  
Net cash used in investing activities     (1,070 )     (1,418 )
                 
Cash flows from financing activities                
Net proceeds from short term borrowings     1,748       1,012  
Payment of promissory note liability     (1,500 )     -  
Payment of insurance financing liability     (239 )     -  
Proceeds from long-term debt     575       138  
Repayment of long-term debt     (388 )     -  
Payment of finance lease obligations     (323 )     (290 )
Payment of deferred transaction costs     (2,055 )     (434 )
Net changes in net shareholders’ investment     (10 )     18  
Proceeds from issuance of common stock and forward purchase agreement in connection with Business Combination, net     8,666       -  
Net cash provided by financing activities     6,474       444  
Effect of exchange rate changes on cash and cash equivalents     (17 )     (51 )
Net increase in cash and cash equivalents     5,412       1,293  
Cash and cash equivalents at the beginning of the period     1,131       351  
Cash and cash equivalents at the end of the period   $ 6,543     $ 1,644  
                 
Supplemental cash flow disclosure:                
Cash paid for interest   $ 253     $ 171  
Cash paid for income taxes, net of refunds   $ 1,057     $ 789  
                 
Supplemental disclosure of non-cash investing and financing activities:                
Unpaid deferred transaction costs included in accounts payable and other current liabilities   $ 908     $ 569  
Equipment acquired under finance lease obligations   $ 313     $ 82  
Property and equipment purchase included in accounts payable   $ 81     $ 9  
Settlement of accounts payable through issuance of Class A ordinary shares to vendors   $ 855     $ -  
Assumption of net liabilities from Business Combination   $ 38,994     $ -  

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

6

 

 

AERIES TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)

(Unaudited)

 

Note 1 – Nature of Operations

 

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 condensed consolidated financial statements. Aark Singapore Pte. Ltd. and its subsidiaries (“AARK”), excluding the fintech and investing business activities, is herein referred to as the “Carve-out Entity”. The Company offers a range of management consultancy services for private equity sponsors and their portfolio companies with engagement models that 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 and the United States.

 

Change in Fiscal Year

 

On November 6, 2023, the Company’s Board of Directors approved a change in the Company’s fiscal year end from December 31 to March 31. The Company’s current fiscal year will run from April 1, 2023 through March 31, 2024. Year-over-year quarterly financial data continues to be comparative to prior periods as the months that comprise each fiscal quarter in the new fiscal year are the same as those in the Company’s historical financial statements.

 

Demerger and Business Combination

 

On March 11, 2023, ATI entered into the Business Combination Agreement (the “Business Combination” or “Merger Agreement”), with WWAC Amalgamation Sub Pte. Ltd., a Singapore private company limited by shares and a direct wholly-owned subsidiary of ATI (“Amalgamation Sub”), and Aark Singapore Pte. Ltd. a Singapore private company limited by shares (“AARK”) (together with the Company, AARK, and Amalgamation Sub, the “Parties” and individually, a “Party”).

 

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 AARK Board of Directors ratified two resolutions on May 24, 2023. These resolutions effectively spun off the investing business which was part of the Company 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 transaction remained issued and outstanding following the transaction and continued to be held by the Sole Shareholder (as defined below) of AARK. The Company issued a Class V share to ‘NewGen Advisors and Consultants DWC-LLC’ (“NewGen”). NewGen is a business associate of Mr. Raman Kumar (“Sole Shareholder”). NewGen has agreed to hold the Class V share to protect the interest of the Sole Shareholder, in the event of certain events, including a hostile takeover or the appointment or removal of directors at ATI level. While the Class V share does not carry any direct economic rights, it does carry voting rights equal to 26% which will ratchet up to 51% voting rights upon occurrence of extraordinary events 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 ATI is the accounting acquiree. The Business Combination closed on November 6, 2023 (“Closing Date”) and resulted in ATI owning 38.24% of the issued and outstanding shares of AARK and the Sole Shareholder of AARK owning the balance 61.76%. Pursuant to the Business Combination, ATI has a right to appoint two out of the three directors on the Board of AARK and therefore has an ability to control the activities undertaken by AARK in ordinary course of business, resulting in AARK being classified as a subsidiary of ATI. Finally, the Business Combination has been accounted for as reverse recapitalization. Refer to the section “Reverse Recapitalization” below for details.

 

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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 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 11;

 

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 15,257,666 Class A ordinary shares outstanding with a par value of $0.0001. Additionally, there were 9,527,810 Private Placement Warrants (defined below) and 11,499,991 Public Warrants (defined below) outstanding with a right to purchase 21,027,801 Class A ordinary shares.

 

Upon closing of the Business Combination, the total number of ATI’s Class A ordinary shares issued and outstanding was 15,257,666. 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 Business Combination Agreement. In connection with the closing, holders of 2,697,052 Class A ordinary shares of ATI were redeemed at a price per share of approximately $10.69. AARK incurred approximately $3,697 in transaction costs relating to the Business Combination and recorded those costs against additional paid-in capital in the condensed consolidated balance sheet.

 

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)     3,157,469  
Shares held by Worldwide Webb Acquisition Sponsor, LLC (the “Sponsor”) and other initial holders(2)(3)     2,750,000  
Shares held by Innovo Consultancy DMCC(4)     5,638,530  
Shares held by FPA Holders(5)     3,711,667  
Total(6)     15,257,666  

 

 
(1) Includes 87,133 Bonus Shares issued to the Company’s public shareholders and 1,024,335 “Extension Shares” issued to certain holders of Class A ordinary shares (the “Holders”) in accordance with the Non-Redemption Agreement entered into between WWAC, the Sponsor, and the Holders of Class A ordinary shares. Also includes 288,333 shares purchased by the Forward Purchase Agreement holders in the open market or via redemption reversals prior to the consummation of the Business Combination.

 

8

 

 

(2) Includes 1,500,000 Class A ordinary shares issued to the Sponsor and 1,250,000 Class A ordinary shares issued to certain anchor investors upon conversion of Class B ordinary shares concurrently with the consummation of the Business Combination. 3,000,000 Class B ordinary shares were forfeited by the Sponsor upon the consummation of the Business Combination.
(3) Does not include (i) 1,500,000 Class B ordinary shares forfeited upon the consummation of the Business Combination, or (ii) 1,500,000 Class B ordinary shares forfeited pursuant to a Support Agreement with the Sponsor.
(4) Includes (i) 3,000,000 Class A Shares reissued against 3,000,000 Class B Shares forfeited by the Sponsor upon consummation of the Business Combination as per (2) above, and (ii) 2,638,530 remaining Bonus Shares issued to Innovo.
(5) Represents a new issuance of Class A ordinary shares to the Forward Purchase Agreement holders in accordance with the Forward Purchase Agreement.
(6) Does not include 10,000 AARK ordinary shares and 655,788 Aeries Technology Group Business Accelerators Private Limited’s ordinary shares that represent noncontrolling interest in AARK. These shares will be exchangeable (together with the proportionate reduction in the voting power of the Class V Share, and in the case of the exchange of all AARK ordinary shares, the forfeiture and cancellation of the Class V Share) into shares in Aeries Technology, Inc. in connection with the Exchange Agreements, which is further discussed in Note 11.

 

The following table reconciles the elements of the Business Combination to the change in Net shareholders’ investment and additional paid-in capital on the condensed consolidated statement of changes in redeemable noncontrolling interest and shareholders’ equity (deficit) for the nine months and three months ended December 31, 2023:

 

       
Schedule of cash and net liabilities assumed pursuant to Business Combination   Amount  
Balance in Company trust account     40,402  
Less: Outflow on account of redemption payments     (18,795 )
Less: Prepayment for recycle share under forward purchase agreement     (3,083 )
Less: Payments under Non-redemption agreements     (9,672 )
Less: Payment to Continental Stock Transfer for services provided in relation to the Business Combination     (186 )
Net cash acquired in Business Combination     8,666  
Less: Assumed net liabilities of ATI on Closing Date(1)     (38,994 )
Less: Pre-combination transaction costs     (3,697 )
Less: Transferred to Redeemable Noncontrolling Interest (“NCI”) pursuant to Business Combination     (4,465 )
Less: Par value of Class A ordinary shares issued     (2 )
Net charge to Additional paid-in-capital as a result of the Business Combination reported in Shareholders’ equity (deficit)     (38,492 )

 

 
(1) Includes liability pursuant to warrants and Forward Purchase Agreement. Refer Note 14 for details

 

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 common shares were traded on Nasdaq Stock Market under the symbol “WWAC.”

 

9

 

 

Note 2 – Summary of Significant Accounting Policies

 

Basis of Preparation

 

The Company’s accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). These condensed consolidated financial statements are unaudited and, in our opinion, include all adjustments, consisting of normal recurring adjustments and accruals necessary for a fair presentation of our condensed consolidated balance sheets, operating results, statement of changes in redeemable noncontrolling interest and stockholders’ equity (deficit), and cash flows for the periods presented. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with US GAAP have been omitted in accordance with the rules and regulations of the SEC. The interim results for the three and nine months ended December 31, 2023 are not necessarily indicative of the results to be expected for the year ending March 31, 2024 or for any future interim periods.

 

The condensed consolidated balance sheet as of March 31, 2023 included herein was derived from the audited consolidated carve-out financial statements (restated) of Aark Singapore Pte Ltd. and its subsidiaries as of that date. As such, the information included herein should be read in conjunction with the consolidated carve-out financial statements and accompanying notes of AARK as of and for the year ended March 31, 2023, filed as an exhibit to Amendment No. 2 to Current Report on Form 8-K originally filed on November 13, 2023 as amended on November 30, 2023 and December 13, 2023, which provides a more complete discussion of the Company’s accounting policies and certain other information. There have been no changes in accounting policies during the nine months ended December 31, 2023 from those disclosed in the annual consolidated carve-out financial statements and related notes for the year ended March 31, 2023, 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., its subsidiaries (“ATGBA”) 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.

 

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.

 

10

 

 

Periods after the Demerger Transactions

 

Beginning May 25, 2023 and for the interim period ended December 31, 2023, 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., Aeries Technology Group Business Accelerators Pvt Ltd., its subsidiaries (“ATGBA”) 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 nine and three months ended December 31, 2023, the Company has reported a net loss. The shareholders’ equity as at December 31, 2023 also has a deficit of $43,072. These factors 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 December 31, 2023 the Company had a balance of $6,543 in cash and cash equivalents and also generated positive cash flows for the nine months ended December 31, 2023.

 

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.

 

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.

 

11

 

 

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 Forward Purchase Agreement (“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 (the “FPAs”) 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 3,711,667 Class A ordinary shares to the FPA holders at the redemption price (i.e., $10.69 per share) and, purchase of 288,333 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 $42,760 which was settled as below:

 

  $39,678 against the consideration receivable by ATI for a new issuance of class A ordinary shares to the FPA holders; and
     
  $3,083 representing the cash paid by ATI to the FPA holders to fund the purchase price of the Recycled Shares.

 

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 $2 in cash or a variable number of ATI’s Class A ordinary shares in order to provide a return of $2.5 per FPA share determined based on the 30-day volume weighted average price of ATI’s Class A ordinary shares (“Maturity Consideration”). The FPA holders have the option to select the form of Maturity Consideration.

 

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 Purchaser’s right to sell all or a portion of the 4,000,000 common 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.

 

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.

 

12

 

 

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. The initial fair value of the FPA put option liability at the Closing Date was $25,009, and the fair value as on December 31, 2023 was $42,256, which is reported as a FPA put option liability in our condensed consolidated balance sheet. The change in the fair value of the FPA put option liability of $17,247 for the three and nine months ended December 31, 2023 has been recorded to change in fair value of forward purchase agreement put option liability in the Company’s condensed consolidated statements of operations. See Note 14.

 

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 12 for further discussion of the pertinent terms of the Warrants and Note 14 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 $ 855 owed to certain vendors by issuing 361,388 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.

 

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.

 

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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.

 

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 December 31, 2023 and March 31, 2023, there were one and four customers, respectively, 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.

 

In respect of the Company’s revenue, there were three and four customers that each accounted for more than 10% of total revenue for the nine months ended December 31, 2023 and 2022, respectively; and there were two and five customers that accounted for more than 10% of total revenue for the three months ended December 31, 2023 and 2022, respectively. The following table shows the amount of revenue derived from each customer exceeding 10% of the Company’s revenue during the three and nine months ended December 31, 2023 and 2022:

 

                               
    Three Months Ended
December 31,
   

Nine Months Ended

December 31,

 
    2023     2022     2023     2022  
Customer 1     13.9 %     16.2 %     14.4 %     16.5 %
Customer 2     12.9 %     15.6 %     12.7 %     15.4 %
Customer 3     n/a       14.7 %     10.3 %     12.8 %
Customer 4     n/a       10.0 %     n/a       10.1 %
Customer 5     n/a       10.0 %     n/a       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.

 

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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 $1,233 as of December 31, 2023 and allowance for doubtful accounts was $0 as of March 31, 2023, and is classified within “Accounts Receivable, net” in the condensed consolidated balance sheets. See “Recent accounting pronouncements adopted” section below for information pertaining to the adoption of Topic 326.

 

The following tables provides details of the Company’s allowance for credit losses:

 

       
    Nine Months Ended
December 31,
2023
 
Opening balance as of March 31, 2023   $ -  
Transition period adjustment on accounts receivables (through retained earnings) pursuant to ASC 326     149  
Adjusted balance as of April 1, 2023   $ 149  
Additions charged to cost and expense     1,084  
Closing balance as of December 31, 2023   $ 1,233  

 

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.

 

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 $129 as of December 31, 2023. See “Recent accounting pronouncements adopted” section below for information pertaining to the adoption of ASU 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments.

 

The following tables provides details of the Company’s allowance for credit losses:

 

       
    Nine Months Ended
December 31,
2023
 
Opening balance as of March 31, 2023   $ -  
Transition period adjustment on long term investments (through retained earnings) pursuant to ASC 326     126  
Adjusted balance as of April 1, 2023   $ 126  
Additions charged to change in provision for credit losses     3  
Closing balance as of December 31, 2023   $ 129  

 

The Company includes these long-term investments in “Long-term investments” on the condensed consolidated balance sheets.

 

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Net Loss per Share

 

Basic net loss per share is computed by dividing income/(loss) available to common 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 ATI 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 11 – 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.

 

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The adoption of ASU 2016-13 resulted in an after-tax cumulative-effect reduction to opening retained earnings and noncontrolling interest of $223 as of April 1, 2023. The following table summarizes the impact of the Company’s adoption of ASU 2016-13:

 

                       
    As Reported
March 31,
2023
    Impact of
Adoption
   

Balance as of
April 1,

2023

 
Accumulated retained earnings (deficit)     6,318       (190 )     6,128  
Noncontrolling interests     1,279       (33 )     1,246  
Accounts receivable, net     13,416       (149 )     13,267  
Prepaid expenses and other current assets     4,117       -       4,117  
Other current liabilities     4,201       21       4,222  
Other assets     2,259       (1 )     2,258  
Long-term investments     1,564       (126 )     1,438  
Deferred tax asset     1,237       75       1,312  

 

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.

 

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.

 

Other recent pronouncements are either not applicable or are not expected to have a material impact on the Company’s condensed consolidated financial statements.

 

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Note 3 – Restatement of Previously Issued Condensed Carve-out Consolidated Financial Statements

 

In connection with the preparation of the Company’s previously issued unaudited condensed carve-out consolidated financial statements as of and for the nine months ended December 31, 2022, the Company’s management identified certain errors as described below:

 

(a) Accounting for deferred transaction cost in relation to reverse recapitalization.

 

(b) an overstatement of the net income attributable to Aark Singapore Pte. Ltd., an understatement of net income attributable to noncontrolling interest

 

The Company’s condensed consolidated carve-out financial information for the nine months ended December 31, 2022, published as a part of its registration statement on Form S-4 dated May 12, 2023, has been restated in accordance with ASC 250, Accounting Changes and Error Corrections. The impact of these restatements on Loss Per Share has not been provided given that the Company has disclosed the same only for the period from the Closing Date to December 31, 2023 as set out in Note 15.

 

(a) Accounting for deferred transaction cost in relation to reverse recapitalization

 

The Company had previously not recognized certain expenses pertaining to Business Combination incurred till period ended December 31, 2022. This resulted in understatement of the Selling, general and administrative expenses and overstatement of net income. Further, certain transaction costs were identified as costs eligible for deferral under staff accounting bulletin (“SAB”) topic 5.A to be subsequently charged off against the gross proceeds of the Business Combination. This resulted in overstatement of Selling, general and administrative expenses and understatement of net income.

 

On an aggregate basis both these adjustments resulted in overstatement of Selling, general and administrative expenses and understatement of net income. The resultant change is reflected in the following table, which summarizes the effect of the restatement on the affected financial statement line within the previously reported unaudited condensed consolidated carve-out financial information for the nine months ended December 31, 2022.

                       

Particulars

 

As Previously

Reported

December 31,
2022

   

Restatement

Adjustment

   

As Restated

December 31,
2022

 
Selling, general and administrative expenses     8,202       (304 )     7,898  
Total operating expenses     8,202       (304 )     7,898  
Income from operations     1,140       304       1,444  
Income before income taxes     1,667       304       1,971  
Net income     517       304       821  
Less: Net income attributable to noncontrolling interest(1)     69       56       125  
Net income attributable to controlling interest     448       248       696  

 

 
(1) The change in net income attributable to noncontrolling interest comprises of two impacts i.e., consequential impact on account of the change in accounting for transaction costs as set out above and change in the percentage attributable to noncontrolling interest based on the note discussed below.

 

Pursuant to the above, the deferred transaction cost recognised within current assets increased by $1,022. Finally, the consequential impact of this was recognised within cash flow from operating activity comprising of an increase in net income reported for the nine months period ended December 31, 2022 by $304 with a corresponding reduction in the changes in operating assets and liabilities.

 

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(b) an overstatement of the net income attributable to Aark Singapore Pte. Ltd., an understatement of net income attributable to noncontrolling interest

 

The Company previously considered treasury shares of its subsidiary, in the calculation of the Company’s controlling shareholding and corresponding noncontrolling interest. However, it was subsequently determined that as these shares are not issued yet and available for issuance, they should be excluded from the calculations of share count for accounting purposes. The change resulted in a decrease in the allocation of net income to Aark Singapore Pte. Ltd. and a corresponding increase in the allocation of net income to noncontrolling interest. This resultant change is reflected in the following tables, which summarize the effect of the restatement on the affected financial statement line items within the previously reported unaudited condensed consolidated carve-out financial information for the nine months ended December 31, 2022.

 

                       
Particulars  

As Previously

Reported

December 31,
2022

   

Restatement

Adjustment

   

As Restated

December 31,
2022

 
In the Statement of Operations                        
Net income attributable to noncontrolling interest     68       19       87  

 

Note 4 - Short-term borrowings

 

               
    December 31,
2023
    March 31,
2023
 
Short-term borrowings   $ 6,225     $ 1,364  
Current portion of vehicle loan     13       12  
    $ 6,238     $ 1,376  

 

In May 2023, the Company amended its revolving credit facility (“Amended Credit Facility”), whereby the total borrowing capacity was increased from INR 160,000 (or approximately $1,925 at the exchange rate in effect on December 31, 2023) to INR 320,000 (or approximately $3,850 at the exchange rate in effect on December 31, 2023), with Kotak Mahindra Bank. The revolving facility is available for the Company’s operational requirements. The funded drawdown amount under the Company’s revolving facility as of December 31, 2023 and March 31, 2023, is $3,034 and $1,364 respectively. The corresponding interest rate at each of these dates was six months Marginal Cost of Funds based Lending Rate plus a margin of 0.80% and 1.20%, respectively.

 

Prior to the Closing Date, ATI modified the terms of payment owed to Shearman & Sterling LLP, a multinational law firm providing legal consultancy services to ATI. This resulted in a reduction in the total amount owed by ATI to Shearman & Sterling LLP from $4,842 of accounts payable to $4,000 of interest-free and unsecured 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 twelve months from December 31, 2023.

 

After the Closing Date, ATI obtained an insurance policy for its directors and senior officers with maximum coverage of $5,000. The total premium payable in relation to this was $880 out of which $176 was paid upfront and balance $704 is payable in ten equal monthly instalments of $73. The arrangement represents a financing transaction where the premium payable has been deferred. The interest rate under the arrangement is 9.2 % per annum. The cumulative interest payable throughout the tenure under the arrangement amounts to $30 and the same would be recognized as part of the interest expense in the condensed consolidated statement of operations. During the nine months and three months ended December 31, 2023, the interest expense so recognized was $10. The balance premium payable as at December 31, 2023 is $641 and has been disclosed as a current liability since ATI has an unconditional obligation to settle it by September 2024.

 

For additional information on the vehicle loan see Note 5 – Long-term debt.

 

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Note 5 - Long-term debt

 

Long-term debt consists of the following:

 

               
   

December 31,

2023

   

March 31,

2023

 
Loan from the director of ATGBA   $ 836     $ 845  
Loan from an affiliate     193       -  
Non-current portion of vehicle loan     112       124  
    $ 1,141     $ 969  

 

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 9 – 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 $138 at the exchange rate in effect on December 31, 2023) at 10.75% from Mercedes-Benz Financial Services India Pvt. Ltd. The Company is required to repay the loan in 48 monthly instalments beginning January 4, 2023.

 

As of December 31, 2023, the future maturities of debt by fiscal year are as follows:

 

       
2024   $ 3  
2025     850  
2026     15  
2027     286  
Total future maturities of debt   $ 1,154  

 

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Note 6 - 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 facto