ITEM 1. BUSINESS.
FORWARD-LOOKING STATEMENTS
This annual report contains forward-looking statements. These statements relate to future events or our future financial performance. These statements often can be identified by the use of terms such as "may," "will," "expect," "believe," "anticipate," "estimate," "approximate" or "continue," or the negative thereof. We intend that such forward-looking statements be subject to the safe harbors for such statements. We wish to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Any forward-looking statements represent management's best judgment as to what may occur in the future. However, forward-looking statements are subject to risks, uncertainties and important factors beyond our control that could cause actual results and events to differ materially from historical results of operations and events and those presently anticipated or projected. We disclaim any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statement or to reflect the occurrence of anticipated or unanticipated events.
GENERAL
Throughout this Form 10-K Annual Report, the terms We, Registrant and Company all refer to Interups Inc.
We, the Company
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were incorporated in the state of Nevada on April 11, 2012. Until the change of control which took place as reported in a Form 8-K Report, filed with the Securities and Exchange Commission (SEC) on November 24, 2014, we were in the business of developing an internet based group buying site. As reported in that Form 8-K, the then-principal shareholder, Romanas Bagdonas, sold all of his 4,000,000 shares of our Company, representing 57.97% of our issued and outstanding shares, to Laxmi Prasad, who then became our principal shareholder, and is now the beneficial owner of 1,565,509 shares (22.69%).
As part of that transaction, Mr. Bagdonas resigned as the sole officer and director, and designated Likhitha Palaypu, Laxmi Prasads daughter, as the sole officer and director. Also, we sold all of our then-existing assets and business back to Mr. Bagdonas for $1. At that time, we were a shell, as that term is defined in the Securities Exchange Act of 1934.
CURRENT BUSINESS
On April 27, 2016, we filed a Form 8-K with the SEC, disclosing that we have signed agreements to acquire certain assets in India, as more fully disclosed below. As a result of these agreements, we are no longer a shell,
On April 25, 2016, the Registrant became the permitted assignee from SIRI Global Asset Management Corp. (SIRI), a private company which is controlled by Laxmi Prasad, of an agreement (the BSKLS Agreement) with Birla Shloka Knowledge Schools, Ltd., an Indian corporation based in Mumbai, India (BSKLS), and ACE Trustee Services Private Limited, an Indian Corporation based in Mumbai, India (ACE). Neither BSKLS nor ACE are affiliates of the Registrant. The BSKLS Agreement provides, in pertinent part, as follows:
SIRI, i.e., the Registrant by permitted assignment, and ACE will form a joint venture (the BSKLS JV). The purpose of the BSKLS JV will be to invest in, acquire, own, lease, operate and maintain educational institutions and other education and infrastructure related assets in various cities in India. To pursue the objectives in the foregoing sentence, SIRI (the Registrant by assignment) and ACE will operate the BSKLS JV and intend to organize an Infrastructure Investment Trust (InvIT), the purpose of which will be to acquire one or more public or privately held Educational Institutions and education related infrastructure assets and services management companies (LESCs), to source other investments and to have the InvIT acquire related permissible assets.
As noted above, the BSKLS Agreement provides that it includes permitted assigns; and on April 25, 2016, the Registrant accepted SIRIs assignment of the BSKLS Agreement to the Registrant, with the consent of the other parties. Therefore, the following description of the BSKLS Agreement substitutes the Registrant in place of SIRI:
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Initially, the Registrant will own 74% of the BSKLS JV, and ACE will own 26%. However, it is the Registrants responsibility to raise the capital required by the BSKLS Agreement, described in the next paragraph, from Investors, on or before Oct 31, 2016 (the Agreement initially provided that the deadline date was June 30, 2016; that date has now been extended to October 31, 2016)
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Assuming that Registrant raises the required funds within the time limit, as to which there can be no assurance, the relative ownership of the BSKLS JV will be as follows: Investors: 48%, ACE 26% and the Registrant 26%. The Board of Directors of the BSKLS JV is intended to be equally divided between the Registrants designees and the ACE designees; and in the event of a tie in voting, the Chairman, who will be designated by the ACE, will have the deciding vote.
The Registrant is responsible to capitalize the BSKLS JV, by providing the following amounts from Investors on or before the extended deadline of October 31, 2016 for the following purposes: (a) INR (Indian Rupees) 18 Crores (see below) to pay a one-time royalty/technical know-how fee to certain LESCs, the first of which is intended to be Birla Edutech Limited, an affiliate/associate company of ACE. [NOTE: A Crore, an Indian monetary term, equals 10,000,000 rupees; a rupee is currently worth approximately $.015. So, the 18 Crores noted above is approximately $2,700,000]; (b) sourcing and arranging 50 Crores (approximately $7,500,000), to buy specified education assets in Lavasa City, India, for which the Registrant is the allowed assignee of a conditional binding agreement with LAVASA Corporation, as described below; (c) sourcing and arranging 18 Crores (approximately $2,700,000) to enable the BSKLS JV to make a bid to acquire, from public shareholders, the majority shareholding in the publicly listed (on the Mumbai Stock Exchange) Education Services Company of the Birla Group; (d) sourcing and arranging $1,500,000 to pay professional advisers; (e) 120 days after the open offer is made to the targeted education services, and assuming that the open offer is accepted after it is made, raising an additional $10,000,000 towards purchasing additional capital in the targeted education services company described in (c) above
;
and (f) organizing the InvIT and initiating the acquisition of the assets described in (b) above
. None of the above payments have been made by the Company as of the date of this Annual Report on Form 10-K.
If the Registrant is unable to raise the funds in (a), (b) and (c) above, totaling $12,900,000, from Investors on or before Oct 31, 2016 (the earlier date prior to extension was June 30, 2016), and if ACE does not grant a further extension, ACE has the right to terminate the BSKLS Agreement, and the Registrant would then have no further rights or liabilities in the BSKLS Agreement.
In the BSKLS Agreement, ACE has agreed to ensure that the first LECS, which is intended to be Birla Edutech Limited, a group company of Birla Shloka Edutech Ltd, (BSEL), will provide the following services to the BSKLS JV regarding the LESCs: (a) guidance in obtaining approvals from the education and other Indian State and local authorities to complete the proposed acquisitions; (b) guidance in obtaining authorizations from the relevant Government Boards for education (c) assistance in recruiting well qualified teaching and other staff , and providing training; (d) providing information technology, hardware and other e-learning aids; and (e) assistance in setting up the administrative and other support services at the schools which are set up by the BSKLS JV.
There are provisions in the BSKLS Agreement by which the Registrant and ACE intend to maintain equal ownership (26% each, assuming that investors own 48%); however, there are other provisions by which one party may acquire shares of the other, in certain circumstances. There are also provisions that the parties will cooperate with each other in the event that the BSKLS JV attempts an initial public offering.
As the Registrants first proposed acquisition in accordance with the BSKLS Agreement, on April 25, 2016
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the Registrant became the permitted assignee, from SIRI, of a Conditional Binding Agreement (the Lavasa Agreement) between SIRI and Lavasa Corporation Limited (Lavasa), located in the city of Lavasa, India. The Lavasa Agreement provides that the Registrant, as assignee, intends to acquire up to100% of the assets (the DHIL) Assets) of Lavasas subsidiary Dasve Hospitality Institutes Limited (DHIL) (fully operational School building), and other Infrastructure Assets (such as student apartments, staff housing, management villas, etc.) from Lavasa Corporation. These assets were initially valued at a gross value of 1,042 Crores and offered to SIRI (now the Registrant, by assignment) at a 25% discount, for 782 Crores.
The Lavasa Agreement provides that the Registrant, as the permitted assignee, has the right to acquire the DHIL Assets for a 25% discount from the most recent valuation, i.e., for a net purchase price of INR 782 Crores (approximately $117,300,000). The Lavasa Agreement further provides that 252 Crores worth of Completed Assets (initially valued at approximately $37,800,000) including the DHIL Assets, are to be acquired by the Registrant investing 28.11 Crores (approximately $4,216,500) before May 5, 2016; an additional 105.87 Crores (approximately $15,880,500) before May 31, 2016, and the balance of 118.02 Crores (approximately $17,703,000) on or before July 7, 2016; these dates has been extended, as described below. Assuming that the Registrant is able to secure the financing of this $37,800,000, as to which there is absolutely no assurance, the Registrant will then have until February 22, 2017 to raise the remaining 530 Crores (approximately $79,500,000).
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To purchase the Lavasa DHIL Assets and the supporting Infrastructure Assets and acquire the Education Services Company, the Registrant intends to raise a total of $49,500,000 as soon as practicable, which is to be allocated as follows: (a) the first $37,800,000 to acquire the DHIL Assets from Lavasa; (b) to pay Birla Shloka, $5,700,000, to acquire a 52% equity stake in BSEL; (c) an estimated $5,000,000 for capital expenditures to improve the school to international standards that Ecole Hoteliere, located in Lausanne, Switzerland, which is one of the worlds most respected hotel management schools, expects Lavasa DHIL to maintain under its agreement with DHIL; and (d) $1,000,000 for working capital.
There is absolutely no assurance that the Registrant will be able to raise the capital required to perform as required in accordance with the Lavasa Agreement.
The Registrant intends to use its best efforts to raise this capital by a combination of (a) an offering of the Registrants securities under Regulation S, primarily to Indian investors under Indias Liberalized Remittance Scheme, as enacted by the Reserve Bank of India, which allows each Indian citizen to invest up to $250,000 per year outside India; (b) a US Regulation D offering, primarily to high net worth US based Indian investors; (c) investments from boutique Private Equity Firms; (d) investment bankers; and (e) through Debt Sources. As of the date of this Report, the Registrant has not retained the services of any investment banker or other similar source of financing, and neither the Regulation S nor the Regulation D offerings have commenced.
In pursuance of this effort with Lavasa, Registrant engaged JLL (Jones Lang LaSalle a Mumbai-based professional Investment Management Company specializing in Real Estate) to provide an Independent Valuation Report to assess the appropriateness of the pricing of the proposed acquisition.
JLL released their draft valuation report and valued The Lavasa Completed Assets under acquisition consideration at a valuation approximately 20% lower than earlier estimated (after netting 25% discount) by Lavasa; and for that reason the Registrant is engaged in renegotiating the offering price with Lavasa. The Registrant also advised Lavasa that it intends to have the bank which financed these assets included as part of an amended agreement; i.e., the amended agreement would be a tripartite document, consisting of the Registrant, Lavasa and Lavasas creditor bank.
Renegotiation of the price with Lavasa, and Registrants request to have Lavasas bank as a party to an amended agreement, is consuming time, necessitating the Registrant to seek extension of time until Oct 31, 2016 to complete the first phase of acquisition
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Both the BSKLS Agreement and the Lavasa Agreement provide that SIRI, and the Registrant as the authorized Assignee, will have no liability as a result of its non-performance on or before the stipulated dates. In addition, the BSKLS Agreement and the Lavasa Agreement both provide that they are not all or nothing sales of assets, meaning that if the Registrant raises enough capital to acquire some, but not all, of the assets, the Registrant and the investors will own the assets for which it pays.
In addition to the BSKLS Agreement and the Lavasa Agreement, on April 25, 2016
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the Registrant became the permitted assignee from its affiliate SIRI of an agreement (the Windflower Agreement) with Siddharta Resorts & Foods Pvt. Ltd. (Siddharta), a privately-owned company located in Mysore, India, by which SIRI--now the Registrant-- agreed to raise the capital required to acquire interests in certain hotels (the Windflower Hotels) in India, described below, in exchange for which SIRI--now the Registrant--will receive the interests in the seven Windflower Hotels, each of which has from 40-100 rooms for guests, described below. The Windflower Agreement calls these assets slump sale assets because, under the Income Tax Act of India, a 'slump sale' means the transfer of the whole, or part of a business undertaking that is capable of carrying out operations independently, for a lump sum consideration, without assigning values to individual assets and liabilities.
Siddharta is the owner of the seven Windflower Hotels; further information about the first five Hotels listed below can be found on the Siddharta website,
www.thewindflower.com
. The sixth and seventh Windflower Hotels listed below have separate websites, as listed below. Because the Registrant has become the assignee from SIRI, the following description of the terms of the Windflower Agreement substitutes the Registrant in place of SIRI, which was the original party to the Windflower Agreement when it was signed on January 28, 2016.
The initial Windflower Agreement gave the Registrant the exclusive right: (a) until July 12, 2016, to raise the first $22,500,000 to pay Siddharta, which will allow the Registrant to place the seven Windflower Hotelsthe Hotel Assetsinto an Indian Real Estate Investment Trust (REIT) described below, giving the Registrant a 19% interest in the Hotel Assets; and (b) if the Registrant successfully raises the $22,500,000, an additional 30-45 days from July 12, 2016 to raise an additional $40,500,000, most of which will be paid to HDFC Bank in India, so that the Registrants 19% interestwhich will then be 18%--will be virtually debt-free.
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On July 12, 2016, the Registrant and Siddharta signed an Addendum to the original Memorandum of Understanding, which extended the Registrants obligation to perform, subject to the following: (1) the Registrant is to complete its due diligence of Siddharta within 45 days from July 12, 2016, provided that Siddharta provides all of the documents and information in a timely manner, and if there is any delay in Siddharta providing the requested information, the 45-day period will not be strictly construed; (2) provided that Siddharta provides the requested documents and information in a timely manner, the Registrant will have 6o days from July 12, 2016 to provide a commitment of the Investment Amount (150 Crores, i.e., $22,500,000); (3) evidence of the commitment may be shown by opening an escrow account in a reputable bank (in India) and depositing the Investment Amount in escrow; or arranging for commitment letters from investors identified by the Registrant committing to the full Investment Amount, or a statement of account from a bank which confirms the balance of the Investment Amount in that bank, or any other more agreed in writing by the parties. Closing of the transaction is also subject to the execution of a definitive agreement and the satisfaction of all other closing conditions
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The current Agreement, which is being renegotiatedsee belowprovides that if the Registrant does not provide the commitment described above within the time periods described above, then the transaction will be terminated, unless the parties mutually agree not to terminate the transaction subject to the Registrant paying $100,000 to Siddharta, which payment may be waived by Siddharta.
On August 1, 2016, JLL released its draft valuation report and valued the SRFL assets under acquisition at a valuation slightly lower than earlier estimated by SRFL under a different method of valuation; and for that reason Registrant renegotiated the offering with SRFL Management. On 13
th
September 2016, Registrant signed a Third Addendum, with Revised Terms that state that (a) the Agreement date is extended until the end of 31
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of October 2016; (b) the initial investment amount remains unchanged at INR 150 Crores (approximately $22,500,000), partially in equity and partially as secured debt; (c) Registrant and its investors would receive 50% Equity of SRFL post-diluted for the portion of the amount out of INR 150 Crores ($22.5 Million) invested as equity; and SRFL would initiate transfer of assets into a separate entity exclusively formed for the purpose either by slump sale or by demerging the assets under acquisition.
With the revised terms and extension successfully renegotiated, the Registrant intends that the first $22,500,000 will be raised by a combination of private capital pursuant to SEC Regulation D (Rule 506 offering to Accredited Investors only), and Regulation S (to non-US persons). Further, Registrant may raise this money either directly into itself or through a specific Indian or US Entity for management and control purposes.
Thereafter, the Registrant intends to raise the next $40.5 million from non-US sources once the first $22,500,000 is raised. However, no investment commitments have been sourced so far. If and when the required $40,500,000 is raised, that would entitle those investors and the Registrant to their respective ownership interests in the Hotel Assets, set forth below.
The Hotel Assets are the following:
1) The Windflower Coorg
2) The Windflower Tursker Trails Bandipur
3) The Windflower Vythiri
4) The Windflower Pondicherry
5) The Windflower KarsargodNorth Kerala
6) The Windflower Karwar (website
www.olivegardenresortkarwar.com
)
7) The Windflower Alleppey (website
www.riverineresortalleppey.com
)
IF THE REGISTRANT FAILS TO RAISE THE FIRST $22,500,000 ON OR BEFORE THE DEADLINE IN THE EXTENSION, AND NO FURTHER EXTENSION IS GRANTED, SIDDHARTA HAS THE RIGHT TO TERMINATE THE WINDFLOWER AGREEMENT, THE 19% OF THE HOTEL ASSETS WHICH WAS CONDITIONALLY TRANSFERRED TO THE REGISTRANT ON APRIL 12, 2016 WILL REVERT TO SIDDHARTA, AND THE REGISTRANT WILL OWN NONE OF THE WINDFLOWER ASSETS.
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Assuming that the Registrant or a newly-formed subsidiary
raises the required funds for any of these proposed Windflower transactions, the Registrant will then have the option to either initially establish a Special Purpose Vehicle for some or all of these Assets and then transfer the SPVs assets to the REIT, or transfer these Assets directly into the REIT. The decision of whether to establish a SPV first or whether to transfer these assets directly to the REIT will depend on factors mostly involving issues of Indian laws and regulations, including the tax effects, timing, and relative costs. The Registrant has retained the Mumbai office of the Indian law firm Rajani & Associates, to (a) advise the Registrant as to which way to proceed, and (b) provide a legal opinion that the transactions with the Registrant are permissible under Indian law, which opinion is expected to be similar to the opinion which the Registrant received from its Indian legal counsel regarding the BSKLS Agreement and the attorneys are actively progressing in conducting legal due diligence.
The Registrants responsibility is to raise the capital required and to eventually become a sponsor and equity-holder of the REIT. With the grant of 19% stock ownership on April 12, 2016 (subject to reversion as noted above), the Registrant initiated steps to appoint the required intermediaries for organizing the REIT for Windflower. Indian law requires the REIT to appoint the following: a Securities & Exchange Board of India (SEBI)-regulated and recognized Custodian; Category I Merchant Bankers, an Evaluation Company, and Project Managers to manage the assets owned or operated by the REIT. Accordingly, the Registrant has appointed Rajani & Associates as the attorneys to the REIT; and is in the process of identifying and appointing the other required intermediaries. The Registrant is negotiating with ILFS (a SEBI registered Custodian) and with CIMB Securities, an Indian broker-dealer/merchant bank, regarding appointing them as Custodian and Merchant Bankers to the REIT, respectively. As of the date of the filing of this Form 10-K, neither has been appointed. Windflowers current management personnel are expected to remain, operate and manage the Hotels under their brand name, or under any chosen Hospitality Brand at their discretion.
If the Registrant raises the required capital within the timeframes below, the Registrant will become the owner of the Hotel Assets forth below:
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Name of
Assets
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Capital Required
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Deadline(4)
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Registrants Interest
in SPV/REIT
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Hotel Assets
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$
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22,500,000
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Oct 31, 2016
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19.00% Equity in SPV/REIT(1)
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Hotel Assets
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$
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40,500,000
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45-60 days after SEBI authorizes the offering (2)
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18.00% Equity in SPV/REIT(3)
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Total:
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$
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63,000,000
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(1) On April 12, 2016, Siddharta transferred this 19% equity stake to the Registrant; however, it is subject to reversion back to Siddharta if the Registrant fails to raise the required $22,500,000 on or before the deadline, if, as and when extended.
(2) Soon after SRFL transfers assets against Phase I investment of $22.5 Million into a separate entity, which shall be no later than December 31, 2016, that assets holding entity with Registrant (and/or its subsidiary) and SRFL (and/or its founders) as equity owners shall sponsor the Hospitality REIT per Indian Laws for absorbing 100% of equity of the assets holding entity in exchange for REIT Units.
(3) The Registrant will own an 18.0% equity stake in the Windflower Assets if the Registrant within the timeframes above raises all $63,000,000.
(4) The deadline to pay for initial assets has been extended to October 31, 2016
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Provided that the Registrant raises the required capital, the Windflower Agreement stays in effect for five years from January 28, 2016, during which time the Registrant will have a right of first refusal on any future capital raising transactions involving Siddharta which bear the Windflower brand name.
In addition to the Registrants obligation to raise the required capital, completion of any of the above-described transactions is subject to, among other things, (a) satisfactory due diligence regarding the proposed assets to be acquired, which due diligence has begun and is continuing; and (b) the receipt by the Registrant of audited financial statements in accordance with U.S. Generally Accepted Accounting Principles, prepared by an accounting firm that is registered with the SECs Public Company Accounting Oversight Board. For that purpose as we reported in the Form 8-K filed with the SEC on June 8, 2016, the Registrant retained BDO India as its auditors for these transactions, and for the Registrants financial statements for the fiscal year ended May 31, 2016. In the event that BDO India cannot provide a satisfactory auditing opinion for the Hotel Assets or the Lavasa Assets, the Registrant will be unable to acquire any assets or businesses which are not audited.
The above descriptions of the terms set forth in these initial Agreements and the Extension from Siddharta are qualified in the entirety by reference to the agreements themselves, which are Exhibits to the Reports on Forms 8-K on April 27, 2016 and July 27, 2016, respectively.
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The Registrant has received a legal opinion from Shardul Amarchand Mangaldas & Co, its Indian legal counsel for the Lavasa transaction, to the effect that it is permissible under Indian law for Indian persons or entities to enter into agreements with non-Indians, subject to adherence to the Indian Foreign Direct Guidelines as applicable to the respective asset sector into which the Registrant is investing.
EMPLOYEES
At present, we have one full-time employee, as our head of corporate affairs, who is located in India. We also have Services Agreements with our Executive Chairman, two other directors (one of whom is also Director of Corporate Communications), our Interim CFO, and with our Head of Institutional Sales. All of these persons are located in the U.S., and all of them work such hours as necessary. We presently do not have pension, health, annuity, insurance, stock options, profit sharing or similar benefit plans; however, we may adopt such plans in the future
US Service Agreements:
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1.
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Hadley Donenberg
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Chairman
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2.
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Dr. Raj Bodepudi
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Vice-Chairman
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3.
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Louise Jones
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Head of Institutional Sales
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4.
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Laxmi Prasad
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Interim CFO & Global Operations Head
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5.
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Likhitha Palaypu
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Director of Corporate Communications
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India Employees
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1.
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Surya Narayanan
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SVP Corporate Affairs
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The Registrant has also signed agreements with several consultants, mainly in India, for developing business; and the Registrant has plans to engage some of them in management roles, if it finds their performances satisfactory.
Our principal executive office address is located at 645 Fifth Avenue, Suite 400, New York, NY 10022. Our phone number at that office is (212) 371-7799.