- iLearningEngines (NASDAQ:AILE) is a self-described “AI-powered learning automation” software company based in Bethesda, Maryland that was incorporated in 2010 and went public via a SPAC deal in April 2024.
- The company claims to be a fast growing and high margin “early pioneer in enterprise AI” operating in the corporate and educational learning space. We disagree. We suspect both the company’s revenue and expenses are largely fake.
- iLearningEngines was borderline insolvent when it merged with a desperate SPAC sponsor that was quickly running out of time to get a deal done. It had just $800,000 in cash and $22 million in debt prior to the merger.
- Nearly all of company’s revenue and expenses (~96% of revenue and ~100% of CoGs in 2022) seem to be run through an undisclosed related party, an unnamed “Technology Partner”.
- In November 2023, prior to the IPO, the SEC specifically asked if the “Technology Partner” was a related party. The company responded to the SEC that it “is not a related party”.
- We unmasked the “Technology Partner” as a UAE-based entity named Experion Technologies, based on our analysis of documents associated with a debt transaction. We believe the entity is an undisclosed related party and that iLearningEngines has lied to the SEC.
- The American contact for “Technology Partner” Experion was listed as none other than the CEO of iLearningEngines, according to a web capture from 2020. A 2022 web capture listed the American address for Experion as the personal residence of iLearningEngines’ CEO.
- The latest Indian corporate records for Experion’s India affiliate list current iLearningEngines senior employees as directors and shareholders. UAE corporate records from June 2024 indicate Experion is partially owned by the brother of iLearningEngines’ senior director of channel partnerships.
- Earlier UAE corporate records from 2019 indicate Experion was headed by iLearningEngines’ President and Chief Business officer and its AVP of business development.
- Despite claiming to generate vast and growing revenue, iLearningEngines has no obvious industry presence, doesn’t name key customers or partners and does not appear to do the volume of business it claims.
- For example, iLearningEngines claims its Indian market has an annual revenue run rate of $216 million. The financials for its sole Indian subsidiary reported ~$853,471 in revenue for its latest fiscal year, or ~99.4% less than iLearningEngines’ claimed revenue in the country.
- iLearningEngines’ auditor Marcum LLP was fined $3 million in June 2023 by the Public Company Accounting Oversight Board (PCAOB) for significant audit quality control issues.
- The SEC also charged Marcum LLP in 2023 for widespread audit deficiencies in connection with SPAC audits and separately fined it $10 million. We think Marcum has yet again failed to uphold basic auditing standards.
- We believe the majority of iLearningEngines’ revenue doesn’t exist, and that its relationship with the mystery “Technology Partner” is merely a conduit for falsifying its financials. We do not expect it will remain a public company for long.
Initial Disclosure: After extensive research, we have taken a short position in shares of iLearningEngines, Inc. (NASDAQ:AILE). This report represents our opinion, and we encourage every reader to do their own due diligence. Please see our full disclaimer at the bottom of the report.
Background & Basics:
iLearningEngines (NASDAQ:AILE) is a self-described “AI-powered learning automation” software company based in Bethesda, Maryland that was incorporated in 2010 and went public via a SPAC deal in April 2024.[1] It quickly reached a peak market value of around $1.5 billion in July before fading to around $500 million as of this writing.
The company claims to be an “early pioneer in enterprise AI” operating in the corporate and educational learning space, and boasts more than 1,000 enterprise customers and 4+ million licensed users for its “AI-led automation” offering. [Pg. 14]
In its investor presentation, it describes its AI platform:
“iLearningEngines is an out-of-the-box AI platform that empowers customers to ‘productize’ their institutional knowledge and generate and infuse insights in the flow-of-work to drive mission critical business outcomes.” [Pg. 3]
According to company President Balakrishnan AP, iLearningEngines has achieved a trailing 5-year compounded annual growth rate (“CAGR”) of 48%, which culminated in record full-year 2023 revenue of $420.6 million.
In its most recent Q2 2024 results, iLearningEngines reported 34% year-over-year revenue growth and a 69% gross profit margin.
Overall, iLearningEngines presents itself as a fast-growing, asset-light, high-margin AI pioneer that “stands out in the market” with “a rare combination of scale, growth and profitability,” per its investor presentation. [Pg. 10]
Curiously, despite its scale, Maryland corporate records show that the company’s principal office is located in a Maryland suburb at what appears to be the personal residence of its CEO, Harish Chidambaran.[2]
The official address for its headquarters, as listed in its SEC filings, leads to a single office suite in Bethesda, Maryland, which is shared by many companies and appears to be a virtual/co-working space.[3]
Background: iLearningEngines Was Borderline Insolvent When It Merged With A Desperate SPAC Sponsor That Was Quickly Running Out Of Time To Get A Deal Done
iLearningEngines went public via a special purpose acquisition company (“SPAC”) merger with Arrowroot Acquisition Corp (“Arrowroot”).[4]
Arrowroot originally began trading in March 2021, raising $287.5 million with the intent to seek out a merger candidate in the enterprise software industry. [Pg. 158] By February 2023, on the tail end of the SPAC boom, Arrowroot struggled to identify a suitable merger target and extended its deadline to close a business combination from March 4, 2023 to July 6, 2023. [Pg. 1]
Against this ticking clock, Arrowroot and iLearningEngines announced a merger the next month, in April 2023.
Just prior to the deal closing, the still-private iLearningEngines was in a dire financial state, reporting just $800,000 in cash, $22 million in debt, and an accumulated deficit of $47.1 million as of March 2024.
The merger closed the next month, on April 16th, 2024, valuing the combined company at $1.4 billion.[5]
By the close of the merger, funds in the SPAC’s trust account had declined 98%, from $287.5 million to $5.9 million, due to most stockholders electing to redeem their shares for cash instead of becoming investors in the newly merged entity.[6]
Part I: iLearningEngines’ Revenue And Expenses Seem To Almost Entirely Be Run Through An Undisclosed Related Party
iLearningEngines Has A Long-Term Relationship With An Unnamed “Technology Partner”
Virtually All Of iLearningEngines’ Business (~92.6% Of Revenue And ~96.7% Of CoGS in 2023) Were Reportedly Run Through The “Technology Partner”
An iLearningEngines prospectus dated February 2, 2024, discloses that substantially all the business of iLearningEngines flows through another company, which is vaguely referred to as its “Technology Partner” – a term that appears 103 times in the prospectus. [Pgs. F20-21]
The prospectus says that the “Technology Partner”:
“Provides research and development (“R&D”), sales and marketing, and implementation and support services to the Company. In addition, the Technology Partner also purchases, integrates and resells the Company’s platform to end customers.”
In 2023, collections by the Technology Partner were $389.4 million, or 92.6% of iLearningEngines’ total revenue of $420.6 million. Cost of services provided by the Technology Partner of $388.2 million were 96.7% of iLearningEngines’ 2023 cost of revenue, SG&A and R&D expenses combined.[7]
Earlier in 2022, expenses incurred by the Technology Partner represented 99.9% of the company’s total cost of revenue and R&D expense and 91.5% of its SG&A expenses in 2022. [Pgs. F-4, F-20] Similarly, “collections” from the Technology Partner of $297.7 million represented 96.3% of total 2022 revenue. [Pgs. F-4, F-21]
Despite the obvious risk that this concentration with one entity represents, iLearningEngines wrote in correspondence with the SEC in November 2023 that “iLearningEngines believes its business is not dependent on any single channel partner or related contract.”[8]
ILearningEngines’ Terms With Its Mystery “Technology Partner” Seemingly Make No Rational Business Sense, Raising Questions Of Whether The Entity Is An Arms-Length Relationship
Example: iLearningEngines Isn’t Required To Pay Back Money Owed To The Mystery “Technology Partner” Until 10 Years After The Agreement Is Terminated
Under the terms of a 2019 “Master Agreement” with its mystery Technology Partner, iLearningEngines agrees to net off monies owed to and from the partner.[9]
In effect, this meant that even though iLearningEngines accrued revenue of over $420.6 million in 2023, $389.4 million of this was collected by the Technology Partner. Then, $388.2 million was netted against this as “Cost of services provided by [the] Technology Partner”, resulting in just $1.2 million in net money generated by iLearningEngines’ relationship with the Technology Partner for 2023.[10]
As of December 31, 2023, iLearningEngines had a balance payable of $49.2 million to the Technology Partner. This implies that in 2023, the net benefit generated by iLearningEngines’ relationship with its Technology Partner was the reduction of an account payable by $1.2 million.
The terms of the arrangement appear to be asymmetrically favorable to iLearningEngines. For example, the agreement says that iLearningEngines doesn’t have to pay back its mystery partner for amounts owed until 10 years after the agreement is terminated.
We are unfamiliar with any normal business arrangement that allows a counterparty to wait a decade to pay back money owed in a terminated relationship.
In November 2023, Prior To The IPO, The SEC Specifically Asked Whether iLearningEngines’ Mysterious “Technology Partner” Was A Related Party
The Company Responded To The SEC That It “Is Not A Related Party”
In November 2023 correspondence with the SEC, iLearningEngines was asked point blank by the securities regulator to “please confirm whether the Technology Partner is a related party.”
The company’s response:
Response: “The Company respectfully acknowledges the Staff’s comment and advises the Staff that the Technology Partner is not a related party and they do not hold any financial interests in iLearningEngines.”
We found numerous indications that the company’s representation to the regulator was flat out false or grossly misleading.
To Check This, We First Needed To Unmask The “Technology Partner”
The Unnamed “Technology Partner” Is A Dubai-Based Entity Named Experion Technologies, FZ LLC Based On Our Analysis Of Documents Associated With A Debt Transaction Executed By iLearningEngines
On July 1st, 2019, iLearningEngines entered into a “Master Agreement” with its Technology Partner, per its filings.[11] The agreement had an initial term of 5 years, with an automatic renewal for 5 additional years.
On April 17, 2024, after completing the SPAC transaction, iLearningEngines announced a credit facility of up to $40 million with a bank. As part of the deal exhibits, the opening paragraph of a subordination agreement with the bank discusses another key agreement for the company:
“Experion Technologies, FZ LLC… party to that certain Master Agreement, dated as of July 1, 2019, between Subordinated Creditor [Experion] And Borrower [iLearningEngines] (the ‘Master Agreement’)”
In other words, Experion Technologies, FZ LLC was party to a “Master Agreement” signed on the very same day, making Experion the Technology Partner.[12]
The bank deal was signed by “G Santosh Kumar” on behalf of Experion. A LinkedIn page for Santosh Kumar Gopinathan shows he is the CEO of UAE-based and similarly-named Experion Technologies Middle East & Africa FZ LLC (“Experion MEA”):
The address used on the subordination agreement for Experion Technologies, FZ LLC is the same Dubai virtual office used by Experion MEA, strongly indicating that the two entities are affiliated.
The Experion MEA website specifically discusses its role in developing the iLearningEngines product offering, confirming its relationship providing technology services for the company:
The relationship seems to be long-standing. Archived pages from Experion MEA’s website show that Experion and iLearningEngines have been working together as far back as June 2013:
Sign #1 That “Technology Partner” Experion Is An Undisclosed Related Party:
The American Contact For Experion Was None Other Than The CEO Of iLearningEngines, Per A Web Capture From 2020
A Later Web Capture From 2022 Showed The American Address For Experion Was The Personal Residence Of iLearningEngines’ CEO
Once we unmasked the “Technology Partner”, we found strong indications that Experion is a related party of iLearningEngines, contrary to the company’s claims to the SEC.
A review of archived web pages from Experion MEA shows that as recently as February 2020, the contact listed for “Experion Technologies America” was in fact iLearningEngines CEO Harish Chidambaran. It listed the same residential address in Maryland where iLearningEngines is registered, the personal residence of the CEO:
The specific reference to Harish Chidambaran was removed by January 2022, two months before AILE reiterated its “go to market plans”, but in January 2022 the website still showed the same Washington DC location on its map and identified this location as a “Sales Office” and “Service Delivery Center”.
Sign #2 That “Technology Partner” Experion Is An Undisclosed Related Party:
Indian Corporate Records For Experion’s India Affiliate Show That Current iLearningEngines Senior Employees Are Directors And Shareholders, Underscoring That It Is An Active And Undisclosed Related Party
Indian corporate records show that the entity “Experion Infosystems Private Limited” (“Experion India”) was incorporated in November 2017. The entity uses the same “@experionmea.com” email domain in its filings and shares key individuals with Experion MEA, showing its affiliation with the UAE entity.
2 of 3 Experion India directors—Ratish Nair and Tom Thomas—both appointed in November 2017, are current senior employees at iLearningEngines, highlighting a direct and ongoing related-party tie between Experion and iLearningEngines. [1, 2]
Indian corporate records show the most recent “Director’s Report” for Experion India as of March 2023 names 3 total directors. There have been no other director or resignation filings since, indicating that Ratish Nair and Tom Thomas are active directors at Experion India.[13]
Tom Thomas is a Senior Project Manager at iLearningEngines, per his LinkedIn. Thomas was also featured as a Director of Service Delivery, per a March 2023 iLearningEngines investor presentation filed with the SEC. [Pg. 43]
Ratish Nair is the current iLearningEngines “AVP – Sales & Business Development”, per the iLearningEngines website and corporate presentations.
Beyond directorships, Indian corporate records show that Tom Thomas and Ratish Nair are also current holders of Experion India shares, further evidencing the related party nature of the relationship.
Beyond those two current directors, Experion India was founded by a key iLearningEngines senior employee. Experion India listed current iLearningEngines’ President and Chief Business Officer, Balakrishnan A.P as a founding board member and the initial contact (“B. Krishnan”) for the entity in Indian corporate records. [Pgs.1-2] He was listed as a director and shareholder until April 25th, 2022, three weeks after iLearningEngines had reiterated its “go to market plans.”[14] [15]
Sign #3 That “Technology Partner” Experion Is An Undisclosed Related Party:
UAE Corporate Records From June 2024 Indicate That Experion Is Partially Owned By The Brother Of iLearningEngines’ Head Of Channel Partnerships
This Familial Relationship Is Not Disclosed In iLearningEngines’ Filings
The senior director of iLearningEngines channel partnerships is Cherian K Philip, according to his LinkedIn profile and company press releases.
Cherian Philip’s name does not appear in iLearningEngines SEC filings, but he was present for iLearningEngines’ Nasdaq bell ringing ceremony in New York and appears close to CEO Harish Chidambaran and President Balakrishnan A.P in a photo from the event.
Cherian Philip’s brother is named Jojo Philip, which we found by comparing Indian court records and addresses and relationships described in the court records. [16] [17] [18]
In addition to his 35% ownership in Experion India, Jojo Philip is also a 45% owner of Experion MEA, according to a June 2024 records report provided by corporate intelligence firm Diligencia:
Note that the same brother, Jojo Philip, is the founder and CEO of Synergy Technologies AI, a “gold partner” of iLearningEngines. The address used for Synergy Edulearn, an apparent affiliate entity, is registered at the same address in Kochi, India used by Jojo Philip in Experion India filings, as shown in Indian corporate records. We suspect this is another undisclosed related party entity.
Sign #4 That “Technology Partner” Experion Is An Undisclosed Related Party:
Earlier UAE Corporate Records From 2019 Indicate That Experion Was Headed By iLearningEngines’ President & Chief Business Officer And It’s AVP Of Business Development
A report from corporate intelligence firm Diligencia based on earlier 2019 UAE government records shows the managing director of Experion MEA listed as “Balakrishnan Parameswaran Nair Arakkal”:
The name is a match for the shorthand of “Balakrishnan A.P.”, the current President and Chief Business Officer of iLearningEngines:
The November 2019 Diligencia report lists two iLearningEngines senior employees as owners and managers of Experion MEA: [19]
- Balakrishnan Arakkal Parameswaran aka Bala Krishnan, the current iLearningEngines “President and Chief Business Officer”.[20] [Pg. 9] As noted earlier he was the initial contact for and shareholder of Experion India.
- Ratish Nair, the current iLearningEngines “AVP — Sales & Business Development”, per the iLearningEngines website and corporate presentations. [Pg. 44] As noted earlier, Ratish Nair is also a current director and shareholder of Experion India.
Below is the snapshot of the historic ownership records from Diligencia:
iLearningEngines’ Ratish Nair is also listed as the current contact email on Experion MEA‘s Facebook page, further evidencing an ongoing relationship:
Sign #5 That “Technology Partner” Experion Is An Undisclosed Related Party:
iLearningEngines’ Official SEC Biography For Its President Identifies That He Was “Executive Director” At Experion , But Claims His Role Ended In 2014
This Seems To Be False, Based On Data Derived From UAE Corporate Records And Web Archives Through 2019
iLearningEngines’ related party relationship with Experion goes back almost a decade, and it seems the company has tried to hide it for just as long.
iLearningEngines’ June 2024 S-1 prospectus filing provides background experience of President & Chief Business Officer Balakrishnan, saying that he “joined iLearningEngines in 2014”. [Pg. 94]
Later, the same filing reports that Balakrishnan’s role prior to his iLearningEngines tenure was serving as “Executive Director at Experion Technologies from 2011 to 2014”, indicating that his role with Experion ended that year. [Pg. 100] This claim in an SEC-filed prospectus seems demonstrably false—evidence shows his senior-level role extended much longer.
For example, Balakrishnan was listed as the Experion MEA CEO in an August 2015 web capture of the Experion website:
He continued to be listed as Experion’s CEO through 2019 – after which Experion simply stopped posting this section of their website.[21]
Part II: We Suspect The Vast Majority Of iLearningEngines’ Revenue Is Fake
Typically, hiding a fake revenue scheme creates some challenges from an accounting perspective:
- Legitimate customers are often unwilling to participate in fraudulent schemes, so fake revenue typically must be generated through an undisclosed related party.
- Fake revenue is difficult to collect and convert into cash, often resulting in elevated accounts receivables balances.
- Fake revenue typically has a 100% gross margin because there is no actual product or service being sold. For margins to look realistic, fake revenue must be offset by fake expenses.
We think iLearningEngines’ ‘netting off’ arrangement with Experion is as an elegant solution that solves all 3 issues:
- By claiming that virtually all of its business takes place through Experion, the company can put a layer between it and the suspect transactions in an offshore, opaque jurisdiction.
- The unusual circular structure makes it easy to inflate both revenue and cost figures while only netting out a minimal difference.
iLearningEngines’ relationship with “Technology Partner” Experion has all the hallmarks of an illegitimate, undisclosed related party relationship. But beyond that, additional glaring business and financial red flags indicate a strong likelihood that iLearningEngines’ revenue is largely fake.
iLearningEngines Claims Its Indian Market Has An Annual Revenue Run Rate Of $216 Million
The Latest Financials For iLearningEngines’ Sole Indian Subsidiary Reported $853,471 In Revenue For Its Latest Fiscal Year, Or ~99.4% Less Than iLearningEngines’ Claimed Revenue In The Country
iLearningEngines claims that India represents its 2nd largest market, comprising 38.7% of its 2023 revenue, or $162.9 million. In Q2 2024, iLearningEngines’ India market accounted for $54 million in revenue, representing a 30.4% YoY increase and an annual run rate of $216 million.
We have reviewed financials for iLearningEngines’ sole India subsidiary, ILE iLearningEngines India, and found that contrary to these claims of vast India revenue and growth, the entity reported minimal economic activity.
Despite iLearningEngines’ claim that India comprised $138 million in revenue for 2022, the latest Indian subsidiary records show total revenue of just ~$853,471 for its fiscal year ending in March 2023, or 99.4% less than iLearningEngines’ claimed revenue in the country. [Pg. 8] [22] [23]
We Visited The Pune, India Location Shown On iLearningEngines’ Website, And Found No Sign Of The Company
However, We Did Find A Separate AI Entity Co-Founded By iLearningEngines’ “Chief AI Architect”
The Separate Entity’s Website Says It Is A Partner of iLearningEngines In What Seems To Be Yet Another Undisclosed Related Party Relationship
iLearningEngines’ lists multiple offices on its “Contact Us” page. We visited and found office space in line with that of a small company. Notably, when we visited iLearningEngines’ Pune, India office location we found no signage to indicate iLearningEngines had any presence in the building.
However, we found signage for an entity called E42.ai on the 5th floor.
The E42.ai website shows it is a partner of iLearningEngines and “Technology Partner” Experion.
The same website also shows that E42.ai is co-founded by an individual named Sanjeev Menon.
The current iLearningEngines website shows Sanjeev Menon is iLearningEngines’ “Chief AI Architect”.
Sanjeev Menon was also listed in iLearningEngines’ November 2023 investor presentation as iLearningEngines’ “Chief AI Architect”, but he never appeared in iLearningEngines’ prospectus or any subsequent SEC filings.
Sanjeev’s profiles on the E42 website makes no mention of iLearningEngines, or vice versa.
E42 seems to be yet another undisclosed related-party of iLearningEngines, with Sanjeev Menon playing key roles at both companies.
iLearningEngines Claims It Generates $50 Million In Revenue Per Year From One Unnamed Customer, But Spends $30 Million Per Year To Buy “Proprietary Datasets” From The Same Customer
Based On The Size Of The Customer, The Circular Deal Appears To Either Be With Technology Partner Experion Or Facilitated Through Them
We Suspect Both The Revenue And Expenses Are Largely Fake
iLearningEngines claims that a key part of its business is acquiring “proprietary datasets” from its clients in order to train its AI. It reports that it has spent over $160 million on datasets to date.
It discloses that the data sets are purchased primarily through one annual contract where it sells its platform to an unnamed client for $50.3 million. Then, in a separate contract, iLearningEngines says it pays the same client an annual licensing fee of approximately $30 million for the data.[24]
The circular relationship is highly suspicious, to put it mildly—the odds that a key customer of iLearningEngines’ product also has a separate dataset worth ~$30 million per year seems like an unlikely coincidence.
Given that all but $31.2 million in 2023 revenue came through “Technology Partner” Experion, we can deduce that the $50.3 million in revenue contract and dataset expense deal must either be with or through this entity.[25]
In 2019, iLearningEngines Announced A $22.5 Million Per Year Deal With mPhase Technologies, A Penny Stock Company With A Cash Balance Of Just $132,000 And A Market Cap of Just $9.3 Million At The Time
The mPhase CEO Who Signed The Deal Was Later Fired Over Allegations That He Fabricated The Existence Of Its “Primary Technology” Customer, Misappropriated Funds, And Engaged In Fraudulent Payments
We Suspect The Agreement Was A Sham
Beyond questions around iLearningEngines current revenue, past deals also show signs of irregularity. In August 2019, penny stock company mPhase Technologies announced an agreement with iLearningEngines:
“This is a synergistic Agreement that will enable us to use the resources of our technology teams, particularly our recently acquired Alpha Predictions, to support the customization of products on the ILE platform,” explained mPhase CEO Anshu Bhatnagar.
Terms of the deal involved mPhase paying iLearningEngines a $7.5 million “learning subscription” and an “AI Logic” subscription for $15 million, for a combined annual total of up to $22.5 million per year. Despite the generous economics of the deal, mPhase at the time had a market cap of just $9.3 million, a cash balance of just $132,000 as of the quarter, and an accumulated deficit of $223.9 million. [26]
We do not have access to the financials of iLearningEngines prior to 2020 and there is no further mention of the contract by mPhase or iLearningEngines after the initial announcement, so we don’t know the impact or length of this arrangement.
In March 2023, mPhase (now known as Pebble) reported that its CEO at the time, Anshu Bhatnagar, had resigned due to allegations that he misappropriated funds, engaged in fraudulent payments, and falsified bank statements, among other acts.
Specifically, the company alleged that he fabricated the existence of its key customer which it referred to as a “primary technology contract” in its filings and restated all past revenue and cost of revenue figures for 2019 to 2022 to zero:
“The Company has no evidence the products or services that were reported to have been delivered under the Company’s revenue agreements were ever in fact developed, delivered, or supported.”[27]
Part III: Other Customer Relationships Indicate Minimal Revenue Activity
In 2022, iLearningEngines Acquired An Oklahoma-Based Training Company For $722,000
The Entity Comprises More Than 2 Million Users, Or At Least 41% Of iLearningEngines’ Claimed Total Users
Our Review Of Customer Contracts Found Minimal Revenue That Could Support iLearningEngines’ Publicly Reported Revenue
On April 2, 2022, iLearningEngines acquired US based In2vate, LLC (“In2vate”) in an all-stock transaction valued at $722,000, net of cash. The Oklahoma-based company “provide[s] coverage for liability, workers compensation, healthcare, law enforcement, and cyber security sectors”, per iLearningEngines’ press release.
We reviewed an In2vate/iLearningEngines presentation of services related to insurance clients and saw no significant differentiating technology in the offering.
In2vate, which had just $60,000 in accounts receivables at the time of the acquisition, contributed “more than two million users” or at least 41% of iLearningEngines’ reported 4.9 million users.
iLearningEngines doesn’t break down how much of its North American revenue comes from In2vate, but we can infer a 2022 estimate of ~$68 million, based on North America revenue metrics reported around when it was acquired.[28]
If we estimate $68 million for In2vate’s 2022 revenue contribution for its ~2 million users – we arrive at a ~$34 per user revenue estimate during the 9 months following the acquisition, or an annualized rate of $45 per user.
We found publicly available contracts that In2vate has signed with clients, and found only small dollar amounts per user. We couldn’t find any contracts to support anything close to $45 per user per year – or even $5 per user per year, for that matter. These include:
- A 2024 Employee Protection Line Services (“EPLS”) contract for $2.75 per user per year for Suwannee School District employees (which consists of 357 teachers and approximately 108 district staff). The total annual contract revenue is therefore estimated around $1,278. [29]
- A 2022 Clermont County, Ohio contract for web learning services for $5,437.50 annually.
- A 2022 Employment Risk Management Authority (“ERMA”) contract. The contract covered 227 agency organizations and had projected total revenue of $27,330 to In2vate in 2022. The contract was for a flat rate of $12,000 plus a per member organization fee of $70.
Assigning the highest annual contract rates we could find and assuming generous initiation or start-up fees per client, we believe the 2+ million “users” that iLearningEngines claims through In2vate do not add up to significant portion of iLearningEngines’ revenue.
In June 2024, iLearningEngines Announced A Partnership With UL Technology Solutions, The Technology Affiliate Of A Worker Cooperative In India
The Cooperative Had Previously Been Accused Of Overpaying Related Party Subcontractors And Was Involved In A Money Laundering Investigation
In June, 2024, iLearningEngines announced a partnership with UL Technology Solutions (“ULTS”) to “revolutionize corporate training”. Terms of the partnership were not released.
ULTS is the technology arm of the Uralungal Labour Contract Cooperative Society (“UCCLS”), the oldest worker cooperative in India, largely owned by the Kerala government, with 4,000 individual workers. It is unclear how much the value of the relationship is to iLearningEngines.
ULCCS has been accused of improperly receiving contracts in Kerala, and overpaying related party subcontractors. ULCCS was involved in an inquiry into a money laundering investigation in 2020.
iLearningEngines Website And Press Releases Indicate That Its Key Customer In India Is Vedhik Schools
The School Entity Reported 2023 Revenue Of ~$649,000 With Almost No Expenditures On Video And Digital Content, Making It Unlikely To Be A Major Source of Revenue
Despite iLearningEngines’ claiming $138 million and $163 million revenues from India in 2022 and 2023, respectively, iLearningEngines’ website and press releases predominantly show one small eLearning partner in India, called Vedhik IAS (Indian Civil Service) Academy. The school advertises its specialty in helping students pass the required courses to enter the IAS.
The most recent annual audited financial statements of Vedhik IAS Academy Private Limited, as of March 31st 2023, shows total revenues of ~$649,000, and zero trade payables.
Additionally, Vedhik IAS’ intangible assets during the period from April 2022 through March 2023 only increased by 3,250 rupees, equivalent to $42. As this was in the lead-up to the announced partnership with iLearningEngines, we would have expected to see Vedhik IAS spending more to launch this offering. However, the bulk of Vedhik IAS’ intangible assets, including video lectures and digital content, were in place prior to April 2022 and totaled $93,493 at the end of March 2023.
As of March 31st, 2023, as shown by the lack of any trade payables and minimal spending during the period by Vedhik IAS, iLearningEngines could not have generated meaningful revenues from Vedhik IAS (which had launched with iLearningEngines in the state of Kerala at the end of 2022).[30]
We checked the largest universities in India by student population and found no association or mentions with iLearningEngines or Vedhik IAS. We searched for any mentions of “iLearningEngines” + “schools” and “University” and did not find additional partnerships.
iLearningEngines Announced A November 2022 Deal With An Indian Entity That Planned To Build 1,000 Schools
Based On Our Search, The Entity Hasn’t Provided Updates On The Project In At Least A Year
There was one additional education partner that iLearningEngines lists on its website that was announced in November 2022: “Learn N Inspire”, the trade name used by Metamorphosis Engineering & Skill Development Services Pvt. Ltd.
The linked article above, states (translated):
“Kalyan Hatti (Founder and Chief Mentor of Learn N Inspire platform) said that Metamorphosis Engineering and Skill Development Services Pvt. Ltd. plans to build 1000 visionary schools across the country based on the Learn N Inspire platform.”
The partnership seems to be either in the early stages or stalled. We were not able to find any updates from iLearningEngines or Learn N Inspire regarding this partnership or their efforts to build 1,000 visionary schools.
Learn N Inspire’s YouTube channel has not been updated in 2 years and its Facebook page has not been updated in over a year. Similarly, Learn N Inspire has had no posts on X since 2021. We could find zero mentions of iLearningEngines on Learn N Inspire’s website in any section.
In short, if iLearningEngines is in fact one of the largest eLearning providers in India, we found little evidence of it.
Part IV: iLearningEngines’ Historical Websites, Business Descriptions, And IP Makes No Mention Of AI
The Company Seems To Be One Of Dozens Of Companies Now Claiming To Be An AI Play Now That The Sector Is Hot
While iLearningEngines claims to be an AI play, its history shows a complete lack of focus on, and mention of, AI.
In an archived version of the predecessor iHealthEngines website from March 2017, none of the descriptions of the iHealthEngines platform and technology mention the use of AI, machine-learning or give any indication that CEO Chidambaran was actively seeking to incorporate these technologies into the business.
The first saved web archive of the www.ilearningengines.com website is from November 2017. There is one mention of “machine learning and rules engine”. Hardly the hallmark of an AI pioneer, the business model appears to be based on crediting trainers in return for creating learning content – i.e. a rewards-based system as seen with predecessor iHealthEngines.
A search on Google Patents for patents owned by iLearningEngines shows no results. One patent; US20120251993A1 from 2012, is shown as being assigned to iHealthEngines with Chidambaran as the inventor. It focuses on a reward-based system for promoting health education, with a query function that feeds a database, with no indication that there was any innovative “AI” component.
iLearningEngines Plummeted 50% On The Day That Early Shareholders Were Permitted To Sell, Indicating That Early Investors Knew Exactly What They Owned
On August 9th, 2024 (Friday after the close) the SEC declared iLearningEngines’ S-1 registration filing from June 2024 effective. The registration was for over 123 million shares of common stock, and included almost 14 million of freely tradable shares. This meant that for the first time, those shares were registered and able to be traded.
On August 12, 2024, the first trading day after the effectiveness filing, shares traded as low as $2.65, losing over 50% of their value from the highs of the previous day’s trading session, before regaining some ground and closing at $3.05, per FactSet.
We view the sudden and cataclysmic decline as an indication that early investors knew exactly what they were buying and were seeking to exit immediately.
iLearningEngines’ Auditor, Marcum LLP, Was Fined $3 Million In June 2023 By The Public Company Accounting Oversight Board (PCAOB) For Significant Quality Control Issues
The SEC Also Charged Marcum LLP In 2023 For Widespread Audit Deficiencies In Connection With SPAC Audits And Separately Fined It $10 Million
Marcum LLP has audited the financial statements of the public company going back to 2020. As highlighted in articles in The Wall Street Journal, Bloomberg and The CPA Journal, Marcum saw its audit practice soar during the SPAC boom. Audit Analytics reported that Marcum was the top audit firm for SPACs in 2023, capturing over 40% of SPAC audits.
In September 2020, Marcum was handed a three year ban on auditing Chinese companies as a result of violating PCAOB (Public Company Accounting Oversight Board) rules and auditing standards.
In June of 2023, the PCAOB announced $3 million in fines against Marcum LLP, “the first time a PCAOB settled disciplinary order has ever required functional changes to the quality control supervisory structure of a registered firm.” The order, which was related to audit work from 2020-2021 found that Marcum violated PCAOB rules and quality control standards.
The SEC charged Marcum LLP on June 21, 2023 for “widespread quality control deficiencies.” The SEC order detailed “systemic quality control failures and violations of audit standards by Marcum from at least 2020…primarily in connection with audit work for special purpose acquisition companies (“SPACs”).”
Of particular note were specific failures within Marcum’s background check process for new audit clients:
“Marcum required only that relevant client personnel submit a form authorizing a background check, and the form relied upon client personnel to self-disclose relevant facts. Marcum personnel relied on that form completed by their clients and also conducted cursory internet searches related to the relevant client personnel.” [Pg. 6]
Upon seeing this news, a reputable company would have likely fired Marcum immediately to disassociate from its soiled reputation.
Far from being a deterrent, it would appear that the weak audit controls and lax background checks were a welcomed feature, as iLearningEngines confirmed Marcum LLP as its ongoing auditor at the closing of the merger in April 2024.
Despite the repeated sanctions from regulators, we think Marcum has once again completely failed to uphold auditing standards in the case of iLearningEngines.
Conclusion: iLearningEngines Should Have Never Been Taken Public
There have been very few SPACs that made it out of the SPAC boom unscathed. iLearningEngines missed that initial wave as all the other lousy companies got picked first. Then, scraping the bottom of that already soiled barrel, it was hoisted public this year in what we believe was a last-ditch effort by its sponsors to take something public.
Despite claiming to generate vast and growing revenue, iLearningEngines has no obvious industry presence, doesn’t name key customers or partners and does not appear to do the volume of business it claims.
We believe the majority of iLearningEngines’ revenue doesn’t exist, and that its relationship with the mystery “Technology Partner” Experion is merely a conduit for falsifying its financials.
We think iLearningEngines should have never been brought public, and suspect it won’t remain public for long.
Disclosure: We are short shares of iLearningEngines, Inc. (Nasdaq: AILE)
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[1] In 2018, the company changed its name to iLearningEngines Inc. On April 16, 2024, iLearningEngines Inc. changed its name again to iLearningEngines Holdings, Inc.
[2] To replicate this search, visit Maryland’s Business Entity Search tool and enter “ILEARNING ENGINES, HOLDINGS, INC.” County records show that 1000 Willowleaf Way is owned by Puthugramam Chidambaran. Harish Chidambaran is also known as “P.K” or Puthugramam Chidambaran, according to SEC filings.
[3] The virtual headquarters address used by iLearningEngines, 6701 Democracy Blvd., Suite 300, Bethesda, Maryland, is used by dozens of companies.
[4]Arrowroot was sponsored by Arrowroot Capital, whose affiliates also invested separately in iLearningEngines prior to the merger. Arrowroot Capital also agreed to take shares in exchange for $10.3 million in transaction expenses related to the merger. Arrowroot Managing Director Thomas Olivier is currently on the board of AILE.
[5] The valuation was supported by a fairness opinion provided by Lincoln International LLC, and was based on a multiple of reported and projected revenue. Lincoln International was compensated $650,000 for providing the opinion. Oddly, the letter from Lincoln describing the opinion wasn’t signed by a person, but rather by Lincoln the company with no one specifically named.
[6] SPAC “investors have the opportunity to redeem their shares prior to the business combination for a pro-rata share of the funds in the trust account. These redemption rights help incentivize investors by providing a ‘money-back guarantee’ of sorts, allowing them to redeem their shares at the original IPO price — typically a nominal $10 per share,” according to Reuters.
[7] 2023 Cost of revenue $132.2 million, SG&A of $140.9 million and R&D expenses of $128.5 million.
[8] iLearningEngines refers to its subordination agreement with a “channel partner” and “technology partner” – the specific net amount of $13,602,000 is referenced both in regards to a channel partner and technology partner in AILE’s S-1/A filing of July 22, 2024, confirming that this is the same entity.
[9] The “Master Agreement” itself has not been filed by the company.
[10] The expenses netted off are cost of revenue, SG&A expenses and R&D expenses. Expenses incurred by the Technology Partner comprised all but $43,000 of the company’s total cost of revenue ($132 million) for 2023. Out of $269.4 million in operating expenses in 2023, only $13.3 million (4.9%) was not to the Technology Partner.
[11] An August 2024 iLearningEngines prospectus makes reference to a Master Agreement in July saying “In 2019, the Company entered a Master Agreement (“MA”) with the Technology Partner…The MA has an initial term of five years with an automatic renewal for five additional years. The MA was automatically renewed in July of 2024, refer to Note 18 for more details.” The subsequent note said around discussion of the Master Agreement and Master Services Agreement, “On July 1, 2024, a major contract was renewed for an additional five-year term.” Thus, we can infer that the contract date for the agreement with the Technology Partner was originally on July 1st, 2019.
[12] Further evidencing this, the subordination agreement with the bank referenced how Experion Technologies had a subordination agreement with iLearningEngines. Company filings reference a “Subordination agreement” with the “Technology Partner”, again indicating that Experion must be the Technology Partner.
[13] The third director, Santoshkumar Gopinathan, is the previously mentioned signatory for Experion Technologies FZ, LLC, on the subordination agreement.
14 In July 2018, “ILE iLearningEngines India Private Limited” was formed, with Balakrishnan also listed as an initial director, showing a close affiliation between the two from the start.
15 Beyond directors and key shareholders, Experion and iLearningEngines India shared other commonalities. Until March 25th, 2024 when the auditor resigned the position with Experion Infosystems, Experion Infosystems and ILE iLearningengines India shared the same audit firm and same audit partner – Rathnam & Murthy Chartered Accountants- with M. Shateesh Kumar serving as auditor for both.
[16] This record shows Cherian Philip as “S/O” (son of) Philip Thomas and both residing at K/12 BCG Golden Orchid apartments in Kochi. This address is also used in Experion Infosystems India filings as address for Jojo Philip and is a contact address used for Synergy AI as detailed further below. [Pg. 1]
[17] This court document shows Cherian (“S/o Pholip” [sic] at 302 Victory Horomny [sic] Apartments, the address used by iLearningEngines India. [Pg. 1]
[18] This court filings shows the same address for Jojo Philip and shows that he is “S/O” (son of) of Philip Thomas, therefore confirming he is brothers with Cherian through the shared residential address and father.
[19] The historic corporate records do not indicate the ownership percentage interests.
[20] AILE confirms in its S-1 filing from June 2024 that “Bala Krishnan” is aka “Balakrishnan Arackal” and his brother, who is also an AILE executive, uses the family name “Parameswaran” further confirming that this is the same person at Experion MEA: “Balakrishnan Arackal, who serves as our President and Chief Business Officer and as a member of our Board, and Ramakrishnan Parameswaran, who serves as our Senior Vice President of Technology and Products, are brothers.”. [Pg. 101]
[21] Note that iLearningEngines CEO Harish Chidambaran was also listed as an advisor to Experion MEA in 2019, further evidence of the close relationship. The 2019 website also showed AILE leaders such as AVP Ratish Nair.
[22] Note that Indian corporates typically have March to March fiscal years. Given iLearningEngines’ claimed India growth rate, the total March to March fiscal year revenue likely should have been higher than $138 million.
[23] iLearningEngines’ claimed Indian revenue also cannot be supported by the financials for Experion’s India entity either. As noted earlier, the related entity of Experion MEA that we found in India was named Experion Infosystems India (“Experion India”), which shared common directors, key people, email domains, and other information linking the two. The most recently available financials for Experion India, which cover March 2021 through March 2022, show total revenue in the period of only $302,373. Note that this was during the same period in which iLearningEngines claimed that the majority of its revenue came from India, totaling $138 million. Trade receivables were less than one thousand dollars. [Pg. 4] Notably, these Experion India financials were submitted in September 2023 and were signed off by current iLearningEngines employee Tom Thomas. [Pg. 2]
[24] The contract was initiated in 2018 and has a revenue component of $50.3 annually and a cost of $30 million for data acquisition.
[25] For reference: $420.6 million in 2023 revenue versus $389.3 million in collections by Technology Partner Experion.
[26] 12,363,732 mPhase shares outstanding at quarter end, $0.75 share price end of August, 2019
[27] Note that litigation records show the address of the mPhase CEO at the time as being a roughly 9 minute drive from the CEO of iLearningEngines’ residence in the same town.
[28] In2vate was acquired in April 2022. For full year 2022, during which In2vate was part of iLearningEngines for 9 months, iLearningEngines reported North American revenues of $116.1 million, a 142% increase from 2021 levels of ~$48 million. If the growth was attributable to In2vate, we arrive at a contribution of $68 million.
[29] The Employee Protection Line service is simply a voicemail extension and email that can be used to leave anonymous complaints.
[30] In February of 2024, there was an additional press release regarding a new partnership through Vedhik IAS with another school called Hillsinai Learning, which appears to be the specific IAS focused entity associated with Hillsinai Centre at Markaz Knowledge City in India – which does have a footprint in Kerala, India. However, the partnership appears to be solely for the IAS school and no terms for the deal or targets for enrollment were given. Typical rates for these programs run around 30,000 rupees, equivalent to ~$560 dollars total per student for the entire program.