UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☑ | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |
For the quarterly period ended | ||
☐ | Transition report under Section 13 or 15(d) of the Exchange Act of 1934 |
Commission file number number: 1-32830001-32830
INDIA GLOBALIZATION CAPITAL, INC.
(Exact name of registrant as specified in its charter)
Maryland (State or other jurisdiction of incorporation or organization) | 20-2760393 (I.R.S. Employer Identification No.) |
(Address of principal executive offices) |
54 (Zip Code) |
(301) 983-0998
(Registrant’s telephone number, including area code)
Title of each class | Tradingsymbol(s) | Name of each exchange on whichregistered | ||
Common Stock, par value $0.0001 per share | IGC | NYSE American LLC |
Indicate by check mark whether the registrant:registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer | |||
Non-accelerated filer ☐ | (Do not check if a smaller reporting company) | 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
39,511,407 shares of our common stock par value $0.0001, issued andwere outstanding as of JanuaryJuly 31, 2018.
| June 30, 2019 Form 10-Q
INDIA GLOBALIZATION CAPITAL, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2017
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| June 30, 2019 Form 10-Q
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q and the documents incorporated herein by reference contain “forward-looking statements.” Additionally, we, or our representatives may, from time to time, make other written or verbal forward-looking statements and discuss plans, expectations and objectives regarding our business, financial condition and results of operations. Without limiting the foregoing, statements that are in the future tense, and all statements accompanied by terms such as “believe,” “project,” “expect,” “trend,” “estimate,” “forecast,” “assume,” “intend,” “plan,” “target,” “anticipate,” “outlook,” “preliminary,” “will likely result,” “will continue” and variations of them and similar terms are intended to be “forward-looking statements” as defined by federal securities laws. This document contains statements and claims that are not approved by the Food & Drug Administration (“FDA”), including statements on hemp and hemp extracts including cannabidiol and other cannabinoids. These statements and claims are intended to be in compliance with state laws, specifically in states where medical cannabis has been legalized, and the diseases which we anticipate our products will target are approved conditions for treatment or usage with cannabis/cannabinoids. We caution you not to place undue reliance on forward-looking statements, which are based upon assumptions, expectations, plans and projections subject to risks and uncertainties, including those identified in the “Risk Factors” set forth in this report and in our annual report on Form 10-K for the fiscal year ended March 31, 2019, filed with the SEC (“Securities and Exchange Commission”) on June 14, 2019, and in the documents incorporated by reference that may cause actual results to differ materially from those expressed or implied in the forward-looking statements. Forward-looking statements speak only as of the date when they are made. Except as required by federal securities law, we do not undertake any obligation to update forward-looking statements to reflect events, circumstances, changes in expectations, or the occurrence of unanticipated events after the date of those statements.
| June 30, 2019 Form 10-Q
India Globalization Capital, Inc. |
CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share data) |
(Unaudited)
June 30, 2019 (Unaudited) ($) | March 31, 2019 (Audited) ($) | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | 16,554 | 25,610 | ||||||
Accounts receivable, net of allowances of $6 and $6 | 189 | 84 | ||||||
Inventory | 1,970 | 248 | ||||||
Short-term investment | 5,009 | - | ||||||
Deposits & advances | 852 | 781 | ||||||
Total current assets | 24,574 | 26,723 | ||||||
Intangible assets, net | 187 | 184 | ||||||
Property, plant and equipment, net | 7,055 | 5,886 | ||||||
Investments in unlisted securities | 794 | 794 | ||||||
Claims and advances | 895 | 878 | ||||||
Total long-term assets | 8,931 | 7,742 | ||||||
Total assets | 33,505 | 34,465 | ||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | 568 | 319 | ||||||
Accrued and other liabilities | 452 | 509 | ||||||
Short-term loan | 50 | 50 | ||||||
Total current liabilities | 1,070 | 878 | ||||||
Other liabilities | 15 | 15 | ||||||
Total liabilities | 1,085 | 893 | ||||||
Commitments and Contingencies – See Note 10 | ||||||||
Stockholders' equity: | ||||||||
Common stock and additional paid in capital, $0.0001 par value: 150,000,000 shares authorized; 39,511,407 and 39,501,407 shares issued and outstanding as of June 30, 2019 and March 31, 2019, respectively. | 94,251 | 94,043 | ||||||
Accumulated other comprehensive loss | (2,400 | ) | (2,419 | ) | ||||
Accumulated deficit | (59,431 | ) | (58,052 | ) | ||||
Total stockholders' equity | 32,420 | 33,572 | ||||||
Total liabilities and stockholders' equity | 33,505 | 34,465 | ||||||
The accompanying notes should be read in connection with these Condensed Consolidated Financial Statements.
| June 30, 2019 Form 10-Q
(All amounts in USD,thousands, except number of shares)
| As of | ||||||||
| 31-December- 17 | 31-March - 17 | |||||||
| (unaudited) | (audited) | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 1,690,792 | $ | 538,029 | ||||
| Accounts receivable, net of allowances | 1,155,229 | 752,926 | ||||||
| Prepaid expenses and other current assets | 379,785 | 410,408 | ||||||
| Short-term investments | - | 1,880,000 | ||||||
| Total current assets | $ | 3,225,806 | $ | 3,581,363 | ||||
| Goodwill | 198,169 | 198,169 | ||||||
| Intangible assets | 124,272 | - | ||||||
| Property, plant and equipment, net | 951,351 | 953,936 | ||||||
| Investment | 6,015,634 | 6,011,114 | ||||||
| Other non-current assets | 820,913 | 539,720 | ||||||
| Total long-term assets | $ | 8,110,339 | $ | 7,702,939 | ||||
| Total assets | $ | 11,336,145 | $ | 11,284,302 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Trade payables | 674,882 | 416,532 | ||||||
| Accrued expenses | 175,200 | 181,465 | ||||||
| Other current liabilities | 474,101 | 691,714 | ||||||
| Total current liabilities | $ | 1,324,183 | $ | 1,289,711 | ||||
| Long-term borrowings | - | 452,080 | ||||||
| Loans- others | 737,097 | 392,226 | ||||||
| Notes payable | 1,800,000 | 1,800,000 | ||||||
| Total non-current liabilities | $ | 2,537,097 | $ | 2,644,306 | ||||
| Total liabilities | $ | 3,861,280 | $ | 3,934,017 | ||||
| Stockholders’ equity: | ||||||||
| Common stock — $.0001 par value; 150,000,000 shares authorized; 28,272,667 issued and outstanding as of March 31, 2017 and 29,499,790 issued and outstanding as of December 31, 2017. | $ | 2,950 | $ | 2,827 | ||||
| Additional paid-in capital | 62,737,631 | 61,413,533 | ||||||
| Accumulated other comprehensive income | (2,037,529 | ) | (2,047,780 | ) | ||||
| Retained earnings/(deficit) | (53,219,180 | ) | (52,009,459 | ) | ||||
| Total equity attributable to Parent | $ | 7,483,872 | $ | 7,359,121 | ||||
| Non-controlling interest | $ | (9,007 | ) | $ | (8,836 | ) | ||
| Total stockholders’ equity | $ | 7,474,865 | $ | 7,350,285 | ||||
| Total liabilities and stockholders’ equity | $ | 11,336,145 | $ | 11,284,302 | ||||
(Unaudited)
Three months ended June 30, | ||||||||
2019 ($) | 2018 ($) | |||||||
Revenue | 1,649 | 1,478 | ||||||
Cost of revenue | (1,608 | ) | (1,436 | ) | ||||
Gross Profit | 41 | 42 | ||||||
General and administrative expenses | (1,249 | ) | (517 | ) | ||||
Research and development expenses | (247 | ) | (36 | ) | ||||
Operating loss | (1,455 | ) | (511 | ) | ||||
Other income/(expense), net | 76 | (1 | ) | |||||
Loss before income taxes | (1,379 | ) | (512 | ) | ||||
Income tax expense/benefit | - | - | ||||||
Net loss attributable to common stockholders | (1,379 | ) | (512 | ) | ||||
Foreign currency translation adjustments | 19 | (307 | ) | |||||
Comprehensive loss | (1,360 | ) | (819 | ) | ||||
Loss per share attributable to common stockholders: | ||||||||
Basic & Diluted | $ | (0.03 | ) | $ | (0.02 | ) | ||
Weighted-average number of shares used in computing loss per share amounts: | 39,508 | 30,981 | ||||||
The accompanying Notes tonotes should be read in connection with these Condensed Consolidated Financial Statements belowStatements.
| June 30, 2019 Form 10-Q
India Globalization Capital, Inc.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(in thousands)
(Unaudited)
Number of Common Shares | Common Stock and Additional Paid in Capital ($) | Accumulated Deficit ($) | Accumulated Other Comprehensive Loss ($) | Total Stockholders' Equity ($) | ||||||||||||||||
Balances as of March 31, 2018 | 30,764 | 63,917 | (53,796 | ) | (2,057 | ) | 8,064 | |||||||||||||
Bricoleur Note penalty shares | 30 | 18 | - | - | 18 | |||||||||||||||
Common stock issued through public offering, net | 244 | 134 | - | - | 134 | |||||||||||||||
Share based compensation & other expenses | 179 | - | - | 179 | ||||||||||||||||
Net loss | - | - | (512 | ) | - | (512 | ) | |||||||||||||
Loss on foreign currency translation | - | - | - | (307 | ) | (307 | ) | |||||||||||||
Balances as of June 30, 2018 | 31,038 | 64,248 | (54,308 | ) | (2,364 | ) | 7,576 | |||||||||||||
Balances as of March 31, 2019 | 39,502 | 94,043 | (58,052 | ) | (2,419 | ) | 33,572 | |||||||||||||
Share based compensation & other expenses | 10 | 208 | - | - | 208 | |||||||||||||||
Net loss | - | - | (1,379 | ) | - | (1,379 | ) | |||||||||||||
Gain on foreign currency translation | - | - | - | 19 | 19 | |||||||||||||||
Balances as of June 30, 2019 | 39,512 | 94,251 | (59,431 | ) | (2,400 | ) | 32,420 | |||||||||||||
The accompanying notes should be read in connection with these Condensed Consolidated Financial Statements.
| June 30, 2019 Form 10-Q
India Globalization Capital, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Three months ended June 30, | ||||||||
2019 ($) | 2018 ($) | |||||||
Operating activities: | ||||||||
Net loss | (1,379 | ) | (512 | ) | ||||
Adjustment to reconcile net loss to net cash: | ||||||||
Depreciation | 17 | 15 | ||||||
Share based compensation and other expenses | 208 | 162 | ||||||
Changes in: | ||||||||
Accounts receivables | (105 | ) | (1,431 | ) | ||||
Inventory | (1,717 | ) | (128 | ) | ||||
Deposits and advances | (71 | ) | 7 | |||||
Other prepaid expenses | (17 | ) | - | |||||
Trade payables and accrued liabilities | 192 | 1,352 | ||||||
Net cash (used in) operating activities | (2,872 | ) | (535 | ) | ||||
Investing activities: | ||||||||
Purchase of property, plant and equipment | (1,173 | ) | (3 | ) | ||||
Short-term investment | (5,009 | ) | - | |||||
Acquisition and filing cost of patents and rights | (4 | ) | (5 | ) | ||||
Net cash (used in) investing activities | (6,186 | ) | (8 | ) | ||||
Financing activities: | ||||||||
Issuance of equity stock through public offering (net of expenses) | - | 134 | ||||||
Repayment of loan | - | (201 | ) | |||||
Net cash (used in) financing activities | - | (67 | ) | |||||
Effects of exchange rate changes on cash and cash equivalents | 2 | (28 | ) | |||||
Net decrease in cash and cash equivalents | (9,056 | ) | (638 | ) | ||||
Cash and cash equivalents at the beginning of the period | 25,610 | 1,659 | ||||||
Cash and cash equivalents at the end of the period | 16,554 | 1,021 | ||||||
Supplementary information: | ||||||||
Cash paid for interest | 2 | 5 | ||||||
Non-cash items: | ||||||||
Common stock issued including ESOP, consultancy and patent acquisition | 15 | 179 | ||||||
Common stock issued as penalty on notes payable | - | 18 | ||||||
The accompanying notes should be read in connection with these Condensed Consolidated Financial Statements.
| June 30, 2019 Form 10-Q
India Globalization Capital, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED JUNE 30, 2019
(in thousands, except for share data and loss per share, unaudited)
Unless the context requires otherwise, all references in this report to “IGC,” “the Company”, “we,” “our” and the Notes“us” refer to the Audited Consolidated Financial Statements contained inIndia Globalization Capital, Inc., together with our subsidiaries listed on the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2017 filed with the SEC2019. Our filings are available on July 14, 2017.
Three months ended December 31, | Nine months ended December 31, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Revenues | $ | 762,009 | $ | 249,801 | $ | 1,050,582 | $ | 487,364 | ||||||||
| Cost of revenues (excluding depreciation) | (723,062 | ) | (121,829 | ) | (893,113 | ) | (276,418 | ) | ||||||||
| Selling, general and administrative expenses | (507,332 | ) | (322,891 | ) | (1,217,293 | ) | (959,693 | ) | ||||||||
| Depreciation | (4,989 | ) | (196,103 | ) | (15,297 | ) | (391,617 | ) | ||||||||
| Loss on investments/associates /joint ventures | - | 4,910 | - | (178,925 | ) | |||||||||||
| Operating income /(loss) | $ | (473,374 | ) | $ | (386,112 | ) | $ | (1,075,121 | ) | $ | (1,319,289 | ) | ||||
| Interest expense | (60,527 | ) | (46,465 | ) | (145,905 | ) | (136,421 | ) | ||||||||
| Interest income & other income (net) | 1,090 | 359,104 | 9,401 | 372,957 | ||||||||||||
| Income before income taxes and minority interest attributable to non-controlling interest | $ | (532,811 | ) | $ | (73,473 | ) | $ | (1,211,625 | ) | $ | (1,082,753 | ) | ||||
| Net income/(loss) | $ | (532,811 | ) | $ | (73,473 | ) | $ | (1,211,625 | ) | $ | (1,082,753 | ) | ||||
| Non-controlling interests in earnings of subsidiaries | (230 | ) | 38,088 | (634 | ) | 26,848 | ||||||||||
| Net income/(loss) attributable to common stockholders | $ | (532,581 | ) | $ | (111,561 | ) | $ | (1,210,991 | ) | $ | (1,109,601 | ) | ||||
| Earnings/(loss) per share attributable to common stockholders: | ||||||||||||||||
| Basic | $ | (0.02 | ) | $ | (0.00 | ) | $ | (0.04 | ) | $ | (0.04 | ) | ||||
| Diluted | $ | (0.02 | ) | $ | (0.00 | ) | $ | (0.04 | ) | $ | (0.04 | ) | ||||
| Weighted-average number of common shares used in computing earnings per share amounts: | ||||||||||||||||
| Basic | 28,169,292 | 27,446,095 | 27,126,208 | 27,446,095 | ||||||||||||
| Diluted | 28,169,292 | 27,446,095 | 27,126,208 | 27,446,095 | ||||||||||||
| Three months ended December 31, | ||||||||||||||||||||||||
| 2017 | 2016 | |||||||||||||||||||||||
| IGC | Non-controlling interest | Total | IGC | Non-controlling interest | Total | |||||||||||||||||||
| Net income/(loss) | $ | (532,581 | ) | $ | (230 | ) | $ | (532,811 | ) | $ | (111,561 | ) | $ | 38,088 | $ | (73,473 | ) | |||||||
| Foreign currency translation adjustments | 21,174 | - | 21,174 | 180,000 | - | 180,000 | ||||||||||||||||||
| Comprehensive income/(loss) | $ | (511,407 | ) | $ | (230 | ) | $ | (511,637 | ) | $ | 68,439 | $ | 38,088 | $ | 106,527 | |||||||||
| Nine months ended December 31, | ||||||||||||||||||||||||
| 2017 | 2016 | |||||||||||||||||||||||
| IGC | Non-controlling interest | Total | IGC | Non-controlling interest | Total | |||||||||||||||||||
| Net income/(loss) | $ | (1,210,991 | ) | $ | (634 | ) | $ | (1,211,625 | ) | $ | (1,109,601 | ) | $ | 26,848 | $ | (1,082,753 | ) | |||||||
| Foreign currency translation adjustments | 10,252 | - | 10,252 | 128,150 | - | 128,150 | ||||||||||||||||||
| Comprehensive income/(loss) | $ | (1,200,739 | ) | $ | (634 | ) | $ | (1,201,373 | ) | $ | (981,451 | ) | $ | 26,848 | $ | (954,603 | ) | |||||||
| Nine months ended December 31, | ||||||||
| 2017 | 2016 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income (loss) | $ | (1,211,625 | ) | $ | (1,082,753 | ) | ||
| Adjustment to reconcile net income/(loss) to net cash: | ||||||||
| Depreciation | 15,297 | 391,617 | ||||||
| Bad debts written off/creditors restated | 24 | - | ||||||
| Loss from Investments /joint venture /associates | 178,925 | |||||||
| Non-cash interest expenses | 115,500 | 104,015 | ||||||
| Stock base compensation and expense | 426,111 | - | ||||||
| Changes in: | ||||||||
| Accounts receivable | $ | (401,811 | ) | $ | 299,848 | |||
| Other current assets | 48,695 | 78,348 | ||||||
| Trade payables | 258,350 | 48,719 | ||||||
| Other current liabilities | (223,877 | ) | (501,787 | ) | ||||
| Net cash provided/(used) in operating activities | $ | (973,336 | ) | $ | (483,068 | ) | ||
| Cash flow from investing activities: | ||||||||
| Purchase/addition of property, plant and equipment | (11,224 | ) | (128,765 | ) | ||||
| Proceeds from short term investment | (4,106 | ) | (27,502 | ) | ||||
| Deposit towards acquisition (net of cash acquired) | - | (114,427 | ) | |||||
| Non-current assets | (286,167 | ) | - | |||||
| Net cash provided/(used) by investing activities | $ | (301,497 | ) | $ | (270,694 | ) | ||
| Cash flows from financing activities: | ||||||||
| Proceeds from share issue | $ | 2,636,478 | $ | 438,165 | ||||
| Net movement in short-term borrowing | - | (27,762 | ) | |||||
| Proceeds /(repayment) from long-term borrowing | (452,080 | ) | (910,583 | ) | ||||
| Proceeds from loans | 344,871 | 379,170 | ||||||
| Expense for raising funds & issuance of stock | (111,253 | ) | - | |||||
| Net cash provided/(used) by financing activities | $ | 2,418,016 | $ | (121,010 | ) | |||
| Effects of exchange rate changes on cash and cash equivalents | 9,580 | 128,134 | ||||||
| Net increase/(decrease) in cash and cash equivalents | 1,152,763 | (746,638 | ) | |||||
| Cash and cash equivalent at the beginning of the period | 538,029 | 1,490,693 | ||||||
| Cash and cash equivalent at the end of the period | $ | 1,690,792 | $ | 744,055 | ||||
| Supplementary information: | ||||||||
| Cash paid for interest | $ | 30,405 | $ | 32,406 | ||||
| Non-cash items: | ||||||||
| Common stock issued for interest payment on notes payable | $ | 115,500 | $ | 104,015 | ||||
| Common stock issued including ESOP, consultancy and other | $ | 465,158 | $ | - | ||||
NOTE 1 – BUSINESS DESCRIPTION
Business
IGC has two lines of business: 1) Infrastructure Business and 2) Plant and Cannabinoid Business. The information contained on our website, www.igcinc.us, is not incorporated by reference in this report, and you should not consider it a part of this report.
Our second line of business, Plant and Cannabinoid Business, stems from plant material and cannabinoids produced by the cannabis plant. It involves several brands that the Company develops and expects to commercialize as alternative plant and cannabinoid-based products and therapies. The Company’s flagship branded, patent pending, product is Hyalolex™. Further information is available at www.igcpharma.com and www.hyalolex.com. In addition, the Company, under the brand name Holi Hemp™, sells hemp crude extract, hemp isolate, and hemp distillate. Further information is available at www.holihemp.com.
Corporate and Product Update
During the three months ended June 30, 2019, the Company took the following steps, among others:
| ● | The Company’s subsidiary, Holi Hemp LLC, was awarded a license to grow and process hemp in the State of Arizona. |
| ● | The Company established a business-to-business sales team, and a raw materials supply chain, for the sale of Holi Hemp™ branded products such as hemp crude, cannabinol (“CBD”) distillate, tetrahydrocannabinol-free (“T-free”) oil, and other hemp derivatives, in compliance with applicable laws and regulations. |
| ● | The Company significantly expanded the number of dispensaries in Puerto Rico where Hyalolex™ (the Company’s flagship product) is sold, to about 34 at the end of June 2019. |
| ● | The Company contracted with a medical center in Puerto Rico to run a double-blind, placebo-controlled clinical trial with IGC-AD1 on 60 Alzheimer’s patients. The protocol has been submitted to the Institutional Review Board (“IRB”) in Puerto Rico and approval is pending. Following approval from the IRB, the Company plans to submit an Investigational New Drug Application (“INDA”) to the FDA. |
| ● | The Company’s subsidiary, Techni Bharathi Private Limited (“TBL”), commenced the execution of a National Highway Authority of India (“NHAI”) sponsored local highway construction contract in Kerala, India. |
Business Organization
As of June 30, 2019, the Company had the following direct operating subsidiaries: TBL, IGCare LLC, Holi Hemp LLC and IGC Pharma LLC. The Company’s fiscal year is the 52- or 53-week period that ends on March 31. The Company is a Maryland corporation established in 2005. We have employees, contract workers and advisors in the United States of America (“U.S.”), India, and Hong Kong.
| June 30, 2019 Form 10-Q
NOTE 42 – OTHER CURRENT AND NON-CURRENT ASSETS
Basis of presentation
The accompanying unaudited condensed consolidated financial statements (“interim statements”) of the following:
As of December 31, 2017 | As of March 31, 2017 | |||||||
| Prepaid /preliminary expenses | $ | - | $ | 6,750 | ||||
| Advance to suppliers, others & services | 355,490 | 352,850 | ||||||
| Security/statutory advances | 17,320 | 14,216 | ||||||
| Prepaid and accrued interest | 1,459 | 1,436 | ||||||
| Deposit and other current assets | 5,516 | 35,156 | ||||||
| Total | $ | 379,785 | $ | 410,408 | ||||
As of December 31, 2017 | As of March 31, 2017 | |||||||
| Statutory/Other advances | $ | 521,631 | $ | 539,720 | ||||
| Product formulation | 299,282 | - | ||||||
| Total | $ | 820,913 | $ | 539,720 | ||||
Principles of land. TBL gave Weaveconsolidation
The interim statements include the consolidated accounts of the Company and Wave an advanceits subsidiaries. Intercompany accounts and transactions have been eliminated. In the opinion of $383,832. Asthe Company’s Management, the interim statements reflect all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation.
Use of estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the GAAP requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of this filing, the parties arefinancial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Management believes that the estimates and assumptions used in the processpreparation of negotiatingthe interim statements are prudent and reasonable. Significant estimates and assumptions are generally used for, but not limited to: allowance for uncollectible accounts receivable; future obligations under employee benefit plans; the useful lives of property, plant, equipment; intangible assets; valuations; impairment of goodwill and investments; recoverability of advances; the valuation of options granted and warrants issued; and income tax and deferred tax valuation allowances, if any. Actual results could differ from those estimates. Appropriate changes in estimates are made as Management becomes aware of changes in circumstances surrounding the estimates. Critical accounting estimates could change from period to period and could have a settlementmaterial impact on IGC’s results, operations, financial position and cash flows. Changes in estimates are reflected in the financial statements in the period in which changes are made and, if material, their effects are disclosed in the notes to the consolidated financial statements.
Presentation and functional currencies
IGC operates in India, U.S., and Hong Kong and a substantial portion of the Company’s revenues are denominated in the Indian Rupee (“INR”) or the Hong Kong Dollar (“HKD”). The local currency is the functional currency for the operations outside the U.S. Changes in the exchange rates between this currency and the Company’s reporting currency, are partially responsible for some of the periodic changes in the consolidated financial statements. Assets and liabilities of the Company’s foreign operations are translated into U.S. dollars (“USD”) at the spot rate in effect at the applicable reporting date. Revenues and expenses of the Company’s foreign operations are translated at the average exchange rate during the applicable period. The resulting unrealized cumulative translation adjustment is recorded as a component of accumulated other comprehensive income/(loss) in stockholders’ equity. Transaction gains and losses are recognized in the consolidated statements of operations.
Impairment
No impairment has been recorded for the three-month periods ended June 30, 2019 and 2018.
| June 30, 2019 Form 10-Q
Inventory
Inventory is valued at the lower of cost or market, or at sales price (fair value) less costs of disposal when certain conditions are met. The term market means current replacement cost, provided that it meets both the following conditions: a) market shall not exceed the net realizable value, and b) market shall not be less than net realizable value reduced by an allowance for an approximately normal profit margin. This valuation requires us to make judgments, based on currently available information, about the likely method of disposition, such as through sales to individual customers, returns to product vendors, or liquidations, and expected recoverable values of each disposition category. These assumptions about future disposition of inventory are inherently uncertain and changes in our estimates and assumptions may cause us to realize material write-downs in the future.
Inventory consists of raw materials, finished goods and work-in progress such as extracted crude oil, growing crops and crude oil in process. The costs of growing cannabis including but not limited to labor, utilities, fertilizers and irrigation, are capitalized into inventory until the time of harvest. It is primarily accounted for using the weighted average cost method. Primary costs include raw materials, packaging, direct labor, overhead, shipping and the depreciation of manufacturing equipment. Manufacturing overhead and related expenses include salaries, wages, employee benefits, utilities, maintenance and property taxes.
Crops are segregated into “growing crops” and “harvested crops”. Growing crops are valued at the lower of cost or market value. Direct and indirect development costs of groves, orchards and vineyards are required to be capitalized during the development period and depreciated over the estimated useful life of the particular asset. Harvested crops are measured at sales price less costs of disposal, with changes recognized in profit or loss only when the harvested crop:
- has a reliable, readily determinable and realizable market value;
- has relatively insignificant and predictable costs of disposal; and
- is available for immediate delivery.
See Note 3, Inventory of this report for further information.
Fair value of financial instruments
FASB ASC No. 820, “Fair Value Measurement” defines fair value 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. It also establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1: Observable inputs such as quoted prices in active markets;
Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
The carrying amounts of the Company’s financial instruments includes cash and cash equivalents, accounts receivable, accounts payable and accrued and other liabilities, which is approximate to their fair values due to the purchasenature of the items.
As of June 30, 2019, the Company’s short-term investment consists of mutual fund, which have been classified as Level 1 of the fair value hierarchy because they have been valued using quoted prices in active markets. Company’s cash and salecash equivalents have also been classified as Level 1 on the same principle. Financial instruments are classified as current if they are expected to be liquidated within the next twelve months. Company’s remaining investments have been classified as Level 3 instruments as there is little or no market data. Level 3 investments are valued using cost-method. For further information refer Note 7 – Investments in Unlisted Securities, which is classified as non-current asset.
| June 30, 2019 Form 10-Q
The following table presents information about the Company’s assets that are measured at fair value on a recurring basis as of June 30, 2019 and March 31, 2019, and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value:
Level 1 ($) | Level 2 ($) | Level 3 ($) | Total ($) | |||||||||||||
June 30, 2019 | ||||||||||||||||
Cash and cash equivalents: | 16,554 | - | - | 16,554 | ||||||||||||
Total cash and cash equivalents | 16,554 | - | - | 16,554 | ||||||||||||
Investments: | ||||||||||||||||
-Short-term investment in mutual fund | 5,009 | - | - | 5,009 | ||||||||||||
-Investment in unlisted securities | - | - | 794 | 794 | ||||||||||||
Total Investments | 5,009 | - | 794 | 5,803 | ||||||||||||
Level 1 ($) | Level 2 ($) | Level 3 ($) | Total ($) | |||||||||||||
March 31, 2019 | ||||||||||||||||
Cash and cash equivalents: | 25,610 | - | - | 25,610 | ||||||||||||
Total cash and cash equivalents | 25,610 | - | - | 25,610 | ||||||||||||
Investments: | ||||||||||||||||
- Short-term investment in mutual fund | - | - | - | - | ||||||||||||
-Investment in unlisted securities | - | - | 794 | 794 | ||||||||||||
Total Investment | - | - | 794 | 794 | ||||||||||||
Earnings/(Loss) per Share
The computation of basic loss per share for the three months ended June 30, 2019, excludes potentially dilutive securities of 3.4 million shares which includes share options, unvested shares granted to employees, warrants, and shares from the conversion of outstanding units, if any, because their inclusion would be antidilutive.
The weighted average number of shares outstanding as of June 30, 2019 and 2018, used for the computation of basic earnings per share (“EPS”) is 39,508,110 and 30,981,422, respectively. Due to the loss incurred during the three-month periods ended June 30, 2019, and 2018, all the potential equity shares are anti-dilutive and accordingly, the fully diluted EPS is equal to the basic EPS.
Leases
Lessor
For leases that are accounted for as operating leases, income is recognized on a straight-line basis over the term of the lease contract.
Generally, when a lease is more than 180 days delinquent (where more than three monthly payments are owed), the lease is classified as being on nonaccrual and the Company stops recognizing leasing income on that date. Payments received on leases in nonaccrual status generally reduce the lease receivable. Leases on nonaccrual status remain classified as such until there is sustained payment performance that, in the Company’s judgment, would indicate that all contractual amounts will be collected in full.
| June 30, 2019 Form 10-Q
Lessee
The Company categorizes leases at their inception as either operating or capital leases. On certain lease agreements, the Company may receive rent holidays and other incentives. The Company recognizes lease costs on a straight-line basis without regard to deferred payment terms, such as rent holidays, that defer the commencement date of required payments.
The Company has operating leases primarily consisting of office spaces with the remaining lease term being less than 12 months, subject to certain renewal options as applicable. The total operating lease expense and cash paid for operating leases for the three months ended June 30, 2019 and June 30, 2018 are $39 thousand and $37 thousand respectively.
Recent Accounting Pronouncements
Recently adopted
ASC 842, Leases
In February 2016, the FASB established Topic 842, Leases, by issuing ASU No. 2016-02 (“ASU 2016-02”), which requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; ASU No. 2018-11, Targeted Improvements; and ASU No. 2018-20, Narrow-Scope Improvements for Lessors.
Lessor Accounting
For lessors, however, the accounting remains largely unchanged from the current model, changes have been made to align certain lessor and lessee accounting guidance and the key aspects of the lessor accounting model with new revenue recognition standard. Under the new guidance, contract consideration will be allocated to its lease components and non-lease components (such as maintenance). For the Company as a lessor, any non-lease components will be accounted for under ASC Topic 606, Revenue from Contracts with Customers, unless the Company elects a lessor practical expedient to not separate the non-lease components from the associated lease component. The amendments in ASU 2018-11 also provide lessors with a practical expedient, by class of underlying asset, to not separate non-lease components from the associated lease component and, instead, to account for those components as a single component if the non-lease components otherwise would be accounted for under the new revenue guidance (“Topic 606”). To elect the practical expedient, the timing and pattern of transfer of the lease and non-lease components must be the same and the lease component must meet the criteria to be classified as an operating lease if accounted for separately. If these criteria are met, the single component will be accounted for under either under Topic 842 or Topic 606 depending on which component(s) are predominant. The lessor practical expedient to not separate non-lease components from the associated component must be elected for all existing and new leases.
As lessor, the Company expects that post-adoption substantially all existing leases will have no change in the timing of revenue recognition until their expiration or termination. The Company expects to elect the lessor practical expedient to not separate non-lease components such as maintenance from the associated lease for all existing and new leases and to account for the combined component as a single lease component. The timing of revenue recognition is expected to be the same for the majority of the Company’s new leases as compared to similar existing leases; however, certain categories of new leases could have different revenue recognition patterns as compared to similar existing leases.
Lessee Accounting
The Company will adopt ASU 2016-02 effective April 1, 2019 using the modified retrospective approach. The new standard establishes a right-of-use model (“ROU”) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. In connection with the adoption, the Company will elect to utilize the modified retrospective presentation whereby the Company will continue to present prior period financial statements and disclosures under ASC 840. In addition, the Company will elect the transition package of three practical expedients permitted within the standard, which eliminates the requirements to reassess prior conclusions about lease identification, lease classification and initial direct costs. Further, the Company will adopt a short-term lease exception policy, permitting us to not apply the recognition requirements of this standard to short-term leases (i.e. leases with terms of 12 months or less) and an accounting policy to account for lease and non-lease components as a single component for certain classes of assets.
| June 30, 2019 Form 10-QThe Company has concluded that all lease arrangements would be classified as short-term in nature and as such, not recorded on the balance sheet. The standard did not materially affect the Company's consolidated net earnings or have any impact on cash flows.
The Company adopted the guidance as of April 1, 2019, and the adoption did not have a material effect on the financial statements. Additional information and disclosures required by this new standard for the Company as a lessor are contained above.
Not yet adopted
Not yet adopted
Credit Losses: In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial instruments. The amendments in this update change how companies measure and recognize credit impairment for many financial assets. The amendment is effective from December 15, 2022, due to the tentative decisions made by the FASB at its July 17, 2019 Board Meeting. The Company is evaluating the impact of this update.
Disclosures: In August 2018, the FASB issued ASU 2018-13. Fair Value Measurement (Topic 820) Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. The amendments in the standard apply to all entities that are required, under existing GAAP, to make disclosures about recurring or nonrecurring fair value measurements. ASU 2018-13 removes, modifies, and adds certain disclosure requirements in ASC 820, Fair Value Measurement. The standard is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company is evaluating the impact of this update.
Collaborative Arrangement: Clarifying the Interaction Between Topic 808 and Topic 606, which clarifies when transactions between participants in a collaborative arrangement are within the scope of the FASB’s revenue standard, Topic 606. The standard is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years, with early adoption permitted. The Company is evaluating the impact of this update.
Intangibles-Goodwill and Other-Internal-Use Software: In August 2018, the FASB issued ASU 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. ASU 2018-15 (Subtopic 350-40)aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The standard is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted. The Company is evaluating the impact of this update.
NOTE 3 – INVENTORY
As of June 30, 2019 ($) | As of March 31, 2019 ($) | |||||||
Raw Materials | 828 | - | ||||||
Work in Progress | 1,142 | 248 | ||||||
Finished Goods | - | - | ||||||
Total | 1,970 | 248 | ||||||
Inventory as of June 30, 2019 is comprised of raw materials such as crude oil, work-in-progress such as growing crops and crude oil in process.
| June 30, 2019 Form 10-Q
NOTE 4 – DEPOSITS AND ADVANCES
As of June 30, 2019 ($) | As of March 31, 2019 ($) | |||||||
Advance to suppliers and consultants | 715 | 720 | ||||||
Statutory advances | 45 | 43 | ||||||
Prepaid Expense and other current assets | 92 | 18 | ||||||
Total | 852 | 781 | ||||||
The advance to suppliers and consultants primarily relates to retainers given to lawyers as well as the refund of the advance given by TBL. Product Formulation is the capitalized part of expenses related to the formulation of products. The products including, Hyalolex,suppliers in our lead product for patients suffering from Alzheimer’s are all non-FDA approved products. These products do not require FDA approval for sale in dispensaries.
NOTE 5 – INTANGIBLE ASSETS AND GOODWILL
As of December 31, 2017 | As of March 31, 2017 | |||||||
| Intangible assets at the beginning of the period | $ | - | $ | 113,321 | ||||
| Amortization | - | (113,321 | ) | |||||
| Patent filings and rights | 124,272 | - | ||||||
| Total Intangible assets | $ | 124,272 | $ | - | ||||
| Goodwill of Cabaran Ultima Sdn Bhd | 198,169 | 198,169 | ||||||
| Total Goodwill | $ | 198,169 | 198,169 | |||||
As of June 30, 2019 ($) | As of March 31, 2019 ($) | |||||||
Patent & other intangible assets at the beginning of the period | 184 | 128 | ||||||
Patent acquisition and filing expenses for the three months ended June 30, 2019 | 5 | 56 | ||||||
Amortization | (2 | ) | - | |||||
Total | 187 | 184 | ||||||
The value of intangible assets includes the cost of acquiring patent rights, supporting data, and the expense associated with filing patents. The amortization of acquired patent rights is 13 years commencing in Fiscal 2020. The Company uses the straight-line method to determine the amortization expense for its definite lived intangible assets. |
NOTE 6 – PROPERTY, PLANT AND EQUIPMENT,
Category | Useful Life (years) | As of June 30, 2019 ($) | As of March 31, 2019 ($) | |||||||||
Land | N/A | 4,889 | 4,872 | |||||||||
Buildings & facilities | 25 | 2,304 | 1,268 | |||||||||
Plant and machinery | 20 | 1,609 | 1,603 | |||||||||
Computer equipment | 3 | 169 | 165 | |||||||||
Office equipment | 5 | 109 | 109 | |||||||||
Furniture and fixtures | 5 | 62 | 61 | |||||||||
Vehicles | 5 | 280 | 279 | |||||||||
Equipment | 5 | 134 | - | |||||||||
Total Gross Value | 9,556 | 8,357 | ||||||||||
Less: Accumulated depreciation | (2,501 | ) | (2,471 | ) | ||||||||
Total Property, plant and equipment, net | 7,055 | 5,886 | ||||||||||
Depreciation expense in the three months ended June 30, 2019 and June 30, 2018, amounted to approximately $17 thousand and $15 thousand respectively. The net increase in total Property, plantPlant & Equipment as well as the accumulated depreciation is primarily due to purchase of building and equipment in the U.S. subsidiaries. For more information, please refer to Note 15 – Segment Information for the long-term assets other than financial instruments held in the country of domicile and foreign countries.
| June 30, 2019 Form 10-Q
NOTE7 – INVESTMENTS IN UNLISTED SECURITIES
As of June 30, 2019 ($) | As of March 31, 2019 ($) | |||||||
Investment in equity shares of unlisted company | 21 | 21 | ||||||
Investment in affiliate (i) | 773 | 773 | ||||||
Total | 794 | 794 | ||||||
(i) | Pursuant to the December 18, 2014 Purchase Agreement with Apogee, we issued Apogee 1.2 million shares of IGC’s common stock valued at $888 thousand for the purchase of a 24.9% ownership interest in Midtown Partners & Co., LLC (“MTP”). During Fiscal 2018, after considering several factors, the Company concluded that it no longer had significant influence over MTP. Hence, we do not record any impact from MTP’s earnings/(losses) and instead we maintain the same value of approximately $773 thousand since Fiscal 2018. |
The Company regularly reviews its investment portfolio to determine if any security is other-than-temporarily impaired, which would require the Company to record an impairment charge in the period. We concluded that, as of June 30, 2019, no impairment provision was required against the carrying value of investments.
NOTE 8 – CLAIMS AND ADVANCES:
As of June 30, 2019 ($) | As of March 31, 2019 ($) | |||||||
Claims receivable (1) | 405 | 404 | ||||||
Non-current deposits | 22 | 18 | ||||||
Other advances (2) | 468 | 456 | ||||||
Total | 895 | 878 | ||||||
(1) | The claims receivable is due from the Cochin International Airport (“CIA”) that is partially owned by the State Government of Kerala. As of June 30, 2019, the receivable is due for over one year. The Company continues to carry the full value of the receivables without interest and without any impairment, because it believes that there is minimal risk that CIA will become insolvent and unable to make the payment. However, the Company currently believes it will be difficult to receive the amount in the next 12 months because of the time required for legal collection proceedings. The Company has initiated such proceedings. |
(2) | Includes a loan of $200 thousand, to one of our manufacturers, for the purchase of equipment, at an annual interest rate of three percent (3%), due on April 1, 2021. |
NOTE9 – ACCRUED AND OTHER LIABILITIES
Particulars | As of June 30, 2019 ($) | As of March 31, 2019 ($) | ||||||
Salaries and other contribution | 127 | 115 | ||||||
Provision for expenses | 238 | 355 | ||||||
Other current liability | 87 | 39 | ||||||
Total | 452 | 509 | ||||||
Salaries and other contribution related liabilities consist of the following:
| Category | Useful Life (years) | As of December 31, 2017 | As of March 31, 2017 | |||||||||
| Building (flat) | 25 | $ | 245,035 | $ | 241,181 | |||||||
| Plant and machinery | 20 | 1,737,381 | 1,710,055 | |||||||||
| Computer equipment | 3 | 160,643 | 157,349 | |||||||||
| Office equipment | 5 | 121,372 | 119,528 | |||||||||
| Furniture and fixtures | 5 | 72,167 | 70,368 | |||||||||
| Vehicles | 5 | 296,288 | 292,764 | |||||||||
| Assets under construction | N/A | 969,573 | 957,880 | |||||||||
| Total | $ | 3,602,459 | $ | 3,549,125 | ||||||||
| Less: Accumulated depreciation | $ | (2,651,108 | ) | $ | (2,595,189 | ) | ||||||
| Net Assets | $ | 951,351 | $ | 953,936 | ||||||||
As of December 31, 2017 | As of March 31, 2017 | |||||||
| Investment in equity shares of unlisted company & associates | $ | 67,912 | $ | 63,392 | ||||
| Investment in affiliate | 773,111 | 773,111 | ||||||
| Investment in land | 5,174,611 | 5,174,611 | ||||||
| Total | $ | 6,015,634 | $ | 6,011,114 | ||||
| June 30, 2015, and the Company is pursuing its rights under the terms of the Purchase Agreement to recover certain damages. Value of investment in our books is $773,111 as on December 31, 2017.
As of December 31, 2017 | As of March 31, 2017 | |||||||
| Statutory payables | $ | 16,344 | $ | 15,203 | ||||
| Employee related liabilities | 457,757 | 676,511 | ||||||
| Total | $ | 474,101 | $ | 691,714 | ||||
NOTE 10 – COMMITMENTS AND CONTINGENCIES
The Company may be involved in legal proceedings, claims and assessments arising in the ordinary course of business. Such matters are subject to many uncertainties and outcomes are not predictable with assurance. There are no such matters that are deemed material to the condensed consolidated financial statements as of June 30, 2019.
As of June 30, 2019, several law firms have filed shareholder lawsuits, including two derivative suits, citing, among other things, the NYSE American delisting proceedings and subsequent fall in share price. The Company has reached a preliminary agreement to resolve the derivative suits and intends to vigorously defend all other actions. However, the exact amount of liability, if any, arising from such lawsuits cannot be determined at this stage. No provision has been made in the consolidated financial statements as of June 30, 2019. See Part II – Other Information. For the current state of affairs regarding these Shareholder Class Action Litigation, please refer to Note 16 - Subsequent Events.
In the U.S., we provide health insurance, life insurance, and a 401(k) plan wherein the Company matches up to 6% of the employee’s pretax contribution up to a maximum annual amount determined by the IRS. In accordance with applicable Indian laws, the Company provides for gratuity, a defined benefit retirement plan (“Gratuity Plan”) covering certain categories of employees. The Gratuity Plan provides a lump sum payment to vested employees, at retirement or termination of employment, an amount based on the respective employee’s last drawn salary and the years of employment with the Company. In addition, employees receive benefits from a provident fund, a defined contribution plan. The employee and employer each make monthly contributions to the plan equal to 12% of the covered employee’s salary. The contribution is made to the Government’s provident fund.
NOTE 11 – SECURITIES
We have one security listed on the NYSE American: common stock, $.0001 par value (ticker symbol: IGC). This security is also available for trading on the Frankfurt, Stuttgart, and Berlin stock exchanges (ticker symbol: IGS1). We have redeemable warrants quoted on the OTC markets (ticker symbol: IGC.IW, CUSIP number 45408X118 expiring on March 8, 2021) to purchase common stock. As of June 30, 2019, the Company was authorized to issue up to 150,000,000 shares of common stock, par value $0.0001, and has 91,472 units and 39,511,407 shares of common stock issued and outstanding.
The Company has 11,672,178 outstanding public warrants (IGC: IW) to purchase 1,167,217 shares of common stock by surrendering 10 warrants and a payment of $5.00 in exchange for each share of common stock. We have 91,472 units outstanding that can be separated into common stock and warrants. The Units are not listed on an exchange. Ten units may be separated into one share of common stock and 20 warrants (IGC: IW).
NOTE 12 – RELATED PARTY TRANSACTIONS
We pay an affiliate of our CEO $4,500approximately $10.5 thousand per month for office space and certain general and administrative services rendered in Maryland. In addition, we pay another affiliate of our CEO $6,100approximately $6.1 thousand per month for office and facilities in Washington State. We believe, based on rents and fees for similar services in the Washington, D.C. metropolitan area, and Washington State that the fee charged by the affiliates are at least as favorable as we could have obtained from an unaffiliated third party and these payments are not considered, or meant to be compensation to our CEO. The rental agreement for the Maryland location is on a month-to-month basis and may be terminated by our Board
As of Directors ofJune 30, 2019, the Company at any time without notice. The rental agreement for Washington State facilities expired on December 31, 2017, and it was renewed in January 2018 by mutual consent for 1 more year. During the quarter ended December 31, 2017, the total rent paid tohad one secured loan of the affiliates for the office space (and services) in Maryland was $13,500. $36,600 is payable to one of the affiliates for the rental of the facilities in Washington State. As on December 31, 2017, an amount of $82,147 is$50 thousand due to RGF Cabaran’s director. For December 31, 2017 there was no loan balance due to the Director of Cabaran.
NOTE 1113 – NOTES PAYABLE AND LOANS – OTHERS
During the quarter ended December 31, 2017, the Company issued a total of 90,000 shares valued at $48,000 to this debt holder, which constitutes non-tax-deductible payments for the Company.
Under the December 18, 2014 Purchase Agreement with Apogee, we issued 1,200,000 common sharesIGC ESOP Plan, as of IGC valued at $888,000 for the purchase of 24.9% ownership interest in Midtown Partners & Co., LLC. Pending downward adjustments, subject to certain balance sheet items of MTP,June 30, 2019, a total of 500,000 shares of IGC common stock have been held back. Pending the resolution of these balance sheet items, the shares that have been held back may be cancelled. The agreement had a deadline of June 30, 2015, for Apogee and Midtown Partners to obtain the requisite approvals from FINRA. Apogee did not file for approval on time, and consequently pursuant to the terms of the Agreement, there are several penalties that will apply, including the cancellation of 700,000 shares of IGC stock and a penalty of $125,000 owed by Apogee to us. We are not seeking to consummate the acquisition of the remaining interest in Midtown Partners at this time.
| June 30, 2019 Form 10-Q
The options are fair valued using a Black-Scholes Pricing Model with the 2008 ESOP plan are available for future grants of options or stock awards. In addition, in the quarter ended December 31, 2017 the shareholders approved 1,900,000 shares of common stock for award, at the discretion of the Board, as a special grantfollowing assumptions:
Granted in Fiscal 2020 | Granted in Fiscal 2019 | |||||||
Expected life of options | 5 years | 5 years | ||||||
Vested options | 100 | % | 100 | % | ||||
Risk free interest rate | 2.57 | % | 0.70 | % | ||||
Expected volatility | 249 | % | 119.5 | % | ||||
Expected dividend yield | Nil | Nil | ||||||
The expense associated with share-based payments to employees, directors, advisors and consultants. IGC granted 1,455,000 shares, out ofcontractors is allocated over the total approved byvesting or service period and recognized in the shareholders, to its directorsCommon Stock and its employees with minimum vesting period of one year.
For the three months ended June 30, 2018 the share-based expense and option-based expense for employees and advisors are $162 thousand and $16 thousand respectively, of which $147 thousand share-based expense and $6 thousand option-based expense related to General and administrative expenses (including research and development).
Summary of Options
Number of Options as of June 30, 2019 (in thousands) | Number of Options as of March 31, 2019 (in thousands) | |||||||
Opening balance | 270 | 650 | ||||||
Option granted during the period | - | 110 | ||||||
Option exercised during the period | - | (490 | ) | |||||
Closing balance | 270 | 270 | ||||||
NOTE 14 – REVENUE RECOGNITION
Revenue in the Infrastructure Business is recognized for the renting and contracting business once the performance obligation as per the agreement has been satisfied by the Company. In the Plant and Cannabinoid Business, the revenue from the cannabinoid-based products is recognized in Holi Hemp once control of the goods has been transferred to the customer and the performance obligation has been completed. With IGCare, we license our products to processors. The revenue from the cannabinoid-based products and therapies is recognized once goods have been sold by the processor to its customer and the performance obligation is completed as per the agreement.
Net sales disaggregated by significant products and services for the three months ended December 31, 2017 as compared to $322,891 forJune 30, 2019 and the three months ended December 31, 2016. Selling, generalJune 30, 2018 were as follows (in thousands):
Three Months Ended June 30, | ||||||||
2019 ($) | 2018 ($) | |||||||
Infrastructure Business | ||||||||
Rental income (1) | 3 | 16 | ||||||
Purchase and resale of infrastructure commodities (2) | 1,542 | 1,462 | ||||||
Plant and Cannabinoid Business | ||||||||
Plant and Cannabinoid products and therapies (3) | 104 | - | ||||||
Total | 1,649 | 1,478 | ||||||
(1) Rental income consists of income from short-term rental of heavy construction equipment. There is no revenue from construction contracts during the three months ended June 30, 2019.
(2) Relates to the income from purchase and administrative expenses include compensation expensesresale of physical commodities used in infrastructure, such as steel, marble and tiles.
(3) Relates to management, legalrevenue from plant and professional expenses, investor-relations expenses, acquisition related expensescannabinoid-based products and travel expenses.
| June 30, 2019 Form 10-Q
NOTE 16 – IMPAIRMENT
FASB ASC No. 280, “Segment Reporting” establishes standards for the manner in which public companies reportreporting information about operating segments in annual and interim financial statements.reportable segments. Operating segments are defined as components of an enterprise that have distinctabout which separate financial information is available andthat is evaluated regularly by the chief operating decision-makerdecision maker, or decision-making group (“CODM”) to decide, in deciding how to allocate resources and evaluatein assessing performance. The CODM evaluates revenues and gross profits based on product lines and routes to market. Based on our integration and Management strategies, we operate in two reportable segments: (i) Infrastructure Business and (ii) Plant and Cannabinoids Business.
The Company’s CODM is considered to be the Company’s chief executive officer (“CEO”). The CEO reviews financial information presented on an entity leveloperating segment basis for purposes of making operating decisions and assessing financial performance. TheTherefore, and before our Plant and Cannabinoid Business started, the Company had determined that it operated in a single operating and reportable segment. As of the date of this report and in preparation for the new and different source of revenue, the Company has determined that it operates asin two operating and reportable segments: Pharmaceutical,a) Infrastructure Business and Legacy. Therefore, the Company has commenced reporting two segments.
The following provides information required by ASC 280-10-50-38. Entity-Wide Information.
1) The table below shows revenue reported by product and service:
Three months ended December 31, | Nine months ended December 31, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
Pharmaceutical Business | ||||||||||||||||
| Revenue | $ | - | $ | - | $ | - | $ | - | ||||||||
| Operating income/(Loss) | (422,706 | ) | (243,917 | ) | (957,870 | ) | (711,950 | ) | ||||||||
| Net Profit/(Loss) | (483,054 | ) | (285,592 | ) | (1,103,372 | ) | (838,774 | ) | ||||||||
| Legacy Business | ||||||||||||||||
| Revenue | $ | 762,009 | $ | 249,801 | $ | 1,050,582 | $ | 487,364 | ||||||||
| Operating income/(Loss) | (50,668 | ) | (142,195 | ) | (117,251 | ) | (607,339 | ) | ||||||||
| Net profit/(Loss) | (49,527 | ) | 174,031 | (107,619 | ) | (270,827 | ) | |||||||||
Three months ended December 31, | Nine months ended December 31, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| India | $ | 149,310 | $ | (15,886 | ) | $ | 382,580 | $ | 103,132 | |||||||
| Hong Kong | 585,884 | 213,117 | 585,884 | 213,117 | ||||||||||||
| Malaysia | 26,815 | 52,570 | 82,118 | 171,115 | ||||||||||||
| Total | $ | 762,009 | $ | 249,801 | $ | 1,050,582 | $ | 487,364 | ||||||||
| As of December, 30 | ||||||||
| 2017 | 2016 | |||||||
| India | $ | 5,771,338 | $ | 5,790,817 | ||||
| USA | 2,090,978 | 3,334,509 | ||||||
| Malaysia | 248,023 | 207,427 | ||||||
| Total | $ | 8,110,339 | $ | 9,332,753 | ||||
Product & Service
Segments | Three Months Ended June 30, 2019 ($) | Percentage of Total Revenue | ||||||
Infrastructure Business | 1,545 | 94 | % | |||||
Plant and Cannabinoid Business | 104 | 6 | % | |||||
Total | 1,649 | 100 | % | |||||
Segments | Three Months Ended June 30, 2018 ($) | Percentage of Total Revenue | ||||||
Infrastructure Business | 1,478 | 100 | % | |||||
Plant and Cannabinoid Business | - | - | ||||||
Total | 1,478 | 100 | % | |||||
2) The table below shows nine-monththe revenue reported by productattributed to the country of domicile (U.S.) and service forforeign countries. Revenue is generally attributed to the period ended December 31, 2017:
Segments | Country | Three Months Ended June 30, 2019 ($) | Percentage of Total Revenue | |||||||
Asia (1) | India | 3 | 0 | % | ||||||
(2) | Hong Kong | 1,542 | 94 | % | ||||||
North America | U.S. | 104 | 6 | % | ||||||
Total | 1,649 | 100 | % | |||||||
| June 30, 2019 Form 10-Q
| Product & Service | Amount | % on total revenues | ||||||
| Trading | $ | 874,099 | 83 | % | ||||
| Real Estate | $ | 82,118 | 8 | % | ||||
| Rental | $ | 94,365 | 9 | % | ||||
| TOTAL | $ | 1,050,582 | 100 | % | ||||
Country | Three Months Ended June 30, 2018 ($) | Percentage of Total Revenue | ||||||||
Asia (1) | India | 16 | 1 | % | ||||||
(2) | Hong Kong | 1,462 | 99 | % | ||||||
North America | U.S. | - | - | |||||||
Total | 1,478 | 100 | % | |||||||
3) The receivable andtable below shows the non-current assets other assets as of December 31, 2017 and March 31, 2017, include certain aged receivablesthan financial instruments held in the amountcountry of $437,571. The aged receivables are due from the Cochin International Airport. Cochin International Airport is partially owned by the State Government of Kerala. The receivables have been due for periods in excess of one year as of December 31, 2017. These receivables are included in accounts receivabledomicile and have been classified as current because the arbitration process has concluded, and ruling was given in our favor. The Company continues to carry the full value of the receivables without interest and without any impairment, becauseforeign countries.
Nature of Assets | USA (Country of Domicile) ($) | Foreign Countries (India) ($) | Total as of June 30, 2019 ($) | |||||||||
Intangible assets, net | 187 | - | 187 | |||||||||
Property, plant and equipment, net | 2,110 | 4,945 | 7,055 | |||||||||
Investments in unlisted securities | 773 | 21 | 794 | |||||||||
Claims and advances | 457 | 438 | 895 | |||||||||
Total long-term assets | 3,527 | 5,404 | 8,931 | |||||||||
Nature of Assets | USA (Country of Domicile) ($) | Foreign Countries (India) ($) | Total as of March 31, 2019 ($) | |||||||||
Intangible assets, net | 184 | - | 184 | |||||||||
Property, plant and equipment, net | 958 | 4,928 | 5,886 | |||||||||
Investments in unlisted securities | 773 | 21 | 794 | |||||||||
Claims and advances | 440 | 438 | 878 | |||||||||
Total long-term assets | 2,355 | 5,387 | 7,742 | |||||||||
NOTE 16– SUBSEQUENT EVENTS
On July 18, 2019, the Company believes that thereincorporated SAN Holdings LLC (“SAN”) as a wholly owned subsidiary of IGC. SAN is minimal risk that this organization will become insolvent and unableexpected to make payment.
On July 31, 2019, the Company incorporated Hamsa BioChem SAS (“Hamsa”) as a wholly owned subsidiary of the Company’s current assets and current liabilities approximate their carrying value because of their short-term nature. Such financial instruments are classified as current and areIGC. Hamsa, headquartered in Bogota, Colombia, is expected to be liquidated within the next twelve months.
On July 31, 2019, the Company and its directors and officers executed a memorandum of understanding on the preliminary terms of a full settlement of each of the derivative lawsuits currently pending against them, identified in Part II – Other Information as Erny v. Mukunda, et al., Hamdan v. Mukunda, et al., and Patel v. Mukunda, et al. The settlement is subject to final negotiation of specific terms and approval by the court. Upon the court’s approval of the settlement, it is anticipated that the cases will be dismissed with prejudice.
| June 30, 2019 Form 10-Q
The following discussionpurpose of this Management’s Discussion and analysisAnalysis (“MD&A”) is to provide an understanding of ourthe Company's consolidated financial condition, and results of operations and cash flows, and should be read in conjunction with our unaudited condensed financial statements and related notes that appear elsewhere in this Quarterly Report on Form 10-Q for the three-months ended June 30, 2019, and the Annual Report on Form 10-K for the fiscal year ended March 31, 2019 filed with the SEC on JulyJune 14, 2017. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our2019. The Company’s actual results could differ materially from those discussed in the forward-looking statements.here. Factors that could cause or contribute to these differences include those discussed in the “Forward-Looking Statements” section, as well as discussed elsewhere in this report. The risks and uncertainties can cause actual results to differ significantly from those in our Annual Reportforward-looking statements or implied in historical results and trends. We caution readers not to place undue reliance on Form 10-K filed withany forward-looking statements made by us, which speak only as of the date they are made. We disclaim any obligation, except as specifically required by law and the rules of the SEC, to publicly update or revise any such statements to reflect any change in our expectations or in events, conditions, or circumstances on July 14, 2017, includingwhich any such statements may be based, or that may affect the risk factorslikelihood that actual results will differ from those set out in Item 1A therein. Therefore, the financial statements included in this Report should be read in conjunction with the audited Consolidated Financial Statements containedforth in the forward-looking statements.
Overview
Our primary source of revenue in the three-months ended June 30, 2019 and the three-months ended June 30, 2018 is from our Infrastructure Business. The Company’s Annual Report on Form 10-K filedInfrastructure Business, involves:
(i) | Short-term rental of heavy construction equipment including bulldozers, excavators, rollers and pavers, among others. | |
(ii) | Bidding and execution of construction contracts. Our subsidiary TBL, with over 30 years of experience with infrastructure projects, recently began work on a construction project, building and modifying a road in Kerala, India. In January 2019, TBL received a construction contract for the building of a National Highway Authority of India (“NHAI”) sponsored local highway for approximately $0.6 million. | |
(iii) | The purchase and resale of physical commodities, used in infrastructure, such as steel, marble and tiles, among others. |
Our second line of business is the SEC on July 14, 2017.
Results of December 31, 2017, our operational subsidiariesOperationsfor the three months ended
June 30, 2019 and June 30,2018
The historical results presented below are located in India, Hong Kong and Malaysia. Our filings are available on www.sec.gov.
Statement of plaques, tangles and relieve several other end symptoms such as anxiety, sleep disorder and agitation in patients diagnosed with Alzheimer’s disease. We expect to launch Hyalolex in select medical dispensaries in medical cannabis states in the U.S. in early 2018.
Three-months ended June 30, | ||||||||||||||||
2019 ($) | 2018 ($) | Change ($) | Percent Change | |||||||||||||
Revenue | 1,649 | 1,478 | 171 | 12 | % | |||||||||||
Cost of revenue | (1,608 | ) | (1,436 | ) | (172 | ) | 12 | % | ||||||||
General and administrative expenses | (1,249 | ) | (517 | ) | (732 | ) | 142 | % | ||||||||
Research & development expenses | (247 | ) | (36 | ) | (211 | ) | 586 | % | ||||||||
Operating loss | (1,455 | ) | (511 | ) | (944 | ) | 185 | % | ||||||||
Other income/(expense), net | 76 | (1 | ) | 77 | 7700 | % | ||||||||||
Net Loss | (1,379 | ) | (512 | ) | (867 | ) | 169 | % | ||||||||
| June 30, 2019 Form 10-Q
Revenues– Revenue is an important part of its business strategy and its success depends in part on such registration, the Company cannot guarantee that such patent filings will result in a successful registration with the USPTO. Please see risk factors.
Cost of Revenue (excluding depreciation)
General and administrative expenses – These consist primarily of employee-related expenses, professional fees, legal fees, marketing, other corporate expenses, allocated general overhead and provisions, depreciation and write-offs relating to doubtful accounts and advances, if any. General and administrative expenses increased by approximately $732 thousand or 142% to $1.2 million for the three months ended December 31, 2016. The increase in cost of revenue stemsJune 30, 2019 from an increase in the volume of business as reflected in the revenue and is related to trading and real estate and rental business.
Research and Development expenses - R&D expenses are attributed to our Plant and Cannabinoid Business. The expenses increased approximately $211 thousand or 586%, to $247 thousand for the three months ended December 31, 2016. Most of the expenses are public-company related expenses, including legal fees.
Other Income/(expense), net – Other income increased by approximately $60,527 as compared to approximately $46,465$77 thousand or 7700% during the three months ended June 30, 2019. The total other income for the three months ended December 31, 2016. Most of the interest is paid with common shares of the Company and is therefore non-cash.
Liquidity and Capital Resources
This liquidity and capital resources discussion compares the unaudited consolidated company financial position forCompany financials.
(in thousands, unaudited) | ||||||||||||||||
As of June 30, 2019 ($) | As of March 31, 2019 ($) | Change | Percent Change | |||||||||||||
Cash, cash equivalents and marketable securities | 16,554 | 25,610 | (9,056 | ) | (35% | ) | ||||||||||
Working capital | 23,504 | 25,845 | (2,341 | ) | (9% | ) | ||||||||||
Cash and cash equivalents
Cash and cash equivalents decreased by approximately $9 million to $17 million in the nine-month periods ended December 31, 2017 and 2016.
Summary of Cash flows
(in thousands, unaudited) | ||||||||||||||||
Three Months Ended June 30, | ||||||||||||||||
2019 | 2018 | Change | Percent Change | |||||||||||||
Cash used in operating activities | 2,872 | 535 | 2,337 | 437 | % | |||||||||||
Cash used in investing activities | 6,186 | 8 | 6,178 | 77225 | % | |||||||||||
Cash used in financing activities | - | 67 | (67 | ) | (100 | %) | ||||||||||
| June 30, 2019 Form 10-Q
Operating Activities
Net cash used in operating activities was $973,336 compared to $483,068 used duringfor the ninethree months ended December 31, 2016.
Net cash used in operating activities for the three months ended December 31, 2017, $301,497June 30, 2018 was $535 thousand. Cash was consumed from continuing operations, with the net loss of $512 thousand, non-cash items totaling $177 thousand, consisting of a depreciation charge of $15 thousand and stock-based expenses totaling $162 thousand and changes in working capital accounts had a negative impact of $200 thousand on cash was
Investing Activities
Net cash used in investing activities from continuing operations as compared to $270,694 used during the same periodthree months ended June 30, 2019 was $6.2 million which is comprised of approximately $1,173 thousand for purchase of office space, plant and equipment among others, $5,009 thousand for investment in 2016.
Net cash used in investing activities during the quarterthree months ended December 31, 2017, our non-GAAP cash burnJune 30, 2018 was $8 thousand which is comprised of approximately $360,279 after adjusting$3 thousand for $4,989purchase of depreciation, $48,000plant and equipment among others, and $5 thousand of non-cashacquisition and filing of patents.
Financing Activities
There are no financing activities during the three months ended June 30, 2019.
Cash used in financing activities of approximately $67 thousand during the three months ended June 30, 2018 consisted of raising funds through a public offering amounted $134 thousand and repayment of loan amounted $201 thousand.
Off-Balance Sheet Arrangements
We do not have any outstanding derivative financial instruments, off-balance sheet guarantees, interest expensesrate swap transactions or foreign currency forward contracts. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit support to us or that engages in leasing, hedging or research and $119,313 for ESOP expenses.
Critical Accounting Policies
While all accounting policies impact the financial statements, certain policies may be viewed as critical. Critical accounting policies are those that are both most important to the portrayal of financial condition and results of operations and that require management’sManagement’s most subjective or complex judgments and estimates. Our managementManagement believes the policies that fall within this category are the policies on revenue recognition, accounting forinventory, accounts receivable, income taxes, foreign currency translation, impairment of long-lived assets and investments, stock-based compensation, goodwill, and income taxes.
Please see our disclosures onin Note 2 -– Summary of Significant Accounting Policies ofto the Notes to the unauditedUnaudited Condensed Consolidated Financial Statements in this report, and Note 2 - Significant Accounting Policies ofin the Notes to the auditedAudited Consolidated Financial Statements in Part II of our Annual Report on Form 10-K for the fiscal year ended March 31, 2019 filed with the SEC on JulyJune 14, 20172019, as well as Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations, on the same annual report, for a discussion of all our critical and significant accounting policies.
| June 30, 2019 Form 10-Q
Recent Accounting Pronouncements
The Private Securities Litigation Reform Actrecent accounting pronouncements are discussed in Note 2 – Summary of 1995 provides a safe harbor for forward-looking statements. This report andSignificant Accounting Policies to the documents incorporatedNotes to the Unaudited Condensed Consolidated Financial Statements in this report by reference contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Additionally, we, or our representatives may, from time to time, make other written or verbal forward-looking statements and discuss plans, expectations and objectives regarding our business, financial condition and results of operations. Without limiting the foregoing, statements that are in the future tense, and all statements accompanied by terms such as “believe,” “project,” “expect,” “trend,” “estimate,” “forecast,” “assume,” “intend,” “plan,” “target,” “anticipate,” “outlook,” “preliminary,” “will likely result,” “will continue” and variationsNotes to the Audited Consolidated Financial Statements in Part II of them and similar terms are intended to be “forward-looking statements” as defined by federal securities laws. We caution you not to place undue reliance on forward-looking statements, which are based upon assumptions, expectations, plans and projections. Forward-looking statements are based upon certain assumptions and subject to risks and uncertainties, including those identified in the “Risk Factors” included in our annual reportAnnual Report on Form 10-K for the fiscal year endingended March 31, 2017,2019 filed with the SEC on JulyJune 14, 2017, and in the documents incorporated by reference that may cause actual results to differ materially from those expressed or implied in the forward-looking statements. Forward-looking statements speak only as of the date when they are made. Except as required by federal securities law, we do not undertake any obligation to update forward-looking statements to reflect events, circumstances, changes in expectations, or the occurrence of unanticipated events after the date of those statements.
Item 3 does not apply to Item 305(e) of Regulation S-K, the Company is not required to provide the information required by this Item as it isus because we are a “smallersmaller reporting company.”
Evaluation of Disclosure Controls and Procedures
Our Management maintains disclosure controls and procedures as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act that are designed to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is processed, recorded, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to Management, including our Chief Executive Officer and Principal Financial Officer (our principal executive officer and principal financial officer, respectively), as appropriate, to allow for timely decisions regarding required disclosure.
Our Management, including the Chief Executive Officer and Principal Financial Officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report, management conducted anreport. Based on this evaluation, under the supervision and with the participation of itsour Chief Executive Officer (CEO) and its principal financial and accounting officer (PFAO), of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934. Based upon that evaluation, our CEO and PFAOPrincipal Financial Officer concluded that our disclosure controls and procedures arewere effective to ensure that the information required to be disclosed in the reports filed or submitted by the Company in reportsus under the Exchange Act iswas recorded, processed, summarized and reported within the requisite time periods specified in the SEC rules and forms; andthat such information was accumulated and communicated to the Company’s management,our Management, including its principal executive officerour Chief Executive Officer and principal financial officer,Principal Financial Officer, as appropriate to allow for timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
Our Management, including our Chief Executive Officer and Principal Financial Officer, evaluated our “internal control over financial reporting” as defined in Exchange Act Rule 13a-15(f) to determine whether any changes in our internal control over financial reporting occurred during the three months ended June 30, 2019 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on that evaluation, there were no changes in our internal controlscontrol over financial reporting during our fiscal quarterthe three months ended December 31, 2017 which were identified in conjunction with Management’s evaluation required by paragraph (d) of Rule 13a-15 and 15d-15 under the Exchange ActJune 30, 2019 that have materially affected or are reasonably likely to materially affect our internal controlscontrol over financial reporting.
| June 30, 2019 Form 10-Q
PART II – OTHER INFORMATION
The Company may be involved in legal proceedings, claims, and assessments arising in the ordinary course of business. Such matters are subject to many uncertainties, and outcomes are not predictable with assurance. There are no such matters that are deemed material legal proceedingsto the consolidated financial statements as of June 30, 2019. As described under Note 16 – Subsequent event, we have reached a memorandum of understanding of the derivative lawsuits.
As of June 30, 2019, the Company was a party to four (4) shareholder lawsuits, as follows:
Shareholder Class Action Litigation:
Tchatchou v. India Globalization Capital, Inc., et al., 8:18-cv-03396 (U.S. District Court for the District of Maryland)
On November 2, 2018, IGC shareholder Alde-Binet Tchatchou instituted a shareholder class action complaint on behalf of himself and all others similarly situated in the United States District Court for the District of Maryland. IGC, Ram Mukunda, Richard Prins, and Sudhakar Shenoy were named as defendants. On May 13, 2019, the plaintiff in the Tchatchou litigation filed an amended complaint against IGC, Mukunda, and Claudia Grimaldi, thereby removing Prins and Shenoy as defendants. The plaintiff in Tchatchou alleges that IGC, Mukunda, and Grimaldi violated Section 10(b) of the Exchange Act, SEC Rule 10b-5, and Section 20(a) of the Exchange Act and made false and misleading statements to the public by issuing a September 25, 2018 press release entitled “IGC to Enter the Hemp/CBD-Infused Energy Drink Space,” in which IGC announced it had “executed a distribution and partnership agreement” for the sugar-free energy drink named Nitro G, as well as through related public statements. The plaintiff in Tchatchou has not publicly disclosed the amount of damages they seek. On February 28, 2019, all pending shareholder class actions were consolidated, and the Tchatchou litigation was designated as the lead case.
Harris-Carr v. India Globalization Capital, Inc., et al., 8:18-cv-03408 (U.S. District Court for the District of Maryland)
On November 2, 2018, IGC shareholder Gabe Harris-Carr instituted a shareholder class action complaint on behalf of himself and all others similarly situated in the United States District Court for the District of Maryland. IGC, Ram Mukunda, and Claudia Grimaldi were named as defendants. On February 28, 2019, all pending shareholder class actions, including the Harris-Carr litigation, were consolidated, and the Tchatchou litigation, described above, was designated as the lead case. On May 13, 2019, the plaintiff in the Tchatchou litigation filed an amended complaint, which becomes the operative complaint for the consolidated matter and supersedes the Harris-Carr complaint.
For the current state of affairs regarding these Shareholder Class Action Litigation, please refer to Note 16 - Subsequent Events.
| June 30, 2019 Form 10-Q
Shareholder Derivative Action Litigation:
Erny v. Mukunda, et al., 1:18-cv-03698 (U.S. District Court for the District of Maryland)
On November 30, 2018, IGC shareholder Gene Erny instituted a shareholder derivative complaint on behalf of IGC in the United States District Court for the District of Maryland. Ram Mukunda, Claudia Grimaldi, Rohit Goel, Richard Prins, and Sudhakar Shenoy were named as defendants, and IGC was named as a nominal defendant. The Erny litigation represents a claim made by a shareholder on behalf of the Company (as opposed to against the Company.Company). The complaint in the Erny litigation alleges that the Company should have filed suit against the individual defendants – Mukunda, Grimaldi, Goel, Prins, and Shenoy (collectively referred to as the “Individual Defendants”) – for securities fraud and breach of fiduciary duty. The plaintiff in Erny alleges that, through the individual defendants, the Company made false and misleading statements, and the individual defendants breached their fiduciary duties, as follows: “Under the direction and watch of the Individual Defendants, the [Company’s] 2018 Proxy Statement failed to disclose that: (1) the Company had substantially discontinued the business it was conducting at the time that it was initially listed on the New York Stock Exchange, and was instead engaged in ventures or promotions that had not been developed to a commercial stage or the success of which is problematical; (2) the Company adapted its business model frequently and radically in an attempt to lure investors seeking to capitalize on market fads, such as blockchain and cannabinoids; (3) the benefits of the Company’s relationships with manufacturers, partners, and distributors were overstated in order to create a misleadingly positive impression of IGC’s potential commercial success; (4) DaMa Pharmaceutical does not have a long history of developing premier pharmaceutical products; (5) as a result of the foregoing, IGC’s stock would be suspended from the New York Stock Exchange and potentially delisted; (6) the Company failed to maintain internal controls; and (7) as a result of the foregoing, the Company’s public statements were materially false and misleading at all relevant times.” The plaintiff in the Erny litigation further alleges that the “Individual Defendants also caused the [Company’s] 2018 Proxy Statement to be false and misleading with regard to executive compensation in that they purported to employ ‘pay-for-performance’ elements while failing to disclose that the Company’s share price was being artificially inflated by the false and misleading statements made by the Individual Defendants as alleged herein, and therefore any compensation based on the Company’s financial performance was artificially inflated. The false and misleading elements of the 2018 Proxy Statement led to the reelection of Defendant Prins, which allowed him to continue breaching his fiduciary duties to IGC.” Because the claims made in Erny are asserted against the individual defendants, as opposed to the Company, the Company is merely a nominal defendant. The Company will monitor the case and proceed as appropriate under the circumstances as and if the matter progresses. The Company has retained counsel for that purpose.
On January 28, 2019, the court issued a consent order staying proceedings in the Erny litigation pending resolution of an anticipated motion to dismiss to be filed by IGC, Mukunda, and Grimaldi in the Tchatchou matter, described above. On May 9, 2019, Erny and Hamdan, described below, were consolidated, and the Erny litigation was designated as the lead derivative case.
Hamdan v. Mukunda, et al., 8:19-cv-00493 (U.S. District Court for the District of Maryland)
On February 20, 2019, IGC shareholder Waseem Hamdan instituted a shareholder derivative complaint on behalf of IGC in the United States District Court for the District of Maryland. Ram Mukunda, Claudia Grimaldi, Rohit Goel, Richard Prins, and Sudhakar Shenoy were named as defendants, and IGC was named as a nominal defendant. The allegations made by the plaintiff in the Hamdan litigation are substantially similar to the allegations made in Erny, and the claims against the individual director defendants are based on the same alleged transactions and/or occurrences as are the claims made in the Erny litigation. Because the claims made in Hamdan are asserted against the individual defendants, as opposed to the Company, the Company is merely a nominal defendant. On May 9, 2019, Erny and Hamdan were consolidated, with the Erny litigation, described above, designated as the lead case. As a result of the consolidation, the Hamdan litigation became subject to the January 28, 2019 order entered in the Erny litigation staying proceedings pending resolution of an anticipated motion to dismiss to be filed by IGC, Mukunda, and Grimaldi in the Tchatchou matter, described above.
| June 30, 2019 Form 10-Q
Patel v. Mukunda, et al., 8:19-cv-01673 (U.S. District Court for the District of Maryland)
On June 6, 2019, IGC shareholder Dimple Patel instituted a shareholder derivative complaint on behalf of IGC in the United States District Court for the District of Maryland. Ram Mukunda, Claudia Grimaldi, Rohit Goel, Richard Prins, Shajy Mathilakathu, and Sudhakar Shenoy were named as defendants, and IGC was named as a nominal defendant. The Patel litigation represents a claim made by a shareholder on behalf of the Company (as opposed to against the Company). The complaint in the Patel litigation alleges that the Company should have filed suit against the individual defendants – Mukunda, Grimaldi, Goel, Prins, Mathilakathu, and Shenoy (collectively referred to as the “Individual Defendants”) – for breach of fiduciary duty. Specifically, the complaint alleges that the Individual Defendants “violated their duty of good faith by knowingly causing and/or recklessly allowing the Company to make false and misleading statements and/or fail[ed] to disclose that: (i) [IGC] substantially discontinued the business that it conducted at the time it began trading on the NYSE; (ii) the Company had become engaged in ventures or promotions which have not developed to a commercial stage; (iii) cannabis-related products, including CBD-based beverages, are illegal in Malaysia; (iv) neither IGC nor Treasure Network was a licensed manufacturer of cannabis-based products in Malaysia; (v) CBD-infused Nitro G was not an approved and registered product under Malaysian law; (vi) Treasure Network, founded in 2017, was not “experienced”; (vii) Treasure Network was a distributor, not a manufacturer; (viii) at all relevant times, the Individual Defendants had the ability to exercise substantial control over Treasure Network; (ix) consequently, the Company was not an operating company for the purposes of continued trading and listing on the NYSE American; and (x) as a result, India Globalization’s public statements were materially false and misleading at all relevant times.” Because the claims made in the Patel litigation are asserted against the individual defendants, as opposed to the Company, the Company is merely a nominal defendant. The Company will monitor the case and proceed as appropriate under the circumstances as and if the matter progresses. The Company has retained counsel for that purpose. The Patel litigation has not been consolidated with Erny and Hamdan to date. The Company anticipates that, if it becomes appropriate in the future, it may seek to consolidate the Patel litigation with the Erny derivative litigation described herein.
For the current state of affairs regarding these Shareholder Class Action Litigation, please refer to Note 16 - Subsequent Events.
Incorporated by reference to the risk factors previously disclosed in the Company’sour 2019 annual report on Form 10-K, forfiled with the fiscal year ended March 31, 2017.
None.
None.
Not applicable.
On July 31, 2019, the Company and its directors and officers executed a memorandum of understanding on the preliminary terms of a full settlement of each of the derivative lawsuits currently pending against them, identified in Part II – Other Information as Erny v. Mukunda, et al., Hamdan v. Mukunda, et al., and Patel v. Mukunda, et al. The settlement is subject to final negotiation of specific terms and approval by the court. Upon the court’s approval of the settlement, it is anticipated that the cases will be dismissed with prejudice.
| June 30, 2019 Form 10-Q
Exhibit |
| Incorporated by Reference | ||
Number | Exhibit Description | Form | Exhibit | Filing Date |
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3.1 | 8-K | 3.1 | Aug 6, 2012 | |
3.2 | S-1 | 3.2 | Feb 14, 2006 | |
10.01 | Employment agreement between the Company and Claudia Grimaldi | 10-K | 10.03 | June 14, 2019 |
31.1* | Rule 13a-14(a) / 15d-14(a) Certification of Chief Executive Officer. | |||
31.2* | Rule 13a-14(a) / 15d-14(a) Certification of Principal Financial Officer. |
|
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|
32.1** |
|
|
| |
101.INS* | XBRL Instance Document. |
|
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101.SCH* | XBRL Taxonomy Extension Schema Document. |
|
|
|
101.CAL* | XBRL Taxonomy Extension Calculation Linkbase Document. |
|
|
|
101.LAB* | XBRL Taxonomy Extension Label Linkbase Document. |
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|
|
101.PRE* | XBRL Taxonomy Extension Presentation Linkbase Document. |
|
|
|
101.DEF* | XBRL Taxonomy Extension Definition Linkbase Document. |
|
|
|
*Filed herewith.
** Furnished herewith.
| June 30, 2019 Form 10-Q
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
INDIA GLOBALIZATION CAPITAL, INC. | |||
Date: | By: | /s/ Ram Mukunda | |
Ram Mukunda | |||
President and Chief Executive Officer (Principal Executive Officer) | |||
Date: August 9, 2019 | By: | /s/ Claudia Grimaldi | |
Claudia Grimaldi | |||
Vice President (Principal Financial Officer) |
| June 30, 2019 Form 10-Q