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 |
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) |
(Zip Code) |
(301) 983-0998
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Tradingsymbol(s) | Name of each exchange on which registered | ||
Common Stock, par value $0.0001 per share | IGC | NYSE American LLC |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act 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 | 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
41,196,130 shares of our common stock par value $0.0001, issued andwere outstanding as of January 31, 2018.
| June 30, 2020 Form 10-Q
INDIA GLOBALIZATION CAPITAL, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2017
Page | |||
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Item 1. | 4 | ||
4 | |||
5 | |||
6 | |||
7 | |||
8 | |||
Item 2. | 25 | ||
Item 3. | 29 | ||
Item 4. | 29 | ||
PART | |||
Item 1. | 30 | ||
Item 1A. | 32 | ||
Item 2. | 32 | ||
Item 3. | 32 | ||
Item 4. | 32 | ||
Item 5. | 32 | ||
Item 6. | 33 | ||
34 | |||
| June 30, 2020 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. Such statements are based on currently available information, which management has assessed but which is dynamic and subject to rapid change due to risks and uncertainties that affect our business. Our success is highly correlated with the success of our product candidates. We may not be able to protect our intellectual property adequately or receive patents. We may not receive regulatory approval for our products, or trials. An additional risk factor worth highlighting specifically related to the patent licensing described herein is that the patent applications we have licensed may not be granted by the United States Patent and Trademark Office (“USPTO”), even if the Company is in full compliance with USPTO requirements. We may not have adequate resources including financial resources, to successfully conduct all requisite clinical trials, to bring a product based on the above-referenced patented formulations to market, or to pay applicable maintenance fees over time. We may not be able to successfully commercialize our products even if they are successful and receive regulatory approval. The Company may not be able to complete human trials, or, once conducted, human trial testing results may not be favorable or as anticipated. Our projections anticipate stable pricing, which may not hold out over the next several years. Failure or delay with respect to any of the factors above could have a material adverse effect on our business, future results of operations, our stock price, and our financial condition. Precautions including social distancing, travel restrictions, among others, surrounding the COVID-19 pandemic could lead to delays and a more expensive trial. This document also 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, 2020, filed with the Securities and Exchange Commission (“SEC”) on July 13, 2020, 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, 2020 Form 10-Q
PART I – FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share data) |
(Unaudited)
June 30, 2020 ($) | March 31, 2020 ($) | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | 2,703 | 7,258 | ||||||
Marketable securities | 5,098 | 5,081 | ||||||
Accounts receivable, net | 264 | 133 | ||||||
Inventories | 6,523 | 4,245 | ||||||
Deposits and advances | 1,414 | 1,040 | ||||||
Total current assets | 16,002 | 17,757 | ||||||
Intangible assets, net | 275 | 252 | ||||||
Property, plant and equipment, net | 10,603 | 9,780 | ||||||
Non-Marketable securities | 260 | 11 | ||||||
Claims and advances | 606 | 610 | ||||||
Operating lease asset | 553 | 574 | ||||||
Total long-term assets | 12,297 | 11,227 | ||||||
Total assets | 28,299 | 28,984 | ||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | 1,099 | 762 | ||||||
Accrued liabilities and others | 1,220 | 1,134 | ||||||
Short-term loans | - | 50 | ||||||
Total current liabilities | 2,319 | 1,946 | ||||||
Long-term loans | 630 | - | ||||||
Other liabilities | 16 | 16 | ||||||
Operating lease liability | 471 | 485 | ||||||
Total non-current liabilities | 1,117 | 501 | ||||||
Total liabilities | 3,436 | 2,447 | ||||||
Commitments and Contingencies – See Note 12 | ||||||||
Stockholders' equity: | ||||||||
Preferred stock, $0.0001 per value: authorized 1,000,000 shares, no share issued or outstanding as on June 30, 2020 and March 31, 2020 | - | - | ||||||
Common stock and additional paid-in capital, $0.0001 par value: 150,000,000 shares authorized; 41,196,130 and 39,320,116 shares issued and outstanding as on June 30, 2020 and March 31, 2020, respectively. | 95,020 | 94,754 | ||||||
Accumulated other comprehensive loss | (2,908 | ) | (2,850 | ) | ||||
Accumulated deficit | (67,249 | ) | (65,367 | ) | ||||
Total stockholders' equity | 24,863 | 26,537 | ||||||
Total liabilities and stockholders' equity | 28,299 | 28,984 | ||||||
The accompanying notes should be read in USD, 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 | ||||
| June 30, 2020 Form 10-Q
India Globalization Capital, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(in thousands, except loss per share)
(Unaudited)
Three months ended June 30, | ||||||||
2020 ($) | 2019 ($) | |||||||
Revenues | 584 | 1,649 | ||||||
Cost of revenues | (538 | ) | (1,608 | ) | ||||
Gross profit | 46 | 41 | ||||||
Selling, general and administrative expenses | (1,755 | ) | (1,249 | ) | ||||
Research and development expenses | (222 | ) | (247 | ) | ||||
Operating loss | (1,931 | ) | (1,455 | ) | ||||
Other income – net | 49 | 76 | ||||||
Loss before income taxes | (1,882 | ) | (1,379 | ) | ||||
Income taxes expense | - | - | ||||||
Net loss attributable to common stockholders | (1,882 | ) | (1,379 | ) | ||||
Foreign currency translation adjustments | (58 | ) | 19 | |||||
Comprehensive loss | (1,940 | ) | (1,360 | ) | ||||
Loss per share attributable to common stockholders: | ||||||||
Basic & diluted | $ | (0.05 | ) | (0.03 | ) | |||
Weighted-average number of shares used in computing loss per share amounts: | 40,189 | 39,508 | ||||||
The accompanying notes should be read in connection with these Condensed Consolidated Financial Statements.
| June 30, 2020 Form 10-Q
India Globalization Capital, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
(Unaudited)
Three Months Ended June 30, 2019 | 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, 2019 | 39,502 | 94,043 | (58,052 | ) | (2,419 | ) | 33,572 | |||||||||||||
Common stock-based compensation & expenses, net | 10 | 208 | 208 | |||||||||||||||||
Net loss | - | - | (1,379 | ) | - | (1,379 | ) | |||||||||||||
Loss on foreign currency translation | - | - | - | 19 | 19 | |||||||||||||||
Balances as of June 30, 2019 | 39,512 | 94,251 | (59,431 | ) | (2,400 | ) | 32,420 | |||||||||||||
Three Months Ended June 30, 2020 | ||||||||||||||||||||
Balances as of March 31, 2020 | 39,320 | 94,754 | (65,367 | ) | (2,850 | ) | 26,537 | |||||||||||||
Common stock-based compensation & expenses, net | 1,776 | 166 | - | - | 166 | |||||||||||||||
Common stock issued for investment | 100 | 100 | - | - | 100 | |||||||||||||||
Net loss | - | - | (1,882 | ) | - | (1,882 | ) | |||||||||||||
Loss on foreign currency translation | - | - | - | (58 | ) | (58 | ) | |||||||||||||
Balances as of June 30, 2020 | 41,196 | 95,020 | (67,249 | ) | (2,908 | ) | 24,863 | |||||||||||||
The accompanying notes should be read in connection with these Condensed Consolidated Financial Statements.
| June 30, 2020 Form 10-Q
India Globalization Capital, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Three months ended June 30, | ||||||||
2020 ($) | 2019 ($) | |||||||
Operating activities: | ||||||||
Net loss | (1,882 | ) | (1,379 | ) | ||||
Adjustment to reconcile net loss to net cash: | ||||||||
Depreciation and amortization | 77 | 17 | ||||||
Common stock-based compensation and expenses, net | 166 | 208 | ||||||
Changes in: | ||||||||
Accounts receivables | (157 | ) | (105 | ) | ||||
Inventory | (2,277 | ) | (1,717 | ) | ||||
Deposits and advances | (479 | ) | (71 | ) | ||||
Claims and advances | 24 | (17 | ) | |||||
Accounts payable | 377 | 192 | ||||||
Accrued and other liabilities | 163 | - | ||||||
Net cash used in operating activities | (3,988 | ) | (2,872 | ) | ||||
Investing activities: | ||||||||
Purchase of property, plant and equipment | (944 | ) | (1,173 | ) | ||||
Investment in marketable securities | (17 | ) | (5,009 | ) | ||||
Investment in non-marketable securities | (149 | ) | - | |||||
Acquisition and filing cost of patents and rights | (26 | ) | (4 | ) | ||||
Net cash used in investing activities | (1,136 | ) | (6,186 | ) | ||||
Financing activities: | ||||||||
Proceeds from long- term loan | 580 | - | ||||||
Net cash provided by financing activities | 580 | - | ||||||
Effects of exchange rate changes on cash and cash equivalents | (11 | ) | 2 | |||||
Net increase/(decrease) in cash and cash equivalents | (4,555 | ) | (9,056 | ) | ||||
Cash and cash equivalents at the beginning of the period | 7,258 | 25,610 | ||||||
Cash and cash equivalents at the end of the period | 2,703 | 16,554 | ||||||
Supplementary information: | ||||||||
Cash paid for interest | - | 2 | ||||||
Non-cash items: | ||||||||
Common stock issued/granted including ESOP, consultancy and patent acquisition | 166 | 15 | ||||||
The accompanying notes should be read in connection with these Condensed Consolidated Financial Statements.
| June 30, 2020 Form 10-Q
India Globalization Capital, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED JUNE 30, 2020
(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/or “us” refer to India Globalization Capital, Inc., together with our subsidiaries and beneficially owned subsidiary. Our filings are available on www.sec.gov. The information contained on our websites, including www.igcinc.us, is not incorporated by reference in this report, and you should not consider such information to be a part of this report. We exclude our investments and minority non-controlling interests, and any information provided by them is not incorporated by reference in this report, and you should not consider such information to be a part of this report.
NOTE 1 – BUSINESS DESCRIPTION
Business
IGC has two segments: Infrastructure and Life Sciences. The Company’s Infrastructure Business, managed from India, involves: (a) the Notesexecution of construction contracts, (b) the purchase and resale of physical commodities used in infrastructure and (c) the rental of heavy construction equipment. Information about our infrastructure products and service offerings is available at www.igcinc.us. Our revenue for the three months ended June 30, 2019 was primarily derived from this segment.
The Company’s Life Sciences segment, formerly known as the Plant and Cannabinoid business, managed from the United States (“U.S.”), involves: (a) the development of potential new drugs, subject to applicable regulatory approvals, (b) several CBD-based and non-CBD-based products and brands in various stages of development, for sale online and through stores, including non-CBD-based hand sanitizers, among others, (c) wholesale of hemp extracts including hemp crude extract and hemp isolate, among others, (d) hemp growing and processing facilities, (e) white labeling of hemp-based products and (f) the Audited Consolidated Financial Statements containedoffering of tolling services like extraction and distillation to hemp farmers. Our revenue for the three months ended June 30, 2020, was primarily derived from this segment.
The current COVID-19 pandemic and the associated social distancing and reduced foot traffic to stores continues to adversely impact our ability to distribute products and provide services.
The Company’s principal office in the U.S. is in Maryland, and the Company has a facility in Washington State and offices in Colombia, Hong Kong, and India.
Business updates
● | On July 30, 2020, IGC received notice from the FDA to proceed with a 12-subject Phase 1 human clinical trial (“removal of full clinical hold”) on its Investigational New Drug Application (“INDA”), submitted under Section 505(i) of the Federal Food, Drug, and Cosmetic Act, for IGC-AD1. The Phase 1 trial will involve a randomized placebo controlled Multiple Ascending Dose (“MAD”) study to evaluate safety and tolerability of IGC-AD1 in subjects with mild to severe dementia due to Alzheimer’s disease. In addition, the study will evaluate pharmacokinetics (“PK”) and collect data on other factors. The Company’s IGC-AD1 formulation is based on a patent filed by the University of South Florida (“USF”) that uses a cannabinoid as one of the active ingredients. The Company has exclusive rights to the patent filing. |
● | The Company has suffered losses and setbacks due to the COVID-19 pandemic, including being delayed in executing an ongoing construction contract, being unable to commission equipment, and having to slow down operations because of COVID-19. |
● | In response to the COVID-19 pandemic, the Company manufactured and distributed alcohol-based hand sanitizers. The majority of our revenue for the three months ended June 30, 2020, is from the sale of hand sanitizers. In an effort to help some of the hardest hit communities, we donated hand sanitizers to the Federal Emergency Management Agency (“FEMA”), the Navajo Indians in Arizona, the Crow Indian reservation in Montana, and the Sioux reservation in South Dakota. |
● | The Company is executing a road building contract in Kerala, India valued at approximately $1.1 million. The Company estimates that it will take between 12 and 15 months to complete the work. Work on this project has been temporarily delayed due to COVID-19. We expect to re-start the project as soon as COVID-19 restrictions are lifted, and we are able to deploy our work force. |
● | On July 17, 2020, the Company filed a provisional patent application with the USPTO for its IGC-511 formulation for Cannabidiol based composition and method for treating pain. | |
● | On July 6, 2020, the United States District Court for the District of Maryland entered an order formally and finally approving the January 2020 formal settlement agreement between the derivative plaintiffs, the Company, and the named defendant directors and officers, thereby resolving all pending derivative suits. All derivative actions have now been formally terminated. Please refer Part II, Item 1, Legal Proceedings. |
● | On May 12, 2020, the Company completed an investment under the terms of a Share Subscription Agreement (“SSA”) with Evolve I, Inc., a Washington corporation (“Evolve”), by transferring part of the consideration to Evolve. As of June 30, 2020, the Company owns an approximately 19.8% interest in Evolve. |
| June 30, 2020 Form 10-Q
Business Organization
As of June 30, 2020, the Company had the following direct operating subsidiaries: Techni Bharathi Private Limited (“TBL”), IGCare, LLC (“IGCare"), Holi Hemp, LLC (“Holi Hemp”), IGC Pharma, LLC (“IGC Pharma”), SAN Holdings, LLC (“SAN Holdings”), Sunday Seltzer, LLC (“Sunday Seltzer”) and Colombia-based beneficially owned subsidiary Hamsa Biochem SAS (“Hamsa”). The Company’s Annual Reportfiscal year is the 52- or 53-week period that ends on Form 10-KMarch 31. The Company is a Maryland corporation established in 2005. The Company’s filings are available on www.sec.gov.
We have employees, contract workers and advisors in the U.S., India, Colombia, and Hong Kong.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The accompanying unaudited condensed consolidated financial statements (“interim statements”) of the Company have been prepared in accordance with accounting principles generally accepted in the U.S. (“U.S. GAAP”) as determined by the Financial Accounting Standards Board (the “FASB”) within its Accounting Standards Codification (“ASC”) and under the rules and regulations of the Securities Exchange Commission (“SEC”). Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of Management, all adjustments and disclosures necessary for a fair presentation of these interim statements have been included. The results reported in these interim statements are not necessarily indicative of the results that may be reported for the entire year. These interim statements should be read in conjunction with the Company’s audited consolidated financial statements for the fiscal year ended March 31, 20172020 (“Fiscal 2020”) contained in the Company’s Form 10-K for Fiscal 2020, filed with the SEC 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 | ||||||||||||
Principles of consolidation
The interim statements include the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2017 filed with the SEC on July 14, 2017.
| 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 | $ | - | ||||
Use of the information and footnotes required by United States generally accepted accounting principles (“GAAP”) for complete financial statements. In preparing theestimates
The preparation of financial statements management is requiredin conformity with U.S. GAAP requires Management to make estimates and assumptions that could affect the reported amounts reported in these condensed consolidatedof assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and accompanying notes.the reported amounts of revenue and expenses during the reporting period. Actual results could differ materially from those estimates. The results for interim periods do not necessarily indicate
Management believes that the results that may be expected for any other interim period or forestimates and assumptions used in the full year. The significant accounting policies adopted bypreparation of the Company, in respect of these consolidated financial statements are set outprudent and reasonable. Significant estimates and assumptions are generally used for, but not limited to: allowance for uncollectible accounts receivable; sales returns; normal loss during production; 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 material impact on IGC’s results, operations, financial position, and cash flows. Changes in estimates are reflected in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2017. Therefore, the Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and respective notes containedfinancial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2017 filed with the SEC on July 14, 2017. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation have been includedperiod in which changes are made and, if material, their effects are disclosed in the Financial Statements. Thenotes to the condensed consolidated financial statements include the accounts of the Companystatements.
Presentation and all its subsidiaries that are more than 50% owned and controlled. The Company consolidates the subsidiaries into its consolidated financial statements. Transactions between the Company and its subsidiaries have been eliminated in the consolidated financial statements.
IGC operates in India, U.S., Colombia and Hong Kong and Malaysia and a substantial portion of the Company’s salesfinancials are denominated in USD, INR, and RM.the Indian Rupee (INR), the Hong Kong Dollar (HKD) or the Colombian Peso (COP). As a result, changes in the relative values of the U.S. dollar andDollar (USD), the INR, the HKD or the RMCOP affect revenues and profits as the results are translated into U.S. dollars in the consolidated and pro forma financial statements.
| June 30, 2020 Form 10-Q
The accompanying financial statements are reported in U.S. dollars.USD. The INR, HKD and the RMCOP are the functional currencies for certain subsidiaries of the Company. The translation of the functional currencies into U.S. dollars is performed for assets and liabilities using the exchange rates in effect at the balance sheet date and for revenues costs and expenses using average exchange rates prevailing during the reporting periods. Adjustments resulting from the translation of functional currency financial statements to reporting currency are accumulated and reported as other comprehensive income/(loss), a separate component of shareholders’ equity.
Reclassifications
Certain prior period amounts in the condensed consolidated financial statements and accompanying notes have been reclassified to conform to the current period’s presentation. A short-term loan in the amount of approximately $50 thousand has been reclassified to non-current liability from current liability.
Impairment of long – lived assets
The Company reviews its long-lived assets, with finite lives, for impairment whenever events or changes in business circumstances indicate that the carrying amount of assets may not be fully recoverable. Such circumstances include, though are not limited to, significant or sustained declines in revenues or earnings, future anticipated cash flows, business plans and material adverse changes in the economic climate, such as changes in operating environment, competitive information and impact of changes in government policies. For assets that the Company intends to hold for use, if the total of the expected future undiscounted cash flows produced by the assets or subsidiary company is less than the carrying amount of the assets, a loss is recognized for the difference between the fair value and carrying value of the assets. For assets, the Company intends to dispose of by sale, a loss is recognized for the amount by which the estimated fair value less cost to sell is less than the carrying value of the assets. Fair value is determined based on quoted market prices, if available, or other valuation techniques including discounted future net cash flows. Unlike goodwill, long-lived assets are assessed for impairment only where there are any specific indicators for impairment.
No impairment has been recorded for the three months ended June 30, 2020, and 2019.
Short-term and long-term investments
Our policy for short-term and long-term investments is to establish a high-quality portfolio that preserves principal, meets liquidity needs, avoids inappropriate concentrations, and delivers an appropriate yield in relationship to our investment guidelines and market conditions. Short-term and long-term investments consist of corporate, various government agency and municipal debt securities, as well as certificates of deposit that have maturity dates that are greater than 90 days. Certificates of deposit and commercial paper are carried at cost which approximates fair value. Available-for-sale securities: Investments in debt securities that are classified as available for sale shall be measured subsequently at fair value in the statement of financial position.
Investments are initially measured at cost, which is the fair value of the consideration given for them, including transaction costs. Where the Company’s current fiscal year endsownership interest is in excess of 20% and the Company has a significant influence, the Company has accounted for the investment based on March 31, 2018. Unless the context requires otherwise, all referencesequity method in this report to “IGC,” “we,” “our”accordance with ASC Topic 323, “Investments – Equity method and “us” refer to India Globalization Capital, Inc., togetherJoint Ventures”. Under the equity method, the Company’s share of the post-acquisition profits or losses of the equity investee is recognized in the consolidated statements of operations and its share of post-acquisition movements in accumulated other comprehensive income / (loss) is recognized in other comprehensive income / (loss). Where the Company does not have significant influence, the Company has accounted for the investment in accordance with its subsidiaries,ASC Topic 321, “Investments-Equity Securities”.
As of June 30, 2020, investment in marketable securities is valued at fair value and investment in non-marketable securities with ownership less than 20% is valued at cost as listed and described in its Annual Report onper ASC Topic 321, “Investments-Equity Securities”.
| June 30, 2020 Form 10-K filed with the SEC on July 14, 2017. We exclude our investments and minority non-controlling interests, and any information provided by them is not incorporated by reference in this report, and you should not consider it a part of this report. Our filings are available on www.sec.gov. 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.
Stock – INTENTIONALLY LEFT BLANK
The Company accounts for stock-based compensation to employees and non-employees in conformity with the provisions of ASC Topic 718, “Stock-Based Compensation”. The Company expenses stock-based compensation to employees over the requisite vesting period based on the estimated grant-date fair value of the awards. The Company accounts for forfeitures as they occur. Stock-based awards are recognized on a straight-line basis over the requisite vesting period. For stock-based employee compensation cost recognized at any date will be at least equal to the amount attributable to the share-based compensation that is vested at that date. The Company estimates the fair value of stock option grants using the Black-Scholes option-pricing model. The assumptions used in calculating the fair value of stock-based awards represent Management’s best estimates. The closing share price of the Company’s common stock on the date of grant is considered the fair-value of the share. The volatility factor is determined based on the Company’s historical stock prices. The expected term represents the period that our stock-based awards are expected to be outstanding. The Company has never declared or paid any cash dividends. Equity awards issued to non-employees are recorded at their fair value on the grant date as they are immediately exercisable and not forfeitable on the date of grant.
Accounts receivable net
We make estimates of the collectability of our accounts receivable by analyzing historical payment patterns, customer concentrations, customer creditworthiness, and current economic trends. If the financial condition of a customer deteriorates, additional allowances amounted to $1,155,229 and $752,926 asmay be required. We had $264 thousand of December 31, 2017 and March 31, 2017, respectively. The accounts receivable, net of reservesprovision for doubtful debt of $9 thousand as of June 30, 2020, as compared to $133 thousand of accounts receivable, net of provision for doubtful debt of $9 thousand as of March 31, 2020.
Inventory
Inventory is valued at the lower of cost or net realizable value, net realizable value defined as estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.
Inventory consists of raw materials, finished goods related to wellness products, hand sanitizers, finished CBD products, among others as well as work-in-progress such as extracted crude oil, CBD isolate, growing crops, and herbal oils, among others. Work-in-progress also includes product manufacturing in process, costs of growing hemp, in accordance with applicable laws and regulations including but not limited to labor, utilities, fertilizers and irrigation. Inventory 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.
Harvested crops are measured at net realizable value, 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.
The Company believes its harvested crops do not have a readily available market. Hence, the Company values its harvested crops at cost. Please refer note – “Note 3 - Inventory”, for further information.
Fair value of financial instruments
ASC Topic 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 quarter ended December 31, 2017 come primarily from construction management, rentalasset 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.
| June 30, 2020 Form 10-Q
Earnings/(Loss) per Share
The computation of basic loss per share for the three months ended June 30, 2020, excludes potentially dilutive securities of approximately 3.2 million shares which includes share options, unvested shares such as restricted shares and restricted share units, granted to employees and advisors, warrants, and shares from the conversion of outstanding units, if any, because their inclusion would be anti-dilutive.
The weighted average number of shares outstanding for the three months ended June 30, 2020 and 2019, used for the computation of basic earnings per share (“EPS”) is 40,189,222 and 39,508,110, respectively. Due to the loss incurred during the three months ended June 30, 2020 and 2019, all the potential equity shares are anti-dilutive and accordingly, the fully diluted EPS is equal to the basic EPS.
Cybersecurity
We have a cybersecurity policy in place and tighter cybersecurity measures to safeguard against hackers. In three months ended June 30, 2020, there were no impactful breaches in cybersecurity.
Leases
Lessor Accounting
Under the 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 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.
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, 2020 Form 10-Q
Lessee Accounting
The Company adopted ASU 2016-02 effective April 1, 2019 using the modified retrospective approach. The 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 Topic 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.
Under ASU 2016-02 (Topic 842), lessees are required to recognize the following for all leases (with the exception of short-term leases) on the commencement date: (i) lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (ii) right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term.
At the commencement date, the Company recognizes the lease liability at the present value of the lease payments not yet paid, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental borrowing rate for the same term as the underlying lease. The right-of-use asset is recognized initially at cost, which primarily comprises the initial amount of the lease liability, plus any initial direct costs incurred, consisting mainly of brokerage commissions, less any lease incentives received. All right-of-use assets are reviewed for impairment. There was no impairment for right-of-use lease assets as of June 30, 2020.
The Company categorizes leases at their inception as either operating or finance 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. Please refer “Note 9 - Leases”, for further information.
Changes to U.S. GAAP are established by the FASB in the form of accounting standards updates (ASUs) to the FASB’s Accounting Standards Codification. The Company considers the applicability and impact of all ASUs. Newly issued ASUs not listed below are expected to have no impact on the Company’s consolidated financial position and results of operations, because either the ASU is not applicable, or the impact is expected to be immaterial.
Not yet adopted
Investments, Derivatives and Hedging: In January 2020, the FASB issued ASU 2020-01, Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topics 321, 323 and 815. The new standard addresses accounting for the transition into and out of the equity method and measurement of certain purchased options and forward contracts to acquire investments. The amendment is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is evaluating the impact of this update.
Recently adopted
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 adoption of this guidance did not have a material impact on our consolidated financial statements.
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 adoption of this guidance did not have a material impact on our consolidated financial statements.
| June 30, 2020 Form 10-Q
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 adoption of this guidance did not have a material impact on our consolidated financial statements.
NOTE 3 – INVENTORY
(in thousands) | ||||||||
As of June 30, 2020 ($) | As of March 31, 2020 ($) | |||||||
Raw Materials | 1,803 | 227 | ||||||
Work-in-Progress | 3,911 | 3,713 | ||||||
Finished Goods | 809 | 305 | ||||||
Total | 6,523 | 4,245 | ||||||
Inventory in the form of work-in-progress as of June 30, 2020, is comprised of, but not limited to, various hemp-based extracts such as crude oil, hemp distillate, and hemp isolate. The Company accounts all hemp extracts as work-in-progress until they are in the processing facility. Inventory also includes cost related to growing crops like seeds, fertilizer, other raw materials, labor, farm related overheads and the depreciation of farming equipment, hand sanitizers, personal protection equipment, among others.
NOTE 4 – OTHER CURRENTDEPOSITS AND NON-CURRENT ASSETS
(in thousands) | ||||||||
As of June 30, 2020 ($) | As of March 31, 2020 ($) | |||||||
Advances to suppliers and consultants | 1,110 | 558 | ||||||
Other advances | 68 | 16 | ||||||
Advances for Property, Plant and Equipment | 72 | 259 | ||||||
Statutory advances | 29 | 27 | ||||||
Prepaid expense and other current assets | 135 | 180 | ||||||
Total | 1,414 | 1,040 | ||||||
The Advances to suppliers and other current assets consist 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 | ||||
| June 30, 2020 Form 10-Q
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 | |||||
Amortized intangible assets | (in thousands) | |||||||
As of June 30, 2020 ($) | As of March 31, 2020 ($) | |||||||
Patents | 125 | 125 | ||||||
Other intangibles | 20 | 20 | ||||||
Accumulated amortization | (13 | ) | (10 | ) | ||||
Total amortized intangible assets | 132 | 135 | ||||||
Unamortized intangible assets | ||||||||
Patents | 118 | 107 | ||||||
Trademarks | 13 | 10 | ||||||
Other intangibles | 12 | |||||||
Total unamortized intangible assets | 143 | 117 | ||||||
Total Intangible assets | 275 | 252 | ||||||
The value of goodwill forintangible assets includes the two periods shown is $198,169cost of acquiring patent rights, supporting data, and is associated with the acquisition of Cabaran Ultima. The capitalized patent expenses are direct expenses, legal, filing fees etc.,expense associated with filing 10 patents and 32 trademarks. It also includes acquisition costs related to brands and domains.
The amortization of patent and patent rights is up to 20 years, commencing from the date of grant. The amortization of website and domains is up to 10 years. Trademarks and other patents that have not been granted have not been amortized. The Company uses the straight-line method to determine the amortization expense for its definite lived intangible assets. The amortization expense in North America, Europethree months ended June 30, 2020 and Canada.
Estimated amortization expense | (in thousands) ($) | |||
For the year ended 2021 | 11 | |||
For the year ended 2022 | 13 | |||
For the year ended 2023 | 16 | |||
For the year ended 2024 | 19 | |||
For the year ended 2025 | 22 | |||
NOTE 6 – PROPERTY, PLANT AND EQUIPMENT, NET
|
| (in thousands, except useful life) |
| |||||||||
|
| Useful Life (years) |
|
| As of June 30, 2020 ($) |
|
| As of March 31, 2020 ($) |
| |||
Land |
|
| N/A |
|
|
| 4,461 |
|
|
| 4,508 |
|
Buildings & facilities |
|
| 25 |
|
|
| 3,038 |
|
|
| 2,540 |
|
Plant and machinery |
|
| 5-20 |
|
|
| 4,332 |
|
|
| 3,867 |
|
Computer equipment |
|
| 3 |
|
|
| 200 |
|
|
| 194 |
|
Office equipment |
|
| 5 |
|
|
| 105 |
|
|
| 106 |
|
Furniture and fixtures |
|
| 5 |
|
|
| 120 |
|
|
| 104 |
|
Vehicles |
|
| 5 |
|
|
| 120 |
|
|
| 120 |
|
Construction in progress |
|
| N/A |
|
|
| 652 |
|
|
| 768 |
|
Total Gross Value |
|
|
|
|
|
| 13,028 |
|
|
| 12,207 |
|
Less: Accumulated depreciation |
|
|
|
|
|
| (2,425 | ) |
|
| (2,427 | ) |
Total Property, plant and equipment, net |
|
|
|
|
|
| 10,603 |
|
|
| 9,780 |
|
| June 30, 2020 Form 10-Q
| 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 | ||||||||
Depreciation expense in the three months ended June 30, 2020 and 2019, amounted to approximately $74 thousand and $17 thousand, respectively. The net increase in total Property, Plant & Equipment is primarily due to the set-up of product manufacturing, processing, and packaging facilities, in the U.S. subsidiaries. The net decrease in land and accumulated depreciation is primarily due to foreign exchange translations because of a decline in value of foreign currencies. The construction is progress relates to the Washington facility under construction. For more information, please refer to Note 18 – Segment Information for the nine months ended December 31, 2017non-current assets other than financial instruments held in the country of domicile and 2016 was $15,297 and $391,617 respectively. Capital work-in-progress represents the cost of property and equipment not put to use before the balance sheet date.
NOTE 7 – INVESTMENTS – OTHERS
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 | ||||
(in thousands) | ||||||||
As of June 30, 2020 ($) | As of March 31, 2020 ($) | |||||||
Investment in equity shares of unlisted company | 11 | 11 | ||||||
Investment in Evolve I (i) | 249 | - | ||||||
Total | �� | 260 | 11 | |||||
(i) | On May 12, 2020, the Company completed an investment under the terms of the Share Subscription Agreement (“SSA”) with Evolve I, Inc., a Washington corporation (“Evolve”), by transferring part of the consideration to Evolve. As of June 30, 2020, the Company owns approximately 19.8% interest in Evolve. |
The Company regularly reviews its investment portfolio to the December 18, 2014 Purchase Agreement with Apogee, we issued 1,200,000 common shares of IGC valued at $888,000 for the purchase of 24.9% ownership interest in Midtown Partners & Co., LLC. The Purchase Agreement expired on June 30, 2015, anddetermine if any security is other-than-temporarily impaired, which would require the Company is pursuing its rights underto record an impairment charge in the terms of the Purchase Agreement to recover certain damages. Value of investment in our books is $773,111 as on December 31, 2017.
NOTE 8 –
(in thousands) | ||||||||
As of June 30, 2020 ($) | As of March 31, 2020 ($) | |||||||
Claims receivable (1) | 370 | 374 | ||||||
Non-current deposits | 24 | 24 | ||||||
Non-current advances (2) | 212 | 212 | ||||||
Total | 606 | 610 | ||||||
(1) | The claims receivable is due from the Cochin International Airport (“CIA”) that is partially owned by the State Government of Kerala. As of March 31, 2020, 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. While the Company has initiated collection proceedings, it believes it will be difficult to receive the amount in the next 12 months because of the time required for legal collection proceedings. The decrease in claims receivable was mainly due to foreign exchange translation as a result of a decline in value of Indian Rupee. |
(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. |
NOTE 9 – OTHER CURRENT AND NON-CURRENT LIABILITIES
The Company has short-term leases primarily consisting of spaces with the following:
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 | ||||
| June 30, 2020 Form 10-Q
In November 2019, the Company entered into an office lease agreement with a lease term of less than 12 months. This lease was amended in March 2020, with a new lease term from March 1, 2020 to November 30, 2025. The annual lease expense is approximately $127 thousand. The lease contract does not contain any material residual value guarantees or material restrictive covenants. The remaining lease term for the operating lease is 5.4 year and discount rate of 7%. The lease does not provide a readily determinable implicit rate. Therefore, the Company discounts lease payments based on an estimate of its incremental borrowing rate.
(in thousands) Three months ended June 30, 2020 ($) | ||||
Operating lease costs | 31 | |||
Short term lease costs | 63 | |||
Variable lease costs | - | |||
Total lease costs | 94 | |||
Right of use assets and lease liabilities for our operating leases were recorded in the consolidated balance sheet as follows:
(in thousands) | ||||
As of June 30, 2020 ($) | ||||
Assets | ||||
Operating lease asset | 553 | |||
Total lease assets | 553 | |||
Liabilities | ||||
Current liabilities: | ||||
Accrued liabilities and others (current portion – operating lease liability) | 84 | |||
Noncurrent liabilities: | ||||
Operating lease liability (non-current portion – operating lease liability) | 471 | |||
Total lease liability | 555 | |||
(in thousands) As of June 30, 2020 ($) | ||||
| Supplemental cash flow and non-cash information related to leases is as follows: | ||||
Cash paid for amounts included in the measurement of lease liabilities | ||||
– Operating cash flows from operating leases | 19 | |||
Right-of-use assets obtained in exchange for operating lease obligations | 571 | |||
As of June 30, 2020, the following table summarizes the maturity of our lease liabilities: | ||||
Mar-21 | 117 | |||
Mar-22 | 119 | |||
Mar-23 | 122 | |||
Mar-24 | 126 | |||
Mar-25 | 129 | |||
Mar-26 | 54 | |||
Less: Present value discount | (112 | ) | ||
Total Lease liabilities | 555 |
| June 30, 2020 Form 10-Q
NOTE 10 – ACCRUED AND OTHER LIABILITIES
(in thousands) | ||||||||
As of June 30, 2020 ($) | As of March 31, 2020 ($) | |||||||
Salaries and other contribution | 537 | 424 | ||||||
Provision for expenses | 462 | 412 | ||||||
Other current liability | 221 | 298 | ||||||
Total | 1,220 | 1,134 | ||||||
Salaries and other contribution related liabilities consist of accrued salaries to employees. Provision for expenses include provision for legal, professional, and marketing expenses, including a provision of $200 thousand for the lawsuit as discussed in Note 12, “Commitments and Contingencies”. Other current liability also includes $84 thousand and $89 thousand of current operating lease liability and statutory payables of approximately $35 thousand and $27 thousand as of June 30, 2020 and March 31, 2020, respectively.
NOTE 11 – LOANS AND OTHER LIABILITIES
Long -term loans:
As of June 30, 2020, the Company has the following loans:
a) | The Company had one secured loan of $50 thousand, at an annual interest rate of 15%. |
b) | On May 3, 2020, the Company signed the Paycheck Protection Program Promissory Note and Agreement for a loan of approximately $430,000. The Loan is established under the terms and conditions of the SBA program of the United States Small Business Administration (“SBA”) and the USA CARES Act (2020)(H.R. 748)(15 U.S.C 636 et seq.) (the “Act”) and matures after 2 years on May 3, 2022, with monthly repayments of approximately $18,000 commencing November, 2020. Interest will accrue on the outstanding principal balance at an annual fixed rate of 1.00%. |
c) | On June 11, 2020, the Company also received an Economic Injury Disaster Loan for approximately $150 thousand at an annual interest rate of 3.75%. The Company must pay principal and interest payments of $731 every month beginning June 2021. SBA will apply each installment payment first to pay interest accrued to the day SBA receives the payment and will then apply any remaining balance to reduce principal. All remaining principal and accrued interest is due and payable in 30 years from the date of the loan. |
Other Liability:
(in thousands) | ||||||||
As of June 30, | As of March 30, | |||||||
2020 ($) | 2020 ($) | |||||||
Statutory reserve | 16 | 16 | ||||||
Total | 16 | 16 | ||||||
The statutory reserve is a gratuity reserve for employees in our subsidiaries in India.
NOTE 12 – 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, 2020, except as disclosed below.
| June 30, 2020 Form 10-Q
As of June 30, 2020, several law firms have filed shareholder lawsuits, including three derivative suits (two of which have been consolidated), citing, among other things, the NYSE American delisting proceedings initiated in October 2018 (and overturned in February 2019) and subsequent fall in share price. Those derivative suits have now been settled. Pursuant to the settlement agreement, which was filed with the Court as an exhibit to an Amended Consent Motion for Preliminary Approval of Derivative Settlement on April 30, 2020, the Company will adopt certain corporate governance modifications, and the derivative plaintiffs will receive $200,000.00 from the Company’s insurer to cover their attorneys’ fees and a nominal service award. The Company has recorded a provision for $200,000 as of June 30, 2020. On June 30, 2020, the Court held a hearing to evaluate the fairness and reasonableness of the settlement and to determine whether the settlement will be approved. On July 6, 2020, the Court entered an order formally and finally approving the settlement and resolving all pending derivative suits.
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 pre-tax 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 Indian Government’s provident fund.
NOTE 13 – SECURITIES
As of June 30, 2020, the Company was authorized to issue up to 150,000,000 shares of common stock, par value $0.0001 per share, and 41,196,130 shares of common stock were issued and outstanding. The Company is also authorized to issue up to 1,000,000 shares of preferred stock, par value $0.0001 per share, and no preferred shares were issued and outstanding as of June 30, 2020. 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.
We have one security listed on the NYSE American: common stock, $.0001 par value (ticker symbol: IGC). This security also trades 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. The units are not listed on an exchange or market. Ten units may be separated into one share of common stock and 20 warrants (IGC: IW) which effectively allows the holder to exercise the warrants into two shares of common stock.
NOTE 14 – RELATED PARTY TRANSACTIONS
We pay an affiliate of our CEO $4,500 per month for office space and certain general and administrative services, renderedprovided in Maryland. In addition, we pay another affiliate
NOTE 15 – STOCK-BASED COMPENSATION
As of our CEO $6,100 per month for officeJune 30, 2020, under both the Company’s previous 2008 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 of Directors of the Company at any time without notice. The rental agreement for Washington State facilities expired on December 31, 2017, and it was renewed in Januarycurrent 2018 by mutual consent for 1 more year. During the quarter ended December 31, 2017, the total rent paid to one 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 due to RGF Cabaran’s director. For December 31, 2017 there was no loan balance due to the Director of Cabaran.
The options are fair valued using a Black-Scholes Pricing Model with the 2008 ESOP plan are available for future grantsfollowing assumptions:
Granted in Fiscal 2021 | Granted in Fiscal 2020 | |||||||
Expected life of options | 5 years | 5 years | ||||||
Vested options | 100 | % | 100 | % | ||||
Risk free interest rate | 2.57 | % | 2.57 | % | ||||
Expected volatility | 249 | % | 249 | % | ||||
Expected dividend yield | Nil | Nil | ||||||
| June 30, 2020 Form 10-Q
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 directors and its employees with minimum vesting period of one year.
The expense associated with share-based payments to $322,891 foremployees, directors, advisors and contractors is allocated over the vesting or service period and recognized in the selling, general and administrative expenses (including research and development). For the three months ended December 31, 2016. Selling,June 30, 2019, the Company’s share-based expense and option-based expense shown in selling, general and administrative expenses include compensation expenses(including research and development) are $202 thousand and $6 thousand, respectively.
Non-vested shares | Shares (in thousands) (#) | Weighted average grant date fair value ($) | ||||||
Non-vested shares as on March 31, 2020 | 1,851 | 0.40 | ||||||
Granted | - | - | ||||||
Vested | (70 | ) | 0.45 | |||||
Cancelled/Forfeited | - | - | ||||||
Non-vested shares as on June 30, 2020 | 1,781 | 0.40 | ||||||
Options | Shares (in thousands) (#) | Weighted average grant date fair value ($) | Weighted average exercise price ($) | |||||||||
Options outstanding as on March 31, 2020 | 160 | 0.40 | 0.39 | |||||||||
Granted | - | - | - | |||||||||
Exercised | - | - | - | |||||||||
Cancelled/Forfeited | - | - | - | |||||||||
Options outstanding as on June 30, 2020 | 160 | 0.40 | 0.39 | |||||||||
There was a combined unrecognized expense of $505 thousand related to management, legalnon-vested shares and professional expenses, investor-relations expenses, acquisition related expenses and travel expenses.
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 | Amount | % on total revenues | ||||||
| Trading | $ | 874,099 | 83 | % | ||||
| Real Estate | $ | 82,118 | 8 | % | ||||
| Rental | $ | 94,365 | 9 | % | ||||
| TOTAL | $ | 1,050,582 | 100 | % | ||||
NOTE 2216 – FAIR VALUE OF FINANCIAL INSTRUMENTS
As of June 30, 2020, the Company’s marketable securities consist of liquid funds, which have been classified as Level 1 of the fair value hierarchy because they have been valued using quoted prices in active markets. The increase in value of marketable securities is comprised of re-invested income of approximately $10 thousand and approximately $7 thousand unrealized gain during the three months ended June 30, 2020. The Company’s current assetscash and current liabilities approximate their carrying value because of their short-term nature. Such financialcash equivalents have also been classified as Level 1 on the same principle. Financial instruments are classified as current andif they are expected to be liquidated within the next twelve months.
| June 30, 2020 Form 10-Q
The following table presents information about the Company’s assets that are measured at fair value on a recurring basis as of June 30, 2020 and March 31, 2020, and indicates the fair value hierarchy of the valuation techniques the Company used to determine such fair value:
(in thousands)
| Level 1 ($) |
|
| Level 2 ($) |
|
| Level 3 ($) |
|
| Total ($) |
| |||||
June 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents: |
|
| 2,703 |
|
|
| - |
|
|
| - |
|
|
| 2,703 |
|
Total cash and cash equivalents |
|
| 2,703 |
|
|
| - |
|
|
| - |
|
|
| 2,703 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-Marketable securities |
|
| 5,098 |
|
|
| - |
|
|
| - |
|
|
| 5,098 |
|
-Non-marketable securities |
|
| - |
|
|
| - |
|
|
| 260 |
|
|
| 260 |
|
Total Investments |
|
| 5,098 |
|
|
| - |
|
|
| 260 |
|
|
| 5,358 |
|
|
| Level 1 ($) |
|
| Level 2 ($) |
|
| Level 3 ($) |
|
| Total ($) |
| ||||
March 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents: |
|
| 7,258 |
|
|
| - |
|
|
| - |
|
|
| 7,258 |
|
Total cash and cash equivalents |
|
| 7,258 |
|
|
| - |
|
|
| - |
|
|
| 7,258 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-Marketable securities |
|
| 5,081 |
|
|
| - |
|
|
| - |
|
|
| 5,081 |
|
-Non-marketable securities |
|
| - |
|
|
| - |
|
|
| 11 |
|
|
| 11 |
|
Total Investment |
|
| 5,081 |
|
|
| - |
|
|
| 11 |
|
|
| 5,092 |
|
NOTE 17 – REVENUE RECOGNITION
Revenue in the Infrastructure Business is recognized for the renting business when the equipment is rented, and terms of the agreement have been fulfilled during the period. The revenue from the purchase and resale of physical infrastructure commodities is recognized once the bill of lading along with the invoice have been transferred to the customer. Revenue from the execution of infrastructure contracts is recognized on the basis of the output method as and when part of the performance obligation has been completed and approval from the contracting agency has been obtained after survey of the performance completion as of that date. In the Life Sciences segment, the revenue from the wellness and lifestyle business is recognized once goods have been sold to the customer and the performance obligation has been completed. In retail sales, we offer consumer products through our online and physical stores. Revenue is recognized when control of the goods is transferred to the customer. This generally occurs upon our delivery to a third-party carrier or, to the customer directly. We license our products to processors. The royalty income from licensing is recognized once goods have been sold by the processor to its customers.
| June 30, 2020 Form 10-Q
Net sales disaggregated by significant products and services for the three months ended June 30, 2020 and 2019 were as follows:
(in thousands) Three months ended June 30, | ||||||||
2020 ($) | 2019 ($) | |||||||
Infrastructure segment | ||||||||
Rental income (1) | - | 3 | ||||||
Construction contracts (2) | - | - | ||||||
Purchase and resale of physical commodities (3) | - | 1,542 | ||||||
Life Sciences segment | ||||||||
Wellness and Lifestyle (4) | 584 | 104 | ||||||
Tolling/White labeling service (5) | - | - | ||||||
Total | 584 | 1,649 | ||||||
(1) Rental income consists of income from rental of heavy construction equipment.
(2) Construction income consists of the execution of contracts directly or through subcontractors. The Company expects to complete the project within 12 to15 months, depending on the status of the COVID-19 pandemic.
(3) Relates to the income from purchase and resale of physical commodities used in infrastructure, like steel, wooden doors, marble, and tiles.
(4) Relates to revenue from Life Sciences segment such as sale of hand sanitizer, hemp crude extract, hemp isolate, and hemp distillate and royalty income from the sale of Hyalolex™, now named Hyalolex™ Drops of Clarity™.
(5) Relates to income from tolling and white label services.
NOTE 18 – SEGMENT INFORMATION
FASB ASC No. 280, “Segment Reporting” establishes standards for reporting information about reportable segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group (“CODM”), in deciding how to allocate resources and in 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 segment and (ii) Life Sciences segment.
The Company’s CODM is the Company’s chief executive officer (“CEO”). The CEO reviews financial information presented on an operating segment basis for purposes of making operating decisions and assessing financial performance. Therefore, and before our Life Sciences segment 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 in two operating and reportable segments: (a) Infrastructure Business and (b) Life Sciences segment. The Company does not include intercompany transfers between segments for Management reporting purposes.
The following provides information required by ASC 280-10-50-38 “Entity-wide Information”:
1) The table below shows revenue reported by segment:
Product & Service
(in thousands) | ||||||||
Segments | Three months ended June 30, 2020 ($) | Percentage of Total Revenue (%) | ||||||
Infrastructure segment | - | - | % | |||||
Life Sciences segment | 584 | 100 | % | |||||
Total | 584 | 100 | % | |||||
| June 30, 2020 Form 10-Q
(in thousands) | ||||||||
Segments | Three months ended June 30, 2019 ($) | Percentage of Total Revenue (%) | ||||||
Infrastructure segment | 1,545 | 94 | % | |||||
Life Sciences segment | 104 | 6 | % | |||||
Total | 1,649 | 100 | % | |||||
For information for revenue by product and service, refer Note 17, “Revenue Recognition”.
2) The table below shows the revenue attributed to the country of domicile (U.S.) and foreign countries. Revenue is generally attributed to the geographic location of customers:
|
|
|
| (in thousands) |
| |||||
Segments |
| Country |
| Three months ended June 30, 2020 ($) |
|
| Percentage of Total Revenue (%) |
| ||
|
|
|
|
|
|
|
|
|
|
|
Asia |
| (1) India |
|
| - | - | % | |||
|
| (2) Hong Kong |
|
| - | - | % | |||
North America |
| U.S. |
|
| 584 | 100 | % | |||
Total |
|
| 584 |
|
|
| 100 | % | ||
|
|
|
| (in thousands) |
| |||||
Segments |
| Country |
| Three months ended June 30, 2019 ($) |
|
| Percentage of Total Revenue (%) |
| ||
|
|
|
|
|
|
|
|
|
|
|
Asia |
| (1) India |
|
| 3 | - | % | |||
|
| (2) Hong Kong |
|
| 1,542 | 94 | % | |||
North America |
| U.S. |
|
| 104 | 6 | % | |||
Total |
|
| 1,649 |
|
|
| 100 | % | ||
3) The table below shows the non-current assets other than financial instruments held in the country of domicile and foreign countries.
|
| (in thousands) |
| |||||||||
Nature of Assets |
| USA (Country of Domicile) ($) |
|
| Foreign Countries (India, Hong Kong, and Colombia) ($) |
|
| Total as of June 30, 2020 ($) |
| |||
Intangible assets, net |
|
| 275 | - | 275 |
| ||||||
Property, plant and equipment, net |
|
| 6,087 | 4,516 | 10,603 |
| ||||||
Investments in unlisted securities |
|
| 249 | 11 | 260 |
| ||||||
Claims and advances |
|
| 200 | 406 | 606 |
| ||||||
Operating lease asset |
|
| 553 | - | 553 |
| ||||||
Total non-current assets |
|
| 7,364 | 4,933 | 12,297 |
| ||||||
| June 30, 2020 Form 10-Q
|
| (in thousands) |
| |||||||||
Nature of Assets |
| USA (Country of Domicile) ($) |
|
| Foreign Countries (India Hong Kong and Colombia) ($) |
|
| Total as of March 31, 2020 ($) |
| |||
Intangible assets, net |
|
| 252 |
|
|
| - |
|
|
| 252 |
|
Property, plant and equipment, net |
|
| 5,216 |
|
|
| 4,564 |
|
|
| 9,780 |
|
Investments in unlisted securities |
|
| - |
|
|
| 11 |
|
|
| 11 |
|
Claims and advances |
|
| 200 |
|
|
| 410 |
|
|
| 610 |
|
Operating lease asset |
|
| 574 |
|
|
| - |
|
|
| 574 |
|
Total non-current assets |
|
| 6,242 |
|
|
| 4,985 |
|
|
| 11,227 |
|
NOTE 19 – SUBSEQUENT EVENTS
On August 18, 2020, the Company received an official USPTO Notice of Allowance for its U.S. Trademark NO3A™, U.S. Serial Number: 88694194.
On August 5, 2020, the USPTO issued the Company a patent (#10751300) for the Company’s cannabinoid formulation (IGC-502) for the treatment of seizures in humans and veterinary animals.
On July 30, 2020, IGC received approval from the FDA to proceed with Phase 1 human clinical trials (“removal of full clinical hold”) on its Investigational New Drug Application (“INDA”) for IGC-AD1 submitted under Section 505(i) of the Federal Food, Drug, and Cosmetic Act. The Phase 1 trial will involve a randomized placebo controlled Multiple Ascending Dose (“MAD”) study to evaluate safety and tolerability of IGC-AD1 in subjects with dementia due to Alzheimer’s disease. In addition, the study will evaluate pharmacokinetics (“PK”) and collect data on other factors. The drug IGC-AD1 is based on a patent filed by the University of South Florida (“USF”) that uses a cannabinoid as one of the active ingredients. The Company has exclusive rights to the patent filing.
On July 17, 2020, the Company filed a provisional patent application with the USPTO for its IGC-511 formulation for Cannabidiol based composition and method for treating pain.
In January 2020, the Company entered into a binding agreement for the settlement of three previously disclosed derivative lawsuits: Erny v. Mukunda, et al., Civil Action No. 1:18-cv-03698-DKC, filed in the United States District Court for the District of Maryland on November 30, 2018; Hamdan v. Mukunda, et al., Civil Action No. 8:19-cv-00493-DKC, filed in the United States District Court for the District of Maryland on February 20, 2019; and Patel v. Mukunda, et al., Civil Action No. 8:19-cv-01673-PWG, filed in the United States District Court for the District of Maryland on June 6, 2019. Pursuant to the settlement agreement, which was filed with the Court as an exhibit to an Amended Consent Motion for Preliminary Approval of Derivative Settlement on April 30, 2020, the Company will adopt certain corporate governance modifications, and the derivative plaintiffs will receive $200,000 from the Company’s insurer to cover their attorneys’ fees and a nominal service award. Shareholders were given notice of the proposed settlement through the Company’s filing of an SEC Form 8-K report, the issuance of a press release, publication in Investor’s Business Daily, and posting in the “Investors” section of the Company’s website, all of which were deemed by the court to constitute sufficient notice to shareholders of the settlement. Shareholders were given the opportunity to assert objections to the final settlement, and no objections were received by the parties to the derivative suit or filed with the court. On June 30, 2020, the Court held a hearing to evaluate the fairness and reasonableness of the settlement and to determine whether the settlement will be approved. On July 6, 2020, the Court entered an order formally and finally approving the settlement and resolving all pending derivative suits.
On May 26, 2020, the Company received an official USPTO Notice of Allowance for its U.S. Trademark Holief™, U.S. Serial Number: 88690835.
| June 30, 2020 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, 2020, and the Annual Report on Form 10-K for the fiscal year ended March 31, 2020, filed with the SEC on July 14, 2017. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our13, 2020. 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” and “Risk Factors” sections, 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 Company’s Annual Reportforward-looking statements.
COVID-19 Update
We continue to monitor the impact from restrictions imposed by the COVID-19 pandemic on Form 10-K filed withour financial condition, liquidity, operations, suppliers, industry, and workforce. Revenue from the SEC on July 14, 2017.
1. | Our revenue from the infrastructure business remains adversely affected with increased expenses. However, as soon as we can safely do so, and in compliance with applicable laws and regulations, we expect to engage in the infrastructure business including completing the road building contract that we have been awarded. |
2. | A majority of our hemp processing and distillation equipment is sourced from China. While we took delivery of the equipment, the commissioning and certification of the equipment is delayed as it requires Chinese technicians to commission the equipment. The commissioning of our large-scale processing and distillation equipment is delayed. Delivery of some of our equipment, such as the bottling machine is delayed indefinitely as the factory is impacted by an outbreak of COVID-19. |
Overview
While our primary source of revenue for the three months ended December 31, 2017 was $723,062 as compared to $121,829June 30, 2019, is from our Infrastructure segment, our primary source of revenue for the three months ended December 31, 2016. June 30, 2020, is from our Life Sciences segment, which produced wellness products, including alcohol-based hand sanitizers, among others.
The increaseCompany operates both segments in compliance with applicable state, national, and local laws, and regulations and only in locations and regions where it is legal to do so. Further information on the Company highlights in the three months ended June 30, 2020, can be found in Part I, Item 1, Note 1 - Business Description, “Business updates”.
| June 30, 2020 Form 10-Q
Results of Operations for the three months ended
June 30, 2020 and June 30, 2019
The historical results presented below are not necessarily indicative of the results that may be expected for any future period. The following table presents an overview of our results of operations for the three months ended June 30, 2020 and June 30, 2019:
Statement of Operations (in thousands, unaudited)
Three months ended June 30, | ||||||||||||||||
2020 ($) | 2019 ($) | Change ($) | Percent Change | |||||||||||||
Revenue | 584 | 1,649 | (1,065 | ) | (65 | %) | ||||||||||
Cost of revenue | (538 | ) | (1,608 | ) | 1,070 | (67 | %) | |||||||||
Gross Profit | 46 | 41 | 5 | 12 | % | |||||||||||
Selling, general and administrative expenses | (1,755 | ) | (1,249 | ) | (506 | ) | 41 | % | ||||||||
Research and development expenses | (222 | ) | (247 | ) | 25 | (10 | %) | |||||||||
Operating loss | (1,931 | ) | (1,455 | ) | (476 | ) | 33 | % | ||||||||
Other income, net | 49 | 76 | (27 | ) | (36 | %) | ||||||||||
Loss before income taxes | (1,882 | ) | (1,379 | ) | (503 | ) | 36 | % | ||||||||
Tax expense | - | - | - | - | % | |||||||||||
Net Loss | (1,882 | ) | (1,379 | ) | (503 | ) | 36 | % | ||||||||
Revenue – Revenue in the quarter ended June 30, 2020, was primarily derived from our Life Sciences segment, which involved sales of products such as alcohol-based hand sanitizers, among others. In the quarter ended June 30, 2019, our revenue was primarily derived from the infrastructure segment. Revenue was approximately $584 thousand and $1,649 thousand for the three months ended June 30, 2020 and 2019, respectively.
Revenue in the Life Sciences segment in the quarter ended June 30, 2019, was $104 thousand as compared to $584 thousand in the quarter ended June 30, 2020, albeit with a change in product mix. At the same time, revenue in our Infrastructure segment for the quarter ended June 30, 2019, was $1,545 thousand and zero in the quarter ended June 30, 2020. Primarily due to COVID-19, we have limited visibility on when either of our segments will stabilize and become predictable. We expect volatility in both segments in the foreseeable future. We expect to be opportunistic in providing personal protection equipment, including hand sanitizers, as the country reopens from the pandemic.
Cost of revenue – Cost of revenue amounted to approximately $538 thousand for three months ended June 30, 2020, compared to $1,608 thousand in three months ended June 30, 2019. The cost of revenue stems from an increase in the volume of business as reflected in the revenuequarter ended June 30, 2020, is primarily attributable to raw materials that are required to produce our products.
Selling, general and is related to trading and real estate and rental business.
Research and Development expenses including legal fees.
Other Income, net – Other net income decreased by approximately $60,527 as compared to$27 thousand or 36% during three months ended June 30, 2020. The total other income for three months ended June 30, 2020 and 2019 is approximately $46,465 for$49 thousand and $76 thousand, respectively. During the three months ended December 31, 2016. Most of theJune 30, 2020, such amount includes interest is paid with common shares of the Company and is therefore non-cash.
| June 30, 2020 Form 10-Q
Liquidity and Capital Resources
Our sources of liquidity are cash and cash equivalents, cash flows from operations, short-term borrowings, and short-term liquidity arrangements. The Company continues to Nine Months ended December 31, 2016
While, the Company believes its existing balances of cash, cash equivalents and marketable securities and other short-term liquidity arrangements, will be sufficient to satisfy its working capital needs, capital asset purchases, share repurchases, debt repayments, investments in special purpose entities or undisclosed borrowings or debt.
Management is actively monitoring the impact of COVID-19 on the Company’s financial condition, liquidity, operations, suppliers, industry, legal expenses, and workforce.
This liquidity and capital resources discussion compares the unaudited consolidated company financial position forCompany financials.
(in thousands, unaudited) | ||||||||||||||||
As of June 30, 2020 ($) | As of March 31, 2020 ($) | Change | Percent Change | |||||||||||||
Cash, cash equivalents and marketable securities | 2,703 | 7,258 | (4,555 | ) | (63 | )% | ||||||||||
Working capital | 13,683 | 15,811 | (2,128 | ) | (13 | )% | ||||||||||
Cash and cash equivalents
Cash and cash equivalents decreased by approximately $4,555 thousand to $2,703 thousand in the nine-month periods ended December 31, 2017 and 2016.
The major decrease in three months ended June 30, 2020, was due to $944 thousand in purchase of property, plant, and equipment and $2,277 thousand investment in inventory.
Summary of Cash flows
(in thousands, unaudited) | ||||||||||||||||
Three months ended June 30, | ||||||||||||||||
2020 | 2019 | Change | Percent Change | |||||||||||||
Cash (used in) operating activities | (3,988 | ) | (2,872 | ) | (1,116 | ) | 39 | % | ||||||||
Cash (used in) investing activities | (1,136 | ) | (6,186 | ) | 5,050 | (82 | )% | |||||||||
Cash provided by financing activities | 580 | - | 580 | 100 | % | |||||||||||
Effects of exchange rate changes on cash and cash equivalents | (11 | ) | 2 | (13 | ) | (650 | )% | |||||||||
Net increase/(decrease) in cash and cash equivalents | (4,555 | ) | (9,056 | ) | 4,501 | (50 | )% | |||||||||
Cash and Cash Equivalents at the beginning of period | 7,258 | 25,610 | (18,352 | ) | (72 | )% | ||||||||||
Cash and cash equivalents at the end of the period | 2,703 | 16,554 | (13,851 | ) | (84 | )% | ||||||||||
| June 30, 2020 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 ninethree months ended December 31, 2017, $301,497June 30, 2019, was approximately $2.9 million. Cash was consumed from continuing operations, with the net loss of approximately $1.4 million, non-cash items totaling approximately $225 thousand, consisting of a depreciation charge of approximately $17 thousand and stock-based expenses totaling approximately $208 thousand and changes in working capital accounts had a negative impact of approximately $1,718 thousand on cash.
Investing Activities
Net cash was used in investing activities from continuing operations as comparedfor the three months ended June 30, 2020, was $1.1 million, which is comprised of approximately $26 thousand for the acquisition and filing expenses related to $270,694patents and trademarks, purchase of property, plant and equipment of $944 thousand and investments of approximately $149 thousand in non-marketable securities and $17 thousand in marketable securities.
Net cash used in investing activities 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.
Financing Activities
Net cash provided by financing activities was $580 thousand for the quarterthree months ended December 31, 2017, our non-GAAP cash burn was approximately $360,279 after adjustingJune 30, 2020, consisting of proceeds from loans. Please refer Note 11 - “Loans and Other Liabilities” for $4,989 of depreciation, $48,000 of non-cashfurther information.
There were no financing activities during the three months ended June 30, 2019.
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, 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, 2020, filed with the SEC on July 14, 201713, 2020, as well as Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations in the same annual report, for a discussion of all our critical and significant accounting policies.
| June 30, 2020 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, 2017,2020, filed with the SEC on July 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 Securities Exchange Act of 1934 (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 controlscontrol over financial reporting occurred 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, 2020, that have materially affected, or are reasonably likely to materially affect, our internal controlscontrol over financial reporting.
| June 30, 2020 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, 2020.
During the quarter ended September 30, 2019, the Company reached a preliminary agreement to resolve all derivative suits then- and currently-pending against the Company.Company and various directors and officers. In January 2020, the Company and the named defendant directors and officers executed a formal settlement agreement with the plaintiffs in all pending derivative lawsuits on specific final terms of settlement. Pursuant to the settlement agreement, which was filed with the Court as an exhibit to an Amended Consent Motion for Preliminary Approval of Derivative Settlement on April 30, 2020, the Company will adopt certain corporate governance modifications, and the derivative plaintiffs will receive $200,000 from the Company’s insurer to cover their attorneys’ fees and a nominal service award. The Company has created a provision for $200,000 as of June 30, 2020. Shareholders were given notice of the proposed settlement through the Company’s filing of an SEC Form 8-K report, the issuance of a press release, publication in Investor’s Business Daily, and posting in the “Investors” section of the Company’s website, all of which were deemed by the court to constitute sufficient notice to shareholders of the settlement. Shareholders were given the opportunity to assert objections to the final settlement, and no objections were received by the parties to the derivative suit or filed with the court. On June 30, 2020, the Court held a hearing to evaluate the fairness and reasonableness of the settlement and to determine whether the settlement will be approved. On July 6, 2020, the Court entered an order formally and finally approving the settlement and resolving all pending derivative suits.
As of June 30, 2020, the Company was a party to three shareholder lawsuits, as described below.
Shareholder Class Action Litigation
Tchatchou v. India Globalization Capital, Inc., et al., Civil Action No. 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, (collectively, the “Class Action Defendants”), thereby removing Prins and Shenoy as defendants. The plaintiff in Tchatchou alleges that the Class Action Defendants 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” and related disclosures, 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.
On October 11, 2019, Company and the other the Class Action Defendants filed a motion to dismiss the consolidated shareholder class action litigation on a number of grounds, including that the Class Action Defendants did not make any false or misleading statements or any materially false or misleading statements to the public; the Class Action Defendants did not act with any intent to deceive the public, nor did they recklessly do so; and that the Class Action Defendants’ alleged conduct did not cause any loss allegedly suffered by the class action plaintiffs. The motion to dismiss remains pending before the United States District Court for the District of Maryland, and the Company anticipates that a decision is likely to be issued during calendar 2020, although it can provide no assurances of the same.
Harris-Carr v. India Globalization Capital, Inc., et al., Civil Action No. 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.
| June 30, 2020 Form 10-Q
Shareholder Derivative Action Litigation
Erny v. Mukunda, et al., Civil Action No. 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). 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. Because the claims made in Erny 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, described below, were consolidated, and the Erny litigation was designated as the lead derivative case.
On July 31, 2019, the Company and the Individual Defendants reached a preliminary agreement with the plaintiffs in the derivative suits identified herein to resolve all derivative suits, including the Erny litigation and the Hamdan and Patel matters, described below. In January 2020, the Company and the named defendant directors and officers reached agreement with the plaintiffs in all pending derivative lawsuits on specific final terms of settlement, and all parties executed a mutually acceptable settlement agreement. Shareholders were given notice of the proposed settlement through the Company’s filing of an SEC Form 8-K report, the issuance of a press release, publication in Investor’s Business Daily, and posting in the “Investors” section of the Company’s website, all of which were deemed by the court to constitute sufficient notice to shareholders of the settlement. Shareholders were given the opportunity to assert objections to the final settlement, and no objections were received by the parties to the derivative suit or filed with the court. On June 30, 2020, the Court held a hearing to evaluate the fairness and reasonableness of the settlement and to determine whether the settlement will be approved. On July 6, 2020, the Court entered an order formally and finally approving the settlement and resolving all pending derivative suits. The Erny litigation matter was terminated that day.
Hamdan v. Mukunda, et al., Civil Action No. 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.
The Hamdan litigation is subject to the same negotiated settlement described in Erny, above, and is resolved effective July 6, 2020. The case was formally closed by the United States District Court for the District of Maryland on or about that July 14, 2020.
Patel v. Mukunda, et al., Civil Action No. 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 (collectively, with reference to the Patel litigation, “Individual Defendants”) 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 allegations made by the plaintiff in the Patel litigation are substantially similar to the allegations made in Erny, and the claims against the individual director defendants are based largely on the same alleged transactions and/or occurrences as are the claims made in the Erny litigation. 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 Patel litigation has not been consolidated with Erny and Hamdan to date.
The Patel litigation is subject to the same negotiated settlement described in Erny above, and is resolved effective July 6, 2020. On July 8, 2020, the Court dismissed the Patel litigation with prejudice pursuant to the approved settlement.
| June 30, 2020 Form 10-Q
You should carefully consider the risk factors previously disclosedidentified in the Company’s 2020 annual report on Form 10-K, forfiled with the fiscal year ended March 31, 2017.
The Company incorporates by reference as if fully set forth and restated herein all Risk Factors identified in our 2020 annual report on Form 10-K, filed with the SEC on July 13, 2020. Additionally, risks and uncertainty of which we are unaware or which currently we deem immaterial also may become important factor that affects us. The additional risk factor has been mentioned below:
Revenue from the infrastructure segment continues to be adversely affected and revenue from Life Sciences segment is also unpredictable.
We continue to monitor the impact from restrictions imposed by the COVID-19 pandemic on our financial condition, liquidity, operations, suppliers, industry, and workforce. Revenue from the infrastructure segment continues to be adversely affected as we are unable to fully deploy our workforce. However, as soon as we can safely, we expect to engage in the infrastructure segment including completing the road building contract that we have been awarded. In response to the evolving circumstances, we supplemented our facilities to manufacture, label, and distribute FDA-registered alcohol-based hand sanitizers and hand rubs. As there is a general lack of visibility regarding the ongoing impact of the COVID-19 pandemic, revenue from our Life Sciences segment is also unpredictable.
None.
None.
Not applicable.
On February 15, 2020, the Company signed a Share Subscription Agreement (“SSA”) with Evolve I, Inc., a Washington corporation (“Evolve”), to acquire approximately 20% of Evolve. The Company entered into a Share Purchase Agreement (the “SPA”) on May 11, 2020 to acquire the remaining approximately 80% of Evolve that the Company did not own. On May 12, 2020, the Company completed the SSA with Evolve by transferring partial consideration to Evolve. As of June 30, 2020, the Company owns approximately 19.8% of Evolve.
As of June 30, 2020, the Company has not completed the acquisition of remaining ownership in Evolve as due diligence, such as audited financial statements for the last fiscal year, internal restructuring, among others, are pending. While the Form 8-K was filed under both Item 1.01- Entry into a Material Definitive Agreement and Item 2.01- Completion of Acquisition or Disposition of Assets, as indicated in the Form 8-K, the closing of the Agreement is subject to certain closing conditions and accordingly the reference to Item 2.01- Completion of Acquisition or Disposition of Assets was inadvertently included. There can be no assurance when or if the Company will be able to close the acquisition. The delay in closing the acquisition is expected to have minimal impact on the Company’s revenue.
| June 30, 2020 Form 10-Q
Exhibit |
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Number | Exhibit Description | Form | Exhibit | Filing Date |
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2.1 | 8-K | 2.1 | May 13, 2020 | |
3.1 | 8-K | 3.1 | Aug 6, 2012 | |
3.2 | S-1 | 3.2 | Feb 14, 2006 | |
31.1* | Rule 13a-14(a) / 15d-14(a) Certification of Chief Executive Officer. |
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31.2* | Rule 13a-14(a) / 15d-14(a) Certification of Principal Financial Officer. |
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32.1** |
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101.INS* | XBRL Instance Document. |
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101.SCH* | XBRL Taxonomy Extension Schema Document. |
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101.CAL* | XBRL Taxonomy Extension Calculation Linkbase Document. |
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101.LAB* | XBRL Taxonomy Extension Label Linkbase Document. |
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101.PRE* | XBRL Taxonomy Extension Presentation Linkbase Document. |
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101.DEF* | XBRL Taxonomy Extension Definition Linkbase Document. |
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*Filed herewith.
** Furnished herewith.
| June 30, 2020 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 19, 2020 | By: | /s/ Claudia Grimaldi | |
Claudia Grimaldi | |||
Vice President (Principal Financial Officer) |
| June 30, 2020 Form 10-Q