As filed with the Securities and Exchange Commission on October 27, 2010March 2, 2012.
Registration No. 333-163867
333-______
333-______
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
INDIA GLOBALIZATION CAPITAL, INC.
(Exact Namename of Registrantregistrant as Specifiedspecified in Its Charter)its charter)
| Maryland | 1600 | 20-2760393 | ||
(State or Other Jurisdiction of Incorporation or Organization) | (Primary Standard Industrial Classification Code Number) | (I.R.S. Employer Identification Number) |
4336 Montgomery Ave.
Bethesda, Maryland 20814
(301) 983-0998
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant’s Principal Executive Offices)
Ram Mukunda
Chief Executive Officer and President
India Globalization Capital, Inc.
4336 Montgomery Ave.
Bethesda, Maryland, 20814
(301) 983-0998
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
Copies of all communications to:
Approximate date of commencement of proposed sale to public: As soon as practicable, after this registration statement becomes effective.
If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box: þ
If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: o
If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: o
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company þ |
CALCULATION OF REGISTRATION FEE
| Title of each class of securities to be registered | Amount to be Registered (1) | Proposed maximum offering price | Proposed maximum aggregate offering price (2) | Amount of Registration Fee | ||||||||||||||
| Shares of Common Stock, $0.0001 par value per share, underlying IPO Warrants | 11,855,122 | $ | 5.00 | $ | 59,275,610 | $ | 6,792.98 | |||||||||||
| Shares of Common Stock, $0.0001 par value per share, underlying 2009 Warrants | 258,800 | 1.60 | 414,080 | 47.45 | (3) | |||||||||||||
| Shares of Common Stock, $0.0001 par value per share, underlying 2010 Warrants | 858,610 | 0.90 | 772,749 | 88.56 | (3) | |||||||||||||
| Shares of Common Stock, $0.0001 par value per share ,issued in the acquisition of Ironman | 31,500,000 | 0.35 | (4) | 11,025,000 | 1,263.47 | |||||||||||||
| Total | 44,472,532 | $ | $ | 71,487,439 | $ | 8,192.46 | ||||||||||||
| (1) | Pursuant to Rule 416 of the Securities Act of 1933, as amended, this Registration Statement also registers such additional shares of Common Stock as may become issuable to prevent dilution as a result of stock splits, stock dividends or similar transactions. |
| (2) | Estimated solely for purposes of calculating the registration fee in accordance with Rule 457(o) under the Securities Act of 1933, as amended. |
| (3) | The fee has been partially satisfied by applying, pursuant to Rule 457(p) under the Securities Act of 1933, a portion of the previously paid filing fees in connection with (i)$159.03 that was paid with respect to the same securities that were previously registered pursuant to the Registration Statement No. 333-160993 on Form S-3 in August 2009 and (ii) $698.74 that was paid with respect to the same securities that were previously registered pursuant to the Registration Statement No. 333-163867 on Form S-1 in October 2010. |
| (4) | Estimated solely for the purpose of computing the registration fee pursuant to Rule 457(c) under the Securities Act of 1933, as amended. |
The RegistrantCompany hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the RegistrantCompany shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
| Proposed | ||||||||||||||||
| Proposed | maximum | Amount of | ||||||||||||||
| Amount to be | maximum | aggregate | registration | |||||||||||||
| Title of each class of securities to be registered (1) | registered | offering price (2) | offering price | Fee | ||||||||||||
| Common Stock, $0.0001 par value | 7,500,000 | $ | 0.98 | $ | 7,350,000 | $ | 524.06 | |||||||||
| Warrants (3) | 2,500,000 | (3) | ||||||||||||||
| Shares of Common Stock, $0.0001 par value per share, underlying Warrants | 2,500,000 | 0.98 | 2,450,000 | 174.69 | ||||||||||||
| Total | 10,000,000 | $ | 0.98 | $ | 9,800,000 | $ | 698.74 | (4) | ||||||||
| The information in this |
SUBJECT TO COMPLETION, DATED OCTOBER 27, 2010MARCH 2, 2012
PRELIMINARY PROSPECTUS
India Globalization Capital, Inc.
This prospectus relates to purchase up to 2,500,000the offer and sale by India Globalization Capital, Inc. (“IGC” or the “Company”) of 12,972,532 shares of Common Stock
The warrants are exercisable at any time after [the closing date] and on or before the seventh anniversary of their initial exercise date at an exercise price of $ ____ per share. and $ per warrant . This prospectus also relates to the purchase of up to 2,500,00012,972,532 shares of our common stock that areCommon Stock issuable by the Company upon the exercise of the warrants offered hereunder.
(i) 11,855,122 shares of Common Stock issuable upon the exercise of 11,855,122 warrants offered by this prospectus. The placement agents are not purchasing any securities(the “IPO Warrants”) originally issued in our initial public offering pursuant to thisa prospectus nor are they requireddated March 3, 2006. In order to sell any specific number or dollar amountobtain the shares, the holders of the securities offered hereby, but will use their best efforts to arrangeIPO Warrants must pay an exercise price of $5.00 per share for the saleshares underlying the IPO Warrants.
(ii) 258,800 shares of Common Stock issuable upon the exercise of 258,800 warrants (the “2009 Warrants”) originally issued in a registered direct offering pursuant to a prospectus and prospectus supplement each dated September 16, 2009. In order to obtain the shares, the holders of the securities being offered. See2009 Warrants must pay an exercise price of $1.60 per share for the section entitled “Planshares underlying the 2009 Warrants.
(iii) 856,610 shares of Distribution” beginning on page 14Common Stock issuable upon the exercise of this858,610 warrants (the “2010 Warrants”) originally issued in a registered direct offering pursuant to a prospectus for more information regarding these arrangements. The placement agents will receive compensation for salesand prospectus supplement each dated November 30, 2010. In order to obtain the shares, the holders of the securities2010 Warrants must pay an exercise price of $0.90 per share for the shares underlying the 2010 Warrants.
The 31,500,000 shares of Common Stock are being offered hereby at a fixed commission rateand sold by the selling shareholders who acquired the shares in connection withthe Company’s acquisition of 7%H&F Ironman, Ltd. (“HK Ironman”). Pursuant to that acquisition, the Company sold an aggregate of 31,500,000 shares in exchange for the ownership of 100% of HK Ironman. The issuance of shares was approved by the shareholders of the gross proceeds of the offering, provided that the commission rate shall be reduced to 2% for sales to certain investors identified by us.Company on December 30, 2011.
Investing in the offered securities involves substantial risks. In reviewing this prospectus, you should carefully consider the matters described under the heading “Risk Factors,“Risk Factors.” and in other documents incorporated by reference, including our Annual Report on Form 10-K for our fiscal year ended March 31, 2010 and our Quarterly Report on Form 10-Q for the three month period ended June 30, 2010.
The date of this prospectus is __________, 2010.
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| Determination of Offering Price | 27 |
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All references to “Company”, “IGC”, “IGC Inc.” “we,” “our,” “us,”, “we”, “our”, “us” and similar terms in this prospectus refer to India Globalization Capital, Inc.
hold a non-controlling interest.
We have not authorized anyone to provide any information other than that contained or incorporated by reference in this prospectus. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus and any applicable prospectus supplement are not offers to sell nor are they seeking an offer to buy these securities in any jurisdiction where the offer or sale is not permitted. The information contained in this prospectus and any applicable prospectus supplement is complete and correct only as of the date on the front cover of such documents, regardless of the time of the delivery of such documents or any sale of these securities.
For investors outside the United States: We have not taken any action to permit a public offering of the shares of our Common Stock or the possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than the United States. You are required to inform yourselves about and to observe any restrictions relating to this offering and the distribution of this prospectus.
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we have filed with the Securities and Exchange Commission (the “SEC” or the “Commission”) utilizing a shelf registration process. Under this shelf registration process, we and the selling stockholders named herein may, from time to time, offer and sell shares of the Common Stock of the Company pursuant to this prospectus. It is important for you to read and consider all of the information contained in this prospectus and any applicable prospectus before making a decision whether to invest in the common stock.Common Stock. You should also read and consider the information contained in the documents that we have incorporated by reference as described in “Where You Can Find More Information”Information.”
ADDITIONAL INFORMATION
As permitted by SEC rules, this prospectus omits certain information that is included in the registration statement and “Incorporationits exhibits. Since the prospectus may not contain all of Certain Documents by Reference”the information that you may find important, you should review the full text of these documents. If we have filed a contract, agreement or other document as an exhibit to the registration statement, you should read the exhibit for a more complete understanding of the document or matter involved. Each statement in this prospectus.prospectus, regarding a contract, agreement other document is qualified in its entirety by reference to the actual document.
We file annual, quarterly and special reports and other information with the SEC. You may read and copy any document we file with the SEC at the SEC’s Public reference room located at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. Our filings are also available to the public from the SEC’s web site at http://www.sec.gov.
We have three securities listed on the NYSE Amex: (1) Common Stock, $0.0001 par value (ticker symbol: IGC), (2) redeemable warrants to purchase Common Stock (ticker symbol: IGC.WT) and (3) units consisting of one share of Common Stock and two redeemable warrants to purchase Common Stock (ticker symbol: IGC.U).
We will make available on our website, www.indiaglobalcap.com, our annual reports, quarterly reports, proxy statements as well as up-to-date investor presentations. For information on HK Ironman, please visit www.hfironman.net. The registration statement and its exhibits, as well as our other reports filed with the SEC, can be inspected and copied at the SEC’s public reference room at 100 F Street, N.E., Washington, D.C 20549. The public may obtain information about the operation of the public reference room by calling the SEC at 1-800-SEC-0330 or visiting the SEC web site at http://www.sec.gov, which contains the Form S-1 and other reports, proxy and information statements and information regarding issuers that file electronically with the SEC. We do not intend to incorporate into this prospectus any of the information included on our website.
YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE OF THIS PROSPECTUS AND THE MAILING OF THIS PROSPECTUS SHALL NOT CREATE AN IMPLICATION TO THE CONTRARY.
MARKET AND INDUSTRY DATA
The following is a summary of some of the information contained in this prospectus. In addition to this summary, we urge you to read the entire prospectus carefully, especially the risks relating to our business and common stockCommon Stock discussed under the heading “Risk Factors” and our financial statements.
On February 19, 2009, IGC-M beneficially purchased 100% of IGC Mining and Trading Private Limited (IGC-IMT) based in Chennai, India. IGC-IMT was formed on December 16, 2008, as a privately held start-up company engaged in the business of mining and trading. Its current activity is to operate shipping hubs and to export iron ore to China from India. On July 4, 2009, IGC-M beneficially purchased 100% of IGC Materials, Private Limited (IGC-MPL based in Nagpur, India), which conducts IGC’s quarrying business, and 100% of IGC Logistics, Private Limited (IGC-LPL) based in Nagpur, India, which is involved in the transport and delivery of ore, cement, aggregate and other materials. Each of IGC-IMT, IGC-MPL and IGC-LPL were formed by third parties at the behest of IGC-M to facilitate the creation of the subsidiar ies.subsidiaries. The purchase price paid for each of IGC-IMT, IGC-MPL and IGC-LPL was equal to the expenses incurred in incorporating the respective entities with no premium paid. No officer or director of IGC had a financial interest in the subsidiaries at the time of their acquisition by IGC-M. India Globalization Capital, Inc. (the Registrant, the Company, or we) and its subsidiaries are significantly engaged in one segment,the sale of construction infrastructure.materials, mining, quarrying and construction.
On December 30, 2011, IGC acquired a 95% equity interest in Linxi HeFei Economic and 2009, we expanded our business offerings beyond construction to includeTrade Co. aka Linxi H&F Economic and Trade Co., a rapidly growing materials business. We have successfully repositioned the Company as a materials and construction firm, with construction activity in our TBL subsidiary and materials activity in our other subsidiaries. Rather than continue to owe Sricon $17.9 million, and more importantly, continue to fund two construction companies, we decreased our ownership in SriconPeople’s Republic of China-based company (“PRC Ironman”) by an amount proportionate to the loan. Effective October 1, 2009, we decreased our ownership in Sricon Infrastructure from 63% to 22.3%. The impactacquiring 100% of this is that we no longer owe Sricon $17.9 million and our corresponding ownership is a non-controlling interest. The deconsolidation of Sricon from the balance sheet of IGC r esulted in a smaller IGC balance sheet and a one-time charge to our P&L. Post deconsolidation, earnings and losses from Sricon are accounted for using the equity method of accounting.
Unless the context requires otherwise, all references in this reportprospectus to the “Company”, “IGC”, “IGC Inc.”, “we”, “our”, and “us” refer to India Globalization Capital, Inc., together with its wholly owned subsidiarysubsidiaries IGC-M and HK Ironman, Ltd. and its direct and indirect subsidiaries (TBL, IGC-IMT, IGC-MPL, IGC-LPL and IGC-LPL)PRC Ironman) and Sricon, in which we hold a non-controlling interest.
Our Business
IGC has identified the infrastructure materials business as a public (but not listedhigh growth business in both India and China as this is fundamental to the long-term development of Chinese and Indian infrastructure. In response to the increased demand for infrastructure-related construction in India and China, IGC’s focus is to supply construction materials in India and to China, as well as execute infrastructure projects. We do this entirely through our subsidiaries. We supply construction materials such as iron ore and rock aggregate to the construction industry. IGC operates rock aggregate quarries and exports iron ore to China. We build interstate highways, rural roads, and execute civil works in high temperature cement and steel plants. We are pursuing joint venture partnerships with mine owners and have applied for licenses to mine iron ore in India. We have customers in India and China and are exploring other regional opportunities. We also actively continue to pursue joint venture partnerships with mine owners for acquisition of mines and mining rights and have started materializing our efforts by acquiring PRC Ironman thru HK Ironman in China.
In March 2008, IGC completed the acquisition of interests in two companies in India, Sricon and TBL. Both companies are focused on the stock exchange) limited company on June 19, 1982 in Cochin, India.infrastructure industry. Currently, IGC owns 77% of TBL is an engineering and construction company engaged in the execution22% of civil construction, structural engineering projects and trading. TBL has a focus in the Indian states of Kerala, Karnataka, Assam and Tamil Nadu. Its present and past clients include various Indian government organizations.
Sricon. IGC Materials, Private Limited (“IGC-MPL”) and IGC Logistics, Private Limited (“IGC-LPL”) are based in Nagpur India and were incorporated in June 2009. The two companies focus on infrastructure materials like rock aggregate, bricks, concrete and other building materials, as well as, logistical support for the transportation of infrastructure materials. IGC India Mining and Trading (“IGC-IMT”) was incorporated in December 2008 in Chennai, India. IGC-IMT is focused on the export of iron ore to China.China, as well as the sale of iron ore to customers in India. IGC-MPL, IGC-LPL and IGC-IMT are all wholly-owned subsidiaries of IGC-M.
HK Ironman was incorporated as H&F Ironman Limited, a private limited company, on December 20, 2010 in Hong Kong to acquire PRC Ironman. Its registered office is at Room 17 6/F Shun on Commercial Building 112-114, Des Voeux Road Central, Hong Kong. HK Ironman’s sole asset is its ownership of a 95% equity interest in Linxi Hefei Economic and Trade Co., Ltd. (“PRC Ironman”), which was incorporated in China on January 8, 2008. HK Ironman was formed for the purpose of acquiring and owning PRC Ironman. HK Ironman acquired PRC Ironman in January 2011. As a result of that acquisition, PRC Ironman is now considered an equity joint venture (“EJV”) in view of its foreign ownership through HK Ironman. An EJV is a joint venture between a Chinese and a foreign company within the territory of China.
PRC Ironman is engaged in the processing and extraction of iron ore from sand and dirt at its beneficiation plant on 2.2 square kilometers of hills in southwest LinXi in the autonomous region of eastern Inner Mongolia, under the administration of Chifeng City, Inner Mongolia, which is located 250 miles from Beijing, 185 miles from Tianjin Port and 125 miles from Jinzhou Port and well connected by roads, planes and railroad. PRC Ironman is a Sino-foreign EJV established by both foreign and Chinese investors (i.e., Sino means “China” herein). HK Ironman, a Hong Kong-based company owns 95% of PRC Ironman, and Mr. Zhang Hua, a Chinese citizen owns the remaining 5%.
PRC Ironman’s technique for extracting ore consists of two processes. First, naturally occurring sand mixed with sparse amounts of iron ore is processed through a magnetic separator where magnets attracts the iron dust; the separation of iron from the sand is called a dry separation process. This is followed by mixing the material with water and processing the slurry through a wet magnetic separator, further purifying the material until it extracts ore that is 65-67% iron content. PRC Ironman currently mines the ore from the surrounding hills or buys sand and low-grade ore from Mongolia, processes the material to produce 66% Fe ore, and then sells the high-grade ore to steel mills and other traders in China. Its customers are mostly traders and steel mills located mostly around the port of Tianjin, China.
PRC Ironman has received a license to operate the beneficiation plant on a specific acreage of land in Inner Mongolia through August 2018. In addition, PRC Ironman has a business license, which was amended on November 28, 2011, to reflect HK Ironman’s new ownership of PRC Ironman, effective January 2011. PRC Ironman’s business objective is to operate and grow an environmentally friendly company that extracts and processes ore from barren hills and leaves in its place green acreage. PRC Ironman is located in southwest LinXi in the autonomous region of Inner Mongolia. PRC Ironman’s office is in the capital city of Chifeng. It has access via highways to Tianjin port, which gives us access to steel mills in the northeastern part of China. PRC Ironman customers come to its site to pick up the refined and processed high-grade ore. This acquisition of PRC Ironman will permit IGC to offer integrated solutions to our customers such as construction services to customers involving construction, as well as,combined with the sale and transportation of materials.
Core Business Competencies
| 1. | A sophisticated, integrated approach to project modeling, costing, management and monitoring. |
| 2. | In-depth knowledge of southern and central Indian infrastructure development as well as knowledge, history and ability to work in Inner Mongolia and Mongolia. |
| 3. | Knowledge of low cost logistics for moving commodities across long distances in specific parts of India as well as knowledge of logistics in the autonomous region of Inner Mongolia. |
| 4. | In-depth knowledge of the licensing process for mines in Inner Mongolia and southern and central India and for quarries in southern and central India. |
| 5. | Strong relationships with several important construction companies and mine operators in southern and central India and strong relationships at the appropriate levels of government in the autonomous region of Inner Mongolia. |
| 6. | Great access to the sand ore in the hills of Inner Mongolia |
Core Business Areas
Our core business areas include the following:are:
1. Mining and trading. Our mining and trading activity currently centers on the export of iron ore to China and the resale of iron ore to traders in India. India is the fourth largest producer of iron ore. The Freedonia Group projected in May 2010 that China’s $1.15 trillion construction industry would grow 9.1% every year until 2014. The Company expects that this growth may increase China’s already large demand for steel. China is a net importer of iron ore from Australia, Brazil, India and other countries. China is the largest mineral trader in the world accounting for 25% of the trading in 2010. The iron ore and steel global trade in 2010 was about $395 billion and China accounted for $83 billion or 21.1 % of the global trade. According to China’s new steel industry blueprint for its 12th 5-year plan, estimates China’s demand for iron ore could go as high as 1.13 billion tons over the next three years through 2012.
Global prices for iron ore are set through negotiations between China Steel and the large suppliers Rio Tinto, BHP Billiton and Vale. Once prices are set, the rest of the global markets follow that pricing. Prices for iron ore have increased about seven fold from 2003 to a high of $180 per metric ton at the end of 2010. In 2011, iron ore prices have been between $130 and $150 per metric ton. We believe that IGC is well positioned to provide some Chinese steel mills with the iron ore needed to meet their demand. Our subsidiary, IGC Mining and Trading Private Limited (IGC-IMT), based in Chennai, India, and our subsidiary Ironman are engaged in the iron ore business. The IGC-IMT has relationships and in some cases agreements with mine owners in Orissa and Karnataka, two of the largest ore mining belts in India. In addition, it operates facilities at seaports on the west coast of India and to a lesser extent on the east coast of India. The facilities consist of an office and a plot of land within the port to store iron ore. IGC-IMP services a customer in China by buying ore from Indian mine owners, transporting it to seaports and then subcontracting stevedores to load the ships.
Ironman is engaged in the processing and extraction of iron ore from sand and dirt at its beneficiation plant on 2.2 square kilometers of hills, which converts low-grade ore to high-grade ore through a dry and wet separation process, provides IGC with a platform in China to expand its business including to ship low-grade iron ore, which is available for export in India, to China and to convert the ore to higher-grade ore before selling it to customers in China. Ironman’s customers include local traders and steel mills near the port of Tianjin and steel mills located there. This area has excellent access roads consisting of multi-lane highways. Our staff is experienced in delivering and managing the logistics of ore transport. Even with the acquisition of Ironman, our share of the iron ore market is less than 1%. However, we have an opportunity to consolidate and grow our market share in a specific geographic area.
2. Quarrying rock aggregate. As Indian infrastructure modernizes, the demand for raw materials like rock aggregate, iron ore and similar resources is projected to increase greatly. In 2009, according to the Freedonia Group, India was the third largest stone aggregate market in the world. The report projected that Indian demand for crushed stone will increase to 770 million metric tons in 2013 and 1.08 billion metric tons in 2018. Our subsidiary, IGC Materials Private Limited (“IGC-MPL”), is responsible for our rock aggregate production. The subsidiary currently has two quarrying agreements with two separate partners. The two quarries mined near Nagpur, a city in the state of Maharashtra, India, have approximately 10-11 million metric tons of rock aggregate or about $40,000,000 of reserves at current prices. With the production of these two quarries, our subsidiary is one of the largest suppliers in the immediate area. Our share of the overall market in India is currently less than 1%. However, IGC-MPL has a growing regional presence in the Nagpur area.
All quarrying or mining activities in India require a license. IGC and its subsidiaries do not directly hold any mining or quarrying licenses and therefore there are no licenses or expenses in connection with acquiring the same being reflected in the consolidated financial statements. However, Sricon holds licenses and we operate under licenses held by our partners. For all quarries, the licenses are granted for two years. The licenses are automatically renewed for additional periods of two years, provided that all royalty payments and taxes to the Indian government are paid up to date. IGC-MPL has applied, on its own, for licenses for mining and quarrying. The process of obtaining a quarrying license is difficult and typically takes between 12-18 months. The process involves a competitive application process. As such, while we have applied for licenses, there is no assurance that we will be granted these licenses or that we will be permitted to continue to operate under partners’ licenses. IGC-MPL is also in active negotiations with other land and license owners to expand the number of producing quarries available to it.
3. Highway and heavy construction.
The Indian government has developed a plan to build and modernize Indian infrastructure. The Wall Street Journal reported on March 23, 2010 that the government plans to double infrastructure spending from $500 billion to $1 trillion. It will pay for the expansion and construction of rural roads, major highways, airports, seaports, freight corridors, railroads and townships. A significant number of our customers are engaged in highway and heavy construction.
4. Construction and maintenance of high temperature plants.
| Subsidiary | Nine months ended December 31, 2011 | Nine months ended December 31, 2010 | ||||||
TBL | 1 | % | 32 | % | ||||
IGC-IMT | 86 | % | 62 | % | ||||
IGC-MPL | 13 | % | 5 | % | ||||
IGC-LPL | 0 | % | 1 | % | ||||
PRC Ironman | - | % | - | % | ||||
Total | 100 | % | 100 | % | ||||
Customers
Our present and past customers include the National Highway Authority of India,NHAI, several state high way authorities, the Indian railways, private construction companies in India and several steel mills in China. In April 2010 we received a $160,000,000 contractChina, including local traders and steel mills near the port of Tianjin. Five of Ironman’s major customers accounted for supplying iron ore over five years to Jiya International, a large Chinese steel mill. This was followed by a $35,000,000 contract to supply ore to Tangshan Danyang Enterprises, another large customer in China. We currently92%, respectively of its total revenue for the fiscal year ended December 31, 2011 and 83%, respectively, of its total revenue for the fiscal year ended December 31, 2010. Non-renewal or/and termination of such relationship may have a backlogmaterial adverse effect on its revenue. No assurance can be given that Ironman’s business will not remain largely dependent on a limited number of approximately $200,000,000customers accounting for the supplya substantial part of iron ore to China.our revenue.
Construction contract bidding process. Contract Bidding Process
In order to create transparency, the Indian government has centralized the contract awarding process for building inter-stateinterstate roads. The new process is as follows: At the “federal” level, NHAI publishes a Statement of Work for an interstate highway construction project. The Statement of Work has a detailed description of the work to be performed, as well as, the completion time frame. The bidder prepares two proposals in response to the Statement of Work. The first proposal demonstrates technical capabilities, prior work experience, specialized machinery, manpower required, and other qualifications required to complete the project. The second proposal includes a financial bid. NHAI evaluates the technical bids and short-lists technically qualified companies. Next, the short li stlist of technically qualified companies are invited to place a detailed financial bid and show adequate financial strength in terms of revenue, net worth, credit lines, and balance sheets. Generally, the lowest bid wins the contract. Additionally, contract bidders must meet several requirements to demonstrate an adequate level of capital reserves:
1) An earnest money deposit between 2% to 10% of project costs,
2) aA performance guarantee of between 5% and 10%,
3) anAn adequate overall working capital, and
4) additionalAdditional capital available for plant and machinery.
Bidding qualifications for larger NHAI projects are set by NHAI and are imposed on each contractor. As the contractor actually executes larger highway projects, then the contractor may qualify for even larger projects.
Growth strategyStrategy and business model.Business Model
Industry reports indicate that Chinese steel consumption has continued to grow even through the global economic downturn, as China’s economy only modestly decelerated from its previous multi-year growth trajectory. Industry experts predict that growth in Chinese consumption is expected to remain a key driver for the global steel industry for a number of years to come. According to the World Steel Association, world crude steel production was 119 million metric tons (mmt) in January 2011, an increase of 5.3% from January 2010. In 2010, world crude steel production reached a record 1,414 mmt, up 15% year over year. China’s crude steel production for January 2011 was 52.8 mmt, up 0.5% year over year.
In China, the iron ore industry is broadly divided into mining and processing. The companies that hold mining licenses mine ore and sell it to steel mills directly or to processing plants. The processing plants convert ore into high-grade ore, like Ironman, or into pellets that are then sold to steel mills. Typically, low-grade ore is ore that has an iron (Fe) content of less than 52% and high-grade ore is ore with a Fe content of over 52%. The processing involves the extraction of iron ore from sand and dirt at beneficiation plants. The beneficiation process involves crushing and separating ore into valuable substances or waste by any of a variety of techniques. Ironman’s beneficiation plant extracts iron ore from a dry magnetic separation process followed by a wet separation process. PRC Ironman currently either mines ore from the hills of Inner Mongolia in their designated acreage or it buys sand and low-grade ore from Mongolia, processes the material to produce 66% Fe ore and then sells the high-grade ore to steel mills and other traders in China. Its customers are mostly traders and steel mills located mostly around the port of Tianjin, China. Our growth strategy and business model are to:
| 1) | Deepen our relationships with our existing construction customers by providing them infrastructure materials like iron ore, rock aggregate, concrete, coal and associated logistical support. |
| 2) | Expand our materials offering by expanding the number of rock aggregate quarries and other materials. |
| 3) | Leverage our expertise in the logistics and supply of iron ore by increasing the number of shipping hubs we operate from and continue to expand our offering into China and other Asian countries in order to take advantage of their expected strong infrastructure growth. |
| 4) | Consummate strategic acquisitions that would enable us to expand operations and markets in our identified areas of expertise. |
| 5) | Expand the number of recurring contracts for infrastructure build-out to customers that can benefit from our portfolio of offerings. |
Competition
We operate in an industry that is competitive. However, therethe industry is fragmented and while a large gap in the supplynumber of our competitors are well qualified and better financed contractors andthan we are, we believe that the demand for contractors.contractors in general will permit us to compete for projects and contracts that are appropriate for our size and capabilities. Large domestic and international firms compete for jumbo contracts over $250 million in size, while locally based contractors vie for contracts worth less than $5 million. We seek to compete in the gap between these two ends of the competitive spectrum. The recent capital markets crisis has made it more difficult for smaller companies to grow to mid-sized companies because their access to capital has been restrained. While we are also constrained by capital, we believe that we are in a better position to secure capital than a number of small, purely local competitors. Our construction business is positioned in the $5 million to $50 million contract range, above locally based contractors and below the large firms, creating a distinct technical and financial advantage in this market niche. niche assuming that we can maintain access to capital.
Rock aggregate is generally supplied to the industry through small crushing units, which supply low quali tyquality material. Frequently, high quality aggregate is unavailable, or is transported over large distances. We fill this gap by providing high quality material in large quantities. Further, we expect to install a large iron ore crusher that can grind ore pebbles into fine ore particles, providing a value added service to the smaller mine owners. We compete on price, quantity and quality. Iron ore is produced in India, where our core assets are located, and exported to China. While this is a fairly established business,and relatively efficient market, we compete by aggregating ore from smaller suppliers who do not have direct access to customers in China. Further, we expectAs mentioned before, Ironman’s beneficiation plant is located 185 miles from the port of Tianjin. Other than about 10 kilometers of dirt road leading over a bridge and over the hills, the access to install a large ironTianjin port and steel mills located there is excellent consisting of multi-lane highways. The competition in the immediate area consists of three other operators and is fairly limited mainly because demand for ore crusherwithin China is high and market can absorb almost any amount of ore that can grind ore pebbles into fine ore particles, providing a value added service to the smaller mine owners.is produced.
There is seasonality in our business as outdoor construction industriesactivity in India slows down during the Indian monsoons typically experienceexperiencing naturally recurring seasonal patterns throughout India. The Northeastnortheast monsoons historically arrive on June 1 annually, followed by the Southwestsouthwest monsoons, which usually continue intermittently until September. Historically, the business in the monsoon months is slower than in other months because of the heavy rains. Activities such as engineering and maintenance of high temperature plants are less susceptible to weather delays, while the iron ore export business slows down somewhat due to the rough seas. Flooding in the quarries can slow production in the stone aggregate industry during the monsoon season. However, our quarries build stone reserves prior to the monsoon season. The monsoon season has historically been used to bid and win contracts for construction and for the supply of ore and aggregate in preparation for work activity when the rains abate.
In 2011, the area of Chifeng and Inner Mongolia was subject to severe inclement weather. Typically, the months of May through September are rainy. On average, the rainfall is between 1.1 inches per month to a high of 4.7 inches per month, typically in July. This level of rainfall is not disruptive to the production of ore and in most cases the plant is operational. However, in 2011, the area received very heavy rainfall that caused significant flooding through the region and had a serious impact on PRC Ironman’s operations, as PRC Ironman could not operate the mines and the plant for more than four months. The heavy rains and flooding destroyed more than 16,000 houses and 6,000 hectares of farmland. It also destroyed the bridge connecting our production facilities to the main highways. No damage was sustained to the plant because the plant is located high in the hills. However, during that time PRC Ironman was unable to produce ore.
Employees and consultants.Consultants
As of June 30, 2010,December 31, 2011, we employed a work force of approximately 200251 employees and contract workers worldwide.in the US, India, China, Hong Kong and Mauritius. Employees are typically skilled workers including executives, engineers, accountants, sales personnel, welders, truck drivers and other specialized experts. Contract workers require less specialized skills. The truck drivers tend to be contract workers. We make diligent efforts to comply with all employment and labor regulations, including immigration laws in the many jurisdictions in which we operate. In order to attract and retain skilled employees, we have implemented a performance based incentive program, offered career development programs, improved working conditions and provided United States work assignments, technology training and other fringe benefits. Ironman tends to be the employer of choice as there are very few industries in the area it operates. We hope that our efforts will make our other companies more attractive. We are planning to provide vastly improved labor camps for our labor force. We hope that our efforts will make our companies the “employers of choice”. As of June 30, 2010 our Executive Chairman and Chief Executive Officer is Ram Mukunda and our Non-Executive Chairman is Ranga Krishna. Our Managing Director for Materials, Mining and Trading is P. M. Shivaraman. The General Manager of our rock aggregate and logistics business in India is Brigadier Kuljit Singh. Our Treasurer and Principal Accounting Officer is John Selvaraj. Our General Manager of Accounting based in India is Santhosh Kumar. We also utilize the services of several consultants who provide USGAAP systems and other expertise.
India hasand China have strict environmental, occupational, health and safety regulations. In most instances, the contracting agency regulates and enforces all regulatory requirements. As part of the mandate in the area, Ironman has undertaken a conservation effort as well as an effort to create a sustainable environment. Ironman actively plants grass and shrubs in the hills after they are excavated and uses the water from the processing plant to irrigate the grass and shrubs. We internally monitor and manage regulatory issues on a continuous basis. We believe that we are in compliance with all the regulatory requirements of the jurisdictions in which we operate. Furthermore, we do not believe that compliance will have a material adverse effect on our business activities.
Current Chinese currency revaluation.Currency Revaluation
Information and timely financial reporting.Timely Financial Reporting
Our operations are located in India and now China where the respective accepted accounting standard isstandards are the Indian GAAP which, inand the Chinese GAAP. In many cases, isthe Indian GAAP and the Chinese GAAP are not congruent with the USGAAP.U.S. GAAP. Indian and Chinese accounting standards are evolving toward IFRS (International Financial Reporting Standards). We annually conduct audits for the Company byengage independent public accounting firmfirms registered with the U.S. PCAOB. We acknowledge that thisU.S.Public Company Accounting Oversight Board (“PCAOB”) to conduct an annual audit of our financial statements. The process of producing financial statements is at times cumbersome and places significant demands upon our existing staff. We believe we are still six to twelve monthssome time away from having processes and adequately trained personnel in place to meet the reporting timetables set out by U.S. reporting requirements. Until then we may, on occasion, have to file for extensions to meet U.S. reporting timetables.timetables and it is possible that we may fail to meet these time tables. Failure to file our reports in a timely fashion can result in severe consequences including the potential delisting of our securities. In addition, our access to capital may become more difficult or limited if we fail to meet reporting deadlines. We will make our annual reports, quarte rlyquarterly reports, proxy statements and up-to-date investor presentations available on our Web site,website, www.indiaglobalcap.com, as soon as they are available. Our SEC filings are also available, free of charge, at www.sec.gov.
www.sec.gov. Please see “Risk Factors” for more information concerning the risks of investing in the Company.
Corporate Information
The mailing address of our company.principal executive office is 4336 Montgomery Avenue, Bethesda, MD 20814 and our telephone number is 301-983-0998.
| Securities offered upon the exercise of warrants: | 11,855,122 shares of common stock of IGC, par value $0.0001 per share (“Common Stock”) underlying 11,855,122 warrants having an exercise price of $5.00 per share (“IPO Warrants”). The warrants expire on March 8, 2013. | |
| 258,800 shares of Common Stock underlying 258,800 warrants having an exercise price of $1.60 per share (“2009 Warrants”). The warrants expire on September 18, 2012. | ||
| 858,610 shares of Common Stock underlying 858,610 warrants having an exercise price of$0.90 per share (“2010 Warrants”). The warrants expire on December 8, 2017. | ||
| Securities offered for Resale by Selling Stockholders: | 31,500,000 shares of Common Stock issued in connection with the acquisition of Ironman (aka “Exchange Shares”).We will not receive any proceeds from the sale by the selling shareholders of their shares of Common Stock. | |
| Shares of Common Stock outstanding before this offering: | 52,460,433 shares | |
| Shares of Common Stock to be outstanding after this offering: | 65,432,965 shares, assuming exercise of all of the currently outstanding warrants.1 | |
| IPO Warrant Terms | ||
| Exercisability: | Each warrant is exercisable for one share of Common Stock. | |
| Exercise price: | $5.00 | |
| Exercise period: | The warrants will expire at 5:00 p.m. EST on March 8, 2013 or earlier upon redemption. | |
| Redemption: | ||
We may redeem the outstanding warrants and the warrants issued to selling Stockholders, as follows: • in whole and not in part; • at a price of $.01 per warrant at any time after the warrants become exercisable; • upon a minimum of 30 days’ prior written notice of redemption; and • if, and only if, the last sales price of our Common Stock equals or exceeds $8.50 per share for any 20 trading days within a 30 trading day period ending three business days before we send the notice of redemption. | ||
| Exercisability: | Each warrant is exercisable for one share of Common Stock. | ||
| Exercise price: | $1.60 | ||
| Exercise period: | The warrants will expire at 5:00 p.m. EST on September 18, 2012. | ||
Redemption: | We do not have the right to redeem the outstanding 2009 Warrants. | ||
| 2010 Warrant Terms | |||
| Exercisability: | Each warrant is exercisable for one share of Common Stock. | ||
| Exercise price: | $0.90 | ||
| We | |||
| NYSE Amex | |||
| Units: | IGC-U | ||
| Common | IGC | ||
| IPO Warrants: | IGC-WT | ||
| Use of proceeds: | We estimate our net proceeds from this offering will be approximately $60,462,439, which assumes the exercise of all of the warrants, as set forth on the cover page of this prospectus. However, given the recent trading price of our Common Stock it is unlikely that such amounts will be realized. We intend to use any proceeds for working capital, operating expenses and other general corporate purposes. If at the time the warrants are exercised, we have incurred indebtedness, we may also use the proceeds to repay indebtedness. | ||
| Risk Factors: | Investment in our Common Stock involves substantial risks. You should read this prospectus carefully | ||
| 1 | Based on 52,460,433 shares outstanding as of March 2, 2012. Excludes 2,783,450 shares of our Common Stock issuable upon the exercise of options issued under our stock incentive plan and outstanding as of March 2, 2012, and 116,030 shares of Common Stock available for future issuance under our stock incentive plan as of March 2, 2012. |
RISK FACTORS
You should carefully consider the following risk factors, together with all of the other information included in this prospectus in evaluating us and our common stockCommon Stock and other securities. If any of the following risks and uncertainties developdevelops into actual events, they could have a material adverse effect on our business, financial condition or results of operations. In that case, the trading price of our common stockCommon Stock and other securities also could be adversely affected. We make various statements in this section, which constitute “forward-looking statements.” See “Forward-Looking Statements.”
PRC Ironman has a significant underpayment of taxes.
PRC Ironman is currently delinquent in its regulatory compliance in the People’s Republic of China due to its unpaid taxes for previous years stemming from underreported income. The taxes shown in the financial statements of PRC Ironman reflect what has been calculated as per U.S. GAAP rules, which for the financial year ended March 31, 2011, out of a total current liability of $7,300,917 was is a total of $6,763,485 in taxes payable. As of December 31, 2011, PRC Ironman had access to $2,678,119 in cash and $3,877,660 in receivables. Therefore, PRC Ironman has resources from which to pay these amounts in the event a favorable agreement is not reached with the tax authorities. IGC believes that PRC Ironman will be successful in negotiating a settlement or a concession based on oral representations made by the authorities though the resolution of this deficiency is not free from doubt. The authorities have offered concessions as part of an incentive to attract investment into a geographic area in China that needs trade, commerce, jobs and a sustainable environment. All taxes and penalties due prior to the Company’s acquisition of Ironman are the responsibility of Ironman and its stockholders before the closing of the acquisition. An unfavorable outcome could significantly reduce PRC Ironman’s cash reserves and even cause it to pay any shortfall from its current year income.
IGC may experience difficulty transferring money from China to the U.S.
Chinese currency is not freely convertible into other currencies in part because of its undervalued status. Therefore, profits made in China may have to be reinvested in China. While it is well reported in the news that China is seeking to make its currency convertible by 2015, there is no certainty that this will occur in the short-term. IGC has engaged legal counsel in China to advise on paths to move money between China and the U.S. or India, which includes the sale of PRC Ironman stock back to HK Ironman without dilution, a dividend payment or transfer pricing that involves USA overhead expenses paid out of the Chinese company.
Iron Ore Exports from India may be reduced by one-third in 2012 and beyond.
Iron ore exports from India, usually the world's third biggest supplier of the ingredient for steel, could fall a third into 2012. India's iron ore exports were already down 25 percent in April to October 2011 because of stalled shipments arising from a legal dispute in Karnataka, India and because of high transport costs. Karnataka, India normally accounts for a quarter of India’s exports. Most of India's iron ore exports go to China, which has the world's largest steel industry. India exported about half of China’s annual production until Karnataka introduced a ban on shipments in July 2010. IGC is aware of the export issues in Karnataka, India, which could cause (a) logistics pricing, (b) export bans similar to the Karnataka ban on exports elsewhere in India, and (c) increased in the export duty. If one or more of these risks materialize, IGC’s revenues could be adversely affected. IGC believes that low-grade ore remains readily available in other parts of India including both Orissa and Goa. Further, IGC’s established presence in China and India will facilitate its ability to export ore from India.
The failure to integrate Ironman’s business and operations successfully in the expected timeframe may adversely affect the combined company’s future results.
IGC believes that its acquisition of Ironman will result in certain benefits, synergies and operational efficiencies. However, to realize these anticipated benefits, the businesses of IGC and Ironman must be successfully combined. The success of the acquisition will depend on the combined company’s ability to realize these anticipated benefits from combining the businesses of IGC and Ironman. The combined company may fail to realize the anticipated benefits of the Acquisition for a variety of reasons, including:
• failure to successfully manage relationships with customers, distributors and suppliers;
• revenue attrition in excess of anticipated levels;
• failure to leverage the increased scale of the combined company quickly and effectively;
• potential difficulties integrating and harmonizing financial reporting systems;
• loss of one or more key employees;
• failure to effectively coordinate sales and marketing efforts to communicate the capabilities of the combined company; and
• failure to combine product and services offerings quickly and effectively.
The acquisition of Ironman has closed; however, the actual integration may result in additional and unforeseen expenses or delays. If the combined company is not able to integrate Ironman’s business and operations successfully, or if there are delays in combining the businesses, the anticipated benefits of the acquisition may not be realized fully or at all or may take longer to realize than expected.
The integration of IGC and Ironman may result in significant accounting charges that adversely affect the announced results of the combined company.
The financial results of the combined company may be adversely affected by cash expenses and non-cash accounting charges incurred in connection with the combination. These expenses have been preliminarily estimated to be approximately $500,000, which includes legal, accounting, due diligence and filing fee to date. In addition, under the stock purchase agreement (the “Stock Purchase Agreement”) between IGC and Ironman, Ironman’s shareholders, IGC has agreed to file a registration statement to register the shares of Common Stock issued to the Ironman stockholders for resale within 60 days of the closing of the acquisition on December 30, 2011, which will cause IGC to incur additional legal fees. The price of our Common Stock could decline to the extent our financial results are materially affected by the foregoing charges or if the foregoing charges are larger than anticipated.
IGC’s management lack’s experience in the iron ore industry.
IGC’s current officers and directors do not have experience operating a business in China and lack direct experience in the iron ore industry. IGC believes that the officers and directors of HK Ironman and PRC Ironman will remain with the companies at least one year following the closing of the Acquisition to facilitate the transition, though there is no guaranty of this result. The success of the acquisition of HK Ironman (the “Acquisition”) will depend in part on the ability of the combined company following the completion of the Acquisition to realize the anticipated benefits, including annual net operating synergies. Following the Acquisition, the size of the combined company’s business will be significantly larger than the current business of IGC. Our future success depends, in part, upon our ability to manage this expanded business, which will pose challenges for our management, including challenges related to the management and monitoring of new operations and associated increased costs and complexity. IGC cannot assure you that the combined company will be successful or that the combined company will realize the expected operating efficiencies, annual net operating synergies, revenue enhancements and other benefits currently anticipated resulting from the Acquisition. The failure to manage successfully the challenges presented after an Acquisition may result in the Company’s failure to achieve some of all of the anticipated benefits of the Acquisition. Consequently, our operations, earnings and ultimate financial success may suffer harm as a result.
Ironman has limited business insurance coverage.
Insurance companies in China currently do not offer as extensive array of insurance products as insurance companies do in the U.S. We do not have any business liability or disruption insurance to cover our operations. Any uninsured occurrence of business disruption may result in our incurring substantial costs, which could have an adverse effect on our results of operations and financial condition.
Our ability to operate effectively could be impaired if we lose key personnel or if we fail to attract qualified personnel.
We are managing our business, following the Acquisition, through a number of key personnel, including Mr. Danny Chang, Ironman’s managing director, Mr. Jianqun Dou, its deputy chairman and Mr. Wei Dong Qu, its general manager and chief operating officer. The loss of any of these key officers could have a material adverse effect on our operations. In addition, as business develops and expands, we believe that our future success will depend greatly on our continued ability to attract and retain highly skilled and qualified personnel. No assurance can be given that key personnel will continue to be employed by us or that we will be able to attract and retain qualified personnel in the future. Accordingly, if we are not able to retain these officers and/or personnel, or effectively fill vacancies created by departing key persons, our business may be impaired. The lack of key man insurance on any of these important personnel will also have an adverse effect on our financial conditions in case of the death of any of these important key personnel.
Material weaknesses in our internal controls and financial reporting, and our lack of a CFO at Ironman with sufficient U.S. GAAP experience may limit our ability to prevent or detect financial misstatements or omissions. As a result, our financial reports may not comply with U.S. GAAP and the Accounting Standards Codification. Any material weakness, misstatement or omission in our financial statements will negatively affect the market, and price of our stock which could result in significant loss to our investors.
None of the members of Ironman has experience managing and operating a public company and they rely in many instances on the professional experience and advice of third parties. While we are obligated to hire a qualified chief financial officer to enable us to meet our ongoing reporting obligations, we do not have a CFO with any significant U.S. GAAP experience for now with Ironman. Although we are actively seeking a new CFO, qualified individuals are often difficult to find, or the individual may not have all of the qualifications that we require. Therefore, we may experience “weakness” and potential problems in implementing and maintaining adequate internal controls as required under Section 404 of the Sarbanes-Oxley Act. This “weakness” also includes a deficiency, or combination of deficiencies, in internal controls over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. Management has identified a weakness relating to the Company not having sufficient experienced personnel with the requisite technical skills and working knowledge of the application of U.S. GAAP. Projections of any evaluation of effectiveness to future periods are also subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. This may result in significant deficiencies or material weaknesses in our internal controls, which could affect the reliability of our financial statements and prevent us from complying with SEC rules and regulations and the requirements of the Sarbanes-Oxley Act. Failure to comply or adequately comply with any laws, rules, or regulations applicable to our business may result in fines or regulatory actions, which may materially adversely affect our business, results of operation, or financial condition and could result in delays in achieving either the effectiveness of a registration statement or the development of an active and liquid trading market for our Common Stock. To the extent that the market place perceives that we do not have a strong financial staff and financial controls, the market for and price of our stock may be impaired.
Risks Related to Our Corporate Structure.
The PRC government may determine that HK Ironman’s ownership of PRC Ironman or PRC Ironman’s structure is not in compliance with applicable PRC laws, rules and regulations. If so, the relevant regulatory authorities would have broad discretion with respect to actions that could be taken in dealing with such non-compliance. Any of these actions could adversely affect our ability to manage, operate and gain the financial benefits of PRC Ironman, which would have a material adverse impact on our business, financial condition and results of operations.
IGC is conducting business in China through its subsidiary, PRC Ironman, a Sino-Foreign Equity Joint Venture (“EJV”), which is a corporation jointly invested and incorporated by foreign companies, other economic organizations or persons and Chinese companies or other economic organizations. An EJV typically is established by joint contribution, joint operation of all parties to the joint venture, and sharing of risk, profits and losses in proportion to their respective contributions towards the registered capital.
In the opinion of Gaopeng & Partners, our PRC legal counsel, PRC Ironman’s business is a foreign investment that is permitted in China. Chinese foreign investment policies classify various industries into four groups, which are encouraged, permitted, restricted and prohibited for foreign investment. Mining and processing of ferruginous sandstone and sale of refined iron powder is not in either the encouraged, restricted or prohibited groups explicitly stipulated by the Catalogue of Industries Guiding Foreign Investment, so such business is foreign investment permitted. HK Ironman entered into a share transfer agreement to purchase 95% shares of PRC Ironman from Mr. Zhang Hua and Mr. XU Jianjun in January 2011. On April 28, 2011, the share purchase was approved by the Department of Commerce of Inner Mongolia Autonomous Region. On the same day, HK Ironman was granted the Certificate of Approval for Establishment of Enterprises with Investment of Taiwan, Hong Kong, Macao and Overseas Chinese in the People’s Republic of China (Approval No. Shang Wai Zi Meng Wai Zi Shen 2011- 0023). Before the closing of the Acquisition, 95% shares of PRC Ironman is held by HK Ironman and 5% is held by Mr. Zhang Hua.
We have been advised by our PRC legal counsel that there are uncertainties regarding the interpretation and application of current and future PRC laws and regulations. If PRC Ironman were for any reason determined to be in breach of any future PRC laws or regulations, the relevant regulatory authorities would have broad discretion in dealing with such breach, including:
| · | imposing economic penalties: |
| · | discontinuing or restricting the operations of PRC Ironman; |
| · | imposing conditions or requirements with respect to HK Ironman or PRC Ironman with which HK Ironman or PRC Ironman may not be able to comply; |
| · | requiring our company to restructure the relevant ownership structure or operations; |
| · | taking other regulatory or enforcement actions that could adversely affect our company’s business; and |
| · | revoking the business licenses and/or the licenses or certificates of PRC Ironman. |
Any of these actions could adversely affect our ability to manage, operate and gain the financial benefits of PRC Ironman, which would have a material adverse impact on our business, financial condition and results of operations.
We rely on the approval certificates and business licenses held by HK Ironman and PRC Ironman. HK Ironman and PRC Ironman’s failure to renew its licenses and certificates when their terms expire with substantially similar terms as the ones it currently holds could result in our inability to operate our business.
We operate our business in China in reliance on approval certificates, business license and other requisite licenses held by HK Ironman and PRC Ironman. PRC Ironman has received a license, to operate the beneficiation plant on a specific acreage of land in Inner Mongolia through August 2018. In addition, PRC has a business license, which was amended on November 28, 2011 to reflect PRC Ironman’s new ownership by HK Ironman effective January 2011. The business license is valid through January 7, 2028. There is no assurance that HK Ironman will be able to renew its licenses and certificates in the future when their terms expire with substantially similar terms as the ones they currently hold. HK Ironman’s failure to renew its licenses and certificates when their terms expire with substantially similar terms as the ones it currently holds could result in our inability to operate our business.
Our future operating results and the market price of our Common Stock could be materially adversely affected if we are required to write down the carrying value of goodwill and investment associated with any of our businesses in the future.
We review our goodwill balance and investments for impairment on at least an annual basis through the application of a fair value-based test. Our estimate of fair value is based primarily on projected future results and cash flows and other assumptions. In addition, we review long-lived assets whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. In the fourth quarter of our 2011 fiscal year, we performed our annual test for goodwill and investment impairment and determined that our goodwill arising on account of the acquisition of TBL and our investment in Sricon was further impaired. Similarly, in the future, if our projected discounted cash flows or the recoverable value of the underlying assets associated with our businesses do not exceed the carrying value of their net assets, we may be required to record further write-downs of the carrying value of other long-lived assets associated with our businesses. If that is the case, then our operating results and the market price of our Common Stock may be adversely affected.
Our subsidiaries may become involved in litigation in the future.
Our construction and aggregate contracts are subject to the jurisdiction of the Indian courts. Our iron ore contracts frequently are subject to the jurisdiction of other foreign countries. Our subsidiaries may have to initiate actions in the Indian courts or in foreign courts to enforce their rights and may be drawn into litigation. The expenses of litigation and any judgments against us could have an adverse effect on us.
The audit report provided by Yoganandh and Ram (Y&R) will require a review by a U.S. firm.
While our audit firm, Yoganandh & Ram, is registered with the U.S. Public Company Accounting Oversight Board (the “PCAOB”), the SEC requires that the audits conducted by Yoganandh & Ram be reviewed by another PCAOB registered firm. If the review identifies changes to an audit, we will be required to amend our annual report as filed on Form 10-K incorporating the audited financial statements. During the year ended March 31, 2010, the PCAOB conducted an inspection of Yoganandh & Ram. One result of the inspection is an expected increase in our auditing expense.
Risks Associated with Doing Business in India and China.
Any downgrading of China’s or India’s debt rating by an international rating agency, or an increase in interest rates in China or India, could have a negative impact onadversely affect our ability to borrowgenerate or use Letters of Credit.
The iron ore business relies heavily on Letters of Credit. Ironman is attempting to establish a record of execution that can eventually lead to back-to-back Letters of Credit, which would greatly enhance our business and help us grow rapidly. Back-to-back Letters of Credit are used primarily in India.
A change in government policy, a downturn in the Indianglobal, Chinese or ChineseIndian economy or a natural disaster could adversely affect our business, financial condition, results of operations and future prospects.
Political, economic, social and other factors in China may adversely affect business.
Our results of operations, financial condition and prospects could be adversely affected by economic, political and legal developments in China. Since the late 1970s, the Chinese government has been reforming its economic system. These policies and measures may from time to time be modified or revised. While the Chinese economy has experienced significant growth in the past 20 years, growth has been uneven across different regions and among various economic sectors of China. Furthermore, while the Chinese government has implemented various measures to encourage economic development and guide the allocation of resources, some of these measures may also have a negative effect on us. For example, our financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations that are applicable to Ironman. The processing unit operated by Ironman is subject to central, provincial, local and municipal regulation and licensing in China. Compliance with such regulations and licensing can be expected to be a time-consuming, expensive process resulting in expenses which could adversely affect our margins.
Returns on investment in Chinese and Indian companies may be decreased by withholding and other taxes.
Our investment in China and India may incur tax risk unique to investment in China, India and in developing economies in general. Income that might otherwise not be subject to withholding of local income tax under normal international conventions may be subject to withholding of Chinese and/or Indian income tax. Under treaties with India and under local Indian income tax law, income is generally sourced in India and subject to Indian tax if paid from India. This is true whether or not the services or the earning of the income would normally be considered as being from sources outside India in other contexts. Additionally, proof of payment of withholding taxes may be required as part of the remittance procedure. Any withholding taxes paid by us on income from our investments in China and/or India may or may not be creditable on our income tax returns. We may also incur taxes in India on any profits that we may choose to distribute as dividends to our shareholders. We intend to avail ourselves of transfer pricing rules and minimize any Chinese and/or Indian withholding tax or local taxes. However, there is no assurance that the Chinese and/or the Indian tax authorities will always recognize such rules in its applications. We have created a foreign subsidiary in Mauritius, in order to limit the potential tax exposure in India.
Our industry depends on the stability of policies and the political situation in India and China and a change in policy could adversely affect our business.
The role of the Indian central and state governments for contracts. Their operations and financial results may be affected by changes in the government’s policy toward building infrastructure. In addition, the recent slowdown in the Indian economy on producers, consumers and regulators has caused a tightening of credit and a slowdown of companies bidding on government contracts. We foresee no immediate changes to government policy or market conditions that would adversely affect our ability to conduct business other than limited access to credit. Government support for infrastructure spending remains strong. The Wall Street Journal of May 31, 2010 reported that India plans to create an $11 billion fund t o finance new infrastructure projects. Additionally a recent Indian government Economic Survey projected rapid growth forremained significant over the next several years.
Terrorist attacks and other acts of violence or war within India or involving India and other countries could adversely affect the financial markets and our business.
Terrorist attacks and other acts of violence could have the direct effect of destroying our plants and property causing a loss and interruption of business. According to the CIA 20102011 World Factbook, religious and border disputes persist in India and remain pressing problems. For example, India has from time to time experienced civil unrest and hostilities with Pakistan and other neighboring countries. The longstanding dispute with Pakistan over the border Indian states of Jammu and Kashmir, a majority of whose populations are Muslim, remains unresolved. Fortunately, as the Council on Foreign Relations noted,While India and Pakistan have scheduled meetings in July with the hope of resumingresumed formal peace talks.
talks, there are no guarantees that these will be successful. In addition, the April 8, 2010 Economist reported India continues to struggle with insurgent attacks from Maoist-NaxaliteMaoist- Naxalite groups. If the Indian government is unable to control the violence and disruption associated with these insurgencies, then the result could be the destabilization of the economy, and, consequently, an adverse effect on our business.
Since early 2003, there have also been military hostilities and civil unrest in Afghanistan, in Iraq, and more recently in Pakistan and other Asian countries. These events could adversely affect the Indian economy, and, as a result, negatively impactaffect our business.
While we may have insurance to cover some of these risks and can file claims against the Indian contracting agencies, there can be no guarantee that we will be able to collect in a timely manner. Further, India has a fairly active insurgency and a fairly active communist following. Any serious uprising from these groups could delay our roadwork and disrupt our business. Terrorist attacks, insurgencies, or other threats of violence could slow down road building activity and the production of iron ore and rock aggregate, thereby adversely affecting our business.
Exchange controls that exist in India may limit our ability to utilize our cash flow effectively following a business combination.
We are subject to India’s rules and regulations on currency conversion. In India, the Foreign Exchange Management Act, FEMA, regulates the conversion of the Indian rupee into foreign currencies. However, as according to the Reserve Bank of India, comprehensive amendments have been made to FEMA to support the government’s policy for economic liberalization. Companies are now permitted to operate in India without any special restrictions, effectively placing them on a par with wholly-owned Indian companies. In addition, foreign exchange controls have been substantially relaxed. Notwithstanding these changes, the Indian foreign exchange market is not yet fully developed and we cannot assure that the Indian authorities will not revert back to regulating companies and imposing new restrictions on the convertibility o fof the Indian rupee. Any future restrictions on currency exchange may limit our ability to use our cash flow to fund operations outside of India.
Changes in the exchange rate of the Indian rupee may negatively impactinfluence our revenues and expenses.
Our operations are primarily located in India. We receive payment in Indian rupees for the construction work we do in India (ourand the sale of rock aggregate. Our contracts to supply iron ore to Chinese companies are paid in U.S. dollars).dollars. As the results of our operations are reported in U.S. dollars, to the extent that there is a decrease in the exchange rate of Indian rupees intorelative to U.S. dollars, such a decrease could have a material impact on our operating results or financial condition. This
Restrictions on the RMB may limit our ability to move funds out of China.
The Chinese currency, the renminbi (“RMB”), like the Indian rupee, is unlikely because,not a freely convertible currency, which could limit our ability to move money out of China freely. We would rely on the Chinese government’s foreign currency conversion policies, which may change from time to time. In China, the government has control over RMB reserves through, among other things, direct regulation of the conversion of RMB into other foreign currencies and restrictions on certain types of foreign imports. A change in the currency regulations, which lead to further restrictions, could negatively affect our ability to finance growth, or pay dividends, outside of China using the profits from China.
U.S.-listed companies with business operations in China have recently come under increased scrutiny, criticism and negative publicity.
Since 2010, a number of U.S. publicly-listed companies with substantial operations in China have been the subject of intense scrutiny, criticism and negative publicity by investors, financial commentators and regulatory agencies, such as the Wall Street Journal reportedSEC and the Justice Department resulting in mid-April, the rupee is expected to appreciate another 3% against the dollar by the enda loss of share value. Much of the year.scrutiny and negative publicity has centered around accounting weaknesses, inadequate corporate governance and, in some cases, allegations of fraud. As a result of such scrutiny and negative publicity, the stock prices of most U.S. publicly listed companies with operations in China have sharply decreased in recent months.
Because the Chinese judiciary will determine the scope and enforcement under Chinese agreements, we may be unable to enforce our rights inside and outside of China.
HK Ironman operates under the laws of Hong Kong and PRC Ironman, its subsidiary, operates under the laws of PRC. Substantially all of the assets of Ironman are located in China and the majority of its officers and directors and the experts named in this proxy statement/prospectus are outside the U.S. It is therefore unlikely that service of process on either HK Ironman or PRC Ironman or their officers and directors can be obtained within the U.S. Further, it may be difficult to enforce in China a judgment obtained in the U.S. These difficulties stem from the lack of official judicial arrangements between the U.S. and China, which means that judgments of U.S. courts will not be necessarily enforced in China without review and re-litigation of the merits of their claims.
There is doubt as to the enforceability in China of actions to enforce judgments of U.S. courts arising out of or based on ownership of the securities of HK Ironman or PRC Ironman, including judgments arising out of or based on civil liability provisions of U.S. federal or state securities laws. There is also doubt whether the Chinese courts would enforce, in original actions, judgments against HK Ironman or PRC Ironman or the persons mentioned above predicated solely based upon U.S. securities laws. Original actions may be brought in China or Hong Kong against these parties only if the actions are not required to be arbitrated by Chinese law and only if the facts alleged in the complaint give rise to a cause of action under Chinese law, in which event, a Chinese court may award monetary damages.
Risk Related to Our Securities.
The trading market for our Common Stock will rely in part on investmentthe research and reports that equity research analysts publish about our business and us. We do not control these analysts. The price of our stock could decline if one or more equity analysts downgrade our stock or if those analysts issue other unfavorable commentary or cease publishing reports about our business or us.
We incur costs as a result of operating as a public company. Our management is required to devote substantial time to new compliance initiatives. Because we report in Indian companiesU.S. GAAP, we may be decreased by withholdingexperience delays in closing our books and records in India and China, and delays in the preparation of financial statements and related disclosures.
As part of a public company with substantial operations, we are experiencing an increase in legal, accounting and other taxes.expenses. In addition, the Sarbanes-Oxley Act (“Sarbanes-Oxley Act”) and new rules implemented by the SEC and the NYSE Amex have imposed various requirements on public companies, including requiring changes in corporate governance practices. Our management and other personnel need to devote a substantial amount of time to these compliance initiatives. We have completed the testing of internal controls in all our subsidiaries in India. We expect to carry out the evaluations and install improved systems and processes as required in both India and China. However, we cannot be certain as to the timing or completion of the remediation actions, or their impact on our operations. Furthermore, it is difficult to hire personnel in India and China who are familiar with U.S. GAAP. We have hired several competent consultants to help review our internal reporting and disclosures, and to train our Indian and Chinese staff in SEC reporting and U.S. GAAP. We do not foresee a problem other than the time required to complete the training adequately and to implement the improved processes.
Compliance with Foreign Corrupt Practices Act could adversely affect our competitive position. Failure to comply could subject us to penalties and other adverse consequences.
We are subject to the U.S. Foreign Corrupt Practices Act, which generally prohibits U.S. public companies from engaging in bribery of or other prohibited payments to foreign officials to obtain or retain business. While we will take precautions to educate the employees of our subsidiaries of the Foreign Corrupt Practices Act, there can be no assurance that our employees or agents of IGC or our subsidiaries will not engage in such conduct, for which we might be held responsible. We could suffer penalties that may have a material adverse effect on our business, financial condition and results of operations.
We may issue additional shares of our capital stock, including through convertible debt securities, which would reduce the equity interest of our stockholders and possibly cause a change in control of our ownership.
Our investmentscertificate of incorporation authorize the issuance of up to 150,000,000 shares of Common Stock, par value $0.0001 per share and 1,000,000 shares of preferred stock, par value $0.0001 per share. There are currently approximately 38,485,247 authorized but unissued shares of our Common Stock available for issuance after appropriate reservation for the issuance of shares upon full exercise of our outstanding warrants and shares and options authorized for issuance under our 2008 Omnibus Incentive Plan. It is also after the reservation for conversion of all of the 1,000,000 shares of preferred stock available for issuance.
We issued an aggregate of 2,516,389 shares of our Common Stock in Indiaconnection with a private placement of debt securities and exchange of previously issued debt securities for new debt securities and Common Stock in October 2009, November 2010, December 2010, February 2011 and March 2011, and may engage in similar private placements in the future. In addition, we may from time to time sell shares in the market. The issuance of additional shares of our Common Stock including the conversion of any debt securities may:
· | Significantly reduce the equity interest of our existing shareholders. |
· | Adversely affect prevailing market prices for our Common Stock, warrants or units. |
We may issue notes or other debt securities, which may adversely affect our leverage and financial condition.
During the 2009 and 2010 fiscal years, we sold an aggregate $4,000,000 in private placements of debt securities and may engage in similar private placements in the future. In the current year, we have modified the terms of the debt arrangement to extend the repayment under the agreements and as a consideration for this extension issued equity shares to the debt holders. The incurrence of this debt and any subsequent modifications to the terms may:
· | lead to default if our operating revenues are insufficient to pay our debt obligations; |
· | cause an acceleration of our obligations to repay the debt even if we make all principal and interest payments when due if we breach the covenants contained in the terms of the debt documents; |
· | create an obligation to immediately repay all principal and accrued interest, if any, upon demand to the extent any debt securities are payable on demand; |
· | hinder our ability to obtain additional financing, if necessary, to the extent any debt securities contain covenants restricting our ability to obtain additional financing while such securities are outstanding, or to the extent our existing leverage discourages other potential investors; and |
| · | potentially lead to a dilution of our ownership if there are any subsequent issues of equity shares as consideration for further modifications or settlements. |
The Company has 12,972,532 warrants outstanding, the exercise of which could dilute the number of shares outstanding.
Upon the occurrence of the exercise of our outstanding warrants, the Company will receive the exercise price unless the exercise is cashless. In either case, such an exercise will also increase the number of shares outstanding. This may adversely affect the share price, as the supply of shares eligible for sale in the public market will increase. The increased number of shares offered for sale in the public market may exceed the public demand to buy shares at a given market price resulting in the market price adjusting downward.
Although we are required to use our best efforts to have an effective registration statement covering the issuance of the shares underlying the public warrants at the time that our warrant holders exercise their public warrants, we cannot guarantee that a registration statement will be declared effective, in which case our warrant holders may not be able to exercise our public warrants and such warrants may expire worthless.
We have issued warrants to purchase our Common Stock in three public offerings: our initial public offering in March 2006, a registered direct offering in September 2009 and a public offering in December 2010. In the absence of an applicable exemption, holders of warrants issued in our public offerings will be able to exercise the warrants only if a current registration statement under the Securities Act of 1933, as amended (the “Securities Act”) relating to the shares of our Common Stock underlying the warrants is then effective. Although we have undertaken in the respective warrant agreements relating to such warrants, and therefore have a contractual obligation, to use our best efforts to maintain a current registration statement covering the shares underlying the public warrants to the extent required by federal securities laws, and we intend to comply with such undertaking as soon as possible, we do not have such a registration statement currently effective and we cannot assure the warrant holders that we will be able to do so in the future including with respect to this prospectus to register the shares underlying the foregoing warrant agreements. If we fail to comply with our contractual obligations, we could be liable to the holders of the warrants. In no event shall we be liable for, or any registered holder of any warrant be entitled to receive, (a) physical settlement in securities unless the conditions and requirements set forth in the warrant agreement have been satisfied, or (b) any net-cash settlement or other consideration in lieu of physical settlement in securities (provided that the holders of the warrants issued in our September 2009 and December 2010 offerings are entitled to cash payments if we fail to deliver shares issuable upon exercise of the warrants in a timely fashion). The value of the public warrants may be greatly reduced if a registration statement covering the shares issuable upon the exercise of the warrants is not kept current. Such warrants may even expire worthless. The warrants issued in our initial public offering that were to expire on March 3, 2011, now expire on March 8, 2013 since we exercised our right to extend the terms of those warrants. The warrants issued in our September 2009 and December 2010 offerings expire on September 18, 2012 and December 8, 2017 respectively. The outstanding warrants issued in our September 2009 and December 2010 offerings, currently exercisable for an aggregate of 1,117,410 shares of Common Stock, give the holders of such warrants the right to exercise the warrants on a cashless basis if at the time of exercise there is not an effective registration statement available for the issuance of the shares issuable upon exercise of the warrants. We would not receive any proceeds from the cashless exercise of the warrants.
With respect to any warrants sold by us in private placements pursuant to an exemption from registration requirements under the federal securities laws, the holders of the warrants sold in such private placements would be able to exercise their warrants even if, at the time of exercise, a prospectus relating to the Common Stock issuable upon exercise of such warrants is not current. As a result, the holders of the warrants purchased in the private placements would not have any material restrictions with respect to the exercise of their warrants.
The issuance of certain of securities by us may not have been made in compliance with the federal and state securities laws, which exposes us to potential liabilities, including potential rescission rights.
On July 14, 2010, we filed our Form 10-K for the fiscal year ended March 31, 2010. The Form 10-K contained audited financial statements included a qualified opinion from our auditors pending completion of their audit procedures in respect of the deconsolidation of one of our subsidiaries. We subsequently filed an amended Form 10-K, which includes an unqualified audit opinion.
On January 19, 2011, the Commission notified us that the initial financial statements filed on July 14, 2010 did not comply with the requirements of Rule 2-02 under Regulation S-X for audited financial statements because the financial statements contained a qualified opinion. As noted above, the amended Form 10-K filed on January 28, 2011 contains audited financial statements with an unqualified opinion that comply with Rule 2-02. The Commission has indicated that as the initial Form 10-K filed on July 14, 2010 was materially deficient as a result of the inclusion of the qualified audit opinion. It was therefore deemed not to have been filed with the Commission in accordance with applicable requirements, thus making us delinquent in its filings with the Commission.
The Commission informed us that as a result of the deemed failure to timely file a Form 10-K, it is the Staff's view that as of July 14, 2010 we ceased to be eligible to use SEC Form S-3 for the registration of the Company's securities. As the financial statements included in the original Form 10-K were also included in a registration statement on Form S-1 (File No. 333-163867) pursuant to which we offered its Common Stock and warrants to purchase Common Stock in December 2010 (the "December 2010 Offering"), the Commission has also indicated that such registration statement failed to comply with the requirements of Form S-1 due to the lack of the inclusion of unqualified audited financial statements in compliance with Commission requirements.
Since the Commission informed us that it is the Commission's view that as of July 14, 2010 we ceased to be eligible to use Form S-3 for the registration of our securities, it is possible that any sales of our securities pursuant to our registration statements on Form S-3 since July 14, 2010 may be deemed to be unregistered sales of its securities. Since July 14, 2010, we have sold an aggregate of 2,292,760 shares of its Common Stock for an aggregate price of $1,536,886 pursuant to an at-the-market offering ("ATM") of its Common Stock on Form S-3 (File No. 333-160993) in sales that occurred between September 7, 2010 and January 19, 2011. In addition, we may be deemed to have made unregistered sales of the 2,575,830 shares of Common Stock and warrants to purchase an aggregate of 858,610 shares of Common Stock at an exercise price of $0.90 per share sold for an aggregate gross purchase price of $1,545,498 sold pursuant to such registration statement with respect to the December Offering. Alternatively, to the extent that the sales are deemed to be registered as a result of being sold pursuant to registration statements declared effective by the Commission as the registration statements in question either incorporated, in the case of the Form S-3 or included, in the case of the Form S-1, a qualified audit report the registration statements could be deemed to be materially incomplete.
If it is determined that persons who purchased our securities after July 14, 2010 purchased securities in an offering deemed to be unregistered or that the registration statements for such offerings were incomplete or inaccurate, then such persons may be entitled to rescission rights. In addition, the sale of unregistered securities could subject us to enforcement actions or penalties and fines by federal or state regulatory authorities. We are unable to predict the likelihood of any claims or actions being brought against us related to these events, and there is a risk that any may have a material adverse effect on us. To date, we have not received any rescission requests and we believe the period to honor such rescission requests has terminated.
Additional capital may be costly or difficult to obtain.
Additional capital, whether through the offering of equity or debt securities, may not be available on reasonable terms or at all. If we are unable to obtain required additional capital, we may have to curtail our growth plans or cut back on existing business. Furthermore, we may not be able to continue operating if we do not generate sufficient revenues from operations needed to stay in business. We may incur tax risks uniquesubstantial costs in pursuing future capital financing, including investment banking fees, legal fees, accounting fees, securities law compliance fees, printing and distribution expenses and other costs. These costs may be increased because we may not currently be able to investmentsuse a short-form registration statement on Form S-3, which will increase the costs and timing for any registered offering of our securities. In addition, to the extent that we are unable to provide timely reporting of our financial results it may further impair our ability to raise capital. We may also be required to recognize non-cash expenses in Indiaconnection with certain securities we issue, such as, convertible notes and warrants, which may adversely impact our financial condition.
We do not currently intend to pay dividends, which may limit the return on your investment in developing economiesus.
We currently intend to retain all available funds and any future earnings for use in general. Income that might otherwisethe operation and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future.
If we fail to comply with the NYSE Amex listing requirements, we could be delisted from the NYSE Amex equities market. Any such delisting could potentially limit investors’ ability to make transactions in our securities and subject us to additional trading restrictions.
If we fail to comply with the listing requirements of the NYSE Amex, we could be delisted from the NYSE Amex equities market. If at any time in the future, the NYSE Amex delists our securities from trading on its exchange, we could face significant adverse consequences, including a:
· | limited availability of market quotations for our securities; |
· | determination that our Common Stock is a “penny stock” which will require brokers trading in our Common Stock to adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for our Common Stock; |
· | limited amount of news and analyst coverage for our company; and |
· | decreased ability to issue additional securities or obtain additional financing in the future |
If our Common Stock were delisted and determined to be a “penny stock,” a broker-dealer may find it more difficult to trade our Common Stock and an investor may find it more difficult to acquire or dispose of our Common Stock in the secondary market.
If our Common Stock were removed from listing with the NYSE Amex, it may be subject to the withholdingso-called “penny stock” rules. The SEC has adopted regulations that define a penny stock to be any equity security that has a market price per share of local income tax under normal international conventions may becomeless than $5.00, subject to certain exceptions, such as any securities listed on a national securities exchange. For any transaction involving a penny stock, unless exempt, the withholding of Indian income tax. Under treaties with India and under local Indian income tax law, income is generally sourced in India andrules impose additional sales practice requirements on broker-dealers, subject to Indian tax if paid from India. This is true whethercertain exceptions. If our Common Stock were delisted and determined to be a penny stock, a broker-dealer may find it more difficult to trade our Common Stock and an investor may find it more difficult to acquire or notdispose of our Common Stock on the servicessecondary market. Investors in penny stocks should be prepared for the possibility that they may lose their whole investment.
Risks Associated With Our Industry and Specifically the Iron Ore Business.
We are subject to numerous risks and hazards associated with the mining industry.
Our mining operations are subject to a number of risks and hazards including:
| · | industrial accidents; |
| · | unusual or unexpected geologic formations; |
| · | explosive rock failures; and |
| · | flooding and periodic interruptions due to inclement or hazardous weather conditions. |
Such risks could result in a variety of issues that could affect our operations, such as damage to or the earningdestruction of mineral properties or production facilities, environmental damage, delays in our mining operations, personal injury or death, monetary losses and possible legal liability. No assurance can be given that we will be able to avoid any or all of the income would normally be considered as beinghazards discussed above and any such occurrence may substantially affect our business and financial operations.
Our operations are highly susceptible to hazardous weather conditions and seasonal weather conditions.
Both India, specifically the east and west coasts where our supply chains are located, and northeastern China where Ironman’s processing chain is located, potentially experience severe weather conditions. Severe weather conditions could cause our supply chain and/or processing chain to temporarily curtail or stop operations materially affecting our quarterly results. During periods of curtailed activity due to adverse weather conditions, our operations in both countries may continue to incur operating expenses, reducing profitability. Certain weather conditions may affect mining operations. The Ironman beneficiation plant is located in a region with a typical subtropical climate characterized mainly by high precipitation and high evaporation and humid conditions. The rainy season occurs from sources outside IndiaMay to August of each year, which may make the plant inaccessible or unusable during such rainy season due to flooding caused by insufficient drainage necessary to release the excess water that has accumulated. During the last rainy season there was a particularly rainy season marked by much flooding in other contexts. Additionally, proof of paymentChina and a halt in business operations for Indian income taxesseveral months. As such, mining operation may be required as part of the remittance procedure. Any Indian taxes paid by us on income from our investments in India mayinterrupted due to inclement or hazardous weather conditions experienced during such rainy season.
We may not be creditable on our U.S. income tax returns.
The cost of logistics and shipping between India and China may reduce our income.
Our process involves moving ore from mine heads to crushers and then to the port for shipping. We rely on third parties to provide a number of important services in connection with our business, and any disruption in these services could materially affect our business. For example, we depend on trucking companies to move the ore. A surge in demand for ore and, in general, other commodities, could increase the cost of domestic logistic affecting our profitability. Additionally, we depend on shipping agencies to move ore from India to China and an increase in the price of shipping could adversely affect our profitability.
Some of our business is dependent on contracts awarded by the Indian government and its agencies.
The construction business is dependent on central and state Indian government budget allocations to the infrastructure sector. We derive the bulk of our construction revenue from contracts awarded by the Indian central and state governments and their agencies. If there are delays in payments by the government, our working capital requirements could increase. Our materials business is dependent on private sector companies, which could be affected by government delays, indirectly burdening our business. At times we file delay claims with the contracting agencies in India. These claims are arbitrated. Once the arbitration process is completed the arbitration panel decides a monitory award. If the award is in our favor, we record this as revenue. However, the cont racting agencies may sometimes choose to file an appeal in the Indian courts in order to delay payment of the award. This appeals process could take between one and three years. We may not receive the cash until the appeals process is exhausted. However, once the arbitration is awarded, it is rarely, if ever, overturned.
Assessment of penalties for time overruns and lack of quality may adversely affect our economic performance.
TBL executes construction contracts primarily in the roads and infrastructure development sectors. TBL typically enters into high value contracts for these activities, which impose penalties if the contracts are not executed in a timely manner. If TBL is unable to meet the performance criteria prescribed by the contracts, then levied penalties may adversely affect our financial performance. Furthermore, we may pay demurrage for some of our iron ore delivery contracts, if ore is not loaded onto ships in the time prescribed by delivery contracts. The payment of demurrage may adversely affect our financial performance. The ore shipped by us from India is shipped with a quality certificate from a leading company. However, the buyers in China also perform quality measurements, which could differ from the init ialinitial quality certificate. This may result in negative price adjustments affecting our profit margins. The rock aggregate business is less sensitive to time overruns and quality.
Our business is dependent on continuing relationships with clients and strategic partners.
Our business requires developing and maintaining strategic alliances with contractors that undertake turnkey contracts for infrastructure development projects and with government organizations. The business and our results could be adversely affected if we are unable to maintain continuing relationships and pre-qualified status with key clients and strategic partners.
We face competition in the infrastructure industry.
The Indian real estate and infrastructure industries, including the mining industries, are increasingly attracting foreign capital. We currently have competition from international and domestic companies that operate at the national level. Smaller localized contractors and companies are also competing in their respective regions. If we are unable to offer competitive prices and obtain contracts, there could be a significant reduction in our revenue.
Mining is inherently dangerous and subject to conditions or events beyond our control, and any operating hazards could have a material adverse effect on our business.
During the course of mining activities, we use dangerous materials and there is no assurance that accidents will not occur. Should we be held liable for any such accident, we may be subject to penalties, and possible criminal proceedings may be brought against us by our employees, which could have a material adverse effect on our business.
PRC Ironman’s mining operations could have material safety concerns, which may result in accidents and in turn negatively affect our revenue.
PRC Ironman’s mining operations could have safety issues in its iron ore mine or beneficiation plants including, in part, inadequate natural ventilation, likelihood of flooding in the tunnels, etc. Accidents and employee’s injury arising from any safety issues may cause suspension or discontinuance of our mining operation and thus negatively affect our revenue.
Mining exploitation activities are labor intensive and employ low levels of mechanization, which may result in inefficiency and impose greater safety and health hazards concern.
Ironman used rudimentary mining methods and low levels of mechanization since the beginning of its mining operation. The labor-intensive and low-mechanization mining method its uses in its mining operations results in inefficient operation. The relatively large number of mining workers exposed to dust, noise, heat and vibration caused by its mining methods may increase the possibility of accidents and health hazards.
We may suffer losses resulting from unexpected accidents.
Like other mining companies, our operations may suffer from structural issues such as unusual or unexpected geologic formations or explosive rock failures that may result in accidents that cause property damage and possible personal injuries. We can give no assurance that industry-related accidents will not occur in the future. We do not maintain flood or other property insurance covering our properties, equipment or inventories. Any losses and/or liabilities we incur due to unexpected property damage or personal injury could have a material adverse effect on our financial condition and results of operations.
Restrictive regulation on the export of ore may adversely affect our business.
Restrictive regulation on the export of ore from India or the import of ore into China may adversely affect our profitability. India restricts the export of high quality ore to government agencies. China restricts the import of low quality ore to specific agents. In the event these regulations change and become even more restrictive, our profitability could be adversely affected.
The audit report provided by Yoganandh and Ram (Y&R) will require a review by a U.S. firm.imposition of taxes on exports (export duty) could have an impact on our business.
India recently increased the export duty on ore from 5% to 20%. Any further increases in the export duty of ore could adversely affect our profitability.
The supply chain for ore is registeredheavily dependent on transportation. A strike by truck drivers could adversely affect our business. The processing plant in China is located in the province of Inner Mongolia and any civil unrest in that area, or other parts of China, could disrupt the logistics and processing chain adversely affecting our business. India and China have had their share of disputes in the past 60 years. India and China had ancient friendly ties going back to the silk route. However, beginning in the 1950s the relationship became strained largely over Tibet and issues over borders. In 1962, China attacked India along its border, coinciding with the Cuban missile crisis that preoccupied the super powers U.S., Russia and the UK. The war ended with a complete withdrawal that coincided with the arrival of the U.S. air force. However, while there can be no guarantee that hostilities may again reappear between the two countries, much has changed since the 1962 war. Both India and China are now nuclear powers, underpinning the notion of Mutually Assured Destruction, and both are strategic partners with the U.S. Public Company Accounting Oversight Board (the “PCAOB”),Both countries took part in the SEC requires thatfirst ever BRIC (Brazil, Russia, India and China) Summit, in June 2011. Both countries have had thirteen rounds of border talks and the audits conductedrecent one in August 2011, ended with both nations discussing raising their strategic partnership to a higher level. In 2008-2009 India’s largest trading partner was China followed by Yoganandh & Ram be reviewed by another PCAOB registered firm.the U.S. and the United Arab Emirates. If hostilities between the review identifies changes to an audit, we will be required to amendtwo countries reappear, our annual report as filed on Form 10-K incorporating the audited financial statements. During the year, the PCAOB conducted an inspection of Yoganandh & Ram. One result of the inspection is an expected increase in our auditing expense.
Iron ore is traded in USD. However, the warrants soldsupply side, including logistics in India, is settled in Indian rupees (INR). On the private placements were originally issued pursuantother hand, the expense for processing the ore in China are all met in RMB. Therefore, three currencies are involved in a typical trade. Fluctuations of one currency relative to the others may adversely affect our profit margins.
Environmental regulations could adversely affect Ironman’s business.
The process of digging ore from the ground is typically environmentally unfriendly as is the process of beneficiation, which uses ground water. Stricter environmental controls in India or China on the mining of ore or the processing of ore could have an exemption from registration requirements under the federal securitiesadverse impact on our business, by raising additional compliance expenses. Mineral exploration and development, as well as Ironman’s current mining activities and its future mineral mining operations are, and may continue to be, subject to stringent state, provincial and local laws the holdersand regulations relating to environmental quality, production, labor standards, occupational health, waste disposal, protection and remediation of the warrants soldenvironment, mine safety, toxic substances and other matters. Mineral mining is also subject to risks and liabilities associated with pollution of the environment and disposal of waste products occurring as a result of mineral production. Compliance with these laws and regulations will impose substantial costs on Ironman and may subject it to significant potential liabilities. Further, any changes to these regulations may increase Ironman’s operating costs and may adversely affect its results of operations.
Our business relies heavily on our management team and any unexpected loss of key officers may adversely affect our operations.
The continued success of our business is largely dependent on the continued services of key employees in IGC and our subsidiaries after the private placementAcquisition. The loss of the services of certain key personnel, without adequate replacement, could have an adverse effect on our performance. Our senior management, as well as the senior management of our subsidiaries, plays a significant role in developing and executing the overall business plan, maintaining client relationships, proprietary processes and technology. While no one is irreplaceable, the loss of the services of any would be disruptive to our business.
A large portion of Ironman’s revenue is derived from five major customers.
Five of Ironman’s major customers accounted for 92%, respectively of its total revenue for the fiscal year ended December 31, 2011 and 83%, respectively, of its total revenue for the fiscal year ended December 31, 2010. Non-renewal or/and termination of such relationship may have a material adverse effect on its revenue. No assurance can be given that following the Acquisition that it will be able to exercise their warrants even if, at the timemaintain such a relationship. Additionally, no assurance can be given that Ironman’s business will not remain largely dependent on a limited number of exercise,customers accounting for a prospectus relatingsubstantial part of our revenue.
Our quarterly revenue, operating results and profitability will vary.
Factors that may contribute to the common stock issuable upon exercisevariability of such warrants is not current. As a result, the holders of the warrants purchasedquarterly revenue, operating results or profitability include:
| · | Fluctuations in revenue due to seasonality such as during the monsoon season, the heavy rains slow down road building and during the summer months, the winds are not strong enough to power the wind turbines, which results in uneven revenue and operating results over the year; |
| · | Commencement, completion and shipment during any particular quarter; |
| · | Weather and additions and departures of key personnel; and |
| · | Strategic decisions made by us and our competitors, such as acquisitions, divestitures, spin-offs, joint ventures, strategic investments and changes in business strategy. |
Ironman faces intense competition in the private placements will not have any restrictions with respectIron ore business.
Large companies in Brazil, Australia, India and other ore producing countries dominate the iron ore business. Most of these companies are miners and export directly to the exerciselarge steel mills around the world. Our strategy of their warrants. As described above,sourcing low-grade inexpensive ore from India and processing it in China is fairly unique and allows us to supply steel producers at competitive prices, while maintaining margins. Ironman depends on its expertise in sourcing low cost low-grade ore and to process the holders of the public warrants will not be ableore. If Ironman is unable to exercise them unless we have a current registration statement covering the shares issuable upon their exercise.
All mines have limited resources and as such, we intend to acquire additional mining operations, as part of our long-term strategy. As there is a limited supply of desirable mineral deposits in the PRC, we face strong competition for promising acquisition targets from other mining companies, some of which have greater financial resources than we have. IGC may be unable to compete with such other mining companies in making acquisitions that we deem to be complementary to our business, or to acquire such on terms that are acceptable to us.
Ironman is a cash business, which may cause us to suffer losses.
Ironman is a “cash business” which means that most transactions occur on the spot using cash rather than through order forms and payment via check, wire or credit card. Cash businesses are more susceptible to corrupt practices. As with any business that is cash intensive, the accuracy and adequacy of reporting income is highly contingent upon ownership and the owner's propensity for cash management and control. As a result, Ironman may experience a certain percentage of loss due to theft and misappropriation. To offset this, IGC will impose controls over cash collection for this cash business. The controls will include monitoring the cash balances closely, limiting the amount of cash available in vulnerable locations, using vaulted equipment to store cash properly and most importantly, migrating financial transactions toward checks and wire transfers. Failure to control the integrity of cash collection and deposits would lead to a significant reduction in our revenue.
Ironman’s revenue and, therefore, our profitability, may be affected by metal price volatility.
The majority of Ironman’s revenue is derived from the sale of high-grade ore. Consequently, its revenue is directly related to the price of high-grade ore. The fact that it does not conduct any hedging of the price of iron ore exposes it to increased price volatility. Iron ore is one of the biggest dry bulk commodities traded and shipped. According to the U.S. Geological Survey, Mineral Commodity Summaries, January 2012 report, the estimated world total mine production of iron ore was 2,800 million metric tons of usable ore worth $336 billion and the world total resources of iron ore content was 80,000 million metric tons of usable ore. The price (estimated from reported value of ore at mines) was $120 USD per metric ton. According to Bloomberg News, Dec 19, 2011, Iron ore prices may remain below $140 a metric ton as Chinese mills limit purchases. The growth of spot trading in this huge market presents an opportunity for banks, traders, producers and consumers to manage price risk and exposure. Trading since 2008, the iron ore swap has emerged as the leading instrument for iron ore hedging and risk management. Changes in the prices of high-grade ore and lead may adversely affect our operating results. It is difficult to predict whether high-grade ore prices will rise or fall in the future and a decline in prices could have an adverse effect on our future results of operations and financial condition.
FORWARD-LOOKING STATEMENTS
We believe that some of the information in this prospectus constitutes forward-looking statements within the definition of the Private Securities Litigation Reform Act of 1995. You can identify these statements by forward-looking words such as “may,” “should,“will,” “should”, “believes,” “expects,” “intends,” “anticipates,” “thinks,” “plans,” “estimates,” “seeks,” “predicts,” “potential” or similar words or the negative of these words or other variations on these words or comparable terminology. You should read statements that contain these words carefully because they discuss future expectations, contain projections of future results of operations or financial conditions or state or other forward looking info rmation.forward-looking information. Forward-looking statements are based on certain assumptions and expectations of future events. IGC cannot guarantee that these assumptions and expectations are accurate or will be realized. These statements are not guarantees of future performance and involve a number of risks, uncertainties and assumptions.
Many factors, including those discussed more fully in documents filed with the Securities and Exchange Commission, which we refer to as the SEC, by IGC, particularly under the heading “Risk Factors” in Part 1, Item 1A of IGC’s Annual Report on Form 10-K, for the year ended March 31, 2011, Form 10-Q for the quarterly periods ended June 30, 2011, September 30, 2011, and December 31, 2011, and any amendments thereto for IGC, could cause results to differ materially from those stated. While we believe it is important to communicate our expectations to our stockholders, there may be events in the future that we are not able to accurately predict or over which we have no control. The risk factors and cautionary language discussed in this prospectusproxy statement provide examples of risks, uncertainties and events that may cause actual results to differ materially from the expectations described by us in our forward-looking statements, including among other things:
| ● | The growth in global and specifically Asian GDP and more specifically infrastructure and the overall demand for steel; | |
| ● | Competition in the |
| ● | Legislation by the government of | |
| ● | Labor, trucking, and other logistic issues; |
| Unanticipated cash requirements to support current operations, expand our business or incur capital expenditures; | ||
| ● | The loss of key management or scientific personnel; | |
| ● | The activities of our competitors in the industry; | |
| ● | The effect of volatility of currency exchange rates; | |
| ● | Enactment of new government laws, regulations, court decisions, regulatory interpretations or other initiatives that are adverse to us or our interests; | |
| ● | The effect of the Stock Purchase Agreement on our business relationships (including with employees, customers and suppliers), operating results and business generally; | |
| ● | The amount of the costs, fees, expenses and charges related to the Stock Purchase Agreement; | |
| ● | Risks that the proposed transactions disrupt current business plans and operations and the | |
| ● | The timing of the completion of the Acquisition and the impact of the Acquisition on our indebtedness, capital resources, cash requirements, profitability, management resources and liquidity. |
You should be aware that the occurrence of the events described in these risk factorsthe “Risk Factors” section above and elsewhere in this prospectus, could have a material adverse effect on our business, financial condition and results of operations.
You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this prospectus.
All forward-looking statements included herein attributable to us or any person acting on either party’s behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section.
Except to the extent required by applicable laws and regulations, we undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of this prospectus or to reflect the occurrence of unanticipated events. Any forward-looking statement made by us in this prospectus speaks only as of the date on which we make it.
Assuming the exercise of all the warrants for cash, we will receive gross proceeds of $60,462,439. We intend to invest in our securities, you should be awareuse the proceeds for acquisitions, working capital, operating expenses and other general corporate purposes. If at the time the warrants are exercised we have incurred indebtedness, we may also use the proceeds to repay indebtedness. There is no assurance that the occurrenceholders of the events described inwarrants will elect to exercise any or all of the “Risk Factors” sectionwarrants.The selling stockholders are selling shares of Common Stock covered by this prospectus for their own account. We will not receive any proceeds from the sale by the selling shareholders of their 31,500,000 shares of Common Stock. We will pay the cost of the preparation of this prospectus, which is estimated at $[154,000].
SELLING SHAREHOLDERS
The holders of the 31,500,000 shares of Common Stock that we refer to as the Exchange Shares arising from the acquisition of HK Ironman on December 30, 2011 (the “selling shareholders”) may from time-to-time offer and elsewheresell any or all of the 31,500,000 shares of Common Stock set forth below pursuant to this prospectus. When we refer to “selling shareholders” in this prospectus, couldwe mean the persons listed in the table below, and the pledgees, donees, permitted transferees, assignees, successors and others who later come to hold any of the selling shareholders’ interests in the 31,500,000 shares of Common Stock other than through a public sale.
The following table sets forth, as of the date of this prospectus, the name of the selling shareholders for whom we are registering shares for resale to the public, and the number of shares that each selling shareholder may offer pursuant to this prospectus. The shares offered by the selling shareholders were issued pursuant to exemptions from the registration requirements of the Securities Act. The selling shareholders represented to us that they were accredited investors and were acquiring our Common Stock for investment and had no present intention of distributing the shares. We have a material adverse effect on us.agreed to file this registration statement covering the shares received by the selling shareholders. We have been advised that each of such selling shareholders purchased our Common Stock in the ordinary course of business in exchange for their shares of Ironman, not for resale, and that none of such selling shareholders had, at the time of purchase, any agreements or understandings, directly or indirectly, with any person to distribute the shares.
Based on information provided to us by the selling shareholders and as of the date the same was provided to us, assuming that the selling shareholders sell all of the shares of Common Stock beneficially owned by them that have been registered by us and do not acquire any additional shares during the offering, the selling shareholders will not own any shares other than those appearing in the column entitled “Number of Shares That May Be Sold.” We cannot advise as to whether the selling shareholders will in fact sell any or all of such shares. In addition, the selling shareholders may sell, transfer or otherwise dispose of, at any time and from time to time, the shares of Common Stock in transactions exempt from the registration requirements of the Securities Act after the date on which it provided the information set forth on the table below.
| Selling Shareholder | Number of Shares That May Be Sold | Percentage of Shares Outstanding* | ||||||
| Hua Zhang | 1,000,000 | 1.91 | % | |||||
| Xiuyun Gao | 1,000,000 | 1.91 | % | |||||
| Xiaowen Zhang | 1,200,000 | 2.29 | % | |||||
| Chunli Xing | 2,000,000 | 3.81 | % | |||||
| Danny Chang | 2,000,000 | 3.81 | % | |||||
| Jianqun Dou | 2,000,000 | 3.81 | % | |||||
| Dayong Chang | 3,000,000 | 5.72 | % | |||||
| Jingyu Mu | 3,300,000 | 6.29 | % | |||||
| BenQuan Li | 3,300,000 | 6.29 | % | |||||
| Lili Zhang | 3,500,000 | 6.67 | % | |||||
| FengLi Chen | 3,600,000 | 6.86 | % | |||||
| Tianqi Xiao | 5,600,000 | 10.67 | % | |||||
| 31,500,000 | ||||||||
* Based on 52,460,433 shares outstanding.
DIVIDEND USE POLICYOF PROCEEDS
MARKET PRICE OF OUR COMMON STOCK, WARRANTS AND UNITS
The following table shows,sets forth, for the last eight fiscal quarters,calendar quarter indicated, the quarterly high and low closing prices per sharebid information of theour Common Stock, Warrantswarrants and Unitsunits as quotedreported on the NYSE Amex:Amex Exchange. The quotations listed below reflect inter dealer prices, without retail markup, markdown or commission and may not necessarily represent actual transactions.
| Common Stock | Warrants | Units | ||||||||||||||||||||||
| Quarter Ended | High | Low | High | Low | High | Low | ||||||||||||||||||
| December 31, 2008 | $ | 4.78 | $ | 0.70 | $ | 0.53 | $ | 0.01 | $ | 5.75 | $ | 0.01 | ||||||||||||
| March 31, 2009 | $ | 1.10 | $ | 0.33 | $ | 0.13 | $ | 0.02 | $ | 1.07 | $ | 0.40 | ||||||||||||
| June 30, 2009 | $ | 1.25 | $ | 1.12 | $ | 0.06 | $ | 0.06 | $ | 1.80 | $ | 1.02 | ||||||||||||
| September 30, 2009 | $ | 1.86 | $ | 0.88 | $ | 0.20 | $ | 0.05 | $ | 2.32 | $ | 1.00 | ||||||||||||
| December 31, 2009 | $ | 2.20 | $ | 1.33 | $ | 0.22 | $ | 0.04 | $ | 2.50 | $ | 1.34 | ||||||||||||
| March 31, 2010 | $ | 1.67 | $ | 1.17 | $ | 0.13 | $ | 0.03 | $ | 1.41 | $ | 1.20 | ||||||||||||
| June 30, 2010 | $ | 1.02 | $ | 0.88 | $ | 0.1199 | $ | 0.025 | $ | 2.45 | $ | 1.06 | ||||||||||||
| September 30, 2010 | $ | 1.22 | $ | 0.58 | $ | 0.05 | $ | 0.0101 | $ | 1.32 | $ | 0.85 | ||||||||||||
| Common Stock | Warrants | Units | ||||||||||||||||||||||
| Quarter Ended | High | Low | High | Low | High | Low | ||||||||||||||||||
March 31, 2010 | $ | 1.67 | $ | 1.17 | $ | 0.13 | $ | 0.03 | $ | 1.41 | $ | 1.20 | ||||||||||||
June 30, 2010 | $ | 2.05 | $ | 0.92 | $ | 0.12 | $ | 0.03 | $ | 2.45 | $ | 1.06 | ||||||||||||
September 30, 2010 | $ | 1.22 | $ | 0.58 | $ | 0.05 | $ | 0.01 | $ | 1.32 | $ | 0.85 | ||||||||||||
December 31, 2010 | $ | 1.15 | $ | 0.52 | $ | 0.04 | $ | 0.00 | $ | 1.23 | $ | 0.55 | ||||||||||||
March 31, 2011 | $ | 0.93 | $ | 0.30 | $ | 0.04 | $ | 0.00 | $ | 1.00 | $ | 0.62 | ||||||||||||
June 30, 2011 | $ | 0.69 | $ | 0.30 | $ | 0.04 | $ | 0.02 | $ | 0.63 | $ | 0.50 | ||||||||||||
September 30, 2011 | $ | 0.37 | $ | 0.17 | $ | 0.04 | $ | 0.01 | $ | 0.54 | $ | 0.17 | ||||||||||||
December 31, 2011 | $ | 0.40 | $ | 0.16 | $ | 0.02 | $ | 0.01 | $ | 0.40 | $ | 0.20 | ||||||||||||
A recent reported closing price for our common stock,Common Stock, warrants and units is set forth on the cover page of this prospectus. Continental Stock Transfer & Trust Company is the transfer agent and registrar for our common stock.Common Stock. As of June 30, 2010,December 8, 2011, we had 3,2713,890 holders of record of our common stock, 173Common Stock, 149 holders of record of our units and 2,0542,049 holders of record of our warrants.
The estimated offering expenses payableprice of the shares of Common Stock underlying the warrants offered hereby is determined by us, in additionreference to the placement agents’ fees, are approximately $156 thousand, which include legal, accounting and printing costs and various other fees associated with registering the common stock and warrants and listing the common stock. We have made payments totaling $10 thousand to the placement agents as an advance against such cash fee. In case of termination of the placement agents' engagement, all or a portion of such advance will be returned to us to the extent costs or expenses were not actually incurred by the placement agent. The placement agents shall otherwise pay their own legal and marketing expenses connected with the offering.
The exercise price of the IPO Warrants is $5.00 per share. The exercise price of the 2009 Warrants is $1.60 per share. The exercise price of the 2010 Warrants is $0.90 per share.
PLAN OF DISTRIBUTION
The placement agentsprices at which the shares of Common Stock covered by this prospectus may actually be disposed of may be deemedat fixed prices, at prevailing market prices at the time of sale, at prices related to be underwriters within the meaningprevailing market price, at varying prices determined at the time of Section 2(a)(11) of the Securities Act and any commission received by them and any profit realized on the resale of the securities sold by them while acting as principal might be deemed to be underwriting discountssale or commissions under the Securities Act. As underwriters, the placement agents would be required to comply with the requirements of the Securities Act and the Securities Exchange Act of 1934, as amended, or the Exchange Act, including, without limitation, Rule 10b-5 and Regulation M under the Exchange Act. These rules and regulations may limit the timing of purchases and sales of shares of common stock and warrants to purchase shares of common stock by the placement agents. Under these rules and regulations, the placement agents may not engage in any stabilization activity in connection with our securities; and may not bid for or purchase any of our securities or attempt to induce any person to purchase any of our securities, other than as permitted under the Exchange Act, until they have completed their participation in the distribution.at negotiated prices.
Pursuant to the terms of the warrants, offered hereunder, the up to 2,500,000 shares of common stock issuable upon exercise of the warrantsCommon Stock will be distributed to those warrant holders who surrender the certificates representing the warrants and provide payment of the exercise price through their brokers to our warrant agent, Continental Stock Transfer & Trust Company.
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial statements and notes thereto included in this prospectus. Except for the historical information contained herein, the discussion in this prospectus contains certain forward-looking statements that involve risk and uncertainties, such as statements of the Company’s plans, objectives, expectations and intentions as of the date of this filing. The cautionary statements made in this document should be read as being applicable to all related forward-looking statements wherever they appear in this document. The Company’s actual results could differ materially from those discussed here. Factors that could cause differences include those discussed in the “Risk Factors” section as well as discussed elsewhere herein.
IGC, a Maryland corporation, was organized on April 29, 2005 as a blank check company formed for the purpose of acquiring one or more businesses with operations primarily in India through a merger, capital stock exchange, asset acquisition or other similar business combination or acquisition. The operationsOn March 8, 2006, we completed an initial public offering. On February 19, 2007, we incorporated India Globalization Capital, Mauritius, Limited (IGC-M), a wholly owned subsidiary, under the laws of IGC are based in India. IGC owns 100%Mauritius. On March 7, 2008, we consummated the acquisition of a subsidiary in Mauritius called IGC-Mauritius (IGC-M). This company in turn operates through five subsidiaries in India. We own twenty two (22.3%) percent63% of the equity of Sricon Infrastructure Private Limited (“Sricon”)(Sricon) and seventy seven (77%) percent77% of the equity of Techni Bharathi Limited (“TBL”)(TBL). We also beneficiallyThe shares of the two Indian companies, Sricon and TBL, are held by IGC-M.
Most of the shares of Sricon and TBL acquired by IGC were purchased directly from the companies. IGC purchased a portion of the shares from the existing owners of the companies. The founders and management of Sricon own one hundred percent78% of Sricon (after giving effect to the deconsolidation described below) and the founders and management of TBL own 23% of TBL. Subsequent to the acquisitions, IGC India Mining and Trading, Private Limited, IGC Logistic, Private Limited, and IGC Materials, Private Limited. Operating as a fully integrated infrastructure company, IGC,borrowed, through its subsidiaries, has expertise in road building, mining and quarrying and engineering of high temperature plants. The Company’s medium term plans are to expand each of these core competencies while offering an integrated suite of service offerings to our customers.intermediary, approximately $17.9 million from Sricon.
The acquisitions were accounted for under the purchase method of accounting. Under this method of accounting, for accounting and financial statements provided afterpurposes, IGC-M, Limited was treated as the date of deconsolidation (October 1, 2009) are the consolidated statements of IGC, which include IGC-Macquiring entity and our other subsidiaries. Accordingly, the financial statements provided prior to the date of deconsolidation (October 1, 2009) are the consolidated statements of IGC, which include IGC-M, Sricon, TBL and our other subsidiaries. However, historical description of our business for periods and dates prior to March 7, 2008 (Acquisition Date) include information on Sricon and TBL. The consolidated financial statementsTBL as the acquired entities. However since no premium was paid for the acquisition of our business for periods priorthese entities and since these entities had no operations at the time of purchase, there was no goodwill recorded on acquisition relating to March 7, 2008 (acquisition date) do not include information on Sricon and TBL.these entities.
On February 19, 2009, IGC-M beneficially purchased 100% of IGC Mining and Trading, Limited based in Chennai India. IGC-IMT was formed on December 16, 2008 as a privately held start-up company engaged in the business of mining and trading. Its current activity is to operate a shipping hub and to export iron ore to China. On July 4, 2009, IGC-M beneficially purchased 100% of IGC Materials, Private Limited, and 100% of IGC Logistics, Private Limited. Both these companies are based in Nagpur, India. Indian IGC Materials, Private Limited (IGC-MPL) and IGC Logistics, Private Limited (IGC-LPL), is alsoIndia, which will be involved in the buildingtransport and delivery of rock quarries,ore, cement, aggregate and other material. Each of IGC-IMT, IGC-MPL and IGC-LPL were formed by third parties at the exportbehest of iron oreIGC-M to facilitate the creation of the subsidiaries, and the transportpurchase price paid for each of materials.
Effective October 1, 2009, we decreased our ownership in Sricon Infrastructure from 63% to 22.3%. On or about March 7, 2008 we consummated the Sricon Acquisition by purchasing 63% for about $29 million (based on an exchange rate of 40 INR for $1 USD). We subsequently borrowed around $17.9 million (based on 40 INR for $1 USD). Throughout 2008 and 2009, we expanded our business offerings beyond construction to include a rapidly growing materials business. We have repositioned the company as a materials and construction company, with construction activity in our TBL subsidiary and materials activity in our other subsidiaries. Rather than continue to owe $17.9 million, and more importantly, continue to fund two construction companies, we decreased our ownership in Sricon from 63% to 22.3% in exchange for a reduction in our loan. The impact of this is that our corresponding ownership is a non-controlling interest. The deconsolidation of Sricon from the balance sheet of IGC resulted in reducing the assets on our balance sheet and a one-time charge to our income statement. Currently we continue to monitor Sricon and we are engaged in settlement talks with them whereby we can exit the investment entirely by selling our holdings back to Sricon.
On December 30, 2011, IGC acquired a 95% equity interest in Linxi HeFei Economic and Trade Co. aka Linxi H&F Economic and Trade Co., a People’s Republic of China-based company (“PRC Ironman”) by acquiring 100% of the equity of H&F Ironman Limited, a Hong Kong company (“HK Ironman”). Unless it is necessary to specify which company in China we are referring to, PRC Ironman or HK Ironman, we will collectively refer to both as Ironman throughout this prospectus. The registered capital of PRC Ironman is RMB 2,000,000 equaling to $273,800, in which Mr. Zhang Hua took 80% and Mr. Xu Jianjun took the remaining 20%. Mr. Zhang Hua and Mr. Xu Jiajun transferred 75% and 20% respectively to HK Ironman on January 18, 2011. Thus, as of March 31, 2011, 95% of the Company’s registered capital was held by HK Ironman.
Unless the context requires otherwise, all references in this prospectus to the “Company”, “IGC”, “IGC Inc.”, “we”, “our”, and “us” refer to India Globalization Capital, Inc., together with its wholly owned subsidiaries IGC-M, and its direct and indirect subsidiaries (TBL, IGC-IMT, IGC-MPL and IGC-LPL) and HK Ironman, Ltd. and its direct subsidiary PRC Ironman, and Sricon, in which we hold a non-controlling interest. India Globalization Capital, Inc. (the Registrant, the Company or we) and its subsidiaries are significantly engaged in one segment, infrastructure construction.
Overview
In response to the increased demand for infrastructure-related construction in India and China, IGC’s focus is to supply construction materials in India and to China as well as execute infrastructure projects. We do this entirely through our subsidiaries. Based on the past several years of purchasing and projected need in the near future for infrastructure projects, IGC’s management believes that strong demand for iron ore in India and in China will continue over the medium and long term, as both countries become leading global economies. IGC’s management believes that though China’s appetite for iron ore will continue to be strong, other countries, including countries that have iron ore to export, especially India will eventually restrict the export of high-grade iron ore, as it will be required for internal use. However, IGC believes that this restriction will not likely be made on low-grade iron ore, as restricting both would mean a substantial curtailment of much needed foreign exchange and export revenue. We are pursuing joint venture partnerships with mine owners and have applied for licenses to mine iron ore in India. We have customers in India and China and are exploring other regional opportunities. We also actively continue to pursue joint venture partnerships with mine owners for acquisition of mines and mining rights and have started materializing our efforts by acquiring PRC Ironman thru HK Ironman in China. IGC’s acquisition of Ironman would allow IGC to adopt an aggressive strategy of shipping low-grade ore to China and processing it there into high-grade ore. IGC’s management believes the Acquisition will add substantial synergies to IGC’s iron ore business, as well as develop a strong base in China.
We are a materials and construction company offering a suite of services including: 1) civil constructionthe export of roadsiron ore to China and highways,supply of ore to the Indian markets, 2) the construction and maintenance of high temperature cement and steel plants, 3) operations and supply of rock aggregate, and 4)3) the exportcivil construction of iron ore to China.roads and highways. Our present and past clients include various Indian government organizations and steel mills in China. Including our subsidiaries, we have approximately 200251 employees and contractors. We are focused on winning construction contracts, building out rock aggregate quarries, and setting up relations and export hubs for the export of iron ore to China. China and winning construction contracts. Our business model is as follows:
| ● | We beneficiate (i.e., subject to a process or treatment, with the aim of readying the iron ore for market in a higher grade) and supply iron ore to China and trade in order in the Indian markets. | |
| ● | We supply rock aggregate to the construction industry in India and trade in other construction materials in the Indian markets, and | |
| ● | We bid and execute construction and engineering contracts. |
Ironman’s plant extracts iron ore from the sand by using two processes. The first process is a dry separation process. Trucks of sand are poured into a separator that employs 19 magnets. The magnets separate the sand from the iron ore. In one day, Ironman may process as much as 30,000 tons of sand through the dry separators. The second process is a wet process, which involves mixing the processed sand and ore with water and then using magnets to separate the ore from the slurry. About 70 trucks of sand are ultimately beneficiated into one truck of high-grade ore. The entire process is continuous and runs during daylight. The sand that is separated from the ore is redistributed to the hills. The water is filtered and reused up to three times before pumping it to grass, plants and shrubs that are planted in the hills to create a sustainable environment. Ironman maintains an English language web site at www.hfironman.net.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make significant estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. These items are regularly monitored and analyzed by management for changes in facts and circumstances, and material changes in these estimates could occur in the future. These estimates include, among others, our revenue recognition policies related to the proportional performance and percentage of completion methodologies of revenue recognitio nrecognition of contracts and assessing our goodwill for impairment annually. Changes in estimates are recorded in the period in which they become known. We base our estimates on historical experience and various other assumptions that we believe are reasonable under the circumstances. Actual results will differ and may differ materially from the estimates if past experience or other assumptions do not turn out to be substantially accurate.
Our significant accounting policies are presented within Note 2 to our consolidated financial statements and the following summaries should be read in conjunction with the unaudited consolidated financial statements and the related notes included in this prospectus. 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’s most subjective or complex judgments and estimates. Our management believes the policies that fall within this category are the policies on revenue recognition, accounting for stock-based compensation, goodwill and income taxes.
Revenue Recognition
The majority of the revenue recognized for the yearthree months ended MarchDecember 31, 20102011 and the three month period ended June 30, 2010 was derived from the Company’s subsidiaries, and as follows:when all of the following criteria have been satisfied:
Revenue is recognized when persuasive evidence of an arrangement exists, the sales price is fixed or determinable and collectability is reasonably assured. In Governmentgovernment contracting, we recognizethe Company recognizes revenue when a Governmentgovernment consultant verifies and certifies an invoice for payment.
Revenue from sale of goods is recognized when substantial risks and rewards of ownership are transferred to the buyer under the terms of the contract.
For the sale of goods, the timing of the transfer of substantial risks and rewards of ownership is based on the contract terms negotiated with the buyer, e.g., FOB or CIF. IGC considers the guidance provided under Staff Accounting Bulletin (“SAB”) 104 in determining revenue from sales of goods. Considerations have been given to all four conditions for revenue recognition under that guidance. The four conditions are:
| ● | Contract – Persuasive evidence of our arrangement with the customers; | |
| ● | Delivery – Based on the terms of the contracts, the Company assesses whether the underlying goods have been delivered and therefore the risks and rewards of ownership are completely transferred; | |
| ● | Fixed or determinable price – The Company enters into contracts where the price for the goods being sold is fixed and not contingent upon other factors. | |
● | Collection is deemed probable – At the time of recognition of revenue, the Company makes an assessment of its ability to collect the receivable arising on the sale of the goods and determines that collection is probable. |
Revenue for any sale is recognized only if all of the four conditions set forth above are met. These criteria are assessed by the Company at the time of each sale. In the absence of meeting any of the criteria set out above, the Company defers revenue recognition until all of the four conditions are met.
Revenue from construction/project related activity and contracts for supply/commissioning of complex plant and equipment is recognized as follows:
| a) | Cost plus contracts: Contract revenue is determined by adding the aggregate cost plus proportionate margin as agreed with the customer and expected to be realized. |
| b) | Fixed price contracts: Contract revenue is recognized using the percentage completion |
| · | In many of the fixed price contracts entered into by the Company, significant expenses are incurred in the mobilization stage in the early stages of the contract. The expenses include those that are incurred in the transportation of machinery, erection of heavy machinery, clearing of the campsite, workshop ground cost, overheads, etc. All such costs are booked to deferred expenses and written off over the period in proportion to revenues earned. |
| · | Where the modifications of the original contract are such that they effectively add to the existing scope of the contract, the same are treated as a change orders. On the other hand, where the modifications are such that they change or add an altogether new scope, these are accounted for as a separate new contract. The Company adjusts contract revenue and costs in connection with change orders only when they are approved by both, the customer and the Company with respect to both the scope and invoicing and payment terms. |
| · | In the event of claims in our percentage of completion contracts, the additional contract revenue relating to claims is only accounted after the proper award of the claim by the competent authority. The contract claims are considered in the percentage of completion only after the proper award of the claim by the competent authority. |
Full provision is made for any loss in the period in which it is foreseen.
Revenue from service related activities and miscellaneous other contracts are recognized when the service is rendered using the proportionate completion method or completed service contract method.
Employee Stock Options or Share Based Payments
| Expected life of options | Granted in 2009 | Granted in June 2011 quarter | ||||||
| 5 years | 5 years | |||||||
Vested options | 100 | % | 100 | % | ||||
Risk free interest rate | 1.98 | % | 4.10 | % | ||||
Expected volatility | 35.35 | % | 83.37 | % | ||||
Expected dividend yield | Nil | Nil | ||||||
The determinationvolatility estimate was derived using historical data for the IGC stock.
Goodwill
Goodwill represents the excess cost of an acquisition over the fair value of share-based payment awards onour share of net identifiable assets of the acquired subsidiary at the date of grant using an option-pricing modelacquisition. Goodwill on acquisition of subsidiaries is affected by our stock price as well as assumptions regarding a number of complex and subjective variables. These variables include our expected stock price volatility over the term of the awards, actual and projected employee stock option exercise behaviors, risk-free interest rate, and expected dividends.disclosed separately. Goodwill is stated at cost less impairment losses incurred, if any.
The Company adopted the provisions of Accounting Standards Codification (“ASC”) 350, “Intangibles – Goodwill and Others” (previously referred to as SFAS No. 142, "Goodwill and Other Intangible Assets"), which sets forth the accounting for goodwill and intangible assets subsequent to their acquisition. ASC 350 requires that goodwill and indefinite-lived intangible assets be allocated to the reporting unit level, which the Company defines as each subsidiary. ASC 350 also prohibits the amortization of goodwill and indefinite-lived intangible assets upon adoption, but requires that they be tested for impairment at least annually, or more frequently as warranted, at the reporting unit level.
As per ASC 350-20-35-4 through 35-19, the impairment testing of goodwill is a two-step process. The first step of the goodwill impairment test, used to identify potential impairment, compares the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired, thus the second step of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test shall be performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test, used to measure the amount of impairment loss, compares the implied fair value of reporting unit goodwill with the carrying amount of that goodwill. If the carrying amount of reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss shall be recognized in an amount equal to that excess. The loss recognized cannot exceed the carrying amount of goodwill. After a goodwill impairment loss is recognized, the adjusted carrying amount of goodwill shall be its new accounting basis. Subsequent reversal of a previously recognized goodwill impairment loss is prohibited once the measurement of that loss is completed.
In ASC 350.20.20, a reporting unit is defined as an operating segment or one level below the operating segment. A component of an operating segment is a reporting unit if the component constitutes a business for which discrete financial information is available and segment management regularly reviews the operating results of that component. The Company has determined that IGC operates in a single operating segment. While the CEO reviews the consolidated financial information for the purposes of decisions relating to resource allocation, the CFO, on a need basis, looks at the financial statements of the individual legal entities in India for the limited purpose of consolidation. Given the existence of discrete financial statements at an individual entity level in India, the Company believes that each of these entities constitute a separate reporting unit under a single operating segment.
Therefore, the first step in the impairment testing for goodwill is the identification of reporting units and the allocation of goodwill to these reporting units. Accordingly, TBL, which is one of the legal entities, is also considered a separate reporting unit and therefore the Company believes that the assessment of goodwill impairment at the subsidiary level, which is also a reporting unit, is appropriate.
The analysis of fair value is based on the estimate of the recoverable value of the underlying assets. For long-lived assets such as land, the Company obtains appraisals from independent professional appraisers to determine the recoverable value. For other assets such as receivables, the recoverable value is determined based on an assessment of the collectability and any potential losses due to default by the counter parties. Unlike goodwill, long-lived assets are assessed for impairment only where there are any specific indicators for impairment.
Income Taxes
The Company accounts for income taxes under the asset and liability method, in accordance with ASC 740, Income Taxes, which requires an entity to recognize deferred tax liabilities and assets. Deferred tax assets and liabilities are recognized for the future tax consequence attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using the enacted tax rate expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that included the enactment date. A valuation allowance is established and recorded when management determines that some or all of the deferred tax assets are not likely to be realized and therefore, it is necessary to reduce deferred tax assets to the amount expected to be realized.
In evaluating a tax position for recognition, management evaluates whether it is more-likely-than-not that a position will be sustained upon examination, including resolution of related appeals or litigation processes, based on technical merits of the position. If the tax position meets the more-likely-than-not recognition threshold, the tax position is measured and recognized in the Company’s financial statements as the largest amount of tax benefit that, in management’s judgment, is greater than 50% likely of being realized upon settlement. As of December 31, 2011 and 2010, there was no significant liability for income tax associated with unrecognized tax benefits.
The issuance by IGC of its Common Stock to HK Ironman stockholders in exchange for HK Ironman stock, as contemplated by the stock purchase agreement (“Stock Purchase Agreement”) between the Company, HK Ironman, PRC Ironman and their stockholders, generally will not be a taxable transaction to U.S. holders for U.S. federal income tax purposes. It is expected that IGC and its stockholders will not recognize any gain or loss for U.S. federal income tax purposes.
Three Months Ended December 31, 2011 Compared to Three Months Ended December 31, 2010
Revenue - Total revenue was $987 thousand for the three months ended December 31, 2011, as compared to $484 thousand for the three months ended December 31, 2010. The primary reason for the increase in revenues of $503 thousand is the increased focus in the applicationdomestic trading of FASB ASC 718 during future periods, the compensation expense that we record under FASB ASC 718 may differ significantly from what we have recordedsteel in the current period. Therefore,quarter. The corresponding period in the previous year was impacted by the ban imposed on the export of iron ore from the state of Karnataka, India. While the regulatory restrictions continue, we believe ithave, in the current quarter, focused our attention to other avenues of revenue generation.
Cost of Revenue (excluding depreciation and amortization) – Cost of revenue is importantexclusive of depreciation and amortization. Cost of revenue consists primarily of compensation and related fringe benefits for investorsproject-related personnel, department management and all other dedicated project related costs and indirect costs. It also includes the cost associated with buying raw materials for the two primary revenue generating activities of the Company during the current quarter – trading of steel and rock aggregates. Cost of revenue for the three months ended December 31, 2011 was about $1,024 thousand as compared to $457 thousand for the three months ended December 31, 2010. The increase in cost of revenue as a percentage of revenue from 94.48% to 103.85% is primarily due to the focus on the trading of steel at slightly lower margins and the existence of fixed costs, which continue to be awareincurred irrespective of the high degreevolumes.
Selling, General and Administrative - Selling, general and administrative expenses were $969 thousand for the three months ended December 31, 2011 compared to $1,055 thousand for the three months ended December 31, 2010. In this quarter, we included $400 thousand of subjectivity involved when using option-pricing modelsone-time charges related to estimate share-based compensation under FASB ASC 718. Option-pricing models were developed for usethe acquisition of Ironman. The selling, general and administrative expenses are generally fixed in estimating the value of traded options that have no vesting or hedging restrictions, are fully transferablenature and do not cause dilution. Because our share-based payments have characteristics significantly different from those of freely traded options,include travel, rent, consultancy charges, insurance and because changeslegal and professional fees.
Depreciation – The depreciation expense was $42 thousand in the subjective input assumptions can materially affect our estimates of fair values,three months ended December 31, 2011, as compared to $462 thousand in our opinion, existing valuation models, including the Black-Scholes Option Pricing model, may not provide reliable measuresthree months ended December 31, 2010.
Interest and other financial expense – The interest expense and other financial expense for the three months ended December 31, 2011 were $174 thousand compared to $308 thousand for the three months ended December 31, 2010. The interest expense for the two periods primarily relates to the interest recorded on the debt that has been incurred by the parent company. The decrease in interest payments is due to a decrease in the outstanding debt. Most of the fair values of our share-based compensation. Consequently,interest expense continues to be non-cash. If the Company raises additional equity capital and uses the proceeds to repay the existing long term debt, we expect a significant reduction in this interest expense. However, there is currently no guarantee that the Company would be in a risk that our estimatesposition to do this.
Other income – Other income primarily consists of foreign exchange gain arising from the restatement of the fair valuesinter-company receivables denominated in Indian rupees in relation to payables to the U.S. entity. The significant loss of our share-based compensation awards$716 thousand incurred in the current quarter is primarily attributable to the unrealized exchange losses arising from the restatement of the rupee denominated receivables from the subsidiary companies in the books of the parent company (IGC), whose functional currency is the USD.
Share in profit of joint venture – For the three months ended December 31, 2011, the Company has recorded a loss amounting to $34 thousand resulting from its share in the joint venture that is reflected as another investment in the balance sheet. The joint venture primarily operates in the rock aggregate crushing and trading business. We are also entitled to an interest on the grant dates may bear little resemblancecapital that is invested in this joint venture. During the three months ended December 31, 2011, we have earned interest amounting to $25 thousand, which has been recorded separately from the intrinsic values realized uponshare in profit as interest income. The joint venture operates one crusher and for the exercise, expiration, cancellation,three months ended December 31, 2011, it has generated revenue approximating to $879 thousand, which is not reflected in the consolidated revenue.
Income tax benefit/(expense) – For the three months ended December 31, 2011, the Company has not recorded any income tax benefit or forfeitureexpense. The Company continues to incur losses on its operations, which have resulted in taxable losses. Therefore, in the absence of those share-based paymentsany taxable gain, the Company has not recorded an income tax expense. Further, given that the Company has significant carry forward losses, as a matter of prudence, the Company has created a full valuation allowance on all the deductible differences including carry forward losses. However, the Company continues to believe that these would be recoverable in the future. Certain share-based payments, such as employee stock options, may expire worthless or otherwise result in zero intrinsic value as comparedFor the three months ended December 31, 2010, the Company recorded a net income tax benefit of $20 thousand, which primarily related to the fair values originally estimated on the grant date and expensedtax assets created in our financial statements. Alternatively, value may be realized from these instruments that are significantly in excessrespect of the fair values originally estimated on the grant date and expensed in our financial statements. There currently is neither a market-based mechanism nor other practical application to verify the reliability and accuracy of the estimates stemming from these valuation models, nor a way to compare and adjust the estimates to actual values. Although the fair value of employee share-based awards is determined in accordance with FASB ASC 718 using a qualified option-pricing model, that value may not be indicative of the fair value observed in a willing buyer/willing seller market transaction. Estimates of share-based compensation expenses are significant to our financial statements, but these expenses are based on the aforementioned option valuation model and will never result in the payment of cash by us.
Revenue - – Total revenue was $1.12 million$2,959 thousand for the threenine months ended June 30, 2010,December 31, 2011, as compared to $2.72 million$3,294 thousand for the threenine months ended June 30, 2009.December 31, 2010. The lower revenue reported in June 2010 does not include Sricon revenue,2011 is due to curtailed operations in the deconsolidationiron ore business because of Sricon effective October 1, 2009. The revenue reported in June 2009 however, includes revenue from Sricon. Eliminatingan export ban imposed by the Sricon revenue in order to make these comparable, the Company remained flat on the top line for the three months ended June 30, 2010 as compared to June 30, 2009.state of Karnataka, India.
Cost of Revenue (excluding depreciation and amortization)- – Cost of revenue is exclusive of depreciation and amortization. Cost of revenue consists primarily of compensation and related fringe benefits for project-related personnel, department management and all other dedicated project related costs and indirect costs. It also includes the cost associated with buying raw materials. Cost of revenue for the threenine months ended June 30, 2010December 31, 2011 was $0.98 million$2,903 thousand compared to $1.79 million$3,054 thousand for the threenine months ended June 30, 2009. As a percentage of revenue, the cost of revenue increased, primarily because the Company has contracts for rock aggregate and iron ore that it is filling before its quarries become fully operational. This practice will continue till our quarries and ore mines are fully functional. At that point, we will fi ll orders for infrastructure materials from a much-improved cost basis. In the mean time our strategy is to gain market share, establish our brand, and expand the customer base.December 31, 2010.
Selling, General and Administrative- – Selling, general and administrative expenses were $0.58 million$2,354 thousand for the threenine months ended June 30, 2010December 31, 2011 compared to $0.73 million$2,399 thousand for the threenine months ended June 30, 2009. December 31, 2010. In the quarter ended December 31, 2011, we included $400 thousand of one-time charges related to the acquisition of Ironman. The decrease in selling, general and administrative expenses during the current period is primarily due to the reduction of many variable expenses, such as travel, in line with the reduction in the revenue. The decrease is however offset by an increase due to the issuance of stock options to certain managerial employees, amounting to $235 thousand, and to an increase in certain legal and accounting expenses arising from the Acquisition of Ironman.
Income tax benefit/(expense) – TheThere was no provision for income taxes resulted in the nine months period ended December 31, 2011 compared to a tax benefit of $0.42 million in the three months period ended June 30, 2010 compared to tax expense of $0.11 million$475 thousand for the same period in 2009. The decrease in income expense was primarily due to timing differences and tax attributes related to deferred interest expense, NOL’s and foreign tax credits. As stated in our recently filed 10-K, a valuation allowance is not taken because of $200 million in new contracts over 5 years commencing in fiscal year 2011. We believe that newly acquired contracts will generate sufficient taxable income to utilize our tax assets recorded as of June 30, 2010. Refer to our recently filed 10-K for more details on util ization of tax assets.
Consolidated Net Income (loss) – Consolidated Netnet loss for the threenine months ended June 30, 2010December 31, 2011 was $0.59 million$3,583 thousand compared to a consolidated net loss of $0.54 million$3,212 thousand for the threenine months ended June 30, 2009. December 31, 2010. The consolidated net loss of $3,583 thousand for the nine months ended December 31, 2011 includes a total loss of $1,453 thousand of which $400 thousand was related to the Acquisition of Ironman, $818 thousand relates to foreign exchange translation losses and $235 thousand relates employee stock options.
We do not have any investments in a fixed deposit used to secure a bank guarantee. As of June 30, 2010, the Company had approximately $3.44 million as working capital.special purpose entities or undisclosed borrowings or debt.
Liquidity and Capital Resources
This liquidity and capital resources discussion compares the consolidated company resultsfinancial condition for the three month periods ended June 30,nine-month period between March 31, 2011 and December 31, 2011 and the nine-month period between March 31, 2010 and 2009.December 2010.
Cash used for operating activities from continuing operations is our net loss adjusted for certain non-cash items and changes in operating assets and liabilities. During the three months ended June 30,period from March 31, 2011 to December 31, 2011, cash used for operating activities was $1,198 thousand. During the period between March 31, 2010 to December 31, 2010, cash used for operating activities was $0.74 million compared to cash used for operating activities of $0.47 million during the three months ended June 30, 2009.$2,207 thousand. The uses of cash in the threenine months ended June 30, 2010December 31, 2011 relate primarily to the payment of general operating expenses of our subsidiary companies. The large changelosses from our operations have primarily contributed to this utilization of cash for our operations. The significant contributor to the reduced cash out flow during the period between March 31, 2011 and December 31, 2011 is due to a decrease in business volumethe realization of some of the accounts receivables and significant expenditure incurred in relation to a new quarry which is not yet fully functional.other long-term deposits.
During the threenine months ended June 30, 2010,December 31, 2011, investing activities from continuing operations provided $0.07 million$4,230 thousand of cash as compared to $0.24 million used$8 thousand provided during the comparablesame period in 2009.2010. The cash from investing activity comes primarily from the cash inflow arising from the Acquisition. The entire settlement of purchase consideration until date has been done through the issuance of IGC’s Common Stock. The inflow of cash was primarily due to release of restricted cash during the threenine months partially offset by investments in joint ventures during the same period.mentioned above, amounting to $1,554 thousand.
Financing cash flows from continuing operations generally consist primarily of transactions related to our debt and equity structure. DuringThe cash inflow from financing activities for the threeMarch 31, 2011 to December 31, 2011 period amounted to $8 thousand. In the nine months ended June 30,December 31, 2010, financing activities provided approximately $0.45$2,823 thousand.
We have financed our operations primarily through sales of IGC’s shares of Common Stock. We raised about $3.9 million comparedcapital through sale of our Common Stock during the year ended March 31, 2011. We raised such capital primarily for funding our working capital requirements and day-to-day operations. Our operations have not generated sufficient cash during the nine months ended December 31, 2011 due to a significant loss in revenues from our iron ore and mining business. Such loss in revenues happened mainly because of the ban on export of low-grade iron ore to China and the closure of ports and mines in Karnataka, India. Income loss on this count is the main reason for the net cash used in operating activities. While a significant part of approximately $0.33 million during the comparablecosts associated with revenue also decreased in line with revenue, we had some fixed costs, which did not reduce proportionately leading to a decline in our operating profits. During the March 31, 2011 to December 31, 2011 period, net cash used for investing activities is not material. The Acquisition in 2009. Thethe third quarter is expected to generate positive cash generatedinflow from financing activity duringoperations in the current period is primarily on account of issuance of common stock.subsequent periods.
Our future liquidity needs will depend on, among other factors, stability of construction costs, interest rates, and a continued increase in infrastructure contracts in India.India and China. We believe that our current cash balances, and anticipated operating cash flow and potential cash from claims are adequate to sustain the Company, but not to fuel rapid growth commensurate with the opportunities before us.
In addition to the existing cash balances, we have about $182 thousand in restricted cash and about $5.97 million in receivables and claims. Although some of these claims were awarded in arbitration and the amounts are contractually due to us, we have not yet received payment from the clients. The amounts have been due for over one year. In the event we were to classify these receivables as long term, or we fail to collect the amounts, or we fail to win the release of restricted cash in the next few months, we will have a working capital deficit and may be required to raise additional capital through debt or equity financing. There can be no assurance that we would be able to do so. We have and continue to take measures to constrain growth until we have visibility into increased liquidity. As of now, our bank lines in India have been reduced to amounts borrowed and outstanding. We continue to explore funding sources including negotiated settlement of accounts receivable, settlement of claims, bank lines, equity, convertible debentures and debt. However, there can be no assurance that we will be sufficientable to fundaccess additional credit facilities. Our strategy is to develop businesses that have a very short receivable cycle like the export of ore to China and the sale of rock aggregate and to aggressively collect our normal operating requirements for at least the next 12 months. However, we may seek to secure additional capital to fund further growth of our business, or the repayment of debt, in the near term.outstanding receivables and claims.
Purchasers of our Common Stock in our At-The-Market offering after July 14, 2010 and the purchasers of our Common Stock and warrants in our December 2010 offering had rescission rights with respect to such purchases but such rights have expired.
Fiscal year ended March 31, 20102011 compared to fiscal year ended March 31, 20092010
The following table presents an overview of our results of operations for the fiscal years ended March 31, 20102011 and 2009:2010:
| Year ended March 31, | ||||||||||||||||
| 2010 | 2009 | Change | Percentage | |||||||||||||
| Revenues | 17,897,826 | 35,338,725 | (17,440,899 | ) | -49.35 | % | ||||||||||
| Cost of revenues | (15,671,840 | ) | (27,179,494 | ) | 11,507,654 | -42.34 | % | |||||||||
| Gross profit | 2,225,986 | 8,159,231 | (5,933,245 | ) | -72.72 | % | ||||||||||
| Selling, General and Administrative expenses | (5,614,673 | ) | (4,977,815 | ) | (636,858 | ) | 12.79 | % | ||||||||
| Depreciation | (603,153 | ) | (873,022 | ) | 269,869 | -30.91 | % | |||||||||
| Operating income (loss) | (3,991,840 | ) | 2,308,394 | (6,300,234 | ) | -272.93 | % | |||||||||
| Interest expense | (1,221,466 | ) | (1,753,951 | ) | 532,485 | -30.36 | % | |||||||||
| Amortization of debt discount | (356,436 | ) | - | (356,436 | ) | - | ||||||||||
| Interest Income | 210,097 | 1,176,017 | (965,920 | ) | -82.13 | % | ||||||||||
| Other Income | 281,782 | - | 281,782 | - | ||||||||||||
| Loss on dilution of stake in Sricon | (2,856,088 | ) | - | (2,856,088 | ) | - | ||||||||||
| Equity in earnings of affiliates | 16,446 | - | 16,446 | - | ||||||||||||
| Income before income taxes and minority interest | (7,917,505 | ) | 1,730,460 | (9,647,965 | ) | -557.54 | % | |||||||||
| Income taxes | 3,109,704 | (1,535,087 | ) | 4,644,791 | -302.58 | % | ||||||||||
| Income after income taxes | (4,807,801 | ) | 195,373 | (5,003,174 | ) | |||||||||||
| Year ended March 31, | ||||||||||||||||
2011 (as restated) | 2010 (as restated) | Change | Percentage | |||||||||||||
Revenues | $ | 4,073,919 | $ | 17,897,826 | $ | (13,823,907 | ) | -77.24 | % | |||||||
Cost of revenues | (3,914,655 | ) | (15,671,840 | ) | 11,757,185 | -75.02 | % | |||||||||
Selling, General and Administrative expenses | (7,283,089 | ) | (5,614,673 | ) | (1,668,416 | ) | 29.72 | % | ||||||||
Depreciation | (785,066 | ) | (603,153 | ) | (181,913 | ) | 30.16 | % | ||||||||
Impairment loss – goodwill | (5,792,849 | ) | - | (5,792,849 | ) | 100.00 | % | |||||||||
Impairment loss – investment | (2,184,599 | ) | - | (2,184,599 | ) | 100.00 | % | |||||||||
Operating income (loss) | (15,886,339 | ) | (3,991,840 | ) | (11,894,499 | ) | 297.97 | % | ||||||||
Interest and other financial expenses | (1,587,237 | ) | (1,577,902 | ) | (9,335 | ) | 0.59 | % | ||||||||
Interest Income | 262,826 | 210,097 | 52,729 | 25.10 | % | |||||||||||
Other Income | 301,182 | 281,782 | 19,400 | 6.88 | % | |||||||||||
Loss on dilution of stake in Sricon | - | (2,856,088 | ) | 2,856,088 | -100.00 | % | ||||||||||
Equity in earnings of affiliates | - | 16,446 | (16,446 | ) | -100.00 | % | ||||||||||
Income before income taxes and minority interest | (16,909,568 | ) | (7,917,505 | ) | (8,992,063 | ) | 113.57 | % | ||||||||
Income taxes benefit/(expense) | (4,100,225 | ) | 3,109,704 | 7,209,929 | 231.85 | % | ||||||||||
Income after income taxes | $ | (21,009,793 | ) | $ | (4,807,801 | ) | $ | (16,201,992 | ) | 336.99 | % | |||||
Revenue - Total revenue is $4.07 million for the year ended March 31, 2011, as compared to $17.90 million for the year ended March 31, 2010. The primary reasons for the decrease in revenues of $13.83 million include:
| · | One of the former subsidiaries of the Company -Sricon- was deconsolidated due to a stake sale effective October 1, 2009. The revenue attributable to Sricon for the year ended March 31, 2010 was $3.1 million (which constituted revenues for the six months ended September 30, 2009 prior to the deconsolidation) which was not recorded in the current year. |
| · | Decrease in revenue from the infrastructure business amounting to $3.92 million primarily on account of claims awarded in the previous year, which was recorded as revenue. There were no such claims awarded during the current year. |
| · | Decrease in revenue from the iron ore and mining businesses amounting to $7.84 million primarily on account of the ban on export of low grade iron ore to China and closure of ports and mines in Karnataka as explained earlier in the risk factors. |
This decrease is partially offset by an increase amounting to $1.3 million on account of the trading business in rock aggregate and other construction materials.
Cost of Revenue - Cost of revenue is exclusive of depreciation and amortization. It consists primarily of compensation and related fringe benefits for project-related personnel, department management and all other dedicated project related costs and indirect costs. Cost of revenue for the year ended March 31, 20102011 decreased by $11.51$11.8 million, compared to the year ended March 31, 2009.2010. This decrease is substantially in line with the decrease in revenue as explained above.
The difference between our revenues and cost of revenues decreased by $5.93$2.07 million or 72.72%,93% to $0.16 million for the year ended March 31, 2011 as compared to $2.23 million for the year ended March 31, 2010 as compared to $8.16 million for the year ended March 31, 2009.2010. The principal reason for the decrease in gross profitthe same during the year ended March 31, 20102011 as compared to the previous year was the reduction in revenue during the year as explained above. As a percentage of revenue, gross profit marginthe difference between revenue and cost of revenue was 12.44%3.91% and 23.08%12.44% for the years ended March 31, 2011 and 2010, and 2009, respectively. The principal reason for our decrease in gross profit margin during the year ended March 31, 2010, as compared to the previous year, was the reduction in revenue during the year. Even though a significant part of the costs associated wi thwith revenue also decreased in line with revenue, we had some fixed costs, which did not reduce proportionately leading to a decline in our gross profit margin.
Selling, General and Administrative expenses – These consist primarily of employee-related expenses, professional fees, other corporate expenses, allocated overhead and allocated overhead.provisions and write-offs relating to doubtful and bad debts and advances. Selling, general and administrative expenses were $7.28 million for the year ended March 31, 2011 compared $5.61 million for the year ended March 31, 20102010. The expenses as a proportion of revenue during the current year were 178.77% as compared to $4.98 million31.37% in the previous year. The substantial increase in this proportion was primarily due to:
·Provision relating to the receivable from one of the investee companies – Sricon. One of the subsidiaries of the Company -TBL- had advanced this loan to Sricon to fund some of the operations. However due to certain management disputes, the Company the receivable has not been recovered even though the same is due. The Company intends to pursue the collection of this receivable through appropriate legal recourse in India. However, due to the uncertainty in the timing and the quantum of collection, the Company in the current year has provided for this receivable amounting to $3.14 million.
· Write-off of certain bad debts that were considered to be irrecoverable amounting to $1.52 million.
Out of the total write off for the year ended March 31, 2009.2011 amounting to $1.52 million, $1.26 million relates to the sale of ore. The primary reason for an increasereceivable arose when we shipped ore to a Chinese company. With almost no warning the Chinese government banned the import of ore below 60% Fe content, except by a few licensed ore dealers. Our dealer was not one of them. Given the sudden unanticipated change in the rules, we were forced to sell the ore to another dealer. The new dealer took possession of the iron ore and the receivable was supposed to be collected within 90 days. After several months of discussion with the dealer failed to resolve the issue, we decided to write off the amount. The remaining write-off amounting to $0.26 million relates to sales in the normal course of business arising from the sale of rock aggregate and iron ore.
Excluding the impact of the above write-offs, the selling, general and administrative expenses as a proportion of revenue was 64.37% in the write-off of certain acquisition related consulting expenses amountingcurrent year as compared to $1.85 million that was deferred31.37% in the previous year. The early extinguishment of debt also resulted in a one-time charge of about $0.59 million whichincrease is included indue to the selling, general and administrative expense. This increase was partially offset by a decrease resulting f romfixed overheads incurred for the de-consolidation of Sricon with effect from October 1, 2009 inoperations that are not proportionate to the current year.revenue generated.
Depreciation – The decrease in depreciation during the year relates primarily to the de-consolidation of Sricon. Depreciation expense relating to Sricon for the period after September 30, 2009 is not part of the depreciation expense was $0.7 million in the consolidated statement of operations.2011 as compared to $0.6 million in 2010.
Income from operations - IncomeLoss from operations decreasedincreased from $2.31 million for the year ended March 31, 2009 to a loss of $3.99 million for the year ended March 31, 2010 to a decreaseloss of $6.38 million. This decrease in income from operations resulted primarily from lower gross profit and increased one-time expenses such as the acquisition consulting expense and the loss on extinguishment of debt.
Interest and other financial expense for the current year also includes $0.88 million relating to the interest accrued on new debt taken during the year and the interest on the debt extinguished and renewed on substantially new terms during the year.– The interest expense for the current year primarily includes $0.36ended March 31, 2011 was $1.59 million as compared to $1.58 million for the year ended March 31, 2010. For the previous year ended March 31, 2010, interest expense relating to Sricon amounting to $0.29 million was recorded in the amortizationbooks of discount giventhe Company. As explained earlier, Sricon was deconsolidated effective October 1, 2009 and therefore no such interest expense was recorded in the books during the current year. However, there is a corresponding increase of $0.28 million in the interest expense primarily due to the modification of the notes payable, which were due in the current year. The Company has extended the term of repayment for these notes and the consideration for the issuancemodification was settled through the issue of debt. Other interest expense is primarily from interest on short term borrowings made by the Indian subsidiaries to finance working capital requirements. The annual effective rate of interest is 34%, much of which is non-cash. If the Company raises equity and pays of some of the short term loans, it can potentially save around $400,000 per quarter, or $1.6 million a year, which would increase our net income substantially.shares.
Interest income – The interest income for the year ended March 31, 20102011 was $0.21$0.26 million as compared to $1.18$0.21 million for the year ended March 31, 2010.
Impairment loss – investment – During the current year, the Company performed an impairment analysis relating to its investment in Sricon. As a background, the Company sold a majority part of its stake in Sricon effective October 1, 2009. Following the sale, the equity interest of the Company in Sricon was reduced from 63% to 22%. In the current year, the Company has had a dispute with the management of Sricon. IGC has therefore moved to a cost basis of accounting for the investment in Sricon given the lack of significant influence in the management of Sricon despite our 22% stake. The Company conducted an impairment test on the investment based on the information available with it and as a result has provided for $2.18 million as impairment loss.
Impairment loss – goodwill – The goodwill balance in the books of the Company is allocated to the TBL reporting unit. During the current year, in the fourth quarter, the Company performed its annual impairment test on the goodwill balance. The Company assessed the fair value of the reporting unit based on the recoverable values of the assets and the expected settlement values of its liabilities. Based on the impairment analysis, the Company has provided for a loss amounting to $5.79 million relating to the goodwill balance for the year ended March 31, 2011. Factors that influence the analysis include contracts, potential contracts, collection of claims, ability to grow the quarry and ore business, and other factors.
Loss on dilution of stake – The charge for the year ended March 31, 2010 included a significant one-time charge of $2.86 million relating to the deconsolidation of Sricon. This charge relating to deconsolidation consists of a one-time charge of about $2.10 million, which represents a portion of the other comprehensive income of Sricon that accumulated from the time that IGC acquired 63% of Sricon. This also consists of a one-time loss of $0.76 million as a result of decreasing our ownership from 63% to 22.3% in Sricon and extinguishing the loan of $17.9 million due to Sricon.
Income tax expense – We had an income tax expense of $4.1 million for the year ended March 31, 2011, as compared to an income tax benefit of $3.11 million for the year ended March 31, 2010 as compared to an income tax expense of $1.54 million for the year ended March 31, 2009.2010. The income tax benefit for the currentprevious year is net of provision for tax amounting to $0.21 million. The significant reduction in provision for income tax expense iswas primarily on account of the losses incurred in the previous year, which we believed would be offset against taxable profits in the future years due to the execution of the substantial orders received from China During the current year, considering the continued ban on import of low grade iron ore by China and the shut down on mining and exports from Karnataka, the Company believes that the timing of the execution of the orders is not estimable. Therefore, from the perspective of prudence the Company has provided a valuation on the entire deferred tax asset balance during the current year as opposed to profitresulting in the previous years. The Company continuessubstantial income tax expense.
We however continue to pay minimum alternative tax in for some of its Indian subsidiaries in spite of carry-forward lossesexpect to perform and tax exemptions in these subsidiaries because of certain tax regulations in India.
| Year ended March 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| Past revenue results | $ | 17,897,826 | $ | 35,338,725 | $ | 2,188,018 | ||||||
| Annual Increase in revenue | 40,000,000 | 40,000,000 | 40,000,000 | |||||||||
| Percentage increase in revenue | 223 | % | 113 | % | 1,828 | % | ||||||
| Expected operations margin | 7 | % | 7 | % | 7 | % | ||||||
| Year ended March 31, | ||||||||||||
| 2011 | 2012 | 2013 | ||||||||||
| Annual Increase in revenue | $ | 40,000,000 | $ | 40,000,000 | $ | 40,000,000 | ||||||
| Expected operations margin | 7 | % | 7 | % | 7 | % | ||||||
| Expected taxable income | 2,352,797 | 2,819,463 | 2,819,463 | |||||||||
| Projected increase in tax expense | 799,951 | 958,618 | 958,618 | |||||||||
| Projected foreign tax credits utilized | (544,207 | ) | N/A | N/A | ||||||||
| Projected NOL’s utilized | (156,582 | ) | (859,456 | ) | (859,456 | ) | ||||||
| Other deferred assets utilized | (99,162 | ) | (99,162 | ) | (99,162 | ) | ||||||
| Year ended March 31, | ||||||||||||
| 2014 | 2015 | 2016 | ||||||||||
| Annual Increase in revenue | $ | 40,000,000 | $ | 40,000,000 | $ | 40,000,000 | ||||||
| Expected operations margin | 7 | % | 7 | % | 7 | % | ||||||
| Expected taxable income | 2,819,463 | 2,819,463 | 2,819,463 | |||||||||
| Projected increase in tax expense | 958,618 | 958,618 | 958,618 | |||||||||
| Projected foreign tax credits utilized | N/A | N/A | N/A | |||||||||
| Projected NOL’s utilized | (124,018 | ) | N/A | N/A | ||||||||
| Other deferred assets utilized | (99,162 | ) | (99,162 | ) | (99,162 | ) | ||||||
Net loss – The position of the Company changed from a profit of $0.19 million (inclusive of minority interest) for the year ended March 31, 2009 tohad a loss of $4.81 million for the year ended March 31, 2010.2010 as compared to a loss of $21.01 million for the year ended 31 March 2011. This loss was driven primarily by lower operating profitsthe decision to impair our investment in Sricon as well as the goodwill in TBL, the creation of the valuation allowance on the deferred tax asset, and the decline in revenues during the year ended March 31, 2010 and a significant one-time charge on account of dilution of our stake in Sricon.
Customer Risk
The Company’s customers are the Indian government, state government, private companies, Indian government owned companies and Chinese steel mills and iron ore traders. Therefore, our business requires that we continue to maintain a pre-qualified status with our clients so we are not disqualified from bidding on future work. The loss of a significant client may have an adverse effect on the Company. Disqualification can occur if, for example, we run out of capital to finish contracts that we have undertaken.
Commodity Prices and Vendor Risk
The Company is affected by the availability, cost and quality of raw materials including cement, asphalt, steel, rock aggregate, iron ore and fuel. The prices and supply of raw materials and fuel depend on factors beyond the control of the Company, including general economic conditions, competition, production levels, transportation costs and import duties. The Company typically builds contingencies into the contracts, including indexing key commodity prices into escalation clauses. However, drastic changes in the global markets for raw materialmaterials and fuelfuels could affect our vendors, which may create disruptions in delivery schedules that could affect our ability to execute contracts in a timely manner. We are taking steps to mitigate some of this risk by attempting to control th ethe supply and quality of raw materials. We do not currently hedge commodity prices on capital markets.markets, which exposes the Company to risks related to high prices.
Labor Risk
The building boom in India and the Middle East (India, Pakistan and Bangladesh export labor to the Middle East) had created pressure on the availability of skilled labor like welders, equipment operators, etc. This has recently changed with the shortage of financial liquidity and falling oil prices. However, with the expected increase in infrastructure spending, we expect a shortage of skilled labor.
Compliance, Legal and Operational Risks
We operate under regulatory and legal obligations imposed by the Indian governmentsgovernment and U.S. securities regulators. Those obligations relate, among other things, to the company’sCompany’s financial reporting, trading activities, capital requirements and the supervision of its employees. For example, we file our financial statements in three countries under three different Generally Accepted Accounting Standards, (GAAP).GAAP standards. Failure to fulfill legal or regulatory obligations can lead to fines, censure or disqualification of management and/or staff and other measures that could have negative consequences for our activities and financial performance. We are mitigating this risk by hiring local consultants and staff who can manage the compliance in the various jurisdictions in which we operate .operate. However, the cost of compliance in various jurisdictions could have ana negative impact on our future earnings.
Interest Rate Risk
The infrastructure development industry is one in which leverage plays a large role. A typical contract requires that we furnish an earnest money deposit, a performance guaranty and the ability to discount letters of credit. Furthermore, most construction contracts demand that we reserve between 7seven and 11eleven percent of contract value in the form of bank guaranties and/or deposits. Finally, as interest rates rise, our cost of capital increases thus impacting our margins.
Exchange Rate Sensitivity
Our Indian subsidiaries conduct all business in Indian rupees with the exception of foreign equipment that is purchased from the U.S. or Europe. Exchange rates have an insignificant impact on our financial results. However, as we convert from Indian rupees to USD and subsequently report in U.S. dollars, we may see an impact on translated revenue and earnings. Essentially, a stronger USD decreases our reported earnings and a weakening USD increases our reported earnings.
In December 2007, the FASB issued ASC 810-10-65 “Consolidation — Transitionanalysis below, we have compared the reported revenue and Open Effective Date Information” (previously referred to as SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements, an amendment of ARB No. 51”). ASC 810-10 establishes accounting and reporting standardsexpense numbers for a non-controlling interest in a subsidiary and forFiscal 2011 with the deconsolidation of a subsidiary. ASC 810-10-65 establishes accounting and reporting standards that require (i) the ownership interest in subsidiaries held by parties other than the parent to be clearly identified and presented in the consolidated balance sheet within equity, but separate from the parent’s equity, (ii) the amount of consolidated net income attributable to the parent and the non-controlling intere st to be clearly identified and presentedFiscal 2010 based on the faceaverage exchange rate used for Fiscal 2010 to highlight the impact of the consolidated statements of income,exchange rate changes on IGC’s Indian rupee derived revenues and (iii) changes in a parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary to be accounted for consistently. Effective April 1, 2009, the Company adopted ASC 810-10-65. See “Consolidated Balance Sheets”, “Consolidated Statements of Income”, “Consolidated Statements of Shareholders’ Equity and Comprehensive Income (Loss)”, and note 2 for information and related disclosures regarding non-controlling interest.expenses.
| Year ended March 31, | ||||||||||||||||
2011 (current exchange rate) | 2011 (previous year exchange rate) | Change | Percentage | |||||||||||||
Revenues | 4,073,919 | 3,804,790 | 269,129 | 6.61 | % | |||||||||||
Total expenses before taxes | (10,912,485 | ) | (10,191,591 | ) | (720,894 | ) | 6.61 | % | ||||||||
(6,838,566 | ) | (6,386,801 | ) | (451,765 | ) | |||||||||||
Foreign Currency Translation
IGC mainly operates in India and a substantial portion of the Company’s sales are denominated in the Indian rupee. As a result, changes in the relative values of the U.S. dollar and Indian rupee affect revenues and profits as the results are translated into U.S. dollars in the consolidated and pro forma financial statements.
The accompanying financial statements are reported in U.S. dollars. The Indian rupee is the functional currency for 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.
The exchange rates used for translation purposes are as under:
| Year | Month end Average Rate (P&L rate) | Year-end rate (Balance sheet rate) | |||
2006-07 | INR 45.11 per USD | INR 43.10 per USD | |||
2007-08 | INR 40.13 per USD | INR 40.42 per USD | |||
2008-09 | INR 46.49 per USD | INR 50.64 per USD | |||
2009-10 | INR 47.91 per USD | INR 44.95 per USD | |||
2010-11 | INR 44.75 per USD | INR 44.54 per USD | |||
Recently Issued and Adopted Accounting Pronouncements
Changes to U.S. GAAP are established by the Financial Accounting Standards Board (“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.
In November 2008,January 2010, the FASB’s Emerging Issues Task Force reached a consensusFASB issued an amendment to the accounting standards related to the disclosures about an entity's use of fair value measurements. Under these amendments, entities will be required to provide enhanced disclosures about transfers into and out of the Level 1 (fair value determined based on ASC 323-10 “Investments-Equity Methodquoted prices in active markets for identical assets and Joint Ventures” (previously referredliabilities) and Level 2 (fair value determined based on significant other observable inputs) classifications, provide separate disclosures about purchases, sales, issuances and settlements relating to as EITF Issue No. 08-6, “Equity Method Investment Accounting Considerations”). ASC 323-10 continues to accountthe tabular reconciliation of beginning and ending balances of the Level 3 (fair value determined based on significant unobservable inputs) classification and provide greater disaggregation for each class of assets and liabilities that use fair value measurements. Except for the initial carrying value of equity method investments on a cost accumulation model, which generally excludes contingent consideration. ASC 323-10 also specifies that other-than-temporary impairment testing bydetailed Level 3 roll-forward disclosures, the investor should be performed at the investment level and that a separate impairment assessment of the underlying assets is not required. An impairment charge by the investee should result in an adjustment of the investor’s basis of the impaired assetnew standard was effective for the investor’s pro-rata share of such impair ment. In addition, ASC 323-10 reached a consensus on how to accountCompany for an issuance of shares by an investee that reduces the investor’s ownership share of the investee. An investor should account for such transactions as if it had sold a proportionate share of its investment with any gains or losses recorded through earnings. ASC 323-10 also addresses the accounting for a change in an investment from the equity method to the cost methodinterim and annual reporting periods beginning after December 31, 2009. The adoption of ASC 810-10 (previously referred to as SFAS No. 160). ASC 323-10 affirms existing guidance which requires cessation of the equity method ofthis accounting and application of ASC 320-10 (previously referred to as FASB Statement No. 115, “Accounting for Certain Investments in Debt and Equity Securities”), or the cost method under ASC 323-10-35, as appropriate. Effective April 1, 2009, the Company adopted ASC 323-10 and the adoptionstandards amendment did not have a material impact on the Company’sCompany's disclosure or consolidated results of operations, cash flows or financial position.
In April 2009,December 2010, the FASB issued a new accounting standard, which requires that Step 2 of the following three ASCs intended to provide additional applicationgoodwill impairment test be performed for reporting units whose carrying value is zero or negative. This guidance and enhance disclosures regarding fair value measurements and impairments of securities:
In December 2010, the FASB issued new guidance clarifying some of operations, cash flowsthe disclosure requirements related to business combinations that are material on an individual or aggregate basis. Specifically, the guidance states that, if comparative financial position.statements are presented, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year occurred as of the beginning of the comparable prior annual reporting period only. Additionally, the new standard expands the supplemental pro forma disclosure required by the authoritative guidance to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination in the reported pro forma revenue and earnings. This guidance became effective January 1, 2011. Our adoption of this standard did not have a material impact on the Company's disclosure or consolidated financial results. However, it may result in additional disclosures in the event that we enter into a business combination that is material on either an individual or a consolidated basis.
In June 2011, the FASB issued ASU 2011-05, which is now part of ASC 220: “Presentation of Comprehensive Income". The new guidance will require companies to present the components of net income and other comprehensive income either as one continuous statement or as two consecutive statements. It eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity. The standard does not change the items, which must be reported in other comprehensive income. These provisions are to be applied retrospectively and will be effective for us as of January 1, 2012. Because this guidance impacts presentation only, it will have no effect on our financial condition, results of operations or cash flows. We have included references to the Codification, as appropriate, in these consolidated financial statements.
BUSINESSBUSINESS
Background of India Globalization Capital, Inc. (IGC)
IGC, a Maryland corporation, was organized on April 29, 2005, as a blank check company formed for the purpose of acquiring one or more businesses with operations primarily in India through a merger, capital stock exchange, asset acquisition or other similar business combination or acquisition. On March 8, 2006, we completed an initial public offering.offering of our Common Stock. On February 19, 2007, we incorporated India Globalization Capital, Mauritius, Limited (IGC-M), a wholly owned subsidiary, under the laws of Mauritius. On March 7, 2008, we consummated the acquisition of 63% of the equity ofinterests in two companies in India, Sricon Infrastructure Private Limited (Sricon)(“Sricon”) and 77% of the equity of Techni Bharathi Limited (TBL)(“TBL”). Both companies are focused on the infrastructure industry. Currently, IGC owns 77% of TBL and 22% of Sricon. The shares of the two Indian companies, Sricon and TBL, are held by IGC-M. MostWe acquired Sricon by purchasing a 63% interest for approximately $29 million (based on an exchange rate of 40 INR for $1 USD). Subsequently, we borrowed, through an intermediary company, approximately $17.9 million (based on 40 INR for $1 USD) from Sricon. The shares of the shares oftwo Indian companies, Sricon and TBL, acquiredare held by IGC-M. Effective October 1, 2009, we reduced our stake in Sricon from 63% to 22% in consideration for the set off of the loan owed by IGC were purchased di rectly from the companies. IGC purchased a portion of the shares from the existing owners of the companies. The founders and management of Sricon own 78% of Sricon (after giving effect to the deconsolidation described below) and the founders and management of TBL own 23% of TBL.approximating $17.9 million.
On February 19, 2009, IGC-M beneficially purchased 100% of IGC Mining and Trading Private Limited (IGC-IMT(IGC-IMT) based in Chennai, India).India. IGC-IMT was formed on December 16, 2008, as a privately held start-up company engaged in the business of mining and trading. Its current activity is to operate a shipping hubhubs and to export iron ore to China.China from India. On July 4, 2009, IGC-M beneficially purchased 100% of IGC Materials, Private Limited (IGC-MPL based in Nagpur, India), which will conductconducts IGC’s quarrying business, and 100% of IGC Logistics, Private Limited (IGC-LPL(IGC-LPL) based in Nagpur, India),India, which will beis involved in the transport and delivery of ore, cement, aggregate and other material.materials. Each of IGC-IMT, IGC-MPL and IGC-LPL were formed by third parties at the behest of IGC-M to facilitate the creation of the subsidiaries, and thesubsidiaries. The purchase price paid for each of IGC-IMT.IGC-IMT, IGC-MPL and IGC-LPL was equal to the expenses incurred in incorporating the respective entities with no premium paid. No officer or director of IGC had a financial interest in the subsidiaries at the time of their acquisition by IGC-M. India Globalization Capital, Inc. (the Registrant,(”IGC,” the Company,“Company,” or we)“we”) and its subsidiaries are significantly engaged in one segment,the sale of construction materials, mining, quarrying and construction.
On December 30, 2011, IGC acquired a 95% equity interest in Linxi HeFei Economic and Trade Co. aka Linxi H&F Economic and Trade Co., a People’s Republic of China-based company (“PRC Ironman”) by acquiring 100% of the equity of H&F Ironman Limited, a Hong Kong company (“HK Ironman”). Unless it is necessary to specify which company in China we are referring to, PRC Ironman or HK Ironman, we will collectively refer to both as Ironman throughout this prospectus. The registered capital of PRC Ironman is RMB 2,000,000, equaling to USD $273,800, in which Mr. Zhang Hua owned 80% and Mr. Xu Jianjun owned the remaining 20%. Mr. Zhang Hua and Mr. Xu Jiajun transferred 75% and 20% respectively to HK Ironman on January 18, 2011. Thus, as of March 31, 2011, 95% of the Company’s registered capital was held by HK Ironman.
IGC operates in India and China geographies specializing in the infrastructure construction.
IGC’s organizational structure is as follows:
Unless the context requires otherwise, all references in this prospectus to the “Company”, “IGC”, “IGC Inc.”, “we”, “our”, and “us” refer to India Globalization Capital, Inc., together with its wholly owned subsidiarysubsidiaries IGC-M and HK Ironman, Ltd. and its direct and indirect subsidiaries (TBL, IGC-IMT, IGC-MPL, IGC-LPL and IGC-LPL)PRC Ironman) and Sricon, in which we hold a non-controlling interest.
Subsidiaries Overview
IGC Materials, Private Limited (“IGC-MPL”) and IGC Logistics, Private Limited (“IGC-LPL”) are based in Nagpur, India and were incorporated in June 2009. The two companies focus on infrastructure materials like rock aggregate, bricks, concrete and other building materials, as well as, logistical support for the transportation of infrastructure materials. IGC India Mining and Trading (“IGC-IMT”) was incorporated in December 2008 in Chennai, India. IGC-IMT is focused on the export of iron ore to China.China as well as the sale of iron ore to customers in India. IGC-MPL, IGC-LPL and IGC-IMT are all wholly-owned subsidiaries of IGC-M.
TBL was incorporated as a public limited company (but not listed on the stock exchange) on June 19, 1982, in Cochin, India. TBL is an engineering and construction company engaged in the execution of civil construction, structural engineering projects and trading. TBL has a focus in the Indian states of Kerala, Karnataka, Assam and Tamil Nadu. Its present and past clients include various Indian government organizations.
HK Ironman is a Hong Kong-based company incorporated on December 20, 2010 to acquire PRC Ironman. PRC Ironman was incorporated as Linxi He Fei Economic & Trade Co., Ltd. in China on January 8, 2008. PRC Ironman is a Sino-foreign equity joint venture (“EJV”) established by both foreign and Chinese investors (i.e., Sino means “China” herein). HK Ironman owns 95% of PRC Ironman. PRC Ironman is engaged in the processing and extraction of iron ore from sand and dirt at its beneficiation plant on 2.2 square kilometers of hills in southwest LinXi in the autonomous region of eastern Inner Mongolia, under the administration of Chifeng City, Inner Mongolia, which is located 250 miles from Beijing, 185 miles from Tianjin Port and 125 miles from Jinzhou Port and well connected by roads, planes and railroad.
Our approach is to offer integrated solutions to our customers such as construction services to customers involving construction, as well as,combined with the sale and transportation of materials.
Company Overview
We are a materials and construction company offering a suite of services including: 1) the export of iron ore to China and supply of ore to the Indian markets, 2) operations and supply of rock aggregate, and 3) the civil construction of roads and highways. Our present and past clients include various Indian government organizations and steel mills in China. Including our subsidiaries, we have approximately 251 employees and contractors. We are focused on building out rock aggregate quarries, setting up relations and export hubs for the export of iron ore to China and winning construction contracts.
Our business model is as follows:
| 1. | We beneficiate and supply iron ore to China and trade in ore in the Indian markets. |
| 2. | We supply rock aggregate to the construction industry in India and trade in other construction materials in the Indian markets, and |
| 3. | We bid and execute construction and engineering contracts. |
Our expansion plans include building out 10 rock aggregate quarries to create a one-stop shop for rock aggregate (a business currently not prevalent in India); obtaining licenses for the mining of iron ore in India and acquiring other mines and beneficiation plants in order to fill customer orders from China; and winning and executing construction contracts.
Prices of ore have moved from a high of $180 per ton at the end of 2010 to about $110 per ton at the end of 2011 and appear to be moving back up to the $125-$140 per ton range. We now operate a beneficiation plant in China through our subsidiary Ironman. We mine, extract and process high-grade iron ore from the sand located in the hills of Inner Mongolia. We currently operate on an area of 2.2 square kilometers. In addition, we recently acquired 1.33 square kilometers of mining land. At $127 per ton, our total estimated reserves of iron ore is about $550 million. We currently operate one beneficiation plant and we are in the process of building a second more advanced plant on the newly acquired site.
Ironman’s plant extracts iron ore from the sand by using two processes. The first process is a dry separation process. Trucks of sand are poured into a separator that employs 19 magnets. The magnets separate the sand from the iron ore. In one day, Ironman may process as much as 30,000 tons of sand through the dry separators. The second process is a wet process, which involves mixing the processed sand and ore with water and then using magnets to separate the ore from the slurry. About 70 trucks of sand are ultimately beneficiated into one truck of high-grade ore. The entire process is continuous and runs during daylight. The sand that is separated from the ore is redistributed to the hills. The water is filtered and reused up to three times before pumping it to grass, plants and shrubs that are planted in the hills to create a sustainable environment. Ironman maintains an English language web site at www.hfironman.net.
Industry Overview
The CIA 20102011 World Fact Book estimated the Indian GDP to be approximately $1.1$1.43 trillion in 2009.2010. According to the World Bank, only fourteenfifteen economies including India, Mexico and Australia generated more than $1 Trilliontrillion in GDP in 2008.2010. According to the CIA 20102011 World Fact Book, India’s“strong headline GDP growth rates ranged from 6.2%and quarter-on-quarter results indicate that the recovery of the Indian economy is robust. Backed by strong growth of 8.9 percent in the first half of FY2010-11, the economy is estimated to 9.6% between 2003 andgrow by 8.6 percent during the present. The current global financial crisis created a liquidity crunch starting in October 2008, which has partially abated.fiscal year.” The Financial Times noted that a recent Economic Survey of India projected growth at 8.5% in 2010 and 9% in 2011, second only to that of China. In the next 10 years, according to Kaushal Sampat, president & CEO of Dun & Bradstreet India, the Indian economy is expected to grow from the current size of $1 trillion to more than $5 trillion (the size of Japan’s current economy).
To sustain India’s fast growing economy, infrastructure investment in India is expected to increase to 9 percent of GDP by 2014, up from 5 percent in 2006-07. This forecast is based on The Indian Planning Commission’s statement in its annual publication that for the Eleventh Plan period (2007-12), a large investment of approximately $494 billion is required for Infrastructure build-out and modernization. According to the Committee for Infrastructure Financing (India) & Bloomberg News, India expects to spend $475 billion on infrastructure build out through 2012 and beyond. This industry is one of the largest employers in the country. The construction industry alone employs more than 30 million people. According to the Business Monitor International (BMI), by 2012, the construction industry’s contribution to India’s GDP is forecasted to be 16.98%approximately 17%.
This ambitious infrastructure development mandate by the Indian Governmentgovernment will require funding. The Governmentgovernment of India has already raised funds from multi-lateral agencies such as the World Bank and the Asian Development Bank. The India Infrastructure Company was set up to support projects by guaranteeing up to $2.0 billion annually. In addition, the Indian government has identified public-private partnerships (PPP) as the cornerstone of its infrastructure development policy. The Indian government is also proactively seeking additional FDI and approval is not required for up to 100% of FDI in most infrastructure areas. According to Indian Prime Minister, Dr. Manmohan Singh, who spoke recently at a conference on Infrastructure, India needs $1 trillion in Infrastructure spending bet weenbetween fiscal years 2011/2012 and 2016/2017.
The Indian government is also permitting External Commercial Borrowings (ECB’s) as a source of financing Indian companies looking to expand existing capacity and incubation for new startups. ECB’s include commercial bank loans, buyers' credit, suppliers' credit, securitized instruments such as floating rate notes and fixed rate bonds, credit from official export credit agencies, and commercial borrowings from private sector multilateral financial institutions such as the International Finance Corporation (Washington, DC), ADB, AFIC, CDC, etc. National credit policies seek to keep an annual cap or ceiling on access to ECB, consistent with prudent debt management. These policies encourage a greater emphasis on infrastructure projects in core sectors s uchsuch as power, oil exploration, telecom, railways, roads and bridges, ports, industrial parks, urban infrastructure, and exporting.
Our operations are subject to certain risks and uncertainties, including among others, dependency on the Indian, Chinese and Asian economy and government policies, competitively priced raw materials, dependence upon key members of the management team, and increased competition from existing and new entrants. See the Risk Factors section for a discussion of certain of these risks.
Our Securities
The registration statement for the initial public offering was declared effective on March 2, 2006. The Company’s outstanding warrants are exercisable and may be exercised by contacting the CompanyIGC or the transfer agent, Continental Stock Transfer & Trust Company. 60;We haveThe Company has a right to call the warrants, provided the common stockCommon Stock has traded at a closing price of at least $8.50 per share for any 20 trading days within a 30 trading30-trading day period ending on the third business day prior to the date on which notice of redemption is given. If we callthe Company calls the warrants, either the holder will either have to redeemexercise the warrants by purchasing the common stockCommon Stock from usthe Company for $5.00 or the warrants will expire.
The Company had 12,989,207 shares of Common Stock issued and outstanding as of March 31, 2010. During the twelve months ended March 31, 2011, the Company also issued 30,000 shares of Common Stock to American Capital Ventures and Maplehurst Investment Group for services rendered and 9,135 shares to Red Chip Companies valued at $8,039 for investor relations related services rendered.
The Company also issued a total of 400,000 shares of Common Stock, as consideration for the extension of the loans under the promissory notes described in Notes Payable during the twelve months ended March 31, 2011.
In February 2011, the Company consummated another transaction with Bricoleur to exchange the promissory note held by Bricoleur for a new note with an extended repayment term. The Company issued 688,500 shares of Common Stock valued at approximately $419,985 as consideration for the exchange, as discussed in corresponding note.
In connectionMarch 2011, the Company and Oliveira agreed to exchange the promissory note held by Oliveira for a new note with an extended repayment term and provisions permitting the Company at its discretion to repay the loan through the issuance of equity shares at a registered direct offeringstated value over a specific term. As of our common stock and warrants to purchase common stock conducted in September 2009 weDecember 31, 2011, the Company has issued to the investors in the offering warrants (the “New Warrants”) representing the right to purchase, at an exercise price of $1.60 per share, a number of1,570,001 shares of common stock equalCommon Stock valued at $798,176 to 20%this debt holder, which constituted an element of repayment of principal as well as the numberinterest in equated installments.
On December 31, 2011, the Company finalized the purchase of shares of common stock purchased by the investor in the offering. The sales were madeHK Ironman pursuant to a shelf registration statement. The warrants issuedstock purchase agreement (the “Stock Purchase Agreement”)that was approved by the shareholders of the Company on that date. Related to the investorsacquisition of HK Ironman, the Company’s shareholders approved the issuance of 31,500,000 equity shares to the owners of HK Ironman in exchange for 100% of the equity of HK Ironman (refer to Note 3); these shares have been considered as outstanding as of this date.In addition, the Stock Purchase Agreement provides for a contingent payment by IGC to Mr. Chang of $1 million payable within 30 days of closing and upon satisfaction of certain post-closing covenants plus certain contingent payments by IGC to PRC Ironman stockholders, as follows (i) $1.5 million in cash or stock, which is contingent on IGC achieving earnings growth of at least 30% from the previous year’s closing audit (i.e., March 31, 2011); and (ii) $1.5 million in cash or stock, which is contingent on IGC achieving earnings growth of at least 30% from the previous year’s closing audit (i.e., March 31, 2012). If either of the foregoing annual targets were missed, there would still be a payout of $3 million provided IGC achieves a cumulative earnings growth of 69% between fiscal years 2011 and 2013. The acquisition of HK Ironman and the offering of the Common Stock pursuant there to was exempt from registration under the Securities Act pursuant to Regulation S of the Securities Act, which exempts private issuances of securities in which the securities are exercisable any time onnot offered or after the date of issuance for a period of three years from that date. The exercise price and the number of shares subjectadvertised to the New Warrants are subjectgeneral public and such offering occurs outside of the United States to adjustmentnon-U.S. persons. No underwriting discounts or commissions were paid with respect to such sale.
Further, as set forth in t he eventNote 14 of stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting our common stock and also upon any distributions of assets, including cash, stock or other property to our stockholders. We do not have a right to callForm 10-Q for the New Warrants.
Core Business Competencies
As the infrastructures of India and China are built out and modernized, the demand for basic raw materials like stone aggregate but especially iron ore (steel) is very high and expected to increase. We offer an integrated set of services to our customers based upon several core competencies. This integrated approach provides us with an advantage over our competitors. Our core business competencies are:
| 1. | A sophisticated, integrated approach to project modeling, costing, management and monitoring. |
| 2. | In-depth knowledge of southern and central Indian infrastructure development as well as knowledge, history and ability to work in Inner Mongolia and Mongolia. |
| 3. | Knowledge of low cost logistics for moving commodities across long distances in specific parts of India as well as knowledge of logistics in the autonomous region of Inner Mongolia. |
| 4. | In-depth knowledge of the licensing process for mines in Inner Mongolia and southern and central India and for quarries in southern and central India. |
| 5. | Strong relationships with several important construction companies and mine operators in southern and central India and strong relationships at the appropriate levels of government in the autonomous region of Inner Mongolia. |
| 6. | Great access to the sand ore in the hills of Inner Mongolia |
Our core business areas are:
1. Mining and trading. Our mining and trading activity currently centers on the export of iron ore to China and the resale of iron ore to traders in India. India is the fourth largest producer of iron ore. The Freedonia Group projected in May 2010 that China’s $1.15 trillion construction industry would grow 9.1% every year until 2014. This growth will increase China’s already large demand for steel. China, which accounted for 648 million metric tons of steel production in 2010, is expected to produce between 690 million and 710 million metric tons in 2011. As The Wall Street Journal reported, this production is expected to be almost half of total global output. China is also a net importer of iron ore from Australia, Brazil, India and other countries. China is the largest mineral trader in the world accounting for 25% of the trading in 2010. The iron ore and steel global trade in 2010 was about $395 billion and China accounted for $83 billion or 21.1 % of the global trade.
Global prices for iron ore are set through negotiations between China Steel and the large suppliers Rio Tinto, BHP Billiton and Vale. Once prices are set, the rest of the global markets follow that pricing. Prices for iron ore have increased about seven fold from 2003 to a high of $180 per metric ton at the end of 2010. In 2011, iron ore prices have been between $130 and $150 per metric ton. We believe that IGC is well positioned to provide some Chinese steel mills with the iron ore needed to meet their demand. Our coresubsidiary IGC Mining and Trading Private Limited (IGC-IMT), based in Chennai, India, and our subsidiary Ironman are engaged in the iron ore business. The IGC-IMT has relationships and in some cases agreements with mine owners in Orissa and Karnataka, two of the largest ore mining belts in India. In addition, it operates facilities at seaports on the west coast of India and to a lesser extent on the east coast of India. The facilities consist of an office and a plot of land within the port to store iron ore. IGC-IMP services a customer in China by buying ore from Indian mine owners, transporting it to seaports and then subcontracting stevedores to load the ships.
Ironman is engaged in the processing and extraction of iron ore from sand and dirt at its beneficiation plant on 2.2 square kilometers of hills, which converts low-grade ore to high-grade ore through a dry and wet separation process, provides IGC with a platform in China to expand its business, areaswhich includes to ship low-grade iron ore, which is available for export in India, to China and convert the ore to higher-grade ore before selling it to customers in China. Ironman’s customers include local traders and steel mills near the following:port of Tianjin and steel mills located there. This area has excellent access roads consisting of multi-lane highways. Our staff is experienced in delivering and managing the logistics of ore transport. Even with the acquisition of Ironman, our share of the iron ore market is less than 1%. However, we have an opportunity to consolidate and grow our market share in a specific geographic area.
2. Quarrying rock aggregate. As Indian infrastructure modernizes, the demand for raw materials like rock aggregate, iron ore and similar resources is projected to increase greatly. In 2009, according to the Freedonia Group, India was the third largest stone aggregate market in the world. The report projected that Indian demand for crushed stone will increase to 770 million metric tons in 2013 and 1.08 billion metric tons in 2018. Our subsidiary, IGC Materials Private Limited (“IGC-MPL”), is responsible for our rock aggregate production. The subsidiary currently has two quarrying agreements with two separate partners. The two quarries mined near Nagpur, a city in the state of Maharashtra, India, have approximately 10-11 million metric tons of rock aggregate or about $40,000,000 of reserves at current prices. With the production of these two quarries, our subsidiary is one of the largest suppliers in the immediate area. Our share of the overall market in India is currently less than 1%. However, IGC-MPL has a growing regional presence in the Nagpur area.
All quarrying or mining activities in India require a license. IGC and its subsidiaries do not directly hold any mining or quarrying licenses and therefore there are no licenses or expenses in connection with acquiring the same being reflected in the consolidated financial statements. However, Sricon holds licenses and we quarry under licenses held by our partners. For all quarries, the licenses are granted for two years. The licenses are automatically renewed for additional periods of two years, provided that all royalty payments and taxes to the Indian government are paid up to date. IGC-MPL has applied, on its own, for licenses for mining and quarrying. The process of obtaining a quarrying license is difficult and typically takes between 12-18 months. The process involves a competitive application process. As such, while we have applied for licenses, there is no assurance that we will be granted these licenses. IGC-MPL is also in active negotiations with other land and license owners to expand the number of producing quarries available to it.
3. Highway and heavy construction.
The Indian government has developed a plan to build and modernize Indian infrastructure. The Wall Street Journal reported on March 23, 2010 that the government plans to double infrastructure spending from $500 billion to $1 trillion. It will pay for the expansion and construction of rural roads, major highways, airports, seaports, freight corridors, railroads and townships. A significant number of our customers are engaged in highway and heavy construction. Our subsidiary, TBL, a small road building company, is engaged in highway and heavy construction activities. TBL has constructed highways, rural roads, tunnels, dams, airport runways and housing complexes, mostly in southern states. TBL, because of its successful execution of contracts, is pre-qualified by the National Highway Authority of India (NHAI) and other agencies. TBL’s share of the overall Indian construction market is very small. However, TBL’s prequalification and prior track record provides a way to grow the Company in highway and heavy construction. Currently, TBL is engaged in the recovery of construction delay claims that it is pursuing against NHAI, the Airport Authority of Cochin and the Orissa State Works. Our share of the overall market in India is significantly less than 1%.
4. Construction and maintenance of high temperature plants.
The following table sets out the revenue contribution from our subsidiaries:
| Subsidiary | Nine months ended December 31, 2011 | Nine months ended December 31, 2010 | ||||||
TBL | 1 | % | 32 | % | ||||
IGC-IMT | 86 | % | 62 | % | ||||
IGC-MPL | 13 | % | 5 | % | ||||
IGC-LPL | 0 | % | 1 | % | ||||
PRC Ironman | - | % | - | % | ||||
Total | 100 | % | 100 | % | ||||
Customers
Our present and past customers include the National Highway Authority of India, several state high way authorities, the Indian railways, private construction companies in India and several steel mills in China. In April 2010 we received a $160,000,000 contract for supplying iron ore over five years to Jiya International, a large ChineseChina, including local traders and steel mill. This was followed by a $35,000,000 contract to supply ore to Tangshan Danyang Enterprises, another large customer in China. We currently have a backlogmills near the port of approximately $200,000,000 for the supply of iron ore to China.Tianjin.
Construction contract bidding process. process
In order to create transparency, the Indian government has centralized the contract awarding process for building inter-stateinterstate roads. The new process is as follows: Atat the “federal” level, NHAI publishes a Statement of Work for an interstate highway construction project. The Statement of Work has a detailed description of the work to be performed, as well as, the completion time frame. The bidder prepares two proposals in response to the Statement of Work. The first proposal demonstrates technical capabilities, prior work experience, specialized machinery, manpower required, and other qualifications required to complete the project. The second proposal includes a financial bid. NHAI evaluates the technical bids and short-lists technically qualified companies. Next, the short li stlist of technically qualified companies are invited to place a detailed financial bid and show adequate financial strength in terms of revenue, net worth, credit lines, and balance sheets. Generally, the lowest bid wins the contract. Additionally, contract bidders must meet several requirements to demonstrate an adequate level of capital reserves:
1) An earnest money deposit between 2% to 10% of project costs,
2) aA performance guarantee of between 5% and 10%,
3) anAn adequate overall working capital, and
4) additionalAdditional capital available for plant and machinery.
Bidding qualifications for larger NHAI projects are set by NHAI and are imposed on each contractor. As the contractor actually executes larger highway projects, then the contractor may qualify for even larger projects.
Growth strategy and business model.model
The world’s most commonly used metal is steel. The key ingredient in steel is iron ore representing almost 95% of all metals used per year worldwide. Iron ore is the most abundant rock-forming element and composes about 5% of the earth’s crust. Iron ore is the primary material from which iron and steel products are made. These products are widely used around the world for structural engineering applications and in maritime purposes, automobiles and general industrial applications. Consumption of iron ore is constantly growing. China is currently the largest consumer of iron ore, which translates to be the world's largest steel producing country, and is the largest importer of iron ore and steel. China imports almost half of the iron ore mined worldwide. Supply of iron ore comes from China, India, Australia, Brazil and several other parts of the world. Iron ore is mined from the earth and is the raw material used to make pig iron, which is one of the main raw materials to make steel. According to an October 26, 2009, Financial Times article, iron ore is “more integral to the global economy than any other commodity, except perhaps oil.”
Industry reports indicate that Chinese steel consumption has continued to grow even through the global economic downturn, as China’s economy only modestly decelerated from its previous multi-year growth trajectory. Industry experts predict that growth in Chinese consumption is expected to remain a key driver for the global steel industry for a number of years to come. According to the World Steel Association, world crude steel production was 119 million metric tons (mmt) in January 2011, an increase of 5.3% from January 2010. In 2010, world crude steel production reached a record 1,414 mmt, up 15% year over year. China’s crude steel production for January 2011 was 52.8 mmt, up 0.5% year over year.
In China, the iron ore industry is broadly divided into mining and processing. The companies that hold mining licenses mine ore and sell it to steel mills directly or to processing plants. The processing plants convert ore into high-grade ore, like Ironman, or into pellets that are then sold to steel mills. Typically, low-grade ore is ore that has an iron (Fe) content of less than 52% and high-grade ore is ore with a Fe content of over 52%. The processing involves the extraction of iron ore from sand and dirt at beneficiation plants. The beneficiation process involves crushing and separating ore into valuable substances or waste by any of a variety of techniques. Ironman’s beneficiation plant extracts iron ore from a dry magnetic separation process followed by a wet separation process. PRC Ironman currently either mines ore from the hills of Inner Mongolia in their designated acreage or it buys sand and low-grade ore from Mongolia, processes the material to produce 66% Fe ore and then sells the high-grade ore to steel mills and other traders in China. Its customers are mostly traders and steel mills located mostly around the port of Tianjin, China.
Our growth strategy and business model are to:
| 1) | Deepen our relationships with our existing construction customers by providing them infrastructure materials like iron ore, rock aggregate, concrete, coal and associated logistical support. |
| 2) | Expand our materials offering by expanding the number of rock aggregate quarries and other materials. |
| 3) | Leverage our expertise in the logistics and supply of iron ore by increasing the number of shipping hubs we operate from and continue to expand our offering into China and other Asian countries in order to take advantage of their expected strong infrastructure growth. |
| 4) | Consummate strategic acquisitions that would enable us to expand operations and markets in our identified areas of expertise. |
| 5) | Expand the number of recurring contracts for infrastructure build-out to customers that can benefit from our portfolio of offerings. |
We operate in an industry that is competitive. However, therethe industry is fragmented and while a large gap in the supplynumber of our competitors are well qualified and better financed contractors andthan we are, we believe that the demand for contractors.contractors in general will permit us to compete for projects and contracts that are appropriate for our size and capabilities. Large domestic and international firms compete for jumbo contracts over $250 million in size, while locally based contractors vie for contracts worth less than $5 million. We seek to compete in the gap between these two ends of the competitive spectrum. The recent capital markets crisis has made it more difficult for smaller companies to grow to mid-sized companies because their access to capital has been restrained. While we are also constrained by capital, we believe that we are in a better position to secure capital than a number of small, purely local competitors. Our construction business is positioned in the $5 million to $50 million contract range, above locally based contractors and below the large firms, creating a distinct technical and financial advantage in this market niche. niche assuming that we can maintain access to capital.
Rock aggregate is generally supplied to the industry through small crushing units, which supply low quali tyquality material. Frequently, high quality aggregate is unavailable, or is transported over large distances. We fill this gap by providing high quality material in large quantities. Further, we expect to install a large iron ore crusher that can grind ore pebbles into fine ore particles, providing a value added service to the smaller mine owners. We compete on price, quantity and quality. Iron ore is produced in India, where our core assets are located, and exported to China. While this is a fairly established business,and relatively efficient market, we compete by aggregating ore from smaller suppliers who do not have direct access to customers in China. Further, we expectAs mentioned before, Ironman’s beneficiation plant is located 185 miles from the port of Tianjin. Other than about 10 kilometers of dirt road leading over a bridge and over the hills, the access to install a large ironTianjin port and steel mills located there is excellent consisting of multi-lane highways. The competition in the immediate area consists of three other operators and is fairly limited mainly because demand for ore crusherwithin China is high and market can absorb almost any amount of ore that can grind ore pebbles into fine ore particles, providing a value added service to the smaller mine owners.is produced.
In 2011, the area of Chifeng and Inner Mongolia was subject to inclement weather. Typically, the months of May through September are rainy. On average, the rainfall is between 1.1 inches per month to a high of 4.7 inches per month, typically in July. This level of rainfall is not disruptive to the production of ore and in most cases the plant is operational. However, in 2011, the area received very heavy rainfall that caused flooding through the region. It had a serious impact on PRC Ironman’s operations, as PRC Ironman could not operate the mines and the plant for over four months. The heavy rains and flooding destroyed over 16,000 houses and over 6,000 hectares of farmland. It also destroyed the bridge connecting our production facilities to the main highways. No damage was sustained to the plant because the plant is located high in the hills. However, during that time PRC Ironman was unable to produce ore. The rains have since stopped, the floodwaters have receded and PRC Ironman is back in operation.
Employees and consultants.consultants
As of June 30, 2010,December 31, 2011, we employed a work force of approximately 200251 employees and contract workers worldwide.in the US, India, China, Hong Kong and Mauritius. Employees are typically skilled workers including executives, engineers, accountants, sales personnel, welders, truck drivers and other specialized experts. Contract workers require less specialized skills. The truck drivers tend to be contract workers. We make diligent efforts to comply with all employment and labor regulations, including immigration laws in the many jurisdictions in which we operate. In order to attract and retain skilled employees, we have implemented a performance based incentive program, offered career development programs, improved working conditions and provided United States work assignments, technology training and other fringe benefits. Ironman tends to be the employer of choice as there are very few industries in the area it operates. We hope that our efforts will make our other companies more attractive. We are planning to provide vastly improved labor camps for our labor force. We hope that our efforts will make our companies the “employers of choice”. As of June 30, 2010 our Executive Chairman and Chief Executive Officer is Ram Mukunda and our Non-Executive Chairman is Ranga Krishna. Our Managing Director for Materials, Mining and Trading is P. M. Shivaraman. The General Manager of our rock aggregate and logistics business in India is Brigadier Kuljit Singh. Our Treasurer and Principal Accounting Officer is John Selvaraj. Our General Manager of Accounting based in India is Santhosh Kumar. We also utilize the services of several consultants who provide USGAAP systems and other expertise.
Environmental regulations.regulations
India hasand China have strict environmental, occupational, health and safety regulations. In most instances, the contracting agency regulates and enforces all regulatory requirements. As part of the mandate in the area, Ironman has undertaken a conservation effort as well as an effort to create a sustainable environment. Ironman actively plants grass and shrubs in the hills after they are excavated and uses the water from the processing plant to irrigate the grass and shrubs. We internally monitor and manage regulatory issues on a continuous basis. We believe that we are in compliance with all the regulatory requirements of the jurisdictions in which we operate. Furthermore, we do not believe that compliance will have a material adverse effect on our business activities.
Current Chinese currency revaluation.revaluation
Information and timely financial reporting.reporting
Our operations are located in India and now China where the respective accepted accounting standard isstandards are the Indian GAAP which, inand the Chinese GAAP. In many cases, isthe Indian GAAP and the Chinese GAAP are not congruent with the USGAAP.U.S. GAAP. Indian and Chinese accounting standards are evolving toward IFRS (International Financial Reporting Standards). We annually conduct audits for the Company byengage independent public accounting firmfirms registered with the U.S. PCAOB. We acknowledge that thisPCAOB to conduct an annual audit of our financial statements. The process of producing financial statements is at times cumbersome and places significant demands upon our existing staff. We believe we are still six to twelve monthssome time away from having processes and adequately trained personnel in place to meet the reporting timetables set out by U.S. reporting requirements. Until then we may, on occasion, have to file for extensions to meet U.S. reporting timetables.timetables and it is possible that we may fail to meet these time tables. Failure to file our reports in a timely fashion can result in severe consequences including the potential delisting of our securities. In addition, our access to capital may become more difficult or limited if we fail to meet reporting deadlines. We will make our annual reports, quarte rlyquarterly reports, proxy statements and up-to-date investor presentations available on our Web site,website, www.indiaglobalcap.com, as soon as they are available. Our SEC filings are also available, free of charge, at www.sec.gov.www.sec.gov.
MANAGEMENTMANAGEMENT
Our Directors, Executive Officers and Advisory Board Members
The board of directors, executive officers, advisors and key employees of IGC Sricon and TBLits foreign subsidiaries are as follows:
Directors, Executive Officers and Special Advisors of IGC
| Name | Age | Position | ||
| Chairman, Audit Committee Chairman and Director | ||||
| Mr. Ram Mukunda | 53 | Chief Executive Officer, Executive Chairman, President and Director | ||
| Mr. John Selvaraj | 68 | Treasurer and Principal Financial and Accounting Officer | ||
| Mr. Sudhakar Shenoy | 64 | Director and Compensation Committee Chairman | ||
| Dr. Ranga Krishna | 48 | Director | ||
| 40 | Director | |||
| Senator Larry Pressler | 67 | |||
| Special Advisor | ||||
| Dr. Anil K. Gupta | 63 | Special Advisor |
Directors, and Executive Officers and Key Employees of TBLForeign Subsidiaries
| Name | Age | Position | ||
| 53 | Director | |||
| Mr. Danny Qing Chang | 40 | Managing Director | ||
| Mr. Wei Dong Qu | 43 | General Manager | ||
| Mr. Jian Qun Dou | 51 | Director | ||
| Mr. Danny Ngai | 44 | Country Manager | ||
| Mr. M. Santhosh Kumar | Director and Vice-president of Finance/Accounting | |||
| Mr. Ram | 55 | Director of Operations | ||
| Mr. Jortin Antony | 45 | Director | ||
| Mr. John Selvaraj | 68 | Director |
Mr. Richard Prins. Our Chairman and Audit Committee Chairman since 2012, has also served as our Director since May 2007. Mr. Prins has more than 26 years of experience in private equity investing and investment banking. From March 1996, he was the Director of Investment Banking at Ferris, Baker Watts, Incorporated (FBW). FBW was the lead underwriter for our IPO. FBW was sold to Royal Bank of Canada (RBC) in 2008. Mr. Prins served in a consulting role to RBC until January 2009. Today, Mr. Prins serves on several boards, volunteers full time with a non-profit organization, Advancing Native Missions, and is a private investor. Prior to FBW, from July 1988 to March 1996, Mr. Prins was Senior Vice President and Managing Director for the Investment Banking Division of Crestar Financial Corporation (SunTrust Banks). From 1993 to 1998, he was with the leveraged buy-out firm of Tuscarora Corporation. Mr. Prins has experience serving on the boards of other publicly held companies. Since February 2003, he has been on the board of Amphastar Pharmaceuticals, Inc. and since March 2010, he has been on the board of Hilbert Technologies. Mr. Richard Prins holds a B.A. degree from Colgate University (1980) and an M.B.A. from Oral Roberts University (1983). Mr. Prins has excellent knowledge and experience with U.S. capital markets, has served on and chaired audit and compensation committees of Boards, has extensive experience in finance, accounting, and internal controls over financial reporting. He brings particularly important experience to the board, especially if IGC seeks additional financing in the U.S. capital markets. Mr. Prins has traveled in India and China. His knowledge of India and China, as well as, his in-depth experience with U.S. capital markets makes him a highly effective board member.
From June 1987 to January 1990, Mr. Mukunda served as Strategic Planning Advisor at INTELSAT, a provider of satellite capacity. Mr. Mukunda serves on the Board of Visitors at the University of Maryland, School of Engineering. From 2001-2003, he was a Council Member at Harvard’s Kennedy School of Government, Belfer Center of Science and International Affairs. Mr. Mukunda is the recipient of several awards, including the University of Maryland’s 2001 Distinguished Engineering Alumnus Award and the 1998 Ernst & Young, LLP’s Entrepreneur of the Year Award. He holds B.S. degrees in electrical engineering and mathematics and a MSM.S. in Engineering from the University of Maryland. Mr. Mukunda has traveled extensively through India and has conducted business in India and China for more than 15 years. He has more than 11 years of experience managing a publicly held company, has acquired and integrated more than 15 companies, and is an engineer by training. His in-depth business experience in India, his knowledge of U.S. capital markets and his engineering background make him a highly effective board member.
Mr. John B. Selvarajhas served as our Treasurer and Principal Financial and Accounting Officer since November 27, 2006. From November 15, 1997 to August 10, 2007, Mr. Selvaraj served in various capacities with Startec, Inc., including from January 2001 to April 2006 as Vice President of Finance and Accounting where he was responsible for SEC reporting and international subsidiary consolidation. Prior to joining Startec, from July 1984 to December 1994, Mr. Selvaraj served as the Chief Financial and Administration Officer for the US office of the European Union. In 1969, Mr. Selvaraj received a BBA in Accounting from Spicer Memorial College India, and an Executive MBA, in 1993, from Averette Universi ty,University, Virginia. Mr. Selvaraj is a Charted Accountant (CA, 1971).
Mr. Sudhakar Shenoy,our Compensation Committee Chairman since 2012, has also served as our Director since inception of IGC on May 25, 2005. Since January 1981, Mr. Shenoy has been the Founder, Chairman and CEO of Information Management Consulting, Inc., a business solutions and technology provider towith operations in the government, business, healthU.S. and life science sectors.in India that he founded. Mr. Shenoy is a member of the Non ResidentNon-Resident Indian Advisory Group that advises the Prime Minister of India on strategies for attracting foreign direct investment. Mr. Shenoy was selected for the United StatesU.S. Presidential Trade and Development Mission to India in 1995. From 2002 to June 2005 he servedIn 1996, Mr. Shenoy was inducted into the University of Connecticut School of Business Alumni Hall of Fame and was recognized as the chairmana Distinguished Alumnus of the Northern VirginiaIndian Institute of Technology Council. In 1970,(IIT) in Bombay, India in 1997. Mr. Shenoy’s extensive business contacts in India and his experience serving on the boards of public companies in the U.S. make him a highly effective board member. Mr. Shenoy receivedholds a B. Tech (Hons.) in electrical engineering from the Indian Institute of Technology. In 1971Technology and 1973, h e received an M.S. in electrical engineering and an M.B.A. from the University of Connecticut Schools of Engineering and Business Administration, respectively.
Dr. Ranga Krishna served as Chairman of the Board since December 15, 2005 until 2012 and has served as a director since May 25, 2005. As of June 30, 2010, he was the largest IGC stockholder. Since 1998, Dr. Krishna has served as the founder and CEO of Rising Sun Holding, LLC, a $120 million construction and land banking company located in New Jersey. In September 1999, Dr. Krishna co-founded Fastscribe, Inc., an Internet-based medical and legal transcription company with its operations in India with more than 200 employees. He has served as a director of Fastscribe since September 1999. He is currently the Managing Partner. In February 2003, Dr. Krishna founded International Pharma Trials, Inc., a company with operations in India and more than 150 employees, which assists U.S. pharmaceutical companies performing Phase II clinical trials in India. He is currently the Chairman and CEO of that company. In April 2004, Dr. Krishna founded Global Medical Staffing Solutions, Inc., a company that recruits nurses and other medical professionals from India and places them in U.S. hospitals. Dr. Krishna is currently serving as the Chairman and CEO of that company. On November 7, 2008, he joined the board of TransTech Service Partners, a SPAC, which initiated liquidation on May 23, 2009. Dr. Krishna is a member of several organizations, including the American Academy of Neurology and the Medical Society of the State of New York. He is also a member of the Medical Arbitration panel for the New York State Worker's Compensation Board. Dr. Krishna was trained at New York's Mount Sinai Medical Center (1991-1994) and New York University (1994-1996). As shown above, Dr. Krishna has founded several other companies that conduct business in India and has developed relationships, over the years, with Indian government officials and Indian business leaders. Dr. Krishna’s in-depth knowledge and long experience in both U.S. and Indian business make him an effective board member.
Mr. Wei Dong Qu has been the General Manager (Chief Operating Officer) of Ironman since its inception in 2008. He was responsible for setting up the plant and currently his responsibilities include overseeing all aspects of operations, sales and marketing. He has a vast industry knowledge having worked at several institutions in China including Chifeng Metals and Minerals Industrial Products Import and Export Co. and Beijing Fulong Plastic Co., which is a China-Singapore joint venture. Mr. Qu graduated from Dalian Institute of Light Industry, in 1990, with a Bachelor’s in Engineering, and EMBA from Tsing Hua University in 2005. Mr. Qu speaks Mandarin and a little English.
Mr. JianQun Dou founded Ironman and since 2008 he has served as our Deputy Chairman. He has extensive experience as an entrepreneur having started a highly successful real estate development company and a sheep farm. Prior to this, he held several increasingly responsible positions at the Bairin Right Banner Cement Plant rising to Deputy Secretary of the Township Party Committee, and Secretary of the General Party Bureau Branch (Bairin Right Banner, Inner Mongolia). Mr. Dou grew up in Inner Mongolia and is a respected and influential leader in the community. Mr. Dou graduated with a degree in Economics from Inner Mongolia Zhaowuda Normal Training College (Also known as Chifeng, College) in 1991. He speaks Mandarin and Mongolian.
Mr. Danny Shu Kwong Ngai has been employed by IGC in Hong Kong on a part time basis since 2007. His responsibility includes interfacing with our Chinese iron ore customers and representing IGC in China. He has been intimately involved with the Acquisition negotiations and due diligence on Ironman. Mr. Ngai will move to China from Hong Kong and assume the role of Country Manager for IGC. Mr. Ngai has considerable experience managing profits and loss statements, managing SEC reporting and U.S. GAAP audit functions. He graduated from the University of Massachusetts, cum laude, in 1991 with a B.S. in Electrical Engineering and obtained a Master's degree from the School of Business at the George Washington University in 1999. From 1997 to 2004, he held various positions at Startec Global Communications, a company listed on NASDAQ, including as Managing Director since May 2007of the Hong Kong subsidiary and as Leadthe Canadian subsidiary where he had profits and loss statements responsibility for over $35 million in revenue. Mr. Ngai speaks English, Mandarin and Cantonese.
Mr. M. Santhosh Kumar our current Director and Vice-president of Finance and Accounting in India has been with IGC since March 2010. Mr. Prins2008. Since 1991, he has 25 years of experiencebeen with our subsidiary in all aspects of corporate financeIndia TBL where he held increasingly responsible positions. From 2002 to January 2008 he served as Manager (Finance and has participated directly in more than 150 transactions with both privateAccounting) and public companies across a number of industries in North America, Europe, and Asia. Mr. Prinsfrom 2000 to 2002, he was the DirectorMarketing Executive for Techni Soft (India) Limited, a subsidiary of Investment Banking for Ferris, Baker Watts, Inc., or FBW, from 1996 until JuneTBL. From 1991 to 2000, he held various positions at TBL in the Finance and Accounting department. From 1986 to 1991, he worked as an accountant in the chartered accounting firm of 2008 when FBW was acquired by Royal Bank of Canada. At FBW, he managed all of the firm's industry groupsBalan and product offerings including public offerings, mergers and acquisitions, private placements, restructurings, as well as other corporate advisory services activities. He was also responsible for executing a variety of financial and strategic transactions.Company in India. In 1986, Mr. Prins served as a consultant to Royal Bank of Canada Capital Markets through December 2008 to facilitate the post-acquisition transition. Currently Mr. Prins is a private investor and involved in various charitable organizations. Prior to FBW, Mr. Prins was a Managing Director for eight years at Crestar Bank (now SunTrust Bank) in charge of Mergers and Acquisitions. Mr. Prins began his career in 1983 as the Assistant to the Chairman of the leverage buyout company, Tuscarora Corp. He currently serves on the boards of directors of Amphastar Pharmaceutical, Advancing Native Missions and The Hope Foundation. Mr. Prins receivedSanthosh Kumar graduated with a B.A. in liberal artsCommerce from, ColgateGandhi University, and an M.B.A. from Oral Roberts University. Kerala, India.
Jortin Antony has been a Director of TBL since 2000. Prior to that, he held various positions at Bhagheeratha starting as a management trainee in 1991. From 1997 to 2000, he was the Director of Projects at Bhagheeratha. In 2003, Mr. Jortin Antony was awarded the Young Entrepreneur Award from the Rashtra Deepika. He graduated with a B.Eng,B. Eng, in 1991, from Bangalore Institute of Technology, University of Bangalore.
Special Advisors
Senator Larry Pressler has served as our Special Advisor since February 3, 2006. Since leaving the U.S. Senate in 1997, Mr. Pressler has been a combination of businessman, lawyer, corporate board director and lecturer at universities. From March 2002 to present, he has been a partner in the New York firm, Brock law Partners. He was a law partner with O’Connor & Hannan from March 1997 to March 2002.
In November 2009 President Obama appointed Mr. Pressler as a Member for the Commission for the Preservation of America’s Heritage Abroad. From 1979 to 1997, Mr. Pressler served as a member of the United States Senate. He served as the Chairman of the Senate Commerce Committee on Science and Transportation, and the Chairman of the Subcommittee on Telecommunications (1994 to 1997). From 1995 to 1997, he served as a Member of the Committee on Finance and from 1981 to 1995 on the Committee on Foreign Relations. From 1975 to 1979, Mr. Pressler served as a member of the United States House of Representatives. Among other bills, Senator Pressler authored the Telecommunications Act of 1996. As a member of the Senate Foreign Relations Committee, he authored the “Pressler Amendment,” which became the parity for nuclear weapons in Asia from 1980 to 1996.
In 2000, Senator Pressler accompanied President Clinton on a visit to India. He is a frequent traveler to India where he lectures at universities and business forums. He serves on the board of directors for The Philadelphia Stock Exchange and Flight Safety Technologies, Inc. (FLST). From 2002 to 2005 he served on the board of advisors at Chrys Capital, a fund focused on investments in India. He was on the board of directors of Spectramind from its inception in 1999 until its sale to WIPRO, Ltd (WIT) in 2003.
In 1971, Mr. Pressler earned a Juris Doctor from Harvard Law School and a Masters in Public Administration from the Kennedy School of Government at Harvard. From 1964 to 1965 he was a Rhodes Scholar at Oxford University, England where he earned a diploma in public administration. Mr. Pressler is a Vietnam War veteran having served in the U.S. Army in Vietnam in 1967-68. He is an active member of the Veterans of Foreign Wars Association.
Mr. Anil K. Gupta has served as our Special Advisor since May 25, 2005. Dr. Gupta has been Professor of Strategy and Organization at the University of Maryland since 1986. He has been Chair of the Management & Organization Department, Ralph J. Tyser Professor of Strategy and Organization, and Research Director of the Dingman Center for Entrepreneurship at the Robert H. Smith School of Business, The University of Maryland at College Park, since July 2003. Dr. Gupta earned a Bachelor of Technology from the Indian Institute of Technology in 1970, an MBA from the Indian Institute of Management in 1972 and a Doctor of Business Administration from the Harvard Business School in 1980. Dr. Gupta has served on the board of directo rsdirectors of NeoMagic Corporation (NMGC) since October 2000 and has previously served as a director of Omega Worldwide (OWWP) from October 1899 through August 2003 and Vitalink Pharmacy Services (VTK) from July 1992 through July 1999.
Board of Directors; Independence
Our boardBoard of directorsDirectors is divided into three classes (Class A, Class B and Class C) with only one class of directors being elected in each year and each class serving a three-year term. The term of office of the Class A directors, consisting currently of only Mr. Nathani and Mr.Sudhakar Shenoy, will expire at our 2011the 2014 annual meeting of stockholders. The term of office of the Class B directors, currently consisting of Mr. Richard Prins and Dr. Ranga Krishna, will expire at the 2012 annual meeting of stockholders. The term of office of the Class C director, currently consisting of Mr. Ram Mukunda, will expire at the 2013 annual meeting of stockholders. These individuals have played a key role in identifying and evaluating prospective acquisition candidates, selecting the target businesses, and structuring, negotiating and consummating the acquisition. acquisitions.
The NYSE Amex, where we areupon which the Company is listed, has rules mandatingrequires that the majority of the boardIGC’s Board be independent. Our board of directors will consult with counsel to ensure that the boards of directors’ determinations are consistent with those rules and all relevant securities laws and regulations regarding the independence of directors. The NYSE Amex listing standards define an “independent director” generally as a person, other than an officer or an employee of a company, who does not have a relationship with the company that would interfere with the director’s exercise of independent judgment. Consistent with these standards, the boardBoard of directorsDirectors has determined that Messrs. Krishna, Shenoy, Prins and NathaniShenoy are independent directors. On Dec 31, 2011 in connection with our stockholder's approval of the Acquisition, and Mr. Chang's election to the board of directors, the shareholders of IGC voted to elect Danny Qing Chang to the board as a Class A director with a term to expire at the 2014 annual meeting of stockholders. According to the NYSE Amex rules, Mr. Chang will not be considered as an independent director.
At the Special Meeting, reconvened on December 30, 2011, one Class A director was voted on to serve until the 2014 annual meeting of stockholders or until a successor for such director is elected and qualified, or until the death, resignation or removal of such director. There was only one nominee for the Board of Directors in this special election. Although the nomination and appointment of Mr. Chang to the Board of Directors was not required to be submitted to a vote of the stockholders until the 2013 annual meeting, the Board of Directors believed it appropriate to request that the stockholders elect Mr. Chang to the Board of Directors in advance of his appointment, conditioned upon the approval of the Share Issuance Proposal. Regarding Mr. Chang’s right, pursuant to the Stock Purchase Agreement, to nominate a second director, Mr. Chang has agreed to withhold this nomination until the 2013 annual meeting in connection with the election of the Class B directors.
Code of Conduct and Ethics
A code of business conduct and ethics is a written standard designed to deter wrongdoing and to promote (a) honest and ethical conduct, (b) full, fair, accurate, timely and understandable disclosure in regulatory filings and public statements, (c) compliance with applicable laws, rules and regulations, (d) the prompt reporting violation of the code and (e) accountability for adherence to the code. The Company has adopted a written code of ethics (the “Senior Financial Officer Code of Ethics”) that applies to the Company’s Chief Executive Officer and senior financial officers, including the Company’s Chief FinancialPrincipal Accounting Officer, Controller and persons performing similar functions (collectively, the “Senior Financial Officers”).in in accordance with applicable federal securities laws and the rules of the NYSE Amex. The Company has also adopted a written Code of Ethics applicable to all its employees, effective September 15, 2010. Investors may view both Codesour Senior Financial Officer Code of Ethics on the corporate governance subsection of the investor relations portion of our website at www.indiaglobalcap.com.The Company has established separate audit and compensation committees that are described below. The Company does not have a separate nominating committee. Accordingly, Board of Director nominations occur by either selection or recommendation of a majority of the independent directors.
Committees of the Board of Directors
Audit Committee. Our Board of Directors has established an Audit Committee currently composed of three independent directors who report to the Board of Directors. Messrs. Krishna, Prins and Shenoy, each of whom is an independent director under the NYSE Amex listing standards, serve as members of our Audit Committee. In addition, we have determined that Messrs. Krishna, Prins and Shenoy are “audit committee financial experts” as that term is defined under Item 407 of Regulation S-B of the Securities Exchange Act of 1934, as amended. The Audit Committee is responsible for meeting with our independent accountants regarding, among other issues, audits and adequacy of our accounting and control systems.
Audit Committee Financial Expert. The Audit Committee will at all times be composed exclusively of “independent directors” who are “financially literate,” as defined under the NYSE Amex listing standards. The NYSE Amex listing standards define “financially literate” as being able to read and understand fundamental financial statements, including a company’s balance sheet, income statement and cash flow statement. In addition, we must certify to the NYSE Amex that the Audit Committee has, and will continue to have, at least one member who has past employment experience in finance or accounting, requisite professional certification in accounting, or other comparable experience or background that results in the individual’s financial sophistication. The Board of Directors has determined that Messrs. Krishna, Prins and Shenoy satisfy the NYSE Amex’s definition of financial sophistication and qualify as “audit committee financial experts,” as defined under rules and regulations of the Securities and Exchange Commission.
Compensation Committee. Our Board of Directors has established a Compensation Committee composed of three independent directors, Messrs. Krishna, Shenoy and Prins. The compensation committee’s purpose is to review and approve compensation paid to our officers and directors and to administer the Company’s Stock Plan.
Nominating and Corporate Governance Committee. We intend to establish a nominating and corporate governance committee. The primary purpose of the nominating and corporate governance committee will be to identify individuals qualified to become directors, recommend to the Board of Directors the candidates for election by stockholders or appointment by the Board of Directors to fill a vacancy, recommend to the Board of Directors the composition and chairs of Board of Directors committees, develop and recommend to the Board of Directors guidelines for effective corporate governance, and lead an annual review of the performance of the Board of Directors and each of its committees. We do not have any formal process for stockholders to nominate a director for election to our Board of Directors. Currently, nominations are selected or recommended by a majority of the independent directors as stated in Section 804(a) of the NYSE Amex Company Guide.
Board and Committee Meetings
During the fiscal year ended March 31, 2010,2011, our boardBoard of directorsDirectors held 5six meetings. Although we do not have any formal policy regarding director attendance at our annual meetings, we attempt to schedule our annual meetings so that all of our directors can attend. During the fiscal year ended March 31, 2010,2011, all of our directors attended 100% of the meetings of the boardBoard of directors.Directors. During the fiscal year ended March 31, 2010,2011, there were 5two meetings of the audit committee, all of which were attended by all of the members of the committee and 2 meetings of thecommittee. There were no compensation committee all of which were attended by all of the members of the committee.
DIRECTOR AND EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Overview of Compensation Policy
The Company’s Compensation Committee is empowered to review and approve, or in some cases recommend for the approval of the full Board of Directors the annual compensation for the executive officers of the Company. This Committee has the responsibility for establishing, implementing and monitoring the Company’s compensation strategy and policy. Among its principal duties, the Committee ensures that the total compensation of the executive officers is fair, reasonable and competitive.
Objectives and Philosophies of Compensation
The primary objective of the Company’s compensation policy, including the executive compensation policy, is to help attract and retain qualified, energetic managers who are enthusiastic about the Company’s mission and products. The policy is designed to reward the achievement of specific annual and long-term strategic goals aligning executive performance with company growth and shareholderstockholder value. In addition, the Board of Directors strives to promote an ownership mentality among key leaders and the Board of Directors.
Setting Executive Compensation
The compensation policy is designed to reward performance. In measuring executive officers’ contribution to the Company, the Compensation Committee considers numerous factors including the Company’s growth and financial performance as measured by revenue, gross margin and net income before taxes among other key performance indicators.
Regarding most compensation matters, including executive and director compensation, management provides recommendations to the Compensation Committee; however, the Compensation Committee does not delegate any of its functions to others in setting compensation. The Compensation Committee does not currently engage any consultant related to executive and/or director compensation matters.
Stock price performance has not been a factor in determining annual compensation because the price of the Company’s common stockCommon Stock is subject to a variety of factors outside of management’s control. The Company does not subscribe to an exact formula for allocating cash and non-cash compensation. However, a significant percentage of total executive compensation is performance-based. Historically, the majority of the incentives to executives have been in the form of non-cash incentives in order to better align the goals of executives with the goals of stockholders.
Elements of Company'sCompany’s Compensation Plan
The principal components of compensation for the Company'sCompany’s executive officers are:
| · | base salary | |
| · | performance-based incentive cash compensation | |
| · | right to purchase the | |
| · | retirement and other benefits |
Base Salary
The Company provides named executive officers and other employees with base salary to compensate them for services rendered during the fiscal year. Base salary ranges for named executive officers are determined for each executive based on his or her position and responsibility.
During its review of base salaries for executives, the Committee primarily considers:
| · | market data; | |
| · | internal review of the executives’ compensation, both individually and relative to other officers; and | |
| · | individual performance of the executive. |
Salary levels are typically evaluated annually as part of the Company'sCompany’s performance review process as well as upon a promotion or other change in job responsibility.
Performance-Based Incentive Compensation
The management incentive plan gives the Committee the latitude to design cash and stock-based incentive compensation programs to promote high performance and achievement of corporate goals, encourage the growth of stockholder value and allow key employees to participate in the long-term growth and profitability of the Company. So that stock-based compensation may continue to be a viable part of the Company’s compensation strategy, management is currently seeking shareholderstockholder approval of a proposal to increase the number of shares of Company common stockCommon Stock reserved for issuance pursuant to the Company’s Stock Plan.
Ownership Guidelines
To directly align the interests of the Board of Directors directly with the interests of the stockholders, the Committee recommends that each Board member maintain a minimum ownership interest in the Company. Currently, the Compensation Committee recommends that each Board member own a minimum of 5,000 shares of the Company’s common stockCommon Stock with such stock to be acquired within a reasonable time following election to the Board.
Stock Option Program
The Stock Option Program assists the Company to:
| · | enhance the link between the creation of stockholder value and long-term executive incentive compensation; | |
| · | provide an opportunity for increased equity ownership by executives; and | |
| · | maintain competitive levels of total compensation. |
Stock option award levels will be determined based on market data and will vary among participants based on their positions within the Company and are granted at the Committee’s regularly scheduled meeting. As of June 30, 2010,March 31, 2011, we had granted 78,820 shares of common stockCommon Stock and 1,413,000 stock options under our Stock Plan. All of these grants occurred on or before the fiscal year ended March 31, 2010. The exercise price of the options, which vest immediately, was $1.00 per share; the options will expire on May 13, 2014. No options were granted during the fiscal year ended March 31, 2011. An additional 1,370,450 stock options (the “2012 Options”) were granted during the fiscal year ended March 31, 2012. The exercise price of the 2012 Options, which vest immediately, was $0.56 per share. These options will expire on June 27, 2016. As of March 2, 2012, under the 2008 Omnibus Plan, 2,783,450 stock options had been awarded and an aggregate of 116,030 shares of Common Stock remain available for future grants of options or stock awards.
Perquisites and Other Personal Benefits
The Company provides some executive officers with perquisites and other personal benefits that the Company and the Committee believe are reasonable and consistent with its overall compensation program to better enable the Company to attract and retain superior employees for key positions. The Committee periodically reviews the levels of perquisites and other personal benefits provided to named executive officers.
Some executive officers are providedreceive the use of company automobileautomobiles and assistants. All employees can participate in the plans and programs described above.
an assistant. Each employee of the Company is entitled to term life insurance, premiums for which are paid by the Company. In addition, each employee is entitled to receive certain medical and dental benefits and the employee funds part of the cost is funded by the employee.cost.
Accounting and Tax Considerations
The Company’s stock option grant policy will be impacted by the implementation of FASB ASC 718 (Previously referred to as SFAS No. 123R), which was adopted in the first quarter of fiscal year 2006. Under this accounting pronouncement, the Company is required to value unvested stock options granted prior to the adoption of FASB ASC 718 under the fair value method and expense those amounts in the income statement over the stock option’s remaining vesting period.
Section 162(m) of the Internal Revenue Code restricts deductibility of executive compensation paid to the Company’s chief executive officer and each of the four other most highly compensated executive officers holding office at the end of any year to the extent such compensation exceeds $1,000,000 for any of such officers in any year and does not qualify for an exception under Section 162(m) or related regulations. The Committee’s policy is to qualify its executive compensation for deductibility under applicable tax laws to the extent practicable. In the future, the Committee will continue to evaluate the advisability of qualifying its executive compensation for full deductibility.
Compensation for Executive Officers of the Company
The following table sets forth information concerning all cash and non-cash compensation awarded to, earned by or paid to (i) all individuals serving as the Company’s principal executive officer or acting in a similar capacity during the last two completed fiscal years, regardless of compensation level, and (ii) the Company’s two most highly compensated executive officers other than the principal executive officerofficers serving at the end of the last two completed fiscal years (collectively, the “Named Executive Officers”).
Summary Compensation Table
| Name and Principal Position | Year | Salary | Bonus | Option Awards(1) | Total | ||||||||||||
| Compensation | |||||||||||||||||
| Ram Mukunda, Chief Executive Officer and President | 2010 | $ | 300,000 | $ | - | $ | 40,894 | $ | 340,894 | ||||||||
| 2009 | $ | 300,000 | $ | 150,000 | $ | - | $ | 450,000 | |||||||||
| John Selvaraj, Chief Financial Officer | 2010 | $ | 69,000 | $ | - | $ | - | $ | 69,000 | ||||||||
| 2009 | $ | 63,300 | $ | - | $ | - | $ | 63,300 | |||||||||
| Name and Principal Position | Year | Salary | Bonus | Option Awards(1) | Total | |||||||||||||
Compensation | ||||||||||||||||||
Ram Mukunda, Chief Executive Officer and President | 2011 | $ | 300,000 | $ | - | $ | - | $ | 300,000 | |||||||||
2010 | $ | 300,000 | $ | - | $ | 40,894 | $ | 340,894 | ||||||||||
John Selvaraj, Principal Accounting Officer | 2011 | $ | 93,160 | $ | - | $ | - | $ | 93,160 | |||||||||
2010 | $ | 69,000 | $ | - | $ | - | $ | 69,000 | ||||||||||
| (1) | The amounts reported in this column represent the fair value of option awards to the named executive officer as computed on the date of the option grant using the Black-Scholes option-pricing model. |
There were no equity and non-equity awards granted to the named executives in the fiscal year ended March 31, 2011.
Outstanding Equity Awards at Fiscal Year End
The following table sets forth information with respect to outstanding stock options held byfor the Company’s Named Executive Officers atnamed executives as of March 31, 2010.
| Number of | Number of | |||||||
| Securities | Securities | |||||||
| Underlying | Underlying | |||||||
| Unexercised | Unexercised | Option Exercise | ||||||
| Options (#) | Options (#) | Price | Option Expiration | |||||
| Name | Exercisable | Unexercisable) | ($) | Date | ||||
| Ram Mukunda | 635,000 | - | $1.00 | 5/13/14 |
| Name | Number of Securities Underlying | Number of Securities Underlying | Option Exercise Price | Option Expiration Date | |||||||||
Ram Mukunda | 635,000 | - | $ | 1.00 | 5/13/14 | ||||||||
Compensation of Directors
Name | Fees Earned Or Paid in Cash ($) | Stock Awards ($) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) | All Other Compensation ($) | Total($) | |||||||||||||||||||||
| Ram Mukunda | 0 | 0 | 0 | 0 | 0 | 0 | $ | 0 | ||||||||||||||||||||
| Dr. Ranga Krishna (1) | 0 | 0 | $ | 22,540 | 0 | 0 | 0 | $ | 22,540 | |||||||||||||||||||
| Sudhakar Shenoy (2) | 0 | 0 | $ | 8,050 | 0 | 0 | 0 | $ | 8,050 | |||||||||||||||||||
| Richard Prins (2) | 0 | 0 | $ | 8,050 | 0 | 0 | 0 | $ | 8,050 | |||||||||||||||||||
| Suhail Nathani (2) | 0 | 0 | $ | 6,440 | 0 | 0 | 0 | $ | 6,440 | |||||||||||||||||||
directors. All compensation paid to our employee director is set forth in the tables summarizing executive officer compensation above.
The Option Awards column reflects the grant date fair value, in accordance with Accounting Standards Codification (ASC) Topic 718, Compensation — Stock Compensation (formerly Statement of Financial Accounting Standards (SFAS) No. 123R) for awards pursuant to the Company’s equity incentive program.
Assumptions used in the calculation of these amounts for the fiscal year ended March 31, 20102011 are included in Footnote 1617 “Stock-Based Compensation” to the Company’s audited financial statements for the fiscal year ended March 31, 2010,2011, included in this prospectus.
the Company’s Annual Report on Form 10-K, and any amendments thereto for IGC, filed with the SEC on July 14, 2011. The Company cautions that the amounts reported in the Director Compensation Table for these awards may not represent the amounts that the directors will actually realize from the awards. Whether, and to what extent, a director realizes value will depend on the Company’s actual operating performance and stock price fluctuations.
Employment Contracts
Ram Mukunda has served as President and Chief Executive Officer of the Company since its inception. The Company, IGC-M and Mr. Mukunda entered into an Employment Agreement on May 22, 2008, which agreement was made effective as of March 8, 2008, the date on which the Company completed its acquisition of Sricon and TBL. Pursuant to the agreement,Employment Agreement, the Company pays Mr. Mukunda a base salary of $300,000 per year. Mr. Mukunda was also entitled to receive bonuses of at least $225,000 for meeting certain targets for net income (before one-time charges including charges for employee options, warrants and other items) for fiscal year 2009 and is entitled to receive $150,000 for meeting targets with respect to obtaining new contracts. The Employment Agreement further provides that the Board of Directors of the Company may review and update the targets and amounts for the net revenue and contract bonuses on an annual basis. The Agreement also provides forMr. Mukunda is entitled to benefits, including insurance, 20 days of paid vacation, domestic help, a driver, a cook, a car (subject to partial reimbursement by Mr. Mukunda of lease payments for the car) and reimbursement of business expenses. The term of the Employment Agreement is five years, after which employment will become at-will. The Employment Agreement is terminable by the Company and IGC-M for death, disability and cause. In the event of a termination without cause, the Company would be required to pay Mr. Mukunda his full compensation for 18 months or until the term of the Employment Agreement was set to expire, whichever is earlier.
Compensation Risk Assessment
In partial consideration forsetting compensation, the equity sharesCompensation Committee considers the risks to the Company’s stockholders and to achievement of its goals that may be inherent in Sricon purchased byits compensation programs. The Compensation Committee reviewed and discussed its assessment with management and outside legal counsel and concluded that the Company’s compensation programs are within industry standards and are designed with the appropriate balance of risk and reward to align employees’ interests with those of the Company pursuantand do not incent employees to take unnecessary or excessive risks. Although a portion of our executives and employees’ compensation is performance-based and “at risk,” we believe our compensation plans are appropriately structured and are not reasonably likely to result in a material adverse effect on the Company.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table shows, as of March 31, 2011, information regarding outstanding awards available under our compensation plans (including individual compensation arrangements) under which our equity securities may be delivered.
| (a) | (b) | (c) | ||||||||||
| Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights(1) | Weighted- average exercise price of outstanding options, warrants and rights | Number of securities available for future issuance (excluding shares in column (a))(1) | |||||||||
| Equity compensation plans approved by security holders: | ||||||||||||
2008 Omnibus Incentive Plan | 1,413,000 | $ | 1.00 | 471,045 | ||||||||
(1) Consists of our 2008 Omnibus Incentive Plan, as amended. See Note 17—”Stock-Based Compensation” of the Notes to the terms of a Shareholders Agreement dated as of September 15, 2007 byConsolidated Financial Statements included in this Annual Report on Form 10-K, and amongany amendments thereto for IGC Sricon and the Promoters of Sricon, the stockholders of Sricon as of the date of the acquisition, including Ravindra Lal Srivastava, who currently serves as the Chairman and Managing Director of Sricon, shall have the right to receive up to an aggregate of 418,431 equity shares of Sricon over a three-year period if Sricon achieves certain profit after tax targets for its 2008-2010 fiscal years. The maximum number of shares the Promoters may receive in any given fiscal year is 139,477 shares. If Sricon’s profits after taxes for a given fiscal year are less than 100% of the target for that year but are equal to at least 85% of the target, the Promoters shall receive a pro-rated portion of the maximum share award for that fiscal year. A copy of this agreement was filed with the SEC in the Company’s definitive proxy statement filed February 8, 2008 and is incorporated here by reference.
We are party to indemnification agreements with each of the Company served as a director or member ofexecutive officers and directors. Such indemnification agreements require us to indemnify these individuals to the compensation committee of any other entity.fullest extent permitted by law.
Review, Approval or Ratification of Related Party Transactions
We do not maintain a formal written procedure for the review and approval of transactions with related persons. It is our policy for the disinterested members of our board to review all related party transactions on a case-by-case basis. To receive approval, a related-party transaction must have a business purpose for IGC and be on terms that are fair and reasonable to IGC and as favorable to IGC as would be available from non-related entities in comparable transactions.
The following table sets forth information regarding the beneficial ownership of our common stockCommon Stock as of June 30, 2010March 2, 2012, by:
| each person known by us to be the beneficial owner of more than 5% of our outstanding shares of |
| each of our executive officers, directors and our special advisors; and |
| all of our officers and directors as a group. |
Beneficial ownership is determined in accordance with theSEC rules of the Securities and Exchange Commission and does not necessarily indicate beneficial ownership for any other purpose. Under these rules, beneficial ownership includes those shares of common stockCommon Stock over which the stockholder has sole or shared voting or investment power. It also includes shares of common stockCommon Stock that the stockholder has a right to acquire within 60 days through the exercise of any option, warrant or other right. The percentage ownership of the outstanding common stock,Common Stock, which is based upon 13,761,20752,460,433 shares of common stockCommon Stock outstanding as of September 30, 2010,March 2, 2012, is based on the assumption, expressly required by the rules of the Securities and Exchange Commission, that only the person or entity whose ownership is being reported has conver tedexercised options or warrants intoto purchase shares of our common stock.Common Stock.
The table below sets forth as of September 30, 2010 ,March 2, 2012, except as noted in the footnotes to the table, certain information with respect to the beneficial ownership of the Company’s Common Stock by (i) all persons or groups, according to the most recent Schedule 13D or Schedule 13G filed with the Securities and Exchange Commission or otherwise known to us, to be the beneficial owners of more than 5% of the outstanding Common Stock of the Company, (ii) each director and director-nominee of the Company, (iii) the executive officers named in the Summary Compensation Table, and (iv) all such executive officers and directors of the Company as a group.
| Shares Owned | ||||||||
Name and Address of Beneficial Owner(1) | Number of Shares | Percentage of Class | ||||||
Wells Fargo and Company (2) 420 Montgomery Street San Francisco, CA 94104 | 1,934,424 | 14.1 | % | |||||
Sage Master Investments Ltd (3) 500 Fifth Avenue, Suite 930 New York, New York 10110 | 1,067,300 | 7.8 | % | |||||
UBS AG (4) Bahnhofstrasse 45 PO Box CH-8021 Zurich, Switzerland | 859,742 | 6.2 | % | |||||
Brightline Capital Management, LLC (5) 1120 Avenue of the Americas, Suite 1505 New York, New York 10036 | 608,100 | 4.4 | % | |||||
| Ram Mukunda (6) | 1,449,914 | 10.0 | % | |||||
| Ranga Krishna (7) | 2,215,624 | 15.8 | % | |||||
| Richard Prins (8) | 196,250 | 1.4 | % | |||||
| Sudhakar Shenoy(9) | 175,000 | 1.3 | % | |||||
| Suhail Nathani(10) | 150,000 | 1.1 | % | |||||
| Larry Pressler | 25,000 | * | ||||||
| Dr. Anil K. Gupta | 25,000 | * | ||||||
| P.G. Kakodkar | 12,500 | * | ||||||
| Shakti Sinha | 12,500 | * | ||||||
| Dr. Prabuddha Ganguli | 12,500 | * | ||||||
All Executive Officers and Directors as a group (5 Persons)(11) | 4,186,788 | 27.5 | % | |||||
Shares Owned Before the Acquisition | Post Acquisition | |||||||||||||||
Name and Address of Beneficial Owner (1) | Number of Shares | Percentage of Class | Number of Shares | Percentage of Class | ||||||||||||
Ram Mukunda (2) | 2,024,914 | 9.66 | % | 2,224,914 | 4.2 | % | ||||||||||
Ranga Krishna (3) | 3,021,780 | 14.42 | % | 3,201,385 | 6.1 | % | ||||||||||
Richard Prins (4) | 350,000 | 1.67 | % | 350,000 | 0.7 | % | ||||||||||
Sudhakar Shenoy (5) | 350,000 | 1.67 | % | 350,000 | 0.7 | % | ||||||||||
Danny Qing Chang (6) | 0 | - | 2,000,000 | 3.8 | % | |||||||||||
Dayong Chang | 0 | - | 3,000,000 | 5.7 | % | |||||||||||
Jingyu Mu | 0 | - | 3,300,000 | 6.3 | % | |||||||||||
Benquan Li | 0 | - | 3,300,000 | 6.3 | % | |||||||||||
FengLi Chen | 0 | - | 3,600,000 | 6.9 | % | |||||||||||
Lili Zhang | 0 | - | 3,500,000 | 6.7 | % | |||||||||||
Tianqi Xiao | 0 | - | 5,600,000 | 10.7 | % | |||||||||||
All Executive Officers and Directors as a group (5 Persons) (7) (8) | 5,746,694 | 27.42 | % | 7,746,694 | 14.77 | % | ||||||||||
| (1) | Unless otherwise indicated, the address of each of the individuals listed in the table |
| (2) | |
| (3) | Includes warrants to purchase 290,000 shares of Common Stock, all of which are currently exercisable. Includes 976,961 shares reported on Form 4 on January 13, 2012. Includes 1, 934,424 shares as reported on an amended Schedule 13G filed with the SEC on |
Includes | |
| (6) | The shareholders of IGC voted to elect Danny Qing Chang to the |
| (8) | This data does not include the issuance of the Compensation Shares to be issued in connection with the Acquisition of HK Ironman, as set forth in the Stock Purchase Agreement. |
General
Units
Each unit consists of one share of common stockCommon Stock and two warrants. Each warrant entitles the holder to purchase one share of common stock.Common Stock. Each share of the common stockCommon Stock and warrantseach warrant can be traded separately.
Common stockStock
Our stockholders are entitled to one vote for each share held of record on all matters to be voted on by stockholders.
Our board of directors is divided into three classes (Class A, Class B and Class C), each of which will generally serve for a term of three years with only one class of directors being elected in each year. There is no cumulative voting with respect to the election of directors, with the result that the holders of more than 50% of the shares voted for the election of directors can elect all of the directors.
Our stockholders have no conversion, preemptive or other subscription rights and there are no sinking fund or redemption provisions applicable to the common stock.Common Stock.
Preferred stock
Our certificate of incorporation authorizes the issuance of 1,000,000 shares of blank check preferred stock with such designation, rights and preferences as may be determined from time to time by our board of directors. No shares of preferred stock are being issued or registered in this offering. Accordingly, our board of directors is empowered, without stockholder approval, to issue preferred stock with dividend, liquidation, conversion, voting or other rights, which could adversely affect the voting power or other rights of the holders of common stock.Common Stock. We may issue some or all of the preferred stock to effect a business combination. In addition, the preferred stock could be utilized as a method of discouraging, delaying or preventing a change in control of us. Although we do not currently intend to issue any shares of preferred stock, we cannot assure you that we will not do so in the future.
Dividends
We have not paid any dividends on our common stockCommon Stock to date and do not intend to pay dividends prior to the completion of a business combination. The payment of dividends in the future will be contingent upon our revenues and earnings, if any, capital requirements and general financial condition subsequent to completion of a business combination. The payment of any dividends subsequent to a business combination will be within the discretion of our then board of directors. It is the present intention of our board of directors to retain all earnings, if any, for use in our business operations and, accordingly, our board does not anticipate declaring any dividends in the foreseeable future.
Maryland Anti-Takeover Provisions and Certain Anti-Takeover Effects of our Charter and Bylaws
Business Combinations
Under the Maryland General Corporation Law, some business combinations, including a merger, consolidation, share exchange or, in some circumstances, an asset transfer or issuance or reclassification of equity securities, are prohibited for a period of time and require an extraordinary vote. These transactions include those between a Maryland corporation and the following persons (a “Specified Person”):
| · | an interested stockholder, which is defined as any person (other than a subsidiary) who beneficially owns 10% or more of the corporation’s voting stock, or who is an affiliate or an associate of the corporation who, at any time within a two-year period prior to the transaction, was the beneficial owner of 10% or more of the voting power of the corporation’s voting stock; or |
| · | an affiliate of an interested stockholder |
A person is not an interested stockholder if the board of directors approved in advance the transaction by which the person otherwise would have become an interested stockholder. The board of directors of a Maryland corporation also may exempt a person from these business combination restrictions prior to the time the person becomes a Specified Person and may provide that its exemption isbe subject to compliance with any terms and conditions determined by the board of directors. Transactions between a corporation and a Specified Person are prohibited for five years after the most recent date on which such stockholder becomes a Specified Person. After five years, any business combination must be recommended by the board of directors of the corporation and approved by at least 80% of the votes entitled to be cast by holders of voting stock of the corporation and two-thirds of the votes entitled to be cast by holders of shares other than voting stock held by the Specified Person with whom the business combination is to be effected, unless the corporation’s stockholders receive a minimum price as defined by Maryland law and other conditions under Maryland law are satisfied.
A Maryland corporation may elect not to be governed by these provisions by having its board of directors exempt various Specified Persons, by including a provision in its charter expressly electing not to be governed by the applicable provision of Maryland law or by amending its existing charter with the approval of at least 80% of the votes entitled to be cast by holders of outstanding shares of voting stock of the corporation and two-thirds of the votes entitled to be cast by holders of shares other than those held by any Specified Person. Our Charter does not include any provision opting out of these business combination provisions.
Control Share Acquisitions
The Maryland General Corporation Law also prevents, subject to exceptions, an acquirer who acquires sufficient shares to exercise specified percentages of voting power of a corporation from having any voting rights except to the extent approved by two-thirds of the votes entitled to be cast on the matter not including shares of stock owned by the acquiring person, any directors who are employees of the corporation and any officers of the corporation. These provisions are referred to as the control share acquisition statute.
The control share acquisition statute does not apply to shares acquired in a merger, consolidation or share exchange if the corporation is a party to the transaction, or to acquisitions approved or exempted prior to the acquisition by a provision contained in the corporation’s charter or bylaws. Our Bylaws include a provision exempting IGC from the restrictions of the control share acquisition statute, but this provision could be amended or rescinded either before or after a person acquired control shares. As a result, the control share acquisition statute could discourage offers to acquire IGC stock and could increase the difficulty of completing an offer.
Board of Directors
The Maryland General Corporation Law provides that a Maryland corporation which is subject to the Exchange Act and has at least three outside directors (who are not affiliated with an acquirer of the company) under certain circumstances may elect by resolution of the board of directors or by amendment of its charter or bylaws to be subject to statutory corporate governance provisions that may be inconsistent with the corporation’s charter and bylaws. Under these provisions, a board of directors may divide itself into three separate classes without the vote of stockholders such that only one-third of the directors are elected each year. A board of directors classified in this manner cannot be altered by amendment to the charter of the corporation. Further, the board of directors may, by electing to be covered by the applicable sta tutorystatutory provisions and notwithstanding the corporation’s charter or bylaws:
| · | provide that a special meeting of stockholders will be called only at the request of stockholders entitled to cast at least a majority of the votes entitled to be cast at the meeting, |
| · | reserve for itself the right to fix the number of directors, |
| · | provide that a director may be removed only by the vote of at least two-thirds of the votes entitled to be cast generally in the election of directors and |
| · | retain for itself sole authority to fill vacancies created by an increase in the size of the board or the death, removal or resignation of a director. |
In addition, a director elected to fill a vacancy under these provisions serves for the balance of the unexpired term instead of until the next annual meeting of stockholders. A board of directors may implement all or any of these provisions without amending the charter or bylaws and without stockholder approval. Although a corporation may be prohibited by its charter or by resolution of its board of directors from electing any of the provisions of the statute, we have not adopted such a prohibition. We have adopted a staggered board of directors with 3three separate classes in our charter and given the board the right to fix the number of directors, but we have not prohibited the amendment of these provisions. The adoption of the staggered board may discourage offers to acquire IGC stock and may increase the difficulty of comple tingcompleting an offer to acquire our stock. If our board chose to implement the statutory provisions, it could further discourage offers to acquire IGC stock and could further increase the difficulty of completing an offer to acquire our stock.
Effect of Certain Provisions of our Charter and Bylaws
In addition to the Charter and Bylaws provisions discussed above, certain other provisions of our Bylaws may have the effect of impeding the acquisition of control of IGC by means of a tender offer, proxy fight, open market purchases or otherwise in a transaction not approved by our board of directors. These provisions of Bylaws are intended to reduce our vulnerability to an unsolicited proposal for the restructuring or sale of all or substantially all of our assets or an unsolicited takeover attempt, which our board believes is otherwise unfair to our stockholders. These provisions, however, also could have the effect of delaying, deterring or preventing a change in control of IGC.
Stockholder Meetings; Advance Notice of Director Nominations and New Business. Our Bylaws provide that with respect to annual meetings of stockholders, (i) nominations of individuals for election to our board of directors and (ii) the proposal of business to be considered by stockholders may be made only:
| · | pursuant to IGC’s notice of the meeting, |
| · | by or at the direction of our board of directors or |
| · | by a stockholder who is entitled to vote at the meeting and has complied with the advance notice procedures set forth in our Bylaws. |
Special meetings of stockholders may be called only by the chief executive officer, the board of directors or the secretary of IGC (upon the written request of the holders of a majority of the shares entitled to vote). At a special meeting of stockholders, the only business that may be conducted is the business specified in IGC’s notice of meeting. With respect to nominations of persons for election to our board of directors, nominations may be made at a special meeting of stockholders only:
| · | pursuant to IGC’s notice of meeting, |
| · | by or at the direction of our board of directors or |
| · | if our board of directors has determined that directors will be elected at the special meeting, by a stockholder who is entitled to vote at the meeting and has complied with the advance notice procedures set forth in our Bylaws. |
These procedures may limit the ability of stockholders to bring business before a stockholders meeting, including the nomination of directors and the consideration of any transaction that could result in a change in control and that may result in a premium to our stockholders.
DESCRIPTION OF WARRANTS
The IPO Warrants were originally issued in our initial public offering pursuant to a prospectus dated March 3, 2006, of which 11,855,122 warrants are outstanding as of March 2, 2012. In order to obtain the shares, the holders of the IPO Warrants must pay an exercise price of $5.00 per share for the shares underlying the IPO Warrants. All of the IPO Warrants were initially set to expire on March 3, 2011. We subsequently extended the expiration date of the IPO Warrants to March 8, 2013 at 5:00 p.m., EST. We may call the IPO Warrants for redemption:
in whole and not in part;
at a price of $0.01 per warrant at any time after the warrants become exercisable;
upon not less than 30 days’ prior written notice of redemption to each warrant holder; and
if, and only if, the reported last sale price of the Common Stock equals or exceeds $8.50 per share, for any 20 trading days within a 30 trading day period ending on the third business day prior to the notice of redemption to warrant holders.
The 2009 Warrants were originally issued in a registered direct offering pursuant to a prospectus and prospectus supplement each dated September 16, 2009, of which 258,800 warrants are outstanding as of March 2, 2012. In order to obtain the shares, the holders of the 2009 Warrants must pay an exercise price of $1.60 per share for the shares underlying the 2009 Warrants. All of the 2009 Warrants are set to expire on September 18, 2012 at 5:00 p.m., EST. We may not call the 2009 Warrants for redemption.
The 2010 Warrants were originally issued in a registered direct offering pursuant to a prospectus and prospectus supplement each dated November 30, 2010, of which 858,610 warrants are outstanding as of March 1, 2011. In order to obtain the shares, the holders of the 2010 Warrants must pay an exercise price of $0.90 per share for the shares underlying the 2010 Warrants. All of the 2010 Warrants are set to expire on December 8, 2017 at 5:00 p.m., EST. We may not call the 2010 Warrants for redemption.
Our Transfer Agent and Warrant Agent
The transfer agent for our securities and warrant agent for our warrants is Continental Stock Transfer & Trust Company.
We have an aggregate of 13,761,20752,460,433 shares of common stock outstanding .Common Stock outstanding. Of these shares, 10,201,20745,855,834 shares are either freely tradable without restriction or further registration under the Securities Act of 1933, except for any shares purchased by one of our affiliates within the meaning of Rule 144 under the Securities Act of 1933, or registered for resale. Shares purchased by our affiliates include the 170,000 shares included in the units purchased in a private placement by our officers and directors or their nominees, which were the subject of a lock-up agreement with us and the representative of the underwriters until we completed a business combination. Since we have completed a business combination, the lock-up has terminated with respect to those shar es.shares. All of the remaining 3,560,0006,604,599 shares are restricted securities under Rule 144, in that they were issued in private transactions not involving a public offering. None of those will be eligible for sale under Rule 144 until the one year holding period has elapsed with respect to each purchase and the additional conditions described in “Restrictions on the Use of Rule 144 by Shell Companies or Former Shell Companies” below are satisfied.
Rule 144
In general, under Rule 144, as currently in effect, a person (or persons whose shares are aggregated) who is deemed to be an affiliate of ours at the time of sale of our securities, or at any time during the preceding three months, and who has beneficially owned restricted shares of our common stockCommon Stock for at least six months, would be entitled to sell within any three-month period a number of shares that does not exceed the greater of either of the following:
| · | 1% of the number of shares of |
| · | the average weekly trading volume of the |
Sales under Rule 144 are also limited by manner of sale provisions and notice requirements and to the availability of current public information about us.
A person who has not been our affiliate at any time during the three months preceding a sale, and who has beneficially owned his shares for at least six months, would be entitled under Rule 144 to sell such shares without regard to any manner of sale, notice provisions or volume limitations described above. Any such sales must comply with the public information provision of Rule 144 until our common stockCommon Stock has been held for one year.
Restrictions on the Use of Rule 144 by Shell Companies or Former Shell Companies
Historically, the SEC staff had taken the position that Rule 144 is not available for the resale of securities initially issued by companies that are, or previously were, blank check companies, like us. The SEC has codified and expanded this position in recent amendments by prohibiting the use of Rule 144 for resale of securities issued by any shell companies (other than business combination related shell companies) or any issuer that has been at any time previously a shell company. The SEC has provided an important exception to this prohibition, however, if the following conditions are met:
| · | the issuer of the securities that was formerly a shell company has ceased to be a shell company; |
| · | the issuer of the securities is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act; |
| · | the issuer of the securities has filed all Exchange Act reports and material required to be filed, as applicable, during the preceding 12 months (or such shorter period that the issuer was required to file such reports and materials), other than Form 8-K reports; and |
| · | at least one year has elapsed from the time that the issuer filed current Form 10 type information with the SEC reflecting its status as an entity that is not a shell company. |
We have satisfied the preceding requirements and as a result, pursuant to Rule 144, our initial shareholders are able to sell their initial shares freely without registration.
SEC Position on Rule 144 Sales
The SEC has taken the position that promoters or affiliates of a blank check company and their transferees, both before and after a business combination, would act as an “underwriter” under the Securities Act of 1933 when reselling the securities of a blank check company. Accordingly, the SEC believes that those securities can be resold only through a registered offering and that Rule 144 would not be available for those resale transactions despite technical compliance with the requirements of Rule 144.
Registration Rights
The officer, director and our special advisor holders of our 2,500,000 shares of common stockCommon Stock that are issued and outstanding on the date of this prospectus are entitled to registration rights pursuant to an agreement dated as of March 8, 2005. The 170,000 shares purchased by such persons in the private placement are also being entitled to registration rights pursuant to the agreement. Our Chairman, Dr. Ranga Krishna, also owns 446,226 shares of our common stockCommon Stock that he acquired in a separate private placement in connection with his lending money to us that are also entitled to registration rights pursuant to the agreement. The holders of the majority of these shares are entitled to make up to two demands that we register these shares. The holders of the majority of these shares can elect to exercise these registra tionregistration rights at any time after the date on which the lock-up period expires. In addition, these stockholders have certain “piggy-back” registration rights on registration statements filed subsequent to such date. We will bear the expenses incurred in connection with the filing of any such registration statements.
Oliveira Capital, LLC, which acquired warrants to purchase 425,000 shares of our common stockCommon Stock (at an initial exercise price of $5.00 per share) and 103,774 shares of our common stockCommon Stock (at an initial exercise price of $5.00 per share) in two private placements, in connection with itits lending money to us, is entitled to “piggy-back” registration rights for the shares, the warrants and the warrants underlying the shares, pursuant to an agreement dated as of February 5, 2007, on registration statements filed subsequent to such date.
The holders of an aggregate of 204,953 shares of our common stockCommon Stock acquired in a private placement in connection with the purchase of promissory notes from the Company entered into a registration rights agreement providing registration rights similar to those provided to the Company’s founders except that they are only entitled to one demand registration.
Steven M. Oliveira 1998 Charitable Remainder Unitrust, the holder of an aggregate of 200,000 shares of our common stockCommon Stock acquired in a private placement in connection with the purchase of a promissory note from the Company entered into a registration rights agreement requiring the Company to file a registration statement registering the shares for resale on or before November 14, 2008 and to have that registration statement effective by December 14, 2008 (subject to extension if certain conditions are met). If the Company fails to meet those deadlines, the trust will be entitled to an additional 50,000 shares of common stockCommon Stock and, if the deadline is unmet for 30 days, an additional 10,000 shares and a further 10,000 shares for each subsequent 30 day30-day period such deadline is unmet.
We satisfied the registration rights described in the preceding paragraphs by registering all of the shares and warrants described in the preceding paragraphs for resale on a registration statement on Form S-1 that was declared effective on November 12, 2008.
Bricoleur Partners, L.P., the holder of an aggregate of 530,000 shares of our common stockCommon Stock acquired in a private placement in connection with the purchase of a promissory note from the Company entered into a registration rights agreement requiring the Company to file a registration statement registering the shares for resale on or before November 30, 2009 and to have that registration statement effective by December 30, 2009 (subject to extension if certain conditions are met). If the Company failsfailed to meet those deadlines, Bricoleur will bewould have been entitled to an additional 50,000 shares of common stockCommon Stock and, if the deadline iswas unmet for another 60 days, an additional 10,000 shares and a furtherplus an additional 10,000 shares for each subsequent 60 day60-day period such deadline is unmet. We satisfied the registration rights described in this paragraph b yby registering all of the shares for resale on a registration statement on Form S-3 that was declared effective on February 4, 2010.
Shares Issuable Upon Defaultin Payment of Notes
Pursuant to the terms of a Note and Shares Purchase AgreementsAgreement entered into by the Company with each ofthe Steven M. Oliveira 1998 Charitable Remainder Unitrust, each payment of the promissory note issued by us to the Unitrust shall, at the sole option of the Company, be payable either in immediately available funds or in freely tradable shares of its Common Stock. The note is payable in twelve monthly installments of principal and Bricoleur Partners, L.P.interest, each in the amount of $206,673 (each a “Payment”), ifpayable on the third business day following each Computation Date with the first Payment due in April 2011. We have made four Payments under the note to date. Upon the earliest to occur of March 24, 2012 (the "Maturity Date”) or the occurrence of an event of default occursunder the note (the “Due Date”), any portion of the unpaid principal amount and any accrued interest (the “Balance Payment”) may, at the sole option of the Company, be paid in cash or in shares of its freely tradable Common Stock. We have registered for listing with respectthe NYSE Amex an aggregate of 1,570,000 shares of its Common Stock for issuance to Oliveira in connection with the promissory notes issued byPurchase Agreement. To the Companyextent that we wish to issue shares in excess of that amount to the Unitrust and Bricoleur and such defaultin payment of the note, we obtained the approval of our stockholders pursuant to section 713 of the NYSE Amex rules for the issuance of up to 5,000,000 shares to the Unitrust. Our application for additional listing of shares with the NYSE Amex is uncured forpending.
The note provides that we will notify the Unitrust of whether we will pay a periodPayment in immediately available funds or in shares of 30 days,its Common Stock within one business day after the fifth day of each month (such fifth day being the “Computation Date”). We will notify Oliveira of whether it will pay all or any portion of the Balance Payment in shares of its Common Stock within one business day after the Due Date. If the Company is requiredelects to issuepay a payment in shares of its Common Stock, the per share price of such Common Stock shall be calculated as the lower of (i) 95% of the volume-weighted average price per share over the five trading days immediately prior to and including the Computation Date or (ii) 100% of the volume-weighted average price per share on the Computation Date. If we elect to pay all or a portion of the Balance Payment in shares of our Common Stock, the per share price of such Common Stock shall be computed at described in the preceding sentence, substituting the Due Date for the Computation Date.
If we do not make any Payment or fail to pay the entire principal balance when due, we must pay the Unitrust a late fee equal to Twenty Thousand Dollars ($20,000) per month pro-rated to the Unitrust and/number of days any payment is late. We, at our option, may pay any late fee in cash or Bricoleur, as applicable, 200,000 shares ofin its Common Stock, based on a per share price computed in accordance with the Company’s common stock. We did not repay the notes when they became due on October 4, 2010 and October 16, 2010 respectively. Accordingly, we will be required to issue an additional 200,000 shares of common stock to the Unitrust if the note issued to the Unitrust is not repaid in full by November 3, 2010, and we will be required to issue an additional 200,000 shares of common stock to Bricoleur if the note issued to Bricoleur is not repaid in full by November 16, 2010.above mentioned terms.
Employee Stock Options
We intend to filehave filed a registration statement on Form S-8 under the Securities Act to register up to 1,869,0831,513,675 shares of common stockCommon Stock that are issuable under our 2008 Omnibus Incentive Plan. Shares issued upon the exercise of options after the effective date of such registration statement, when filed, other than shares issued to affiliates, generally will be freely tradable without further registration under the Securities Act.
LEGAL MATTERS
The validity of the securities offered in this prospectus is being passed upon for us by Seyfarth Shaw LLP, Chicago, Illinois.Shulman, Rogers, Gandal, Pordy & Ecker, P.A., Potomac, Maryland.
EXPERTSEXPERTS
The consolidated financial statements of IGC for the years ending March 31, 20102011 and March 31, 20092010 included herein have been audited by Yoganandh & Ram, an independent registered public accounting firm, as set forth in their report appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.
This prospectus, which is part of a registration statement filed with the SEC, does not contain all of the information set forth in the registration statement or the exhibits filed therewith. For further information with respect to us and the common stockCommon Stock and warrants offered by this prospectus, please see the registration statement and exhibits filed with the registration statement.
You may also read and copy any materials we have filed with the SEC at the SEC’s public reference room, located at 100 F Street, N.E., Washington, DC 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. In addition, our SEC filings, including reports, proxy statements and other information regarding issuers that file electronically with the SEC, are also available to the public at no cost from the SEC’s website at http://www.sec.gov and from our website atwww.indiaglobalcap.com.For information on HK Ironman, please visit www.hfironman.net.
No person is authorized to give any information or to make any representation other than those contained in this prospectus, and if made such information or representation must not be relied upon as having been given or authorized. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any security other than the securities offered by this prospectus, or an offer to sell or a solicitation of an offer to buy any securities by anyone in any jurisdiction in which the offer or solicitation is not authorized or is unlawful. The delivery of this prospectus will not, under any circumstances, create any implication that the information is correct as of any time subsequent to the date of this prospectus.
INDEX TO TOINDIA GLOBALIZATION CAPITAL, INC. FINANCIAL STATEMENTS
| Page | |
| India Globalization Capital, Inc. | |
| F-1 | |
| F-2 | |
| Consolidated Statements of Operations - For FYE 2011 and 2010 | F-3 |
| | |
| F-5 | |
| F-6 | |
| F-7 | |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of India Globalization Capital, Inc.: and Subsidiaries:
We have audited the accompanying consolidated balance sheets of India Globalization Capital, Inc. and its subsidiaries (the “Company”) as of March 31, 20102011 and 2009,2010, and the related consolidated statements of income, comprehensive income, cash flows, and stockholders’ equity for each of the two years in the two-year period ended March 31, 2010.2011. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
In our opinion, except for the effect of such adjustments, if any, as might have been determined to be necessary had we been able to examine evidence regarding the deconsolidation, theconsolidated financial statements referred to in the first paragraph above present fairly, in all material respects, the financial position of India Globalization Capital, Inc. and its subsidiariesthe Company as of March 31, 20102011 and 2009,2010, and the results of their operations and their cash flows for each of the two years in thetwo-year period ended March 31, 2010,2011, in conformity with accounting principles generally accepted in the United States of America.
Yoganandh & Ram,
Chennai, India,
Independent Auditors registered with
Public Company Accounting Oversight Board
Date: 13th July 2010.2011, except for Notes 11 (Goodwill), 20 (Income Taxes), 25 (Impairment), 27 (Certain Aged Receivables), and 28 (Re-classifications in the Consolidated Balance Sheets and Consolidated Statements of Operations), to which the date is October 31, 2011.
INDIA GLOBALIZATION CAPITAL, INC. AND SUBSIDIARIES
As of March 31, | As of March 31, | |||||||||||||||
2010 | 2009 | 2011 (as restated) | 2010 (as restated) | |||||||||||||
| ASSETS | ||||||||||||||||
| Current assets: | ||||||||||||||||
| Cash and cash equivalents | $ | 842,923 | $ | 2,129,365 | $ | 1,583,284 | $ | 842,923 | ||||||||
| Accounts receivable, net of allowances | 4,783,327 | 9,307,088 | 3,312,051 | 4,783,327 | ||||||||||||
| Costs and earnings in excess of billings on contracts in progress | - | 2,759,632 | ||||||||||||||
| Inventories | 162,418 | 2,121,837 | 133,539 | 162,418 | ||||||||||||
| Advance taxes | 119,834 | 88,683 | 41,452 | 119,834 | ||||||||||||
| Deferred income taxes | 25,345 | - | - | 25,345 | ||||||||||||
| Dues from related parties | 3,114,572 | 290,831 | - | 3,114,572 | ||||||||||||
| Prepaid expenses and other current assets | 2,054,462 | 2,801,148 | 1,474,838 | 2,054,462 | ||||||||||||
| Total current assets | $ | 11,102,881 | $ | 19,498,584 | $ | 6,545,164 | $ | 11,102,881 | ||||||||
| Property, plant and equipment, net | 1,748,436 | 6,601,394 | 1,231,761 | 1,748,436 | ||||||||||||
| Investments in affiliates | 8,443,181 | - | 6,428,800 | 8,443,181 | ||||||||||||
| Investments-others | 810,890 | - | 877,863 | 810,890 | ||||||||||||
| Accounts receivable | - | 2,769,196 | ||||||||||||||
| Deferred income taxes | 4,075,461 | 898,792 | - | 4,075,461 | ||||||||||||
| Deposits towards acquisitions | - | 332,222 | ||||||||||||||
| Goodwill | 6,146,720 | 17,483,501 | 410,454 | 6,146,720 | ||||||||||||
| Restricted cash | 2,169,939 | 1,430,137 | 1,919,404 | 2,169,939 | ||||||||||||
| Other non-current assets | 872,184 | 2,818,687 | 748,623 | 872,184 | ||||||||||||
| Total assets | $ | 35,369,692 | $ | 51,832,513 | $ | 18,162,069 | $ | 35,369,692 | ||||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||||||
| Current liabilities: | ||||||||||||||||
| Short term borrowings and current portion of long term debt | $ | 1,389,041 | $ | 3,422,239 | $ | 901,343 | $ | 1,389,041 | ||||||||
| Trade payables | 1,839,405 | 462,354 | 1,311,963 | 1,839,405 | ||||||||||||
| Advance from customers | - | 206,058 | ||||||||||||||
| Accrued expenses | 461,259 | 555,741 | 349,149 | 461,259 | ||||||||||||
| Taxes payable | - | 76,569 | ||||||||||||||
| Notes payable | 4,120,000 | 1,517,328 | 3,920,000 | 4,120,000 | ||||||||||||
| Dues to related parties | 149,087 | 1,214,685 | - | 149,087 | ||||||||||||
| Other current liabilities | 149,942 | 1,991,371 | 94,892 | 149,942 | ||||||||||||
| Total current liabilities | $ | 8,108,734 | $ | 9,446,345 | $ | 6,577,347 | $ | 8,108,734 | ||||||||
| Long-term debt, excluding current portion | - | 1,497,458 | ||||||||||||||
| Deferred income taxes | - | 590,159 | ||||||||||||||
| Other non-current liabilities | 1,107,498 | 2,440,676 | 1,209,479 | 1,107,498 | ||||||||||||
| Total liabilities | $ | 9,216,232 | $ | 13,974,638 | $ | 7,786,826 | $ | 9,216,232 | ||||||||
| Shares potentially subject to rescission rights (4,868,590 shares issued and outstanding) | 3,082,384 | - | ||||||||||||||
| Stockholders' equity: | ||||||||||||||||
| Common stock — $0001 par value; 75,000,000 shares authorized; 12,989,207 issued and outstanding at March 31, 2010 and 10,091,171 issued and outstanding at March 31, 2009 | $ | 1,300 | $ | 1,009 | ||||||||||||
Common stock — $0001 par value; 75,000,000 shares authorized; 14,890,181 issued and outstanding at March 31, 2011 and 12,989,207 issued and outstanding at March 31, 2010 | $ | 1,490 | $ | 1,300 | ||||||||||||
| Additional paid-in capital | 36,805,724 | 33,186,530 | 38,860,319 | 36,805,724 | ||||||||||||
| Accumulated other comprehensive income | (2,578,405 | ) | (4,929,581 | ) | (2,502,596 | ) | (2,578,405 | ) | ||||||||
| Retained earnings (Deficit) | (9,452,000 | ) | (4,662,689 | ) | (29,692,907 | ) | (9,452,000 | ) | ||||||||
| Total stockholders' equity | $ | 24,776,619 | $ | 23,595,269 | ||||||||||||
| Total equity attributable to the parent | $ | 6,666,306 | $ | 24,776,419 | ||||||||||||
| Non-controlling interest | $ | 1,376,841 | $ | 14,262,606 | $ | 626,553 | $ | 1,376,841 | ||||||||
| Total stockholders’ equity | $ | 7,292,859 | $ | 26,153,460 | ||||||||||||
| Total liabilities and stockholders' equity | $ | 35,369,692 | $ | 51,832,513 | $ | 18,162,069 | $ | 35,369,692 | ||||||||
The accompanying notes should be read in connection with the financial statements.
INDIA GLOBALIZATION CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended March 31, | ||||||||
2011 (as restated) | 2010 (as restated) | |||||||
| Revenues | $ | 4,073,919 | $ | 17,897,826 | ||||
| Cost of revenues | (3,914,655 | ) | (15,671,840 | ) | ||||
| Selling, General and Administrative expenses | (7,283,089 | ) | (5,614,673 | ) | ||||
| Depreciation | (785,066 | ) | (603,153 | ) | ||||
| Impairment loss – goodwill | (5,792,849 | ) | - | |||||
| Impairment loss – investments | (2,184,599 | ) | - | |||||
| Operating income (loss) | (7,908,891 | ) | (3,991,840 | ) | ||||
| Interest expense | (1,395,433 | ) | (1,221,466 | ) | ||||
| Amortization of debt discount/Loss on extinguishment of debt | (191,804 | ) | (356,436 | ) | ||||
| Interest Income | 262,826 | 210,097 | ||||||
| Other Income | 301,182 | 281,782 | ||||||
| Loss on dilution of stake in Sricon | - | (2,856,088 | ) | |||||
| Equity in earnings of affiliates | - | 16,446 | ||||||
| Income before income taxes and minority interest attributable to non-controlling interest | $ | (16,909,568 | ) | $ | (7,917,505 | ) | ||
| Income taxes benefit/ (expense) | (4,100,385 | ) | 3,109,704 | |||||
| Net income | $ | (21,009,953 | ) | $ | (4,807,801 | ) | ||
| Non-controlling interests in earnings of subsidiaries | 769,046 | 18,490 | ||||||
| Net income / (loss) attributable to common stockholders | $ | (20,240,907 | ) | $ | (4,789,311 | ) | ||
| Earnings per share attributable to common stockholders: | ||||||||
| Basic | $ | (1.34 | ) | $ | (0.42 | ) | ||
| Diluted | $ | (1.34 | ) | $ | (0.42 | ) | ||
| Weighted-average number of shares used in computing earnings per share amounts: | ||||||||
| Basic | 15,108,920 | 11,537,857 | ||||||
| Diluted | 15,108,920 | 11,537,857 | ||||||
The accompanying notes should be read in connection with the financial statements.
INDIA GLOBALIZATION CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
| Year ended March 31, 2011 | Year ended March 31, 2010 (As restated) | |||||||||||||||||||||||
| Particulars | IGC | Non- controlling Interest | Total | IGC | Non- controlling Interest | Total | ||||||||||||||||||
| Net income / (loss) | $ | (20,240,907 | ) | (769,046 | ) | (21,009,953 | ) | (4,789,311 | ) | (18,490 | ) | (4,807,801 | ) | |||||||||||
| Foreign currency translation adjustments | 75,809 | 18,758 | 94,567 | 3,499,767 | (2,230,182 | ) | 1,269,585 | |||||||||||||||||
| Deconsolidation of Sricon | $ | - | - | - | (1,148,591 | ) | - | (1,148,591 | ) | |||||||||||||||
| Comprehensive income (loss) | (20,165,098 | ) | (750,288 | ) | (20,915,385 | ) | (2,438,135 | ) | (2,248,672 | ) | (4,686, 807 | ) | ||||||||||||
The accompanying notes should be read in connection with the financial statements.
INDIA GLOBALIZATION CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
| Number of shares | Amount | Additional paid in capital | Accumulated income/(deficit) | Other comprehensive income | Non-controlling interest | Total | ||||||||||||||||||||||
| Balance at March 31, 2009 | 10,091,171 | $ | 1,009 | $ | 33,186,530 | $ | (4,662,689 | ) | $ | (4,929,581 | ) | $ | 14,262,606 | $ | 37,857,875 | |||||||||||||
| Stock Option for 1,413,000 grants | - | - | 90,996 | - | - | - | 90,996 | |||||||||||||||||||||
| Issue of 78,820 common stock to officers and directors | 78,820 | 8 | 39,402 | - | - | - | 39,410 | |||||||||||||||||||||
| Issuance of Common Stock to Red Chip Companies | 15,000 | 2 | 13,198 | - | - | - | 13,200 | |||||||||||||||||||||
| Issuance of 1,599,000 common stock to institutional investors | 1,599,000 | 160 | 1,638,690 | - | - | - | 1,638,850 | |||||||||||||||||||||
| Issue of 530,000 common stock to Bricoleur Capital | 530,000 | 53 | 712,822 | - | - | - | 712,875 | |||||||||||||||||||||
| Issue of 530,000 common stock to Oliveira | 530,000 | 53 | 586,732 | - | - | - | 586,785 | |||||||||||||||||||||
| Interest exp. towards of 530000 shares towards Bricoleur Capital loan | - | - | 197,412 | - | - | - | 197,412 | |||||||||||||||||||||
| Interest exp. towards of 530000 shares towards Oliveira loan | - | - | 162,408 | - | - | - | 162,408 | |||||||||||||||||||||
| Issue of 145,216 common stock under ATM agency agreement | 145,216 | 15 | 179,874 | - | - | (10,484 | ) | 169,405 | ||||||||||||||||||||
| Dividend Option | - | - | (2,340 | ) | - | - | - | (2,340 | ) | |||||||||||||||||||
| Loss on Translation | - | - | - | - | 3,499,767 | (2,219,698 | ) | 1,280,069 | ||||||||||||||||||||
| Impact of de-consolidation of Sricon | - | - | - | - | (1,148,591 | ) | - | (1,148,591 | ) | |||||||||||||||||||
| Elimination of non-controlling interest pertaining to Sricon | - | - | - | - | - | (10,637,093 | ) | (10,637,093 | ) | |||||||||||||||||||
| Net income for non-controlling interest | - | - | - | - | - | (18,490 | ) | (18,490 | ) | |||||||||||||||||||
| Net income / (loss) | - | - | - | (4,789,311 | ) | - | - | (4,789,311 | ) | |||||||||||||||||||
| Balance at March 31, 2010 | 12,989,207 | $ | 1,300 | $ | 36,805,724 | $ | (9,452,000 | ) | $ | (2,578,405 | ) | $ | 1,376,841 | $ | 26,153,460 | |||||||||||||
| Issue of equity shares | 1,900,974 | 190 | 1,761,452 | - | - | 1,761,642 | ||||||||||||||||||||||
| Interest expense | - | - | 359,820 | - | - | 359,820 | ||||||||||||||||||||||
| Dividend Option Reversed | - | - | 2,340 | - | - | 2,340 | ||||||||||||||||||||||
| Loss for the quarter | - | - | - | (20,240,907 | ) | - | - | (20,240,907 | ) | |||||||||||||||||||
| Net Income for non-controlling interest | - | - | - | - | - | (769,046 | ) | (769,046 | ) | |||||||||||||||||||
| Loss on Translation | - | - | - | - | 75,809 | 18,758 | 94,567 | |||||||||||||||||||||
| Road show expense incurred towards raising capital-issue of shares | - | - | (69,017 | ) | - | - | - | (69,017 | ) | |||||||||||||||||||
| Balance at March 31, 2011 | 14,890,181 | 1,490 | 38,860,319 | (29,692,907 | ) | (2,502,596 | ) | 626,553 | 7,292,859 | |||||||||||||||||||
The accompanying notes should be read in connection with the financial statements.
INDIA GLOBALIZATION CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended March 31, | ||||||||
2011 | 2010 (as restated) | |||||||
| Cash flows from operating activities: | ||||||||
| Net income (loss) | $ | (21,009,953 | ) | $ | (4,807,801 | ) | ||
| Adjustment to reconcile net income (loss) to net cash: | ||||||||
| Non-cash compensation expense | - | 130,399 | ||||||
| Non-cash expense for investor relation related services | 24,239 | - | ||||||
| Deferred taxes | 4,100,385 | (3,254,786 | ) | |||||
| Depreciation | 785,066 | 603,153 | ||||||
| Profits relating to de-consolidated subsidiary | - | (34,744 | ) | |||||
| Write back of liability | (269,124 | ) | ||||||
| Provision for doubtful receivables and bad debts written off | 4,644,028 | |||||||
| Loss / (gain) on sale of property, plant and equipment | - | (3,715 | ) | |||||
| Amortization of debt discount | - | 356,437 | ||||||
| Interest expense (including non-cash) | 917,401 | 1,130,377 | ||||||
| Loss on extinguishment of debt | 191,804 | 586,785 | ||||||
| Loss on dilution of stake in Sricon | - | 2,856,088 | ||||||
| Impairment loss – goodwill | 5,792,849 | - | ||||||
| Impairment loss – Sricon investment | 2,184,599 | - | ||||||
| Deferred acquisition cost written off | - | 1,854,750 | ||||||
| Equity in earnings of affiliates | - | (16,446 | ) | |||||
| Changes in: | ||||||||
| Accounts receivable | (6,822 | ) | (3,056,548 | ) | ||||
| Unbilled receivable | - | - | ||||||
| Inventories | 30,235 | 1,775,101 | ||||||
| Prepaid expenses and other current assets | 1,348,513 | (307,538 | ) | |||||
| Trade payables | (1,499,804 | ) | 1,504,339 | |||||
| Advance from customers | - | - | ||||||
| Other current liabilities | (89,898 | ) | (1,013,403 | ) | ||||
| Other non-current liabilities | 91,364 | (461,709 | ) | |||||
| Interest receivable – convertible debenture | - | - | ||||||
| Non-current assets | 130,382 | 231,571 | ||||||
| Net cash used in operating activities | $ | (2,634,736 | ) | $ | (1,927,690 | ) | ||
| Cash flow from investing activities: | ||||||||
| Purchase of property and equipment | (285,441 | ) | (1,264,245 | ) | ||||
| Proceeds from sale of property and equipment | 30,705 | 463,825 | ||||||
| Proceeds from sale of short term investments | - | - | ||||||
| Redemption of convertible debentures | - | - | ||||||
| Proceeds from/ (Investment in) non-current investments (joint ventures etc.) | (59,235 | ) | (698,174 | ) | ||||
| Deposits towards acquisitions (net of cash acquired) | - | - | ||||||
| Restricted cash | 269,270 | (582,081 | ) | |||||
| Net cash movement relating to de-consolidation of subsidiary | - | (102,045 | ) | |||||
| Net cash provided/(used) in investing activities | $ | (44,701 | ) | $ | (2,182,720 | ) | ||
| Cash flows from financing activities: | ||||||||
| Proceeds from/ (Repayment of) short term borrowings | (229,068 | ) | 61,585 | |||||
| Proceeds from long-term borrowings | - | - | ||||||
| Repayment of long term borrowings | - | (687,956 | ) | |||||
| Expenses for issuance of stock | (66,677 | ) | ||||||
| Issuance of equity shares | 3,910,575 | 1,833,780 | ||||||
| Due to related parties | - | - | ||||||
| Proceeds from/notes payable | - | 2,000,000 | ||||||
| Repayment of notes payable | (200,000 | ) | - | |||||
| Interest paid | - | (287,883 | ) | |||||
| Net cash provided/(used) by financing activities | $ | 3,414,830 | $ | 2,919,526 | ||||
| Effects of exchange rate changes on cash and cash equivalents | 4,968 | (95,558 | ) | |||||
| Net increase/(decrease) in cash and cash equivalents | 740,361 | (1,286,442 | ) | |||||
| Cash and cash equivalent at the beginning of the period | 842,923 | 2,129,365 | ||||||
| Cash and cash equivalent at the end of the period | $ | 1,583,284 | $ | 842,923 | ||||
The accompanying notes should be read in connection with the financial statements.
INDIA GLOBALIZATION CAPITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – NATURE OF OPERATIONS AND BASIS OF PRESENTATION
The operations of IGC are based in India. IGC owns 100% of a subsidiary in Mauritius called IGC-Mauritius (IGC-M). This company in turn operates through four subsidiaries, and one investment in India. The Company has an investment ownership of approximately twenty two percent (22%) of Sricon Infrastructure Private Limited (“Sricon”), seventy seven percent (77%) of Techni Bharathi, Limited (“TBL”) and one hundred percent (100%) of each IGC India Mining and Trading Private Limited (IGC-IMT), IGC Logistic Private Limited (IGC-L), and IGC Materials Private Limited (IGC-MPL). Through our subsidiaries the Company operates in the India and China infrastructure industries. Operating as a fully integrated infrastructure company, IGC, through its subsidiaries, has expertise in road building, mining and quarrying and engineering of high temperature plants. The Company’s medium term plans are to expand each of these core competencies while offering an integrated suite of service offerings to our customers.
The Company’s operations are subject to certain risks and uncertainties, including among others, dependency on India’s economy and government policies, seasonal business factors, competitively priced raw materials, dependence upon key members of the management team and increased competition from existing and new entrants.
The accompanying consolidated financial statements have been prepared in conformity with United States Generally Accepted Accounting Principles (U.S. GAAP). The financial statements include all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of such financial statements.
a) India Globalization Capital, Inc.
IGC, a Maryland corporation, was organized on April 29, 2005 as a blank check company formed for the purpose of acquiring one or more businesses with operations primarily in India through a merger, capital stock exchange, asset acquisition or other similar business combination or acquisition. On March 8, 2006, the Company completed an initial public offering. On February 19, 2007, the Company incorporated India Globalization Capital, Mauritius, Limited (IGC-M), a wholly owned subsidiary, under the laws of Mauritius. On March 7, 2008, the Company consummated the acquisition of 63% of the equity of Sricon Infrastructure Private Limited (Sricon) and 77% of the equity of Techni Bharathi Limited (TBL). On February 19, 2009 IGC-M beneficially purchased 100% of IGC Mining and Trading, Limited based in Chennai India. On July 4, 2009 IGC-M beneficially purchased 100% of IGC Materials, Private Limited, and 100% of IGC Logistics, Private Limited. Both these companies are based in Nagpur, India.
IGC India Mining and Trading Private Limited (IGC-IMT), IGC Materials Private Limited (IGC-MPL), and IGC Logistics Private Limited (IGC-LPL) were incorporated for IGC by three different Indian citizens, who acted as the initial directors of these companies as our nominees. This is as per the regulatory requirements for incorporation of companies. Once the companies were incorporated, IGC purchased the shares from the individuals. No premium was paid. None of these companies were operational at the time of purchase and therefore no revenues and earnings were recorded. The individuals were reimbursed for the amounts they paid to incorporate the companies. Please see the below table for further details:
| Acquired Company | Initial Capitalization | Purchase Price | ||
| IGC – IMT | INR 100,000 ($2,100) | INR 100,000 | ||
| IGC – MPL | INR 100,000 ($2,100) | INR 100,000 | ||
| IGC – LPL | INR 100,000 ($2,100) | INR 100,000 |
In order to comply with regulatory requirements, the above companies were incorporated on behalf of IGC, and IGC subsequently purchased these companies at book value. Therefore, effectively, these are not acquisitions but incorporations by IGC.
Effective October 1, 2009, we have reduced our stake in Sricon from 63% to 22% in consideration for the set off of the loan owed by IGC approximating $17.9 million.
b) Merger and Accounting Treatment
Most of the shares of Sricon and TBL acquired by IGC were purchased directly from the companies.
The ownership interest of the founders and management of TBL are reflected in our financial statements as “Non-Controlling Interest”.
Unless the context requires otherwise, all references in this report to the “Company”, “IGC”, “IGC Inc.”, “we”, “our”, and “us” refer to India Globalization Capital, Inc., together with its wholly owned subsidiary IGC-M, and its direct and indirect subsidiaries (TBL, IGC-IMT, IGC-LPL, and IGC-MPL).
IGC’s organizational structure is as follows:
c) Our Securities
We have three securities listed on the NYSE Amex: (1) common stock, $.0001 par value (ticker symbol: IGC), (2) redeemable warrants to purchase common stock(ticker symbol: IGC.WT) and (3) units consisting of one share of common stock and two redeemable warrants to purchase common stock (ticker symbol: IGC.U). The units may be separated into common stock and warrants. Each warrant entitles the holder to purchase one share of common stock at an exercise price of $5.00. The warrants issued in our initial public offering that were to expire on March 3, 2011, are to expire on March 8, 2013 since we exercised our right to extend the terms of those warrants. The registration statement for the initial public offering was declared effective on March 2, 2006. The warrants are exercisable and may be exercised by contacting IGC or the transfer agent, Continental Stock Transfer & Trust Company. We have a right to call the warrants, provided the common stock has traded at a closing price of at least $8.50 per share for any 20 trading days within a 30 trading day period ending on the third business day prior to the date on which notice of redemption is given. If we call the warrants, the holder will either have to exercise the warrants by purchasing the common stock from us for $5.00 or the warrants will expire.
On January 9, 2009, we completed a tender offer with respect to warrants issued in our initial public offering and certain other warrants issued in private placements. An aggregate of 11,943,878 warrants were exercised pursuant to the terms of the tender offer in exchange for an aggregate of 1,311,064 shares of common stock, of which 2,706,350 warrants were exercised with an aggregate cash payment of $297,698.50 in exchange for an aggregate of 541,270 shares of Common Stock and 9,237,528 warrants were exercised by exchange of warrants in exchange for an aggregate of 769,794 shares of Common Stock.
On July 13, 2009, we issued 15,000 shares of common stock to RedChip Companies Inc. for investor relations services rendered. The value of these services was $13,200 and the per-share value was $0.88. The cost of the common shares was expensed in the quarter.
On September 15, 2009, we entered into a securities purchase agreement (“Registered Direct”) with institutional investors for the sale and issuance of an aggregate of 1,599,000 shares of our common stock and warrants to purchase up to 319,800 shares of our common stock, for a total purchase price of $1,998,750. The common stock and warrants were sold on a per unit basis at a purchase price of $1.25 per unit. The shares of common stock and warrants were issued separately. Each investor received one warrant representing the right to purchase, at an exercise price of $1.60 per share, a number of shares of common stock equal to 20% of the number of shares of common stock purchased by the investor in the offering. The sales were made pursuant to a shelf registration statement. The warrants issued to the investors in the offering are exercisable any time on or after the date of issuance for a period of three years from that date. The Black Scholes value of the warrants associated with the Registered Direct is $71,411. The Black Scholes price of the warrants was expensed in the quarter.
On October 5, 2009, IGC issued 530,000 new shares of common stock to Steven M. Oliveira 1998 Charitable Remainder Unitrust (‘Oliveira’) as partial consideration for the exchange of an outstanding promissory note for a new interest-free note of $2.1 million with an extended due date of October 10, 2010. The value of the shares was $911,600 or $1.72 per share. IGC consummated this transaction in order to maintain its working capital and to extend the note by one year. The value of the shares was amortized over the life of the loan.
On October 13, 2009, IGC entered into an At The Market (“ATM”) Agency Agreement with Enclave Capital LLC. Under the ATM Agency Agreement, we may offer and sell shares of our common stock having an aggregate offering price of up to $4 million from time to time. Sales of the shares, if any, will be made by means of ordinary brokers’ transactions on the NYSE Amex at market prices, or as otherwise agreed with Enclave. We estimate that the net proceeds from the sale of the shares of common stock we are offering will be approximately $3.73 million. We intend to use the net proceeds from the sale of securities offered for working capital needs, repayment of indebtedness, and other general corporate purposes. For the year ended March 31, 2010, we sold 145,216 shares of our common stock. During the twelve months ended March 31, 2011, the Company issued an additional 2,292,760 shares of common stock under this agreement.
On October 16, 2009, IGC issued 530,000 new shares of common stock in a private placement. The consideration for the shares was the $2,000,000 proceeds from an IGC promissory note payable made for one year with no interest to Bricoleur Partners, L.P. (‘Bricoleur’). IGC consummated this transaction in order to supplement its working capital and to expand its ore and quarry businesses. The shares were valued at $1,107,700 and $2.09 per share. The value of the shares was amortized over the life of the loan.
During the twelve months ended March 31, 2011 the Company also issued 30,000 shares of common stock to American Capital Ventures and Maplehurst Investment Group for services rendered and 9,135 shares to Red chip companies valued at $ 8,039 for investor relation related services rendered.
The Company also issued a total of 400,000 shares of common stock as a consideration for the extension of the loans under the promissory notes described in Note 8 - Notes Payable during the twelve months ended March 31, 2011.
In February 2011, the Company consummated another transaction with Bricoleur to exchange the promissory note held by Bricoleur for a new note with an extended repayment term. The Company issued 688,500 shares of common stock valued at approximately $ 419,985 as consideration for the exchange.
In March 2011, the Company agreed with Oliveira to exchange the promissory note held by Oliveira for a new note with an extended repayment term and provisions permitting the Company at its discretion to repay the loan through issue of equity shares at a stated value over a specific term. As of March 31, 2011, the Company has issued 368,339 shares of common stock valued at $ 216,042 to this debt holder.
On December 8, 2010, the Company sold an aggregate of 2,575,830 shares of its common stock and warrants (the “2010 Warrants”) to purchase up to 858,610 shares of common stock, for a total purchase price of $ 1,391,260. The common stock was sold at a purchase price of $0.60 per share. Investors in the offering were entitled to receive a 2010 Warrant to purchase one share of common stock, at an exercise price of $0.90 per share for each three shares of common stock purchased in the offering. The 2010 Warrants issued to the investors in the offering are exercisable at any time on or after the date of issuance until they expire on December 8, 2017. The 2010 Warrants are not listed on any securities exchange.
Following the issuance of the shares in the preceding transactions, as of March 31, 2011, 19,758,771 shares of common stock are outstanding along with warrants to purchase an aggregate of 12,972,532 shares of common stock which are outstanding.
Further, as set forth in Note 12, the Company has also issued 1,413,000 stock options to some of its directors and employees pursuant to a stock option plan all of which are outstanding as at March 31, 2011.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Principles of Consolidation:
The accompanying financial statements have been prepared on a consolidated basis and reflect the financial statements of IGC and all of its subsidiaries that are more than 50% owned and controlled. When the Company does not have a controlling interest in an entity, but exerts a significant influence on the entity, the Company applies the equity method of accounting. All inter-company transactions and balances are eliminated in the consolidated financial statements.
The non-controlling interest disclosed in the accompanying financial statements represents the non-controlling interest in Techni Bharathi Limited (TBL) and the profits or losses associated with the non-controlling interest in those operations.
The adoption of Accounting Standards Codification (ASC) 810-10-65 “Consolidation — Transition and Open Effective Date Information” (previously referred to as SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements, an amendment of ARB No. 51”), has resulted in the reclassification of amounts previously attributable to minority interest (now referred to as non-controlling interest) to a separate component of shareholders’ equity on the accompanying consolidated balance sheets and consolidated statements of shareholders’ equity and comprehensive income (loss). Additionally, net income attributable to non-controlling interest is shown separately from net income in the consolidated statements of income. This reclassification had no effect on our previously reported financial position or results of operations.
b) Reclassifications
Certain prior year balances have been reclassified to the presentation of the current year.
c) Use of estimates:
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
d) Revenue Recognition
The majority of the revenue recognized for the year ended March 31, 2011 was derived from the Company’s subsidiaries and as follows:
Revenue is recognized when persuasive evidence of an arrangement exists, the sales price is fixed or determinable and collectability is reasonably assured. In Government contracting, we recognize revenue when a Government consultant verifies and certifies an invoice for payment.
Revenue from sale of goods is recognized when substantial risks and rewards of ownership are transferred to the buyer under the terms of the contract.
Revenue from construction/project related activity and contracts for supply/commissioning of complex plant and equipment is recognized as follows:
| · | Cost plus contracts: Contract revenue is determined by adding the aggregate cost plus proportionate margin as agreed with the customer and expected to be realized. |
| · | Fixed price contracts: Contract revenue is recognized using the percentage completion method and the percentage of completion is determined as a proportion of cost incurred-to-date to the total estimated contract cost. Changes in estimates for revenues, costs to complete and profit margins are recognized in the period in which they are reasonably determinable. |
| · | In many of the fixed price contracts entered into by the Company, significant expenses are incurred in the mobilization stage in the early stages of the contract. The expenses include those that are incurred in the transportation of machinery, erection of heavy machinery, clearing of the campsite, workshop ground cost, overheads, etc. All such costs are booked to deferred expenses and written off over the period in proportion to revenues earned. |
| · | Where the modifications of the original contract are such that they effectively add to the existing scope of the contract, the same are treated as a change orders. On the other hand, where the modifications are such that they change or add an altogether new scope, these are accounted for as a separate new contract. The company adjusts contract revenue and costs in connection with change orders only when they are approved by both, the customer and the company with respect to both the scope and invoicing and payment terms. |
| · | In the event of claims in our percentage of completion contracts, the additional contract revenue relating to claims is only accounted after the proper award of the claim by the competent authority. The contract claims are considered in the percentage of completion only after the proper award of the claim by the competent authority. |
Full provision is made for any loss in the period in which it is foreseen.
Revenue from service related activities and miscellaneous other contracts are recognized when the service is rendered using the proportionate completion method or completed service contract method.
e) Earning per common share:
Basic earnings per share is computed by dividing net income (loss) applicable to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the additional dilution from all potentially dilutive securities such as stock warrants and options.
f) Income taxes:
Deferred income tax is provided for the difference between the bases of assets and liabilities for financial reporting and income tax purposes. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized. The IGC parent expects to realize sufficient earnings and profits to utilize deferred tax assets as it begins 1) invoicing its subsidiaries for services and 2) establishes iron ore sales contracts with customers in China and other countries. Recently, the IGC parent reported contracts for the supply of around $200 million of iron ore to customers in China.
g) Cash and Cash Equivalents:
For financial statement purposes, the Company considers all highly liquid debt instruments with maturity of three months or less, to be cash equivalents. The company maintains its cash in bank accounts in the United States of America, Mauritius, and India which at times may exceed applicable insurance limits. The Company has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk on cash and cash equivalent. The company does not invest its cash in securities that have an exposure to U.S. mortgages.
h) Restricted cash:
Restricted cash consists of deposits pledged to various government authorities and deposits used as collateral with banks for guarantees and letters of credit, given by the Company to its customers or vendors.
i) Foreign currency transactions:
The functional currency of the Company's Indian subsidiaries is the Indian rupee. Our financial statements reporting currency is the United States Dollar. Operating and capital expenditures of the Company's subsidiaries located in India are denominated in their local currency which is the currency most compatible with their expected economic results.
All transactions and account balances are recorded in the local currency. The Company translates the value of these local currency denominated assets and liabilities into U.S. dollars at the rates in effect at the balance sheet date. Resulting translation adjustments are recorded in stockholders' equity as a component of accumulated other comprehensive income (loss). The local currency denominated statement of income amounts are translated into U.S. dollars using the average exchange rates in effect during the period. Realized foreign currency transaction gains and losses are included in the consolidated statements of income. The Company's Indian subsidiaries do not operate in "highly inflationary" countries.
j) Accounts receivable:
Accounts receivables are recorded at the invoiced amount, taking into consideration any adjustments made by Government consultants who verify and certify construction and material invoices. The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of clients to make required payments. The allowance for doubtful accounts is determined by evaluating the relative credit worthiness of each client, historical collections experience and other information, including the aging of the receivables. Unbilled accounts receivable represent revenue on contracts to be billed, in subsequent periods, as per the terms of the related contracts.
k) Accounts Receivable – Long Term:
This is typically for Build-Operate-Transfer (BOT) contracts. It is money due to the company by the private or public sector to finance, design, construct, and operate a facility stated in a concession contract over an extended period of time.
l) Inventories:
Inventories primarily comprise of finished goods, raw materials, work in progress, stock at customer site, stock in transit, components and accessories, stores and spares, scrap and residue. Inventories are stated at the lower of cost or estimated net realizable value.
The cost of various categories of inventories is determined on the following basis:
·Raw material is valued at weighed average of landed cost (purchase price, freight inward and transit insurance charges). |
·Work in progress is valued as confirmed, valued and certified by the technicians and site engineers and finished goods at material cost plus appropriate share of labor cost and production overheads. |
·Components and accessories, stores erection, materials, spares and loose tools are valued on a first-in-first out basis. |
m) Investments:
Investments are initially measured at cost, which is the fair value of the consideration given for them, including transaction costs. The Company's equity in the earnings/(losses) of affiliates is included in the statement of income and the Company's share of net assets of affiliates is included in the balance sheet.
n) Property, Plant and Equipment (PP&E):
Property and equipment are recorded at cost and depreciated over their estimated useful lives using the straight-line method. The estimated useful lives of assets are as follows:
| Buildings | 25 years |
| Plant and machinery | 20 years |
| Computer equipment | 3 years |
| Office equipment | 5 years |
| Furniture and fixtures | 5 years |
| Vehicles | 5 years |
Upon disposition, cost and related accumulated depreciation of the Property and equipment are removed from the accounts and the gain or loss is reflected in the results of operation. Cost of additions and substantial improvements to property and equipment are capitalized in the books of accounts. The cost of maintenance and repairs of the property and equipment are charged to operating expenses.
o) Fair Value of Financial Instruments
As of March 31, 2011 and 2010, the carrying amounts of the Company's financial instruments, which included cash and cash equivalents, accounts receivable, unbilled accounts receivable, restricted cash, accounts payable, accrued employee compensation and benefits and other accrued expenses, approximate their fair values due to the nature of the items.
p) Concentration of Credit Risk and Significant Customers
Financial instruments which potentially expose the Company to concentrations of credit risk are primarily comprised of cash and cash equivalents, investments, derivatives, accounts receivable and unbilled accounts receivable. The Company places its cash, investments and derivatives in highly-rated financial institutions. The Company adheres to a formal investment policy with the primary objective of preservation of principal, which contains credit rating minimums and diversification requirements. Management believes its credit policies reflect normal industry terms and business risk. The Company does not anticipate non-performance by the counterparties and, accordingly, does not require collateral.
As of March 31, 2011, eleven clients accounted for approximately 95% of gross accounts receivable. At March 31, 2010, four clients accounted for 68% of gross accounts receivable. During the fiscal year ended March 31, 2011, sales to twenty four clients accounted for 70% of the Company's revenue.
q) Accounting for goodwill and related impairment
Goodwill represents the excess cost of an acquisition over the fair value of the group's share of net identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill on acquisition of subsidiaries is disclosed separately. Goodwill is stated at cost less accumulated amortization and impairment losses, if any.
The company adopted provisions of Accounting Standards Codification (“ASC”) 350, “Intangibles – Goodwill and Others”, (previously referred to as SFAS No. 142, "Goodwill and Other Intangible Assets", which sets forth the accounting for goodwill and intangible assets subsequent to their acquisition. ASC 350 requires that goodwill and indefinite-lived intangible assets be allocated to the reporting unit level, which the Group defines as each individual legal entity at a subsidiary level.
ASC 350 also prohibits the amortization of goodwill and indefinite-lived intangible assets upon adoption, but requires that they be tested for impairment at least annually, or more frequently as warranted, at the reporting unit level.
The goodwill impairment test under ASC 350 is performed in two phases. The first step of the impairment test, used to identify potential impairment, compares the fair value of the reporting unit with its carrying amount, including goodwill. If the carrying amount of the reporting unit exceeds its fair value, goodwill of the reporting unit is considered impaired, and step two of the impairment test must be performed. The second step of the impairment test quantifies the amount of the impairment loss by comparing the carrying amount of goodwill to the implied fair value. An impairment loss is recorded to the extent the carrying amount of goodwill exceeds its implied fair value.
r) 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 and material adverse changes in the economic climate. 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.
s) Recently issued and adopted accounting pronouncements
In January 2010, the FASB issued an amendment to the accounting standards related to the disclosures about an entity's use of fair value measurements. Under these amendments, entities will be required to provide enhanced disclosures about transfers into and out of the Level 1 (fair value determined based on quoted prices in active markets for identical assets and liabilities) and Level 2 (fair value determined based on significant other observable inputs) classifications, provide separate disclosures about purchases, sales, issuances and settlements relating to the tabular reconciliation of beginning and ending balances of the Level 3 (fair value determined based on significant unobservable inputs) classification and provide greater disaggregation for each class of assets and liabilities that use fair value measurements. Except for the detailed Level 3 roll-forward disclosures, the new standard was effective for the Company for interim and annual reporting periods beginning after December 31, 2009. The adoption of this accounting standards amendment did not have a material impact on the Company's disclosure or consolidated financial results. The requirement to provide detailed disclosures about the purchases, sales, issuances and settlements in the roll-forward activity for Level 3 fair value measurements is effective for the Company for interim and annual reporting periods beginning after December 31, 2010. The adoption of this accounting standard did not have a material impact on the Company's disclosure or consolidated financial results.
In December 2010, the FASB issued a new accounting standard which requires that Step 2 of the goodwill impairment test be performed for reporting units whose carrying value is zero or negative. This guidance is effective for fiscal years beginning after December 15, 2010 and interim periods within those years. Our adoption of this standard did not have a material impact on the Company's disclosure or consolidated financial results.
In December 2010, the FASB issued new guidance clarifying some of the disclosure requirements related to business combinations that are material on an individual or aggregate basis. Specifically, the guidance states that, if comparative financial statements are presented, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year occurred as of the beginning of the comparable prior annual reporting period only. Additionally, the new standard expands the supplemental pro forma disclosure required by the authoritative guidance to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination in the reported pro forma revenue and earnings. This guidance became effective January 1, 2011. Our adoption of this standard did not have a material impact on the Company's disclosure or consolidated financial results. However, it may result in additional disclosures in the event that we enter into a business combination that is material either on an individual or aggregate basis.
NOTE 3 - RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
In this Annual Report on Form 10-K, India Globalization Capital, Inc. has:
| (a) | Restated its consolidated statements of operations and consolidated cash flows as for the year ended March 31, 2010; |
| (b) | Amended its management discussion and analysis as it relates to the year ended March 31, 2010; and |
| (c) | Restated its unaudited quarterly financial data for the quarter ended December 31, 2009. |
The restatements reflect adjustments to correct errors identified by the SEC through its original and follow up comment letters dated February 25, 2011 and May 9, 2011. The restatement adjustments reflect a reclassification in the consolidated cash flow and a correct computation of the diluted EPS of the Company.
The changes described above are non-cash items and do not impact the Company’s operations.
Reclassification in the Company’s Consolidated Statement of Cash Flows
Sricon India Private Limited (SIPL), a subsidiary of IGC Inc., had been deconsolidated effective October 1, 2009. Upon deconsolidation, the cash flows of SIPL for the six months ended September 30, 2009 were re-classified and presented as equity in earnings of affiliates. The cash flows for the year ended 31 March, 2010 have now been restated to contain transactions relating to SIPL up until the date of deconsolidation; and
Computation of diluted earnings per share
The effect of dilution was inadvertently considered while computing the Earnings Per Share (EPS) in the event of loss by IGC Inc. The restatement now rightly shows the EPS in the event of loss without considering dilution.
INDIA GLOBALIZATION CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended March 31, | ||||||||
| 2010 | 2009 | |||||||
| Revenues | $ | 17,897,826 | $ | 35,338,725 | ||||
| Cost of revenues | (15,671,840 | ) | (27,179,494 | ) | ||||
| Gross profit | 2,225,986 | 8,159,231 | ||||||
| Selling, General and Administrative expenses | (5,614,673 | ) | (4,977,815 | ) | ||||
| Depreciation | (603,153 | ) | (873,022 | ) | ||||
| Operating income (loss) | (3,991,840 | ) | 2,308,394 | |||||
| Legal and formation, travel and other startup costs | - | - | ||||||
| Interest expense | (1,221,466 | ) | (1,753,951 | ) | ||||
| Amortization of debt discount | (356,436 | ) | - | |||||
| Interest Income | 210,097 | 1,176,017 | ||||||
| Other Income | 281,782 | - | ||||||
| Loss on dilution of stake in Sricon | (2,856,088 | ) | - | |||||
| Equity in earnings of affiliates | 16,446 | - | ||||||
| Income before income taxes and minority interest attributable to non-controlling interest | (7,917,505 | ) | 1,730,460 | |||||
| Income taxes benefit/ (expense) | 3,109,704 | (1,535,087 | ) | |||||
| Net income | (4,807,801 | ) | 195,373 | |||||
| Non-controlling interests in earnings of subsidiaries | 18,490 | (716,949 | ) | |||||
| Net income / (loss) attributable to common stockholders | $ | (4,789,311 | ) | $ | (521,576 | ) | ||
| Earnings per share attributable to common stockholders: | ||||||||
| Basic | $ | (0.42 | ) | $ | (0.05 | ) | ||
| Diluted | $ | (0.40 | ) | $ | (0.05 | ) | ||
| Weighted-average number of shares used in computing earnings per share amounts: | ||||||||
| Basic | 11,537,857 | 10,091,171 | ||||||
| Diluted | 11,958,348 | 10,091,171 | ||||||
Year ended March 31, | ||||||||
2010 (as originally filed) | 2010 (as restated) | |||||||
| Revenues | $ | 17,897,826 | $ | 17,897,826 | ||||
| Cost of revenues | (15,671,840 | ) | (15,671,840 | ) | ||||
| Selling, General and Administrative expenses | (5,614,673 | ) | (5,614,673 | ) | ||||
| Depreciation | (603,153 | ) | (603,153 | ) | ||||
| Operating income (loss) | (3,991,840 | ) | (3,991,840 | ) | ||||
| Legal and formation, travel and other startup costs | - | - | ||||||
| Interest expense | (1,221,466 | ) | (1,221,466 | ) | ||||
| Amortization of debt discount/Loss on extinguishment of debt | (356,436 | ) | (356,436 | ) | ||||
| Interest Income | 210,097 | 210,097 | ||||||
| Other Income | 281,782 | 281,782 | ||||||
| Loss on dilution of stake in Sricon | (2,856,088 | ) | (2,856,088 | ) | ||||
| Equity in earnings of affiliates | 16,446 | 16,446 | ||||||
| Income before income taxes and minority interest attributable to non-controlling interest | (7,917,505 | ) | (7,917,505 | ) | ||||
| Income taxes benefit/ (expense) | 3,109,704 | 3,109,704 | ||||||
| Net income | (4,807,801 | ) | (4,807,801 | ) | ||||
| Non-controlling interests in earnings of subsidiaries | 18,490 | 18,490 | ||||||
| Net income / (loss) attributable to common stockholders | $ | (4,789,311 | ) | $ | (4,789,311 | ) | ||
| Earnings per share attributable to common stockholders: | ||||||||
| Basic | $ | (0.42 | ) | $ | (0.42 | ) | ||
| Diluted | $ | (0.40 | ) | $ | (0.42 | ) | ||
| Weighted-average number of shares used in computing earnings per share amounts: | ||||||||
| Basic | 11,537,857 | 11,537,857 | ||||||
| Diluted | 11,958,348 | 11,537,857 | ||||||
* The accompanying notes should be readeffect of restatement on the diluted EPS has been shown in connection withitalics in the financial statements.table above.
INDIA GLOBALIZATION CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended March 31, | ||||||||||||
2010 (as originally filed) | Adjustments | 2010 (as restated) | ||||||||||
| Cash flows from operating activities: | ||||||||||||
| Net income (loss) | $ | (4,807,801 | ) | - | $ | (4,807,801 | ) | |||||
| Adjustment to reconcile net income (loss) to net cash: | ||||||||||||
| Non-cash compensation expense | 130,399 | - | 130,399 | |||||||||
| Deferred taxes | (3,283,423 | ) | 28,637 | (3,254,786 | ) | |||||||
| Depreciation | 385,803 | 217,350 | 603,153 | |||||||||
| Profits relating to de-consolidated subsidiary | (34,744 | ) | - | (34,744 | ) | |||||||
| Loss / (gain) on sale of property, plant and equipment | (3,715 | ) | - | (3,715 | ) | |||||||
| Amortization of debt discount | 356,437 | - | 356,437 | |||||||||
| Interest expense (including non-cash) | 842,494 | 287,883 | 1,130,377 | |||||||||
| Loss on extinguishment of debt | 586,785 | - | 586,785 | |||||||||
| Loss on dilution of stake in Sricon | 2,856,088 | - | 2,856,088 | |||||||||
| Deferred acquisition cost written off | 1,854,750 | - | 1,854,750 | |||||||||
| Equity in earnings of affiliates | (16,446 | ) | - | (16,446 | ) | |||||||
| Changes in: | - | |||||||||||
| Accounts receivable | (4,522,214 | ) | 1,465,666 | (3,056,548 | ) | |||||||
| Inventories | 1,757,399 | 17,702 | 1,775,101 | |||||||||
| Prepaid expenses and other current assets | (556,303 | ) | 248,765 | (307,538 | ) | |||||||
| Trade payables | 1,508,359 | (4,020 | ) | 1,504,339 | ||||||||
| Other current liabilities | 89,396 | (1,102,799 | ) | (1,013,403 | ) | |||||||
| Other non-current liabilities | (350,540 | ) | (111,169 | ) | (461,709 | ) | ||||||
| Non-current assets | 251,815 | (20,244 | ) | 231,571 | ||||||||
| Net cash used in operating activities | $ | (2,955,461 | ) | $ | 1,027,771 | $ | (1,927,690 | ) | ||||
| Cash flow from investing activities: | ||||||||||||
| Purchase of property and equipment | $ | (1,198,880 | ) | $ | (65,365 | ) | $ | (1,264,245 | ) | |||
| Proceeds from sale of property and equipment | 463,825 | - | 463,825 | |||||||||
| Investment in non-current investments (joint ventures etc.) | (698,174 | ) | - | (698,174 | ) | |||||||
| Restricted cash | (567,012 | ) | �� | (15,069 | ) | (582,081 | ) | |||||
| Net cash movement relating to de-consolidation of subsidiary | - | (102,045 | ) | (102,045 | ) | |||||||
| Net cash provided/(used) in investing activities | $ | (2,000,241 | ) | $ | (182,479 | ) | $ | (2,182,720 | ) | |||
| Cash flows from financing activities: | ||||||||||||
| Net movement in other short-term borrowings | $ | 347,185 | $ | (285,600 | ) | $ | 61,585 | |||||
| Proceeds / (repayment) from long-term borrowings | - | (687,956 | ) | (687,956 | ) | |||||||
| Issuance of equity shares | 1,833,780 | - | 1,833,780 | |||||||||
| Proceeds from notes payable | 2,000,000 | - | 2,000,000 | |||||||||
| Interest paid | - | (287,883 | ) | (287,883 | ) | |||||||
| Net cash provided/(used) by financing activities | $ | 4,180,965 | $ | (1,261,439 | ) | $ | 2,919,526 | |||||
| Effects of exchange rate changes on cash and cash equivalents | (234,966 | ) | 139,408 | (95,558 | ) | |||||||
| Net increase/(decrease) in cash and cash equivalents | (1,009,703 | ) | (276,739 | ) | (1,286,442 | ) | ||||||
| Cash and cash equivalent at the beginning of the period | 1,852,626 | 276,739 | 2,129,365 | |||||||||
| Cash and cash equivalent at the end of the period | $ | 842,924 | - | $ | 842,923 | |||||||
Tax rate reconciliation
| 2010 (as originally filed) | Adjustments | 2010 (as restated) | ||||||||||
| Statutory Federal income tax rate | 34.0 | % | - | 34.0 | % | |||||||
| State tax benefit net of federal tax | 5.4 | % | (10.8 | %) | -5.4 | % | ||||||
| Loss on dilution of Sricon | 43.6 | % | (55.9 | %) | -12.3 | % | ||||||
| Capitalized interest costs | - | (5.2 | %) | -5.2 | % | |||||||
| Tax benefits from US taxes | - | (48.9 | %) | -48.9 | % | |||||||
| Amortization of debt discount | - | (1.5 | %) | -1.5 | % | |||||||
| Effective income tax rate | 83.0 | % | (122.3 | %) | -39.3 | % | ||||||
NOTE 4 – SHARES POTENTIALLY SUBJECT TO RESCISSION RIGHTS
On July 14, 2010 the Company filed audited financial statements on Form 10-K for the year ended March 31, 2010 that included a qualified opinion from the Company's auditors pending completion of their audit procedures in respect of the deconsolidation of one of the Company's subsidiaries. The Company subsequently filed an amended Form 10-K which includes an unqualified audit opinion.
On January 19, 2011, the Securities and Exchange Commission (the "Commission") notified the Company that the initial financial statements filed on July 14, 2010 did not comply with the requirements of Rule 2-02 under Regulation S-X for audited financial statements because the financial statements contained a qualified opinion. As noted above, the amended 10-K filed on January 28, 2011 contains audited financial statements with an unqualified opinion that comply with Rule 2-02. The Commission has indicated that as the initial Form 10-K filed on July 14, 2010 was deficient as a result of the inclusion of the qualified audit opinion. It was therefore deemed not to have been filed with the Commission in accordance with applicable requirements, thus making the Company delinquent in its filings with the Commission.
The Commission has informed the Company that as a result of the deemed failure to timely file a Form 10-K, it is the Staff's view that as of July 14, 2010 the Company ceased to be eligible to use SEC Form S-3 for the registration of the Company's securities. As the financial statements included in the original Form 10-K were also included in a registration statement on Form S-1 (File No. 333-163867) pursuant to which the Company offered its common stock and warrants to purchase common stock in December 2010 (the "December 2010 Offering"), the Commission has also indicated that such registration statement failed to comply with the requirements of Form S-1 due to the lack of the inclusion of unqualified audited financial statements in compliance with Commission requirements.
Since the Commission has informed the Company that it is the Commission's view that as of July 14, 2010 the Company ceased to be eligible to use Form S-3 for the registration of the Company's securities, it is possible that any sales of the Company's securities pursuant to the Company's registration statements on Form S-3 since July 14, 2010 may be deemed to be unregistered sales of its securities. Since July 14, 2010, the Company has sold an aggregate of 2,292,760 shares of its common stock for an aggregate gross price of $1,690,866 pursuant to an at-the-market offering ("ATM") of its common stock on Form S-3 (File No. 333-160993) in sales that occurred between September 7, 2010 and January 19, 2011. In addition, the Company may be deemed to have made unregistered sales of the 2,575,830 shares of common stock and warrants to purchase an aggregate of 858,610 shares of common stock at an exercise price of $0.90 per share sold for an aggregate gross purchase price of $1,545,498 sold pursuant to such registration statement with respect to the December 2010 Offering. Alternatively, to the extent that the sales are deemed be registered as a result of being sold pursuant to registration statements declared effective by the Commission as the registration statements in question either incorporated, in the case of the Form S-3 or included, in the case of the Form S-1, a qualified audit report the registration statements could be deemed to be materially incomplete.
Year ended March 31, | ||||||||
2010 | 2009 | |||||||
| Net income / (loss) | $ | (4,789,311 | ) | $ | (521,576 | ) | ||
| Foreign currency translation adjustments | 3,499,767 | (4,925,759 | ) | |||||
| Deconsolidation of Sricon | (1,148,591 | ) | ||||||
| Comprehensive income (loss) | $ | (2,438,135 | ) | $ | (5,447,335 | ) | ||
The accompanying notes shouldexercise of any applicable rescission rights is not within the control of the Company. At March 31, 2011, the Company had approximately 4,868,590 shares that may be readsubject to the rescission rights outside stockholders’ equity. These shares have always been treated as outstanding for financial reporting purposes.
NOTE 5 – OTHER CURRENT AND NON-CURRENT ASSETS
Prepaid expenses and other current assets consist of the following:
As of March 31, | ||||||||
2011 | 2010 | |||||||
| Prepaid expenses | $ | 103,841 | $ | 52,087 | ||||
| Advances to suppliers | 1,024,399 | 1,231,771 | ||||||
| Prepaid interest | 159,825 | - | ||||||
| Security and other Deposits | 85,277 | 414,166 | ||||||
| Others | 101,496 | 356,438 | ||||||
| $ | 1,474,838 | $ | 2,054,462 | |||||
Other Non-current assets consist of the following | As of March 31, | |||||||
| 2011 | 2010 | |||||||
| Sundry debtors | $ | 396,275 | $ | 268,145 | ||||
| Other advances | 352,348 | 604,039 | ||||||
| $ | 748,623 | $ | 872,184 | |||||
NOTE 6 – SHORT-TERM BORROWINGS
Short term borrowings consist of the following. There is no current portion of long term debt that is classified as short term borrowings.
As of March 31, | ||||||||
2011 | 2010 | |||||||
| Secured liabilities | $ | 901,343 | $ | 1,087,775 | ||||
| Unsecured liabilities | - | 301,266 | ||||||
| $ | 901,343 | $ | 1,389,041 | |||||
The above debt is secured by hypothecation of materials, stock of spares, Work in connection withProgress, receivables and property and equipment, in addition to personal guarantee of three India based directors, and collaterally secured by mortgage of company’s land and other fixed properties of directors and their relatives. The average interest rate was 12% to 14% for the financial statements.
year ended March 31, 2011.
On October 5, 2009, the Company consummated the exchange of an outstanding promissory note in the total principal amount of $ 2,000,000 (the “Original Note”) initially issued to the Steven M. Oliveira 1998 Charitable Remainder Unitrust (‘Oliveira’) for a new promissory note (the “New Oliveira Note”) on substantially the same terms as the original note except that the principal amount of the New Oliveira Note was $ 2,120,000 which reflected the accrued but unpaid interest on the Original Note and the New Oliveira Note did not bear interest. The New Oliveira Note was unsecured and was due and payable on October 4, 2010 (the “Maturity Date”). Prior to the Maturity Date, the Company was permitted to pre-pay the New Oliveira Note at any time without penalty or premium. The New Oliveira Note is not convertible into IGC Common Stock (the “Common Stock”) or other securities of the Company. However, under the Note and Share Purchase Agreement (the “Oliveira Note and Share Purchase Agreement”), effective as of October 4, 2009, by and among the Company and Oliveira, as additional consideration for the exchange of the Original Note, the Company agreed to issue 530,000 shares of Common Stock to Oliveira. The Oliveira Note remains outstanding.
| Additional | Accumulated | Accumulated Other | Total | |||||||||||||||||||||||||
Common Stock | Paid in | Earnings | Comprehensive | Non-Controlling | Stockholders’ | |||||||||||||||||||||||
No of Shares | Amount | Capital | (Deficit) | Income/(loss) | Interest | Equity | ||||||||||||||||||||||
| Balance at March 31, 2008 | 8,570,107 | $ | 857 | $ | 31,470,134 | $ | (4,141,113 | ) | $ | (3,822 | ) | $ | 13,545,656 | $ | 40,871,712 | |||||||||||||
| Fair value of 425,000 warrants issued to Oliveira Capital, LLC | - | - | 403,750 | - | - | - | 403,750 | |||||||||||||||||||||
| Issuance of common stock to RedChip Companies at $471 per share | 10,000 | 1 | 47,098 | - | - | - | 47,099 | |||||||||||||||||||||
| Fair value of 200,000 common stock issued to Oliveira Trust | 200,000 | 20 | 967,980 | - | - | - | 968,000 | |||||||||||||||||||||
| Conversion of Warrants to Equity shares – 1,311,064 shares | 1,311,064 | 131 | 297,568 | - | - | - | 297,699 | |||||||||||||||||||||
| Net income / (loss) | - | - | - | (521,576 | ) | - | 716,950 | 195,374 | ||||||||||||||||||||
| Foreign currency translation adjustments | - | - | - | - | (4,925,759 | ) | - | (4,925,759 | ) | |||||||||||||||||||
| Balance at March 31, 2009 | 10,091,171 | $ | 1,009 | $ | 33,186,530 | $ | (4,662,689 | ) | $ | (4,929,581 | ) | $ | 14,262,606 | $ | 37,857,875 | |||||||||||||
| Stock Option for 1,413,000 grants | - | - | 90,996 | - | - | - | 90,996 | |||||||||||||||||||||
| Issue of 78,820 common stock to officers and directors | 78,820 | 8 | 39,402 | - | - | - | 39,410 | |||||||||||||||||||||
| Issuance of Common Stock to Red Chip Companies | 15,000 | 2 | 13,198 | - | - | - | 13,200 | |||||||||||||||||||||
| Issuance of 1,599,000 common stock to institutional investors | 1,599,000 | 160 | 1,638,690 | - | - | - | 1,638,850 | |||||||||||||||||||||
| Issue of 530,000 common stock to Bricoleur Capital | 530,000 | 53 | 712,822 | - | - | - | 712,875 | |||||||||||||||||||||
| Issue of 530,000 common stock to Oliveira | 530,000 | 53 | 586,732 | - | - | - | 586,785 | |||||||||||||||||||||
| Interest exp towards of 530000 shares towards Bricoleur Capital loan | - | - | 197,412 | - | - | - | 197,412 | |||||||||||||||||||||
| Interest exp towards of 530000 shares towards Oliveira loan | - | - | 162,408 | - | - | - | 162,408 | |||||||||||||||||||||
| Issue of 145,216 common stock under ATM agency agreement | 145,216 | 15 | 179,874 | - | - | (10,484 | ) | 169,405 | ||||||||||||||||||||
| Dividend Option | - | - | (2,340 | ) | - | - | - | (2,340 | ) | |||||||||||||||||||
| Loss on Translation | - | - | - | - | 3,499,767 | (2,219,698 | ) | 1,280,069 | ||||||||||||||||||||
| Impact of de-consolidation of Sricon | - | - | - | - | (1,148,591 | ) | - | (1,148,591 | ) | |||||||||||||||||||
| Elimination of non-controlling interest pertaining to Sricon | - | - | - | - | - | (10,637,093 | ) | (10,637,093 | ) | |||||||||||||||||||
| Net income for non-controlling interest | - | - | - | - | - | (18,490 | ) | (18,490 | ) | |||||||||||||||||||
| Net income / (loss) | - | - | - | (4,789,311 | ) | - | - | (4,789,311 | ) | |||||||||||||||||||
| Balance at March 31, 2010 | 12,989,207 | $ | 1,300 | $ | 36,805,724 | $ | (9,452,000 | ) | $ | (2,578,405 | ) | $ | 1,376,841 | $ | 26,153,460 | |||||||||||||
During the three months ended December 31, 2010, the Company issued an additional 200,000 shares of Common Stock to each of Oliveira and Bricoleur specified above pursuant to the effective agreements respectively as penalties for failure to repay the promissory notes when due.
In March 2011, the Company finalized agreements with the Steven M. Oliveira 1998 Charitable Remainder Unitrust (‘Oliveira’) and Bricoleur Partners, L.P. (‘Bricoleur’) to exchange the promissory note issued to Oliveira on October 5, 2009 (the “New Oliveira Note”) and the promissory note issued to Bricoleur on October 16, 2009 (the “Bricoleur Note”) respectively for new promissory notes with later maturity dates. The accompanying notes shouldOliveira Note will be readdue on March 24, 2012, will bear interest at a rate of 30% per annum and will provide for monthly payments of principal and interest, which the Company may choose to settle through the issue of equity shares at an equivalent value. The Bricoleur Note will be due on June 30, 2011 with no prior payments due and will not bear interest. The Company issued additional 688,500 shares of its common stock to Bricoleur in connection with the financial statements.extension of the term regarding the Bricoleur note.
The Company’s total interest expense was $ 1,395,433 and $ 1,221,466 for the year ended March 31, 2011 and 2010, respectively. No interest was capitalized by the Company for the year ended March 31, 2011 and March 31, 2010.
NOTE 8 – OTHER CURRENT AND NON-CURRENT LIABILITIES
Other current liabilities consist of the following:
As of March 31, | ||||||||
2011 | 2010 | |||||||
| Statutory dues payable | $ | 17,745 | $ | 35,734 | ||||
| Employee related liabilities | 77,147 | 90,207 | ||||||
| Other liabilities | - | 24,001 | ||||||
| $ | 94,892 | $ | 149,942 | |||||
Other non-current liabilities consist of the following:
As of March 31, | ||||||||
2011 | 2010 | |||||||
| Sundry creditors | $ | 1,209,479 | $ | 1,107,498 | ||||
| Provision for expenses | - | - | ||||||
| $ | 1,209,479 | $ | 1,107,498 | |||||
Sundry creditors consist primarily of creditors to whom amounts are due for supplies and materials received in the normal course of business.
NOTE 9 – OTHER INCOME
Other income in the current year consists primarily of the backer-recording of liabilities relating to the promoters of TBL, one of the subsidiaries of the Company. IGC had in the previous year disputed the payment of this liability and accordingly in the current year, it has been determined that the liability is no longer payable.
NOTE 10 – FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the Company’s current assets and current liabilities approximate their carrying value because of their short term maturity. Such financial instruments are classified as current and are expected to be liquidated within the next twelve months.
NOTE 11 – GOODWILL
The movement in goodwill balance is given below:
As of March 31, | ||||||||
2011 | 2010 | |||||||
| Balance at the beginning of the period | $ | 6,146,720 | $ | 17,483,501 | ||||
| Elimination on deconsolidation of Sricon | - | (10,576,123 | ) | |||||
| Effect of foreign exchange translation | 56,583 | (760,658 | ) | |||||
| Impairment loss | (5,792,849 | ) | - | |||||
| $ | 410,454 | $ | 6,146,720 | |||||
During the year ended March 31, 2011, the Company conducted an impairment analysis regarding the goodwill in its consolidated financial statements. The goodwill balance of $6,146,720 at the beginning of 2011 was allocated to our subsidiary Techni Bharathi Limited (‘TBL’). The Company assessed the recoverable value of TBL and concluded that it was lower than $6.2 million. Therefore the goodwill balance allocated to TBL was impaired by $ 5,792,849. The methodology used in the impairment test is described below.
TBL, a small road building company, is engaged in highway and heavy construction activities. TBL has constructed highways, rural roads, tunnels, dams, airport runways, and housing complexes, mostly in southern states. TBL, because of its successful execution of contracts, is pre-qualified by the National Highway Authority of India (NHAI) and other agencies. We own 77% of TBL.
TBL’s share of the overall Indian construction market is very small. However, TBL’s prequalification and prior track record provides a way to grow the company in highway and heavy construction. Currently, TBL is engaged in the recovery of construction delay claims that it is pursuing against NHAI and the Cochin International Airport in the aggregate amount of $2.3 million. TBL has received binding judgments in arbitration against and is in the process of collecting those judgments, which can typically take two to three years.
For the year ended March 31, 2011, TBL was not able to meet its cash flow projections, because it has not been able to win any new significant contracts. As a result, TBL does not have a sufficient pipeline that would enable it to project cash flows. Therefore, the impairment test for TBL is based on the recoverable values of its assets less the expected settlement of its liabilities.
For the purpose of the impairment test, we considered all the assets and liabilities of TBL. With respect to all the monetary assets and liabilities, the carrying values of the assets and the liabilities are considered to approximate the fair value of TBL since these are the expected recovery values and the expected values for settling liabilities. With respect to non-monetary assets such as fixed assets, we estimated the recoverable values based on a valuation certificate obtained from an approved independent appraiser. Further, the recoverability of claims is based on actual awards received in arbitration.
NOTE 12 — RELATED PARTY TRANSACTIONS
The Company has entered into an agreement with SJS Associates subsequent to the stockholder’s approval of the acquisitions of Sricon and TBL. For the year ended March 31, 2011, $ 40,160 was paid to SJS Associates for Mr. Selvaraj’s services, which included compensation expenses. There was no balance receivable or payable to/from this party as of March 31, 2011.
The Company had agreed to pay Integrated Global Network, LLC (“IGN, LLC”), an affiliate of our Chief Executive Officer, Mr. Mukunda, an administrative fee of $4,000 per month for office space and general and administrative services from the closing of the Public Offering through the date of a Business Combination. For the year ended March 31, 2011, a total of $ 48,000 was accrued as rent payable to IGN LLC out of which $ 8,000 was outstanding as of March 31, 2011.
The Company uses the services of Economic Law Practice (ELP), a law firm in India. A member of our Board of Directors, prior to his resignation on March 15, 2011, was a Partner of ELP. Since inception to March 31, 2010, the Company has incurred $186,303. There were no accruals or payments regarding ELP during the year ended March 31, 2011. Accordingly, there was no balance receivable or payable to/from this party as of March 31, 2011.
The Company, specifically one of the subsidiaries of the Company, TBL, has a receivable from Sricon, an affiliate of the Company, amounting to $3,114,572. This amount was advanced by TBL to Sricon to fund a bid on a new contract and provide the working capital requirement for the contract. Subsequently, due to certain disputes that have arisen between Sricon and IGC, the receivable of $3.1 million is still outstanding. Sricon is unwilling to pay the amount as it seeks to offset the amount as an equity payment from IGC. However the amount was advanced from TBL, not from IGC, and TBL has no equity in Sricon. Further, the two entities, IGC and TBL, are legally different companies and therefore TBL has legal remedies under Indian law. The Company has engaged Indian counsel who is in the process of preparing the case to pursue the recovery of this receivable. From an accounting perspective, the Company has created a full provision in respect of this receivable due to the dispute although it intends to pursue collection of this receivable through an appropriate legal process in India. The said provision is contained in the selling, general and administrative expenses of the Company.
NOTE 13 – COMMITMENTS AND CONTINGENCIES
No significant commitments and contingencies were made or existed during the years ended March 31, 2011 and 2010.
NOTE 14 – PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
| As of March 31, | ||||||||
2011 | 2010 | |||||||
| Land | $ | 10,870 | $ | 10,870 | ||||
| Buildings | 351,147 | 172,935 | ||||||
| Plant and machinery | 3,335,065 | 3,253,444 | ||||||
| Furniture and fixtures | 87,768 | 88,860 | ||||||
| Computer equipment | 213,178 | 209,012 | ||||||
| Vehicles | 479,478 | 478,749 | ||||||
| Office equipment | 167,563 | 161,680 | ||||||
| Capital work-in-progress | 137,696 | 136,440 | ||||||
| 4,782,765 | 4,511,990 | |||||||
| Less: Accumulated depreciation | (3,551,004 | ) | (2,763,554 | ) | ||||
| $ | 1,231,761 | $ | 1,748,436 | |||||
Depreciation and amortization expense for the fiscal years ended March 31, 2011 and March 31, 2010 was $785,066 and $603,153, respectively. Capital work-in-progress represents advances paid towards the acquisition of property and equipment and the cost of property and equipment not put to use before the balance sheet date.
NOTE 15 – INVESTMENT ACTIVITIES
No significant investment activities occurred during the years ended March 31, 2011 and March 31, 2010.
NOTE 16 — SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
During the current year, the Company has created a full provision on the amount receivable from one of its investee companies –Sricon- amounting to $ 3,143,242. Please refer Note 12 of the consolidated financial statements for further information relating to this write off.
Further during the current year, the Company recorded an expense amounting to $ 1,515,186 relating to bad debts on its accounts receivable and certain loans and advances.
NOTE 17 – STOCK-BASED COMPENSATION
On April 1, 2009 the Company adopted ASC 718, “Compensation-Stock Compensation”, (previously referred to as SFAS No. 123 (revised 2004), Share Based Payment). ASC 718 requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values. As of March 31, 2010, the Company granted 78,820 shares of common stock and 1,413,000 stock options, to its directors and employees, all of which were granted during the year ended March 31, 2010. No options were granted during the year ended March 31, 2011. The options vested immediately. The exercise price of the options was $1.00 per share, and the options will expire on May 13, 2014. The fair value of the stock was $39,410 on the date of grant and the fair value of the stock options was $90,997. Total share-based compensation expense, related to all of the Company’s share-based awards, recognized for the year ended March 31, 2010 is $130,407. As of March 31, 2011 under the 2008 Omnibus Plan, 471,045 options remain issuable under the plan.
The fair value of stock option awards is estimated on the date of grant using a Black-Scholes Pricing Model with the following assumptions for options awarded during the year ended March 31, 2010:
| Expected life of options | 5 years | |||
| Vested options | 100 | % | ||
| Risk free interest rate | 1.98 | % | ||
| Expected volatility | 35.35 | % | ||
| Expected dividend yield | Nil | |||
The volatility estimate was derived using historical data for the IGC stock and for public companies in the infrastructure industry.
NOTE 18 – EMPLOYEE BENEFITS
Gratuity 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.
As of March 31, | ||||||||
2011 | 2010 | |||||||
| Change in the benefit obligation | ||||||||
| Projected Benefit Obligation (PBO) at the beginning of the year | (22,383 | ) | - | |||||
| Service cost | (1,510 | ) | 22,383 | |||||
| Interest cost | (1,967 | ) | - | |||||
| Benefits paid | 3,578 | - | ||||||
| Actuarial loss/(gain) | (6,498 | ) | - | |||||
| PBO at the end of the year | (28,780 | ) | (22,383 | ) | ||||
| - | - | |||||||
| Funded status | $ | (28,780 | ) | $ | (22,383 | ) | ||
Net gratuity cost for the years ended March 31, 2011 and 2010 included:
Year ended March 31, | ||||||||
2011 | 2010 | |||||||
| Service cost | 1,510 | 22,383 | ||||||
| Interest cost | 1,967 | - | ||||||
| Actuarial loss/(gain) | 6,498 | |||||||
| Net gratuity cost | $ | 9,975 | $ | 22,383 | ||||
The weighted average actuarial assumptions used to determine benefit obligations and net periodic gratuity cost are:
Year ended March 31, | ||||||||
2011 | 2010 | |||||||
| Discount rate | 9.10 | % | 8.65 | % | ||||
| Rate of increase in compensation levels | 8.00 | % | 8.00 | % | ||||
The Company assesses these assumptions with its projected long-term plans of growth and prevalent industry standards.
The expected payout of the accumulated benefit obligation as of March 31 is as follows.
As of March 31, | ||||||||
2011 | 2010 | |||||||
| Expected contribution during the year ending Year 1 | $ | 2,739 | $ | 3,582 | ||||
| Expected benefit payments for the years ending March 31: | ||||||||
| Year 2 | 1,302 | 1,023 | ||||||
| Year 3 | 1,347 | 1,046 | ||||||
| Year 4 | 1,819 | 1,468 | ||||||
| Year 5 | 9,048 | 8,164 | ||||||
| Thereafter | 15,806 | 13,135 | ||||||
Provident fund. In addition to the above benefits, all employees receive benefits from a provident fund, a defined contribution plan. The employee and employer each make monthly contributions to the plan equal to 12% of the covered employee’s salary. The contribution is made to the Government’s provident fund.
The Company recognized an expense of $ 6,819 and $16,446 towards contribution to various defined contribution and benefit plans during the years ended March 31, 2011 and March 31, 2010 respectively.
NOTE 19 – DECONSOLIDATION
Effective October 1, 2009, we decreased our ownership in Sricon Infrastructure from 63% to 22.3%. On March 7, 2008 we consummated the Sricon Acquisition by purchasing 63% for $28,690,266 (based on an exchange rate of 40 INR for 1 USD). Subsequently, we effectively borrowed, through an intermediary company, $17,900,000 (based on 40 INR for 1 USD) from Sricon. Through 2008 and 2009 we expanded our business offerings beyond construction to include a rapidly growing materials business. We have successfully repositioned the company as a materials and construction company with construction activity in our TBL subsidiary and materials activity in our other subsidiaries. As a consequence, we no longer owe $17,900,000 and our corresponding ownership in Sricon had decreased from 63% to 22.3%, a minority interest. The accounting of the decrease in ownership, or deconsolidation of Sricon from the balance sheet of IGC, results in the shrinking of IGC’s balance sheet and a one-time charge on the income statement.
The equity dilution of 40.715% resulted in a consideration of $17,900,000. Following the guidance under ASC 810-10, the parent derecognized the assets, liabilities and equity components (including the amounts previously recognized in other comprehensive income) related to Sricon. IGC recorded a loss of $785,073 and further reclassified an accumulated AOCI loss of $2,098,492 in the income statement as a result of the dilution. Deferred acquisition costs related to Sricon amounted to $1,854,750, which were subsequently recorded in the income statement for the Fiscal Year that ended March 31, 2010.
The Company accounted for its remaining 22.3% interest in Sricon by the equity method. The carrying value of the investment in Sricon as of March 31, 2010 was $8,443,181. The Company’s equity in the income of Sricon for the period ended March 31, 2010 was $16,446. In the current year, due to certain disputes with the management of Sricon, the Company was not able to obtain the financial statements of Sricon. It has been determined that the Company no longer has significant influence in the operations of Sricon. Accordingly, the investment in Sricon is currently valued at cost less provision for impairment losses, if any. Please refer Note 25 for discussion on impairment loss relating to the investment in Sricon.
NOTE 20 – INCOME TAXES
Income tax expense (benefit) for each of the years ended March 31 consists of the following:
| March 31, | ||||||||
| 2011 | 2010 | |||||||
| Current: | ||||||||
| Federal | $ | $ | 0 | |||||
| Foreign | (100,226 | ) | 92,310 | |||||
| State | 0 | |||||||
| Net Current | (100,226 | ) | 92,310 | |||||
| Deferred: | ||||||||
| Federal | 4,242,001 | (2,947,845 | ) | |||||
| Foreign | (422,823 | ) | 113,464 | |||||
| State | 381,433 | (367,633 | ) | |||||
| Net Deferred | 4,200,611 | (3,202,014 | ) | |||||
| Total tax provision | $ | 4,100,385 | $ | (3,109,704 | ) | |||
The significant components of deferred income tax expense (benefit) from operations before non-controlling interest for each of the years ended March 31 consist of the following:
| March 31, | ||||||||
| 2011 | 2010 | |||||||
| Deferred tax expense (benefit) | $ | 1,652,984 | $ | (550,254 | ) | |||
| Net operating loss carry forward | 2,003,420 | (1,999,512 | ) | |||||
| Foreign Tax Credits | 544,207 | (544,207 | ) | |||||
| Interest income deferred for reporting purposes | ||||||||
| Difference between accrual accounting for reporting purposes and cash accounting for tax purposes | ||||||||
| Less: Valuation Allowance | (4,200,611 | ) | (108,041 | ) | ||||
| Net deferred tax asset | $ | 0 | $ | (3,202,014 | ) | |||
The total tax provision for income taxes for year ended March 31, 2011 differs from that amount which would be computed by applying the U.S. Federal income tax rate to income before provision for income taxes as follows:
| March 31, | ||||||||
| 2011 | 2010 | |||||||
Statutory Federal income tax rate | 34.0 | % | 34.0 | % | ||||
State tax benefit net of federal tax | 1.5 | % | -5.4 | % | ||||
Change in valuation allowance | 8.2 | % | - | |||||
Loss on extinguishment of debt | -0.4 | % | - | |||||
Loss on dilution of Sricon | - | -12.3 | % | |||||
Impairment loss on goodwill | -11.9 | % | - | |||||
Impairment loss on investments | -4.4 | % | - | |||||
Capitalized interest costs | -2.8 | % | -5.2 | % | ||||
Tax benefits from US taxes | - | -48.9 | % | |||||
Amortization of debt discount | - | -1.5 | % | |||||
Effective income tax rate | 24.2 | % | -39.3 | % | ||||
The deferred tax assets and liabilities as of March 31 consist of the following tax effects relating to temporary differences and carry forwards:
| March 31, | ||||||||
| 2011 | 2010 | |||||||
| Current deferred tax liabilities (assets): | ||||||||
| Vacation Pay | $ | 0 | $ | (25,345 | ) | |||
| Valuation allowance | - | |||||||
| Net current deferred tax liabilities (assets) | 0 | (25,345 | ) | |||||
| Noncurrent deferred tax assets (liabilities): | ||||||||
| Startup Costs | 921,378 | (921,378 | ) | |||||
| Deferred Acquisition Costs | 731,606 | (731,606 | ) | |||||
| Property, plant and equipment | (121,242 | ) | ||||||
| Foreign Tax Credits | 544,207 | (544,207 | ) | |||||
| Net Operating Losses | 2,003,420 | (1,999,512 | ) | |||||
| Valuation allowance | (4,200,611 | ) | - | |||||
| Non-Current net deferred tax assets | $ | 0 | $ | (4,075,461 | ) | |||
Deferred income tax assets, net of valuation allowances are expected to be realized through future taxable income. The valuation allowance increased in 2011 by $4.1 million, primarily related net operating loss carry forwards and acquisition costs. The company intends to maintain valuation allowances for those deferred tax assets unit sufficient evidence to support the reversal of the valuation allowance.
The Company's and/or its subsidiaries’ ability to utilize their net operating loss carry forwards may be significantly limited by Section 382 of the Internal Revenue Code of 1986, as amended, if the Company or any of its subsidiaries undergoes an “ownership change” as a result of changes in the ownership of the Company's or its subsidiaries’ outstanding stock pursuant to the exercise of the warrants or otherwise. A corporation generally undergoes an “ownership change” when the ownership of its stock, by value, changes by more than 50 percentage points over any three-year testing period. In the event of an ownership change, Section 382 imposes an annual limitation on the amount of post-ownership change taxable income a corporation may offset with pre-ownership change net operating loss carry forwards and certain recognized built-in losses. As of December 31, does not appear to have had an ownership change for Section 382 purposes.
NOTE 21 – SEGMENT INFORMATION
Accounting pronouncements establish standards for the manner in which public companies report information about operating segments in annual and interim financial statements. Operating segments are component of an enterprise that have distinct financial information available and evaluated regularly by the chief operating decision-maker ("CODM") to decide how to allocate resources and evaluate performance. The Company's CODM is considered to be the Company's chief executive officer ("CEO"). The CEO reviews financial information presented on an entity level basis for purposes of making operating decisions and assessing financial performance. Therefore, the Company has determined that it operates in a single operating and reportable segment.
NOTE 22 – RECONCILIATION OF EPS
For the Fiscal Year Ended March 31, 2011 and 2010, the basic shares include founders shares, shares sold in the market, shares sold in a private placement, shares sold in the IPO, shares sold in the registered direct, shares arising from the exercise of warrants issued in the placement of debt, shares issued in connection with debt, and shares issued to employees, directors and vendors. The fully diluted shares include the basic shares plus warrants issued as part of the units sold in the private placement and IPO, warrants sold as part of the units sold in the registered direct and employee options. The historical weighted average per share for our shares through March 31, 2011, was applied using the treasury method of calculating the fully diluted shares. The weighted average number of shares outstanding as at March 31, 2011 used for the computation of basic EPS is 15,108,920. Due to the loss incurred during the year ended March 31, 2011, all of the potential equity shares are anti-dilutive and accordingly, the diluted EPS is equal to the basic EPS.
NOTE 23 – SUBSEQUENT EVENTS
The Company, through its subsidiary, IGC Materials, Private Limited ("IGC-MPL"), previously created a partnership for operation of a rock quarry, in which IGC-MPL owns a 49% stake, with the owner of the land on which the quarry was located. In order to promote investments in certain industries including quarrying, the government of Maharashtra, where the quarry is located, instituted a tax rebate. The tax rebate allows the quarry operators to recover their entire investment through the collection of taxes by retaining taxes that would otherwise be payable to the government. In July 2011, the Company’s application for the rebate was approved by the government of Maharashtra, and the partnership was accordingly granted the right to retain up to $2.68 million in sales taxes and royalty taxes collected through the sale of rock aggregate from the quarries. This figure amounts to the investment made by the Company to develop the rock quarry including infrastructure and machinery. The Company expects that it may take a few years to fully realize the benefits of the tax rebate.
NOTE 24 – INVESTMENTS – OTHERS
Investments – others for each of the years ended March 31, 2011 and 2010 consists of the following:
As of March 31, | ||||||||
2011 | 2010 | |||||||
| Investment in equity shares of an unlisted company | $ | 67,355 | $ | 66,741 | ||||
| Investment in partnership (SIIPL-IGC) | 810,508 | 744,149 | ||||||
| $ | 877,863 | $ | 810,890 | |||||
Effective October 1, 2009, the Company reduced its investment in Sricon from 63% to 22%. For the financial year ended March 31, 2010 the Company conducted an impairment test on the 22% investment in Sricon using the discounted cash flow methodology. The Company had access to the unaudited balance sheet of Sricon as of December 31, 2009, but did not have audited financial statements of Sricon for the year ended March 31, 2010. The Company used information from the unaudited December 31, 2009 balance sheet, recoverable values of property, plant and equipment not used in the operations of the Company based on independent third party valuations and Sricon’s history of winning and renewing contracts in determining the discounted cash flow. Based on the impairment test applied at the end of March 31, 2010, the Company concluded that the recoverable value of its investment in Sricon exceeded the total of the value of its receivable in Sricon and its investment in Sricon. Therefore no impairment was provided with respect to the receivable and investment in Sricon.
In January 2011, the Company Law Board in India (CLB), a body that has jurisdiction over companies in India, granted the Company’s petition to stay any transactions, such as purchases, sales or a further creation of liability on Sricon’s fixed properties including land and plant and machinery. Further, based on CLB orders representatives of the Company visited Sricon for an inspection in January 2011, February 2011, April 2011 and June 2011.
Based on the CLB order freezing the sale of assets and creation of liability and allowing inspections by the Company, the Company believes that it has sufficient information on the existing assets and liabilities in Sricon to perform an impairment test. Further, as Sricon can no longer alienate the assets or create further liabilities, the Company believes that this forms an appropriate basis for the assessment of the recoverable value of the investment. The nature of information available to the Company includes assets (plant, machinery, land, building,) and significant liabilities.
For the year ended March 31, 2011 the Company again conducted an impairment test on its 22% investment in Sricon. However, the methodology for assessing the value of our investment and the recoverability of our receivable in Sricon, for the financial year ended March 31, 2011 was based on an assessment of recoverable values of property, plant and equipment as certified by independent government approved appraisers and not on a discounted cash flow methodology. The Company currently does not have sufficient financial information on Sricon and the lack of such financial statements may impact our ability to accurately value the investment. The methodology used in determining the fair value of assets included the current market value of real estate owned by Sricon, the recoverable value for equipment and an estimate for the timing of collection on awarded arbitration claims discounted to its present value using a discount rate of 12 %. Based on this, the Company concluded that as of March 31, 2011 a liquidation of Sricon including a sale of assets and settlement of liabilities would result in the Company’s ability to recover $6.4 million. The Company therefore impaired 100% of its $3.1 million receivable in Sricon, and impaired $2.2 million of its investment. The carrying value of the investment in Sricon for the year ended March 31, 2011 is $6.4 million, which is equal to the recoverable assessed value.
NOTE 26 – UNAUDITED QUARTERLY FINANCIAL DATA
The information for the quarter ending December 31, 2009 has been restated as stated in Note 3 – Restatement of Previously Issued Financial Statements.
The restated Statement of Operations for the quarter ending 31 December 2009 is presented below:
INDIA GLOBALIZATION CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
3 months ended 31 Dec 2009 – As reported in 10Q | As restated | 9 months ended 31 Dec 2009 – As reported in 10Q | As restated | |||||||||||||
| Revenues | $ | 5,909,024 | $ | 5,909,024 | $ | 13,994,503 | $ | 13,994,503 | ||||||||
| Cost of revenues | (5,326,393 | ) | (5,326,393 | ) | (11,829,440 | ) | (11,829,440 | ) | ||||||||
| Selling, general and administrative expenses | (3,049,603 | ) | (3,049,603 | ) | (4,446,137 | ) | (4,446,137 | ) | ||||||||
| Depreciation | (101,991 | ) | (101,991 | ) | (519,812 | ) | (519,812 | ) | ||||||||
| Operating income (loss) | $ | (2,568,963 | ) | $ | (2,568,963 | ) | $ | (2,800,886 | ) | $ | (2,800,886 | ) | ||||
| Compensation expenses | (123,139 | ) | (123,139 | ) | (123,139 | ) | (123,139 | ) | ||||||||
| Interest expense | (252,619 | ) | (252,619 | ) | (1,019,687 | ) | (1,019,687 | ) | ||||||||
| Amortization of debt discount | (178,218 | ) | (178,218 | ) | (178,218 | ) | (178,218 | ) | ||||||||
| Interest income | 37,314 | 37,314 | 139,641 | 139,641 | ||||||||||||
| Equity in (gain)/loss of affiliates | 16,446 | 16,446 | 16,446 | 16,446 | ||||||||||||
| Other income, net | 3,570 | 3,570 | 6,836 | 6,836 | ||||||||||||
| Income before income taxes and minority interest attributable to non-controlling interest | $ | (3,065,609 | ) | $ | (3,065,609 | ) | $ | (3,959,007 | ) | $ | (3,959,007 | ) | ||||
| Income taxes benefit/ (expense) | 103,281 | 103,281 | (54,486 | ) | (54,486 | ) | ||||||||||
| Extraordinary items | ||||||||||||||||
Loss on dilution of stake in Sricon | (3,205,616 | ) | (3,205,616 | ) | (3,205,616 | ) | (3,205,616 | ) | ||||||||
| Net income/(loss) | $ | (6,167,944 | ) | $ | (6,167,944 | ) | $ | (7,219,109 | ) | $ | (7,219,109 | ) | ||||
| Non-controlling interests in earnings of subsidiaries | (7,574 | ) | (7,574 | ) | (72,599 | ) | (72,599 | ) | ||||||||
| Net income / (loss) attributable to common stockholders | $ | (6,175,518 | ) | $ | (6,175,518 | ) | $ | (7,291,708 | ) | $ | (7,291,708 | ) | ||||
| Weighted-average number of shares outstanding: | ||||||||||||||||
| Basic | 12,898,291 | 12,898,291 | 12,898,291 | 12,898,291 | ||||||||||||
| Diluted | 13,559,184 | 12,898,291 | 13,559,184 | 12,898,291 | ||||||||||||
| Net Income per share | ||||||||||||||||
| Basic | $ | (0.48 | ) | $ | (0.48 | ) | $ | (0.56 | ) | $ | (0.56 | ) | ||||
| Diluted | $ | (0.45 | ) | $ | (0.48 | ) | $ | (0.54 | ) | $ | (0.56 | ) | ||||
* The effect of restatement on the diluted EPS has been shown in Italics in the table above.
INDIA GLOBALIZATION CAPITAL, INC. AND SUBSIDIARIES
Year ended March 31, | ||||||||
2010 | 2009 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income (loss) | $ | (4,807,801 | ) | $ | 195,373 | |||
| Adjustment to reconcile net income (loss) to net cash: | ||||||||
| Non-cash compensation expense | 130,399 | 450,850 | ||||||
| Deferred taxes | (3,283,423 | ) | 221,037 | |||||
| Depreciation | 385,803 | 873,022 | ||||||
| Non-controlling interest related to de-consolidated subsidiary | (34,744 | ) | - | |||||
| Loss / (gain) on sale of property, plant and equipment | (3,715 | ) | 211,509 | |||||
| Amortization of debt discount | 356,437 | 2,652 | ||||||
| Non-cash interest expense | 842,494 | - | ||||||
| Loss on extinguishment of debt | 586,785 | - | ||||||
| Loss on dilution of stake in Sricon | 2,856,088 | - | ||||||
| Deferred acquisition cost written off | 1,854,750 | - | ||||||
| Equity in earnings of affiliates | (16,446 | ) | - | |||||
| Changes in: | ||||||||
| Accounts receivable | (4,522,214 | ) | (2,725,195 | ) | ||||
| Unbilled revenue | - | 1,484,960 | ||||||
| Inventories | 1,757,399 | (1,001,389 | ) | |||||
| Prepaid expenses and other current assets | (556,303 | ) | 1,099,188 | |||||
| Trade payables | 1,508,359 | (1,033,319 | ) | |||||
| Other current liabilities | 89,396 | (832,556 | ) | |||||
| Advance from customers | - | (1,311,200 | ) | |||||
| Other non-current liabilities | (350,540 | ) | (3,155,767 | ) | ||||
| Non-current assets | 251,815 | (1,926,571 | ) | |||||
| Accrued Expenses | - | (922,300 | ) | |||||
| Interest Receivable – Convertible Debenture | - | 277,479 | ||||||
| Prepaid/Taxes Payable | - | (21,415 | ) | |||||
| Net cash used in operating activities | $ | (2,955,461 | ) | $ | (8,113,641 | ) | ||
| Cash flow from investing activities: | ||||||||
| Purchase of property and equipment | (1,198,880 | ) | (2,493,417 | ) | ||||
| Proceeds from sale of property and equipment | 463,825 | 488,886 | ||||||
| Purchase of short term investments | - | 698 | ||||||
| Investment in non-current investments (joint ventures etc.) | (698,174 | ) | 1,395,444 | |||||
| Restricted cash | (567,012 | ) | 272,754 | |||||
| Redemption of convertible debenture | - | 3,000,000 | ||||||
| Deposits towards acquisitions, net of cash acquired | - | 220,890 | ||||||
| Net cash provided/(used) in investing activities | $ | (2,000,241 | ) | $ | 2,885,255 | |||
| Cash flows from financing activities: | ||||||||
| Net movement in other short-term borrowings | 347,185 | (1,215,253 | ) | |||||
| Proceeds / (repayment) from long-term borrowings | - | 696,013 | ||||||
| Due to related parties, net | - | 583,235 | ||||||
| Issuance of equity shares | 1,833,780 | 297,699 | ||||||
| Proceeds from notes payable to Bricoleur | 2,000,000 | - | ||||||
| Net movement in notes payable to Oliveira Capital, LLC | - | (517,324 | ) | |||||
| Net cash provided/(used) by financing activities | $ | 4,180,965 | $ | (155,630 | ) | |||
| Effects of exchange rate changes on cash and cash equivalents | (234,965 | ) | (884,059 | ) | ||||
| Net increase/(decrease) in cash and cash equivalents | (1,009,702 | ) | (6,268,075 | ) | ||||
| Cash and cash equivalent at the beginning of the period | 1,852,626 | 8,397,440 | ||||||
| Cash and cash equivalent at the end of the period | $ | 842,924 | $ | 2,129,365 | ||||
| Supplementary information: | ||||||||
| Cash paid for interest | 378,972 | 1,753,952 | ||||||
| Cash paid for taxes | 12,936 | - | ||||||
The accompanying financial statements have been prepared on a consolidated basis and reflect the financial statements of IGC and all of its subsidiaries that are more than 50% owned and controlled. When the Company does not have a controlling interest in an entity, but exerts a significant influence on the entity, the Company applies the equity method of accounting. All inter-company transactions and balances are eliminated in the consolidated financial statements.
The non-controlling interest disclosed in the accompanying financial statements represents the non-controlling interest in Techni Bharathi Limited (TBL) and the profits or losses associated with the non-controlling interest in those operations.
The adoption of Accounting Standards Codification (ASC) 810-10-65 “Consolidation — Transition and Open Effective Date Information” (previously referred to as SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements, an amendment of ARB No. 51”), has resulted in the reclassification of amounts previously attributable to minority interest (now referred to as non-controlling interest) to a separate component of shareholders’ equity on the accompanying consolidated balance sheets and consolidated statements of shareholders’ equity and comprehensive income (loss). Additionally, net income attributable to non-controlling interest is shown separately from net income in the consolidated statements of income. This reclassification had no effect on our previously reported financial position or results of operations.
b) Reclassifications
Certain prior year balances have been reclassified to the presentation of the current year.
c) Use of estimates:
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
d) Revenue Recognition
The majority of the revenue recognized for the year ended March 31, 2011 was derived from the Company’s subsidiaries and as follows:
Revenue is recognized when persuasive evidence of an arrangement exists, the sales price is fixed or determinable and collectability is reasonably assured. In Government contracting, we recognize revenue when a Government consultant verifies and certifies an invoice for payment.
Revenue from sale of goods is recognized when substantial risks and rewards of ownership are transferred to the buyer under the terms of the contract.
Revenue from construction/project related activity and contracts for supply/commissioning of complex plant and equipment is recognized as follows:
| · | Cost plus contracts: Contract revenue is determined by adding the aggregate cost plus proportionate margin as agreed with the customer and expected to be realized. |
| · | Fixed price contracts: Contract revenue is recognized using the percentage completion method and the percentage of completion is determined as a proportion of cost incurred-to-date to the total estimated contract cost. Changes in estimates for revenues, costs to complete and profit margins are recognized in the period in which they are reasonably determinable. |
| · | In many of the fixed price contracts entered into by the Company, significant expenses are incurred in the mobilization stage in the early stages of the contract. The expenses include those that are incurred in the transportation of machinery, erection of heavy machinery, clearing of the campsite, workshop ground cost, overheads, etc. All such costs are booked to deferred expenses and written off over the period in proportion to revenues earned. |
| · | Where the modifications of the original contract are such that they effectively add to the existing scope of the contract, the same are treated as a change orders. On the other hand, where the modifications are such that they change or add an altogether new scope, these are accounted for as a separate new contract. The company adjusts contract revenue and costs in connection with change orders only when they are approved by both, the customer and the company with respect to both the scope and invoicing and payment terms. |
| · | In the event of claims in our percentage of completion contracts, the additional contract revenue relating to claims is only accounted after the proper award of the claim by the competent authority. The contract claims are considered in the percentage of completion only after the proper award of the claim by the competent authority. |
Full provision is made for any loss in the period in which it is foreseen.
Revenue from service related activities and miscellaneous other contracts are recognized when the service is rendered using the proportionate completion method or completed service contract method.
e) Earning per common share:
Basic earnings per share is computed by dividing net income (loss) applicable to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the additional dilution from all potentially dilutive securities such as stock warrants and options.
f) Income taxes:
Deferred income tax is provided for the difference between the bases of assets and liabilities for financial reporting and income tax purposes. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized. The IGC parent expects to realize sufficient earnings and profits to utilize deferred tax assets as it begins 1) invoicing its subsidiaries for services and 2) establishes iron ore sales contracts with customers in China and other countries. Recently, the IGC parent reported contracts for the supply of around $200 million of iron ore to customers in China.
g) Cash and Cash Equivalents:
For financial statement purposes, the Company considers all highly liquid debt instruments with maturity of three months or less, to be cash equivalents. The company maintains its cash in bank accounts in the United States of America, Mauritius, and India which at times may exceed applicable insurance limits. The Company has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk on cash and cash equivalent. The company does not invest its cash in securities that have an exposure to U.S. mortgages.
h) Restricted cash:
Restricted cash consists of deposits pledged to various government authorities and deposits used as collateral with banks for guarantees and letters of credit, given by the Company to its customers or vendors.
i) Foreign currency transactions:
The functional currency of the Company's Indian subsidiaries is the Indian rupee. Our financial statements reporting currency is the United States Dollar. Operating and capital expenditures of the Company's subsidiaries located in India are denominated in their local currency which is the currency most compatible with their expected economic results.
All transactions and account balances are recorded in the local currency. The Company translates the value of these local currency denominated assets and liabilities into U.S. dollars at the rates in effect at the balance sheet date. Resulting translation adjustments are recorded in stockholders' equity as a component of accumulated other comprehensive income (loss). The local currency denominated statement of income amounts are translated into U.S. dollars using the average exchange rates in effect during the period. Realized foreign currency transaction gains and losses are included in the consolidated statements of income. The Company's Indian subsidiaries do not operate in "highly inflationary" countries.
j) Accounts receivable:
Accounts receivables are recorded at the invoiced amount, taking into consideration any adjustments made by Government consultants who verify and certify construction and material invoices. The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of clients to make required payments. The allowance for doubtful accounts is determined by evaluating the relative credit worthiness of each client, historical collections experience and other information, including the aging of the receivables. Unbilled accounts receivable represent revenue on contracts to be billed, in subsequent periods, as per the terms of the related contracts.
k) Accounts Receivable – Long Term:
This is typically for Build-Operate-Transfer (BOT) contracts. It is money due to the company by the private or public sector to finance, design, construct, and operate a facility stated in a concession contract over an extended period of time.
l) Inventories:
Inventories primarily comprise of finished goods, raw materials, work in progress, stock at customer site, stock in transit, components and accessories, stores and spares, scrap and residue. Inventories are stated at the lower of cost or estimated net realizable value.
The cost of various categories of inventories is determined on the following basis:
·Raw material is valued at weighed average of landed cost (purchase price, freight inward and transit insurance charges). |
·Work in progress is valued as confirmed, valued and certified by the technicians and site engineers and finished goods at material cost plus appropriate share of labor cost and production overheads. |
·Components and accessories, stores erection, materials, spares and loose tools are valued on a first-in-first out basis. |
m) Investments:
Investments are initially measured at cost, which is the fair value of the consideration given for them, including transaction costs. The Company's equity in the earnings/(losses) of affiliates is included in the statement of income and the Company's share of net assets of affiliates is included in the balance sheet.
n) Property, Plant and Equipment (PP&E):
Property and equipment are recorded at cost and depreciated over their estimated useful lives using the straight-line method. The estimated useful lives of assets are as follows:
| Buildings | 25 years |
| Plant and machinery | 20 years |
| Computer equipment | 3 years |
| Office equipment | 5 years |
| Furniture and fixtures | 5 years |
| Vehicles | 5 years |
Upon disposition, cost and related accumulated depreciation of the Property and equipment are removed from the accounts and the gain or loss is reflected in the results of operation. Cost of additions and substantial improvements to property and equipment are capitalized in the books of accounts. The cost of maintenance and repairs of the property and equipment are charged to operating expenses.
o) Fair Value of Financial Instruments
As of March 31, 2011 and 2010, the carrying amounts of the Company's financial instruments, which included cash and cash equivalents, accounts receivable, unbilled accounts receivable, restricted cash, accounts payable, accrued employee compensation and benefits and other accrued expenses, approximate their fair values due to the nature of the items.
p) Concentration of Credit Risk and Significant Customers
Financial instruments which potentially expose the Company to concentrations of credit risk are primarily comprised of cash and cash equivalents, investments, derivatives, accounts receivable and unbilled accounts receivable. The Company places its cash, investments and derivatives in highly-rated financial institutions. The Company adheres to a formal investment policy with the primary objective of preservation of principal, which contains credit rating minimums and diversification requirements. Management believes its credit policies reflect normal industry terms and business risk. The Company does not anticipate non-performance by the counterparties and, accordingly, does not require collateral.
As of March 31, 2011, eleven clients accounted for approximately 95% of gross accounts receivable. At March 31, 2010, four clients accounted for 68% of gross accounts receivable. During the fiscal year ended March 31, 2011, sales to twenty four clients accounted for 70% of the Company's revenue.
q) Accounting for goodwill and related impairment
Goodwill represents the excess cost of an acquisition over the fair value of the group's share of net identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill on acquisition of subsidiaries is disclosed separately. Goodwill is stated at cost less accumulated amortization and impairment losses, if any.
The company adopted provisions of Accounting Standards Codification (“ASC”) 350, “Intangibles – Goodwill and Others”, (previously referred to as SFAS No. 142, "Goodwill and Other Intangible Assets", which sets forth the accounting for goodwill and intangible assets subsequent to their acquisition. ASC 350 requires that goodwill and indefinite-lived intangible assets be allocated to the reporting unit level, which the Group defines as each individual legal entity at a subsidiary level.
ASC 350 also prohibits the amortization of goodwill and indefinite-lived intangible assets upon adoption, but requires that they be tested for impairment at least annually, or more frequently as warranted, at the reporting unit level.
The goodwill impairment test under ASC 350 is performed in two phases. The first step of the impairment test, used to identify potential impairment, compares the fair value of the reporting unit with its carrying amount, including goodwill. If the carrying amount of the reporting unit exceeds its fair value, goodwill of the reporting unit is considered impaired, and step two of the impairment test must be performed. The second step of the impairment test quantifies the amount of the impairment loss by comparing the carrying amount of goodwill to the implied fair value. An impairment loss is recorded to the extent the carrying amount of goodwill exceeds its implied fair value.
r) 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 and material adverse changes in the economic climate. 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.
s) Recently issued and adopted accounting pronouncements
In January 2010, the FASB issued an amendment to the accounting standards related to the disclosures about an entity's use of fair value measurements. Under these amendments, entities will be required to provide enhanced disclosures about transfers into and out of the Level 1 (fair value determined based on quoted prices in active markets for identical assets and liabilities) and Level 2 (fair value determined based on significant other observable inputs) classifications, provide separate disclosures about purchases, sales, issuances and settlements relating to the tabular reconciliation of beginning and ending balances of the Level 3 (fair value determined based on significant unobservable inputs) classification and provide greater disaggregation for each class of assets and liabilities that use fair value measurements. Except for the detailed Level 3 roll-forward disclosures, the new standard was effective for the Company for interim and annual reporting periods beginning after December 31, 2009. The adoption of this accounting standards amendment did not have a material impact on the Company's disclosure or consolidated financial results. The requirement to provide detailed disclosures about the purchases, sales, issuances and settlements in the roll-forward activity for Level 3 fair value measurements is effective for the Company for interim and annual reporting periods beginning after December 31, 2010. The adoption of this accounting standard did not have a material impact on the Company's disclosure or consolidated financial results.
In December 2010, the FASB issued a new accounting standard which requires that Step 2 of the goodwill impairment test be performed for reporting units whose carrying value is zero or negative. This guidance is effective for fiscal years beginning after December 15, 2010 and interim periods within those years. Our adoption of this standard did not have a material impact on the Company's disclosure or consolidated financial results.
In December 2010, the FASB issued new guidance clarifying some of the disclosure requirements related to business combinations that are material on an individual or aggregate basis. Specifically, the guidance states that, if comparative financial statements are presented, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year occurred as of the beginning of the comparable prior annual reporting period only. Additionally, the new standard expands the supplemental pro forma disclosure required by the authoritative guidance to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination in the reported pro forma revenue and earnings. This guidance became effective January 1, 2011. Our adoption of this standard did not have a material impact on the Company's disclosure or consolidated financial results. However, it may result in additional disclosures in the event that we enter into a business combination that is material either on an individual or aggregate basis.
NOTE 3 - RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
In this Annual Report on Form 10-K, India Globalization Capital, Inc. has:
| (a) | Restated its consolidated statements of operations and consolidated cash flows as for the year ended March 31, 2010; |
| (b) | Amended its management discussion and analysis as it relates to the year ended March 31, 2010; and |
| (c) | Restated its unaudited quarterly financial data for the quarter ended December 31, 2009. |
The restatements reflect adjustments to correct errors identified by the SEC through its original and follow up comment letters dated February 25, 2011 and May 9, 2011. The restatement adjustments reflect a reclassification in the consolidated cash flow and a correct computation of the diluted EPS of the Company.
The changes described above are non-cash items and do not impact the Company’s operations.
Reclassification in the Company’s Consolidated Statement of Cash Flows
Sricon India Private Limited (SIPL), a subsidiary of IGC Inc., had been deconsolidated effective October 1, 2009. Upon deconsolidation, the cash flows of SIPL for the six months ended September 30, 2009 were re-classified and presented as equity in earnings of affiliates. The cash flows for the year ended 31 March, 2010 have now been restated to contain transactions relating to SIPL up until the date of deconsolidation; and
Computation of diluted earnings per share
The effect of dilution was inadvertently considered while computing the Earnings Per Share (EPS) in the event of loss by IGC Inc. The restatement now rightly shows the EPS in the event of loss without considering dilution.
INDIA GLOBALIZATION CAPITAL, INC. AND SUBSIDIARIES
The restated consolidated statement of operations and consolidated cash flows for the year ended 31 March 2010 are presented below:
Year ended March 31, | ||||||||
2010 (as originally filed) | 2010 (as restated) | |||||||
| Revenues | $ | 17,897,826 | $ | 17,897,826 | ||||
| Cost of revenues | (15,671,840 | ) | (15,671,840 | ) | ||||
| Selling, General and Administrative expenses | (5,614,673 | ) | (5,614,673 | ) | ||||
| Depreciation | (603,153 | ) | (603,153 | ) | ||||
| Operating income (loss) | (3,991,840 | ) | (3,991,840 | ) | ||||
| Legal and formation, travel and other startup costs | - | - | ||||||
| Interest expense | (1,221,466 | ) | (1,221,466 | ) | ||||
| Amortization of debt discount/Loss on extinguishment of debt | (356,436 | ) | (356,436 | ) | ||||
| Interest Income | 210,097 | 210,097 | ||||||
| Other Income | 281,782 | 281,782 | ||||||
| Loss on dilution of stake in Sricon | (2,856,088 | ) | (2,856,088 | ) | ||||
| Equity in earnings of affiliates | 16,446 | 16,446 | ||||||
| Income before income taxes and minority interest attributable to non-controlling interest | (7,917,505 | ) | (7,917,505 | ) | ||||
| Income taxes benefit/ (expense) | 3,109,704 | 3,109,704 | ||||||
| Net income | (4,807,801 | ) | (4,807,801 | ) | ||||
| Non-controlling interests in earnings of subsidiaries | 18,490 | 18,490 | ||||||
| Net income / (loss) attributable to common stockholders | $ | (4,789,311 | ) | $ | (4,789,311 | ) | ||
| Earnings per share attributable to common stockholders: | ||||||||
| Basic | $ | (0.42 | ) | $ | (0.42 | ) | ||
| Diluted | $ | (0.40 | ) | $ | (0.42 | ) | ||
| Weighted-average number of shares used in computing earnings per share amounts: | ||||||||
| Basic | 11,537,857 | 11,537,857 | ||||||
| Diluted | 11,958,348 | 11,537,857 | ||||||
* The effect of IGC are basedrestatement on the diluted EPS has been shown in India. IGC owns 100% of a subsidiary in Mauritius called IGC-Mauritius (IGC-M). This company in turn operates through four subsidiaries, and one investment in India. We have an investment ownership of twenty two and three tenths (22.3%) percent of Sricon Infrastructure Private Limited (“Sricon”). We own seventy seven percent (77%) of Techni Bharathi, Limited (“TBL”). We also own one hundred percent of IGC India Mining and Trading Private Limited (IGC-IMT), IGC Logistic Private Limited (IGC-L), and IGC Materials Private Limited (IGC-MPL). Through our subsidiaries we operateitalics in the India and China infrastructure industries. Operating as a fully integrated infrastructure company, IGC, through its subsidiaries, has expert ise in road building, mining and quarrying and engineering of high temperature plants. The Company’s medium term plans are to expand each of these core competencies while offering an integrated suite of service offerings to our customers. table above.
F-15
INDIA GLOBALIZATION CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended March 31, | ||||||||||||
2010 (as originally filed) | Adjustments | 2010 (as restated) | ||||||||||
| Cash flows from operating activities: | ||||||||||||
| Net income (loss) | $ | (4,807,801 | ) | - | $ | (4,807,801 | ) | |||||
| Adjustment to reconcile net income (loss) to net cash: | ||||||||||||
| Non-cash compensation expense | 130,399 | - | 130,399 | |||||||||
| Deferred taxes | (3,283,423 | ) | 28,637 | (3,254,786 | ) | |||||||
| Depreciation | 385,803 | 217,350 | 603,153 | |||||||||
| Profits relating to de-consolidated subsidiary | (34,744 | ) | - | (34,744 | ) | |||||||
| Loss / (gain) on sale of property, plant and equipment | (3,715 | ) | - | (3,715 | ) | |||||||
| Amortization of debt discount | 356,437 | - | 356,437 | |||||||||
| Interest expense (including non-cash) | 842,494 | 287,883 | 1,130,377 | |||||||||
| Loss on extinguishment of debt | 586,785 | - | 586,785 | |||||||||
| Loss on dilution of stake in Sricon | 2,856,088 | - | 2,856,088 | |||||||||
| Deferred acquisition cost written off | 1,854,750 | - | 1,854,750 | |||||||||
| Equity in earnings of affiliates | (16,446 | ) | - | (16,446 | ) | |||||||
| Changes in: | - | |||||||||||
| Accounts receivable | (4,522,214 | ) | 1,465,666 | (3,056,548 | ) | |||||||
| Inventories | 1,757,399 | 17,702 | 1,775,101 | |||||||||
| Prepaid expenses and other current assets | (556,303 | ) | 248,765 | (307,538 | ) | |||||||
| Trade payables | 1,508,359 | (4,020 | ) | 1,504,339 | ||||||||
| Other current liabilities | 89,396 | (1,102,799 | ) | (1,013,403 | ) | |||||||
| Other non-current liabilities | (350,540 | ) | (111,169 | ) | (461,709 | ) | ||||||
| Non-current assets | 251,815 | (20,244 | ) | 231,571 | ||||||||
| Net cash used in operating activities | $ | (2,955,461 | ) | $ | 1,027,771 | $ | (1,927,690 | ) | ||||
| Cash flow from investing activities: | ||||||||||||
| Purchase of property and equipment | $ | (1,198,880 | ) | $ | (65,365 | ) | $ | (1,264,245 | ) | |||
| Proceeds from sale of property and equipment | 463,825 | - | 463,825 | |||||||||
| Investment in non-current investments (joint ventures etc.) | (698,174 | ) | - | (698,174 | ) | |||||||
| Restricted cash | (567,012 | ) | �� | (15,069 | ) | (582,081 | ) | |||||
| Net cash movement relating to de-consolidation of subsidiary | - | (102,045 | ) | (102,045 | ) | |||||||
| Net cash provided/(used) in investing activities | $ | (2,000,241 | ) | $ | (182,479 | ) | $ | (2,182,720 | ) | |||
| Cash flows from financing activities: | ||||||||||||
| Net movement in other short-term borrowings | $ | 347,185 | $ | (285,600 | ) | $ | 61,585 | |||||
| Proceeds / (repayment) from long-term borrowings | - | (687,956 | ) | (687,956 | ) | |||||||
| Issuance of equity shares | 1,833,780 | - | 1,833,780 | |||||||||
| Proceeds from notes payable | 2,000,000 | - | 2,000,000 | |||||||||
| Interest paid | - | (287,883 | ) | (287,883 | ) | |||||||
| Net cash provided/(used) by financing activities | $ | 4,180,965 | $ | (1,261,439 | ) | $ | 2,919,526 | |||||
| Effects of exchange rate changes on cash and cash equivalents | (234,966 | ) | 139,408 | (95,558 | ) | |||||||
| Net increase/(decrease) in cash and cash equivalents | (1,009,703 | ) | (276,739 | ) | (1,286,442 | ) | ||||||
| Cash and cash equivalent at the beginning of the period | 1,852,626 | 276,739 | 2,129,365 | |||||||||
| Cash and cash equivalent at the end of the period | $ | 842,924 | - | $ | 842,923 | |||||||
F-16
Tax rate reconciliation
| 2010 (as originally filed) | Adjustments | 2010 (as restated) | ||||||||||
| Statutory Federal income tax rate | 34.0 | % | - | 34.0 | % | |||||||
| State tax benefit net of federal tax | 5.4 | % | (10.8 | %) | -5.4 | % | ||||||
| Loss on dilution of Sricon | 43.6 | % | (55.9 | %) | -12.3 | % | ||||||
| Capitalized interest costs | - | (5.2 | %) | -5.2 | % | |||||||
| Tax benefits from US taxes | - | (48.9 | %) | -48.9 | % | |||||||
| Amortization of debt discount | - | (1.5 | %) | -1.5 | % | |||||||
| Effective income tax rate | 83.0 | % | (122.3 | %) | -39.3 | % | ||||||
On July 14, 2010 the Company filed audited financial statements on Form 10-K for the year ended March 31, 2010 that included a qualified opinion from the Company's auditors pending completion of their audit procedures in respect of the deconsolidation of one of the Company's subsidiaries. The Company subsequently filed an amended Form 10-K which includes an unqualified audit opinion.
On January 19, 2011, the Securities and Exchange Commission (the "Commission") notified the Company that the initial financial statements filed on July 14, 2010 did not comply with the requirements of Rule 2-02 under Regulation S-X for audited financial statements because the financial statements contained a qualified opinion. As noted above, the amended 10-K filed on January 28, 2011 contains audited financial statements with an unqualified opinion that comply with Rule 2-02. The Commission has indicated that as the initial Form 10-K filed on July 14, 2010 was deficient as a result of the inclusion of the qualified audit opinion. It was therefore deemed not to have been filed with the Commission in accordance with applicable requirements, thus making the Company delinquent in its filings with the Commission.
The Commission has informed the Company that as a result of the deemed failure to timely file a Form 10-K, it is the Staff's view that as of July 14, 2010 the Company ceased to be eligible to use SEC Form S-3 for the registration of the Company's securities. As the financial statements included in the original Form 10-K were also included in a registration statement on Form S-1 (File No. 333-163867) pursuant to which the Company offered its common stock and warrants to purchase common stock in December 2010 (the "December 2010 Offering"), the Commission has also indicated that such registration statement failed to comply with the requirements of Form S-1 due to the lack of the inclusion of unqualified audited financial statements in compliance with Commission requirements.
Since the Commission has informed the Company that it is the Commission's view that as of July 14, 2010 the Company ceased to be eligible to use Form S-3 for the registration of the Company's securities, it is possible that any sales of the Company's securities pursuant to the Company's registration statements on Form S-3 since July 14, 2010 may be deemed to be unregistered sales of its securities. Since July 14, 2010, the Company has sold an aggregate of 2,292,760 shares of its common stock for an aggregate gross price of $1,690,866 pursuant to an at-the-market offering ("ATM") of its common stock on Form S-3 (File No. 333-160993) in sales that occurred between September 7, 2010 and January 19, 2011. In addition, the Company may be deemed to have made unregistered sales of the 2,575,830 shares of common stock and warrants to purchase an aggregate of 858,610 shares of common stock at an exercise price of $0.90 per share sold for an aggregate gross purchase price of $1,545,498 sold pursuant to such registration statement with respect to the December 2010 Offering. Alternatively, to the extent that the sales are deemed be registered as a result of being sold pursuant to registration statements declared effective by the Commission as the registration statements in question either incorporated, in the case of the Form S-3 or included, in the case of the Form S-1, a qualified audit report the registration statements could be deemed to be materially incomplete.
If it is determined that persons who purchased the Company's securities after July 14, 2010 purchased securities in an offering deemed to be unregistered, or that the registration statements for such offerings were incomplete or inaccurate then such persons may be entitled to rescission rights. In addition, the sale of unregistered securities could subject the Company to enforcement actions or penalties and fines by federal or state regulatory authorities. We are unable to predict the likelihood of any claims or actions being brought against the Company related to these events, and there is a risk that any may have a material adverse effect on us.
The exercise of any applicable rescission rights is not within the control of the Company. At March 31, 2011, the Company had approximately 4,868,590 shares that may be subject to the rescission rights outside stockholders’ equity. These shares have always been treated as outstanding for financial reporting purposes.
NOTE 5 – OTHER CURRENT AND NON-CURRENT ASSETS
Prepaid expenses and other current assets consist of the following:
As of March 31, | ||||||||
2011 | 2010 | |||||||
| Prepaid expenses | $ | 103,841 | $ | 52,087 | ||||
| Advances to suppliers | 1,024,399 | 1,231,771 | ||||||
| Prepaid interest | 159,825 | - | ||||||
| Security and other Deposits | 85,277 | 414,166 | ||||||
| Others | 101,496 | 356,438 | ||||||
| $ | 1,474,838 | $ | 2,054,462 | |||||
Other Non-current assets consist of the following | As of March 31, | |||||||
| 2011 | 2010 | |||||||
| Sundry debtors | $ | 396,275 | $ | 268,145 | ||||
| Other advances | 352,348 | 604,039 | ||||||
| $ | 748,623 | $ | 872,184 | |||||
NOTE 6 – SHORT-TERM BORROWINGS
Short term borrowings consist of the following. There is no current portion of long term debt that is classified as short term borrowings.
As of March 31, | ||||||||
2011 | 2010 | |||||||
| Secured liabilities | $ | 901,343 | $ | 1,087,775 | ||||
| Unsecured liabilities | - | 301,266 | ||||||
| $ | 901,343 | $ | 1,389,041 | |||||
The above debt is secured by hypothecation of materials, stock of spares, Work in Progress, receivables and property and equipment, in addition to personal guarantee of three India based directors, and collaterally secured by mortgage of company’s land and other fixed properties of directors and their relatives. The average interest rate was 12% to 14% for the year ended March 31, 2011.
NOTE 7 – NOTES PAYABLE
On October 5, 2009, the Company consummated the exchange of an outstanding promissory note in the total principal amount of $ 2,000,000 (the “Original Note”) initially issued to the Steven M. Oliveira 1998 Charitable Remainder Unitrust (‘Oliveira’) for a new promissory note (the “New Oliveira Note”) on substantially the same terms as the original note except that the principal amount of the New Oliveira Note was $ 2,120,000 which reflected the accrued but unpaid interest on the Original Note and the New Oliveira Note did not bear interest. The New Oliveira Note was unsecured and was due and payable on October 4, 2010 (the “Maturity Date”). Prior to the Maturity Date, the Company was permitted to pre-pay the New Oliveira Note at any time without penalty or premium. The New Oliveira Note is not convertible into IGC Common Stock (the “Common Stock”) or other securities of the Company. However, under the Note and Share Purchase Agreement (the “Oliveira Note and Share Purchase Agreement”), effective as of October 4, 2009, IGC-M beneficially purchased 100%by and among the Company and Oliveira, as additional consideration for the exchange of the Original Note, the Company agreed to issue 530,000 shares of Common Stock to Oliveira. The Oliveira Note remains outstanding.
On October 16, 2009, the Company consummated the sale of a promissory note in the principal amount of $2,000,000 (the “Bricoleur Note”) to Bricoleur Partners, L.P. (‘Bricoleur’). There was no interest payable on the Note and the Note was due and payable on October 16, 2010 (the “Maturity Date”). Prior to the Maturity Date, the Company could pre-pay the Bricoleur Note at any time without penalty or premium and the Note was unsecured. The Note was not convertible into the Company’s Common Stock or other securities of the Company. However, under the Note and Share Purchase Agreement (the “Bricoleur Note and Share Purchase Agreement”), effective as of October 16, 2009, by and among the Company and Bricoleur, as additional consideration for the investment in the Bricoleur Note, IGC Materials, Privateissued 530,000 shares of Common Stock to Bricoleur. The Bricoleur Note remains outstanding.
During the three months ended December 31, 2010, the Company issued an additional 200,000 shares of Common Stock to each of Oliveira and Bricoleur specified above pursuant to the effective agreements respectively as penalties for failure to repay the promissory notes when due.
In March 2011, the Company finalized agreements with the Steven M. Oliveira 1998 Charitable Remainder Unitrust (‘Oliveira’) and Bricoleur Partners, L.P. (‘Bricoleur’) to exchange the promissory note issued to Oliveira on October 5, 2009 (the “New Oliveira Note”) and the promissory note issued to Bricoleur on October 16, 2009 (the “Bricoleur Note”) respectively for new promissory notes with later maturity dates. The Oliveira Note will be due on March 24, 2012, will bear interest at a rate of 30% per annum and will provide for monthly payments of principal and interest, which the Company may choose to settle through the issue of equity shares at an equivalent value. The Bricoleur Note will be due on June 30, 2011 with no prior payments due and will not bear interest. The Company issued additional 688,500 shares of its common stock to Bricoleur in connection with the extension of the term regarding the Bricoleur note.
The Company’s total interest expense was $ 1,395,433 and $ 1,221,466 for the year ended March 31, 2011 and 2010, respectively. No interest was capitalized by the Company for the year ended March 31, 2011 and March 31, 2010.
NOTE 8 – OTHER CURRENT AND NON-CURRENT LIABILITIES
Other current liabilities consist of the following:
As of March 31, | ||||||||
2011 | 2010 | |||||||
| Statutory dues payable | $ | 17,745 | $ | 35,734 | ||||
| Employee related liabilities | 77,147 | 90,207 | ||||||
| Other liabilities | - | 24,001 | ||||||
| $ | 94,892 | $ | 149,942 | |||||
Other non-current liabilities consist of the following:
As of March 31, | ||||||||
2011 | 2010 | |||||||
| Sundry creditors | $ | 1,209,479 | $ | 1,107,498 | ||||
| Provision for expenses | - | - | ||||||
| $ | 1,209,479 | $ | 1,107,498 | |||||
Sundry creditors consist primarily of creditors to whom amounts are due for supplies and materials received in the normal course of business.
NOTE 9 – OTHER INCOME
Other income in the current year consists primarily of the backer-recording of liabilities relating to the promoters of TBL, one of the subsidiaries of the Company. IGC had in the previous year disputed the payment of this liability and accordingly in the current year, it has been determined that the liability is no longer payable.
NOTE 10 – FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the Company’s current assets and current liabilities approximate their carrying value because of their short term maturity. Such financial instruments are classified as current and are expected to be liquidated within the next twelve months.
NOTE 11 – GOODWILL
The movement in goodwill balance is given below:
As of March 31, | ||||||||
2011 | 2010 | |||||||
| Balance at the beginning of the period | $ | 6,146,720 | $ | 17,483,501 | ||||
| Elimination on deconsolidation of Sricon | - | (10,576,123 | ) | |||||
| Effect of foreign exchange translation | 56,583 | (760,658 | ) | |||||
| Impairment loss | (5,792,849 | ) | - | |||||
| $ | 410,454 | $ | 6,146,720 | |||||
During the year ended March 31, 2011, the Company conducted an impairment analysis regarding the goodwill in its consolidated financial statements. The goodwill balance of $6,146,720 at the beginning of 2011 was allocated to our subsidiary Techni Bharathi Limited (‘TBL’). The Company assessed the recoverable value of TBL and 100%concluded that it was lower than $6.2 million. Therefore the goodwill balance allocated to TBL was impaired by $ 5,792,849. The methodology used in the impairment test is described below.
TBL, a small road building company, is engaged in highway and heavy construction activities. TBL has constructed highways, rural roads, tunnels, dams, airport runways, and housing complexes, mostly in southern states. TBL, because of its successful execution of contracts, is pre-qualified by the National Highway Authority of India (NHAI) and other agencies. We own 77% of TBL.
TBL’s share of the overall Indian construction market is very small. However, TBL’s prequalification and prior track record provides a way to grow the company in highway and heavy construction. Currently, TBL is engaged in the recovery of construction delay claims that it is pursuing against NHAI and the Cochin International Airport in the aggregate amount of $2.3 million. TBL has received binding judgments in arbitration against and is in the process of collecting those judgments, which can typically take two to three years.
For the year ended March 31, 2011, TBL was not able to meet its cash flow projections, because it has not been able to win any new significant contracts. As a result, TBL does not have a sufficient pipeline that would enable it to project cash flows. Therefore, the impairment test for TBL is based on the recoverable values of its assets less the expected settlement of its liabilities.
For the purpose of the impairment test, we considered all the assets and liabilities of TBL. With respect to all the monetary assets and liabilities, the carrying values of the assets and the liabilities are considered to approximate the fair value of TBL since these are the expected recovery values and the expected values for settling liabilities. With respect to non-monetary assets such as fixed assets, we estimated the recoverable values based on a valuation certificate obtained from an approved independent appraiser. Further, the recoverability of claims is based on actual awards received in arbitration.
NOTE 12 — RELATED PARTY TRANSACTIONS
The Company has entered into an agreement with SJS Associates subsequent to the stockholder’s approval of the acquisitions of Sricon and TBL. For the year ended March 31, 2011, $ 40,160 was paid to SJS Associates for Mr. Selvaraj’s services, which included compensation expenses. There was no balance receivable or payable to/from this party as of March 31, 2011.
The Company had agreed to pay Integrated Global Network, LLC (“IGN, LLC”), an affiliate of our Chief Executive Officer, Mr. Mukunda, an administrative fee of $4,000 per month for office space and general and administrative services from the closing of the Public Offering through the date of a Business Combination. For the year ended March 31, 2011, a total of $ 48,000 was accrued as rent payable to IGN LLC out of which $ 8,000 was outstanding as of March 31, 2011.
The Company uses the services of Economic Law Practice (ELP), a law firm in India. A member of our Board of Directors, prior to his resignation on March 15, 2011, was a Partner of ELP. Since inception to March 31, 2010, the Company has incurred $186,303. There were no accruals or payments regarding ELP during the year ended March 31, 2011. Accordingly, there was no balance receivable or payable to/from this party as of March 31, 2011.
The Company, specifically one of the subsidiaries of the Company, TBL, has a receivable from Sricon, an affiliate of the Company, amounting to $3,114,572. This amount was advanced by TBL to Sricon to fund a bid on a new contract and provide the working capital requirement for the contract. Subsequently, due to certain disputes that have arisen between Sricon and IGC, Logistics, Private Limited. Boththe receivable of $3.1 million is still outstanding. Sricon is unwilling to pay the amount as it seeks to offset the amount as an equity payment from IGC. However the amount was advanced from TBL, not from IGC, and TBL has no equity in Sricon. Further, the two entities, IGC and TBL, are legally different companies and therefore TBL has legal remedies under Indian law. The Company has engaged Indian counsel who is in the process of preparing the case to pursue the recovery of this receivable. From an accounting perspective, the Company has created a full provision in respect of this receivable due to the dispute although it intends to pursue collection of this receivable through an appropriate legal process in India. The said provision is contained in the selling, general and administrative expenses of the Company.
NOTE 13 – COMMITMENTS AND CONTINGENCIES
No significant commitments and contingencies were made or existed during the years ended March 31, 2011 and 2010.
NOTE 14 – PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
| As of March 31, | ||||||||
2011 | 2010 | |||||||
| Land | $ | 10,870 | $ | 10,870 | ||||
| Buildings | 351,147 | 172,935 | ||||||
| Plant and machinery | 3,335,065 | 3,253,444 | ||||||
| Furniture and fixtures | 87,768 | 88,860 | ||||||
| Computer equipment | 213,178 | 209,012 | ||||||
| Vehicles | 479,478 | 478,749 | ||||||
| Office equipment | 167,563 | 161,680 | ||||||
| Capital work-in-progress | 137,696 | 136,440 | ||||||
| 4,782,765 | 4,511,990 | |||||||
| Less: Accumulated depreciation | (3,551,004 | ) | (2,763,554 | ) | ||||
| $ | 1,231,761 | $ | 1,748,436 | |||||
Depreciation and amortization expense for the fiscal years ended March 31, 2011 and March 31, 2010 was $785,066 and $603,153, respectively. Capital work-in-progress represents advances paid towards the acquisition of property and equipment and the cost of property and equipment not put to use before the balance sheet date.
NOTE 15 – INVESTMENT ACTIVITIES
No significant investment activities occurred during the years ended March 31, 2011 and March 31, 2010.
NOTE 16 — SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
During the current year, the Company has created a full provision on the amount receivable from one of its investee companies –Sricon- amounting to $ 3,143,242. Please refer Note 12 of the consolidated financial statements for further information relating to this write off.
Further during the current year, the Company recorded an expense amounting to $ 1,515,186 relating to bad debts on its accounts receivable and certain loans and advances.
NOTE 17 – STOCK-BASED COMPENSATION
On April 1, 2009 the Company adopted ASC 718, “Compensation-Stock Compensation”, (previously referred to as SFAS No. 123 (revised 2004), Share Based Payment). ASC 718 requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values. As of March 31, 2010, the Company granted 78,820 shares of common stock and 1,413,000 stock options, to its directors and employees, all of which were granted during the year ended March 31, 2010. No options were granted during the year ended March 31, 2011. The options vested immediately. The exercise price of the options was $1.00 per share, and the options will expire on May 13, 2014. The fair value of the stock was $39,410 on the date of grant and the fair value of the stock options was $90,997. Total share-based compensation expense, related to all of the Company’s share-based awards, recognized for the year ended March 31, 2010 is $130,407. As of March 31, 2011 under the 2008 Omnibus Plan, 471,045 options remain issuable under the plan.
The fair value of stock option awards is estimated on the date of grant using a Black-Scholes Pricing Model with the following assumptions for options awarded during the year ended March 31, 2010:
| Expected life of options | 5 years | |||
| Vested options | 100 | % | ||
| Risk free interest rate | 1.98 | % | ||
| Expected volatility | 35.35 | % | ||
| Expected dividend yield | Nil | |||
The volatility estimate was derived using historical data for the IGC stock and for public companies in the infrastructure industry.
NOTE 18 – EMPLOYEE BENEFITS
Gratuity 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.
As of March 31, | ||||||||
2011 | 2010 | |||||||
| Change in the benefit obligation | ||||||||
| Projected Benefit Obligation (PBO) at the beginning of the year | (22,383 | ) | - | |||||
| Service cost | (1,510 | ) | 22,383 | |||||
| Interest cost | (1,967 | ) | - | |||||
| Benefits paid | 3,578 | - | ||||||
| Actuarial loss/(gain) | (6,498 | ) | - | |||||
| PBO at the end of the year | (28,780 | ) | (22,383 | ) | ||||
| - | - | |||||||
| Funded status | $ | (28,780 | ) | $ | (22,383 | ) | ||
Net gratuity cost for the years ended March 31, 2011 and 2010 included:
Year ended March 31, | ||||||||
2011 | 2010 | |||||||
| Service cost | 1,510 | 22,383 | ||||||
| Interest cost | 1,967 | - | ||||||
| Actuarial loss/(gain) | 6,498 | |||||||
| Net gratuity cost | $ | 9,975 | $ | 22,383 | ||||
The weighted average actuarial assumptions used to determine benefit obligations and net periodic gratuity cost are:
Year ended March 31, | ||||||||
2011 | 2010 | |||||||
| Discount rate | 9.10 | % | 8.65 | % | ||||
| Rate of increase in compensation levels | 8.00 | % | 8.00 | % | ||||
The Company assesses these companies are based in Nagpur, India.assumptions with its projected long-term plans of growth and prevalent industry standards.
The expected payout of the accumulated benefit obligation as of March 31 is as follows.
As of March 31, | ||||||||
2011 | 2010 | |||||||
| Expected contribution during the year ending Year 1 | $ | 2,739 | $ | 3,582 | ||||
| Expected benefit payments for the years ending March 31: | ||||||||
| Year 2 | 1,302 | 1,023 | ||||||
| Year 3 | 1,347 | 1,046 | ||||||
| Year 4 | 1,819 | 1,468 | ||||||
| Year 5 | 9,048 | 8,164 | ||||||
| Thereafter | 15,806 | 13,135 | ||||||
Provident fund. In addition to the above benefits, all employees receive benefits from a provident fund, a defined contribution plan. The employee and employer each make monthly contributions to the plan equal to 12% of the covered employee’s salary. The contribution is made to the Government’s provident fund.
The Company recognized an expense of $ 6,819 and $16,446 towards contribution to various defined contribution and benefit plans during the years ended March 31, 2011 and March 31, 2010 respectively.
NOTE 19 – DECONSOLIDATION
Effective October 1, 2009, we decreased our ownership in Sricon Infrastructure from 63% to 22.3%. By way of background: As explained in Note 18 (Deconsolidation) on or aboutOn March 7, 2008 we consummated the Sricon Acquisition by purchasing 63% for about $29 million$28,690,266 (based on an exchange rate of 40 INR for $11 USD). Subsequently, we effectively borrowed, through an intermediary company, around $17.9 million$17,900,000 (based on 40 INR for 1 USD) from Sricon. Through 2008 and 2009 we expanded our business offerings beyond construction to include a rapidly growing materials business. We have successfully repositioned the company as a materials and construction company with construction activity in our TBL subsidiary and materials activity in our other subsidiaries. Rather than continue to owe $17.9 million, and more importantly continue to fund two construction companies, we decreased our ownership in Sricon by an amount proportionate to the loan. As a consequence, we no longer owe $17,900,000 and our corresponding ownership in Sricon ishad decreased from 63% to 22.3%, a minority interest. The accounting of the decrease in ownership, or deconsolidation of Sricon from the balance sheet of IGC, results in the shrinking the IGCof IGC’s balance sheet and a one-time charge on the P&L.income statement.
The equity dilution of 40.715% resulted in a consideration of $17,900,000. Following the guidance under ASC 810-10, the parent derecognized the assets, liabilities and equity components (including the amounts previously recognized in other comprehensive income) related to Sricon. IGC recorded a loss of $785,073 and further reclassified an accumulated AOCI loss of $2,098,492 in the income statement as a result of the dilution. Deferred acquisition costs related to Sricon amounted to $1,854,750, which were subsequently recorded in the income statement for the Fiscal Year that ended March 31, 2010.
The Company accounted for its remaining 22.3% interest in Sricon by the equity method. The carrying value of the investment in Sricon as of March 31, 2010 was $8,443,181. The Company’s equity in the income of Sricon for the period ended March 31, 2010 was $16,446. In the current year, due to certain disputes with the management of Sricon, the Company was not able to obtain the financial statements of Sricon. It has been determined that the Company no longer has significant influence in the operations of Sricon. Accordingly, the investment in Sricon is currently valued at cost less provision for impairment losses, if any. Please refer Note 25 for discussion on impairment loss relating to the investment in Sricon.
| March 31, | ||||||||
| 2011 | 2010 | |||||||
| Current: | ||||||||
| Federal | $ | $ | 0 | |||||
| Foreign | (100,226 | ) | 92,310 | |||||
| State | 0 | |||||||
| Net Current | (100,226 | ) | 92,310 | |||||
| Deferred: | ||||||||
| Federal | 4,242,001 | (2,947,845 | ) | |||||
| Foreign | (422,823 | ) | 113,464 | |||||
| State | 381,433 | (367,633 | ) | |||||
| Net Deferred | 4,200,611 | (3,202,014 | ) | |||||
| Total tax provision | $ | 4,100,385 | $ | (3,109,704 | ) | |||
The significant components of deferred income tax expense (benefit) from operations before non-controlling interest for each of the years ended March 31 consist of the following:
| March 31, | ||||||||
| 2011 | 2010 | |||||||
| Deferred tax expense (benefit) | $ | 1,652,984 | $ | (550,254 | ) | |||
| Net operating loss carry forward | 2,003,420 | (1,999,512 | ) | |||||
| Foreign Tax Credits | 544,207 | (544,207 | ) | |||||
| Interest income deferred for reporting purposes | ||||||||
| Difference between accrual accounting for reporting purposes and cash accounting for tax purposes | ||||||||
| Less: Valuation Allowance | (4,200,611 | ) | (108,041 | ) | ||||
| Net deferred tax asset | $ | 0 | $ | (3,202,014 | ) | |||
The total tax provision for income taxes for year ended March 31, 2011 differs from that amount which would be computed by applying the U.S. Federal income tax rate to income before provision for income taxes as follows:
| March 31, | ||||||||
| 2011 | 2010 | |||||||
Statutory Federal income tax rate | 34.0 | % | 34.0 | % | ||||
State tax benefit net of federal tax | 1.5 | % | -5.4 | % | ||||
Change in valuation allowance | 8.2 | % | - | |||||
Loss on extinguishment of debt | -0.4 | % | - | |||||
Loss on dilution of Sricon | - | -12.3 | % | |||||
Impairment loss on goodwill | -11.9 | % | - | |||||
Impairment loss on investments | -4.4 | % | - | |||||
Capitalized interest costs | -2.8 | % | -5.2 | % | ||||
Tax benefits from US taxes | - | -48.9 | % | |||||
Amortization of debt discount | - | -1.5 | % | |||||
Effective income tax rate | 24.2 | % | -39.3 | % | ||||
The deferred tax assets and liabilities as of March 31 consist of the following tax effects relating to temporary differences and carry forwards:
| March 31, | ||||||||
| 2011 | 2010 | |||||||
| Current deferred tax liabilities (assets): | ||||||||
| Vacation Pay | $ | 0 | $ | (25,345 | ) | |||
| Valuation allowance | - | |||||||
| Net current deferred tax liabilities (assets) | 0 | (25,345 | ) | |||||
| Noncurrent deferred tax assets (liabilities): | ||||||||
| Startup Costs | 921,378 | (921,378 | ) | |||||
| Deferred Acquisition Costs | 731,606 | (731,606 | ) | |||||
| Property, plant and equipment | (121,242 | ) | ||||||
| Foreign Tax Credits | 544,207 | (544,207 | ) | |||||
| Net Operating Losses | 2,003,420 | (1,999,512 | ) | |||||
| Valuation allowance | (4,200,611 | ) | - | |||||
| Non-Current net deferred tax assets | $ | 0 | $ | (4,075,461 | ) | |||
Deferred income tax assets, net of valuation allowances are expected to be realized through future taxable income. The valuation allowance increased in 2011 by $4.1 million, primarily related net operating loss carry forwards and acquisition costs. The company intends to maintain valuation allowances for those deferred tax assets unit sufficient evidence to support the reversal of the valuation allowance.
The Company's and/or its subsidiaries’ ability to utilize their net operating loss carry forwards may be significantly limited by Section 382 of the Internal Revenue Code of 1986, as amended, if the Company or any of its subsidiaries undergoes an “ownership change” as a result of changes in the ownership of the Company's or its subsidiaries’ outstanding stock pursuant to the exercise of the warrants or otherwise. A corporation generally undergoes an “ownership change” when the ownership of its stock, by value, changes by more than 50 percentage points over any three-year testing period. In the event of an ownership change, Section 382 imposes an annual limitation on the amount of post-ownership change taxable income a corporation may offset with pre-ownership change net operating loss carry forwards and certain recognized built-in losses. As of December 31, does not appear to have had an ownership change for Section 382 purposes.
NOTE 21 – SEGMENT INFORMATION
Accounting pronouncements establish standards for the manner in which public companies report information about operating segments in annual and interim financial statements. Operating segments are component of an enterprise that have distinct financial information available and evaluated regularly by the chief operating decision-maker ("CODM") to decide how to allocate resources and evaluate performance. The Company's CODM is considered to be the Company's chief executive officer ("CEO"). The CEO reviews financial information presented on an entity level basis for purposes of making operating decisions and assessing financial performance. Therefore, the Company has determined that it operates in a single operating and reportable segment.
NOTE 22 – RECONCILIATION OF EPS
For the Fiscal Year Ended March 31, 2011 and 2010, the basic shares include founders shares, shares sold in the market, shares sold in a private placement, shares sold in the IPO, shares sold in the registered direct, shares arising from the exercise of warrants issued in the placement of debt, shares issued in connection with debt, and shares issued to employees, directors and vendors. The fully diluted shares include the basic shares plus warrants issued as part of the units sold in the private placement and IPO, warrants sold as part of the units sold in the registered direct and employee options. The historical weighted average per share for our shares through March 31, 2011, was applied using the treasury method of calculating the fully diluted shares. The weighted average number of shares outstanding as at March 31, 2011 used for the computation of basic EPS is 15,108,920. Due to the loss incurred during the year ended March 31, 2011, all of the potential equity shares are anti-dilutive and accordingly, the diluted EPS is equal to the basic EPS.
NOTE 23 – SUBSEQUENT EVENTS
The Company, through its subsidiary, IGC Materials, Private Limited ("IGC-MPL"), previously created a partnership for operation of 11,943,878 public and private warrants for 1,311,064 new shares of common stock. Followinga rock quarry, in which IGC-MPL owns a 49% stake, with the issuanceowner of the shares relatingland on which the quarry was located. In order to promote investments in certain industries including quarrying, the government of Maharashtra, where the quarry is located, instituted a tax rebate. The tax rebate allows the quarry operators to recover their entire investment through the collection of taxes by retaining taxes that would otherwise be payable to the warrant exercise, we have 10,091,971 sharesgovernment. In July 2011, the Company’s application for the rebate was approved by the government of common stock outstandingMaharashtra, and 11,855,122 outstanding warrantsthe partnership was accordingly granted the right to purchase sharesretain up to $2.68 million in sales taxes and royalty taxes collected through the sale of common stock. For details relatingrock aggregate from the quarries. This figure amounts to the warrant exercise, see ourinvestment made by the Company to develop the rock quarry including infrastructure and machinery. The Company expects that it may take a few years to fully realize the benefits of the tax rebate.
NOTE 24 – INVESTMENTS – OTHERS
Investments – others for each of the years ended March 31, 2011 and 2010 consists of the following:
As of March 31, | ||||||||
2011 | 2010 | |||||||
| Investment in equity shares of an unlisted company | $ | 67,355 | $ | 66,741 | ||||
| Investment in partnership (SIIPL-IGC) | 810,508 | 744,149 | ||||||
| $ | 877,863 | $ | 810,890 | |||||
Effective October 1, 2009, the Company reduced its investment in Sricon from 63% to 22%. For the financial year ended March 31, 2010 the Company conducted an impairment test on the 22% investment in Sricon using the discounted cash flow methodology. The Company had access to the unaudited balance sheet of Sricon as of December 31, 2009, 10Qbut did not have audited financial statements of Sricon for the year ended March 31, 2010. The Company used information from the unaudited December 31, 2009 balance sheet, recoverable values of property, plant and equipment not used in the Warrant Tender Offer sectionoperations of our annual report.
the Company based on independent third party valuations and Sricon’s history of winning and renewing contracts in determining the discounted cash flow. Based on the impairment test applied at the end of March 31, 2010, the Company concluded that the recoverable value of its investment in Sricon exceeded the total of the value of its receivable in Sricon and its investment in Sricon. Therefore no impairment was provided with respect to the receivable and investment in Sricon.