Our Consolidated Financial Statements and supplementary financial data are included in this Annual Report on Form 10-K beginning on page F-1.
We have audited the accompanying consolidated balance sheets of India Globalization Capital, Inc. and its subsidiaries (the “Company”) as of March 31, 2016 and 2015, and the related consolidated statements of income, comprehensive income, cash flows, and stockholders’ equity for each of the years in the two-year period ended March 31, 2016. 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.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to in the first paragraph above present fairly, in all material respects, the financial position of the Company as of March 31, 2016 and 2015, and the results of their operations and their cash flows for each of the years in two-year period ended March 31, 2016, in conformity with accounting principles generally accepted in the United States of America.
The accompanying notes should be read in connection with the financial statements.
The accompanying notes should be read in connection with the financial statements.
The accompanying notes should be read in connection with the financial statements.
The accompanying notes should be read in connection with the financial statements.
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
In the United States, the Company conducts research on phytocannabinoid-based therapies and develops intellectual property, for the treatment of life altering or life threatening conditions, and for the purpose of leasing IGC builds state-of-the-art farming facilities. The operations of IGC are based in USA, Hong Kong, India, and Malaysia. It is headquartered in the United States.
IGC owns 51% of a subsidiary in Hong Kong called IGC International Ltd., 100% of a subsidiary in Mauritius called IGC-Mauritius (“IGC-M”) and 100% of another subsidiary in Hong Kong (“HK Ironman’). IGC-M in turn operates through four subsidiaries in India. IGC-M owns one hundred percent (100%) of each Techni Bharathi, Limited (“TBL”), IGC India Mining and Trading Private Limited (“IGC-IMT”), IGC Logistic Private Limited (“IGC-L”), and IGC Materials Private Limited (“IGC-MPL”). HK ironman operates through Linxi HeFei Economic and Trade Co., aka Linxi H&F Economic and Trade Co., a People’s Republic of China-based company ("PRC Ironman"), in which it owns a 95% equity interest. IGC also owns 100% of a subsidiary in Malaysia called Cabaran Ultima (“Ultima”).
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. The Company’s current fiscal year ends on March 31, 2016.
a) India Globalization Capital, Inc.
IGC, a Maryland corporation 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, China, Hong Kong and now Malaysia, 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). 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 approximating $17.9 million. In March 31, 2013, IGC became the 100% owner of TBL by purchasing the remaining 23.1% shares from TBL’s promoters. In October 2014, pursuant to a Memorandum of Settlement with Sricon and related parties and in exchange for the 22% minority interest we had in Sricon, we received approximately five acres of prime land in Nagpur, India, valued at approximately $5 million, based on various factors including the exchange rate. The land is located a few miles from MIHAN, which is the largest development zone in terms of investment in India. The Company beneficially registered the land in its name on March 4, 2016.
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.
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"). Collectively, PRC Ironman and HK Ironman are referred to as "Ironman."
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 in accordance with 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
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|
Purchase Price
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IGC – IMT
|
|
INR
|
100,000
|
($2,100)
|
|
INR
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100,000
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IGC – MPL
|
|
INR
|
100,000
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($2,100)
|
|
INR
|
100,000
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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.
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 Jianjun 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. HK Ironman was incorporated as H&F Ironman Limited, a private limited company, on December 20, 2010 in Hong Kong to acquire PRC Ironman. 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 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. On February 2, 2015, IGC filed a lawsuit in the circuit court of Maryland, against 24 defendants related to the acquisition of Ironman, seeking to have the court order rescission of the underlying Acquisition Agreement and to void any past or future transfer of IGC shares to the defendants. It is anticipated that the lawsuit will go to trial in mid-2017. The assets of Ironman are currently shown on the balance sheet of IGC. Depending on the outcome of the law-suit, the assets may be removed from the balance sheet of IGC and the corresponding acquisition shares returned to treasury.
PRC Ironman is engaged in the processing of iron ore 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%.
In January 2013, we incorporated IGC HK Mining and Trading Limited (“IGC-HK”) in Hong Kong. IGC-HK is a wholly owned subsidiary of IGC-M. In September 2014, we changed the subsidiary’s name to IGC Cleantech Ltd (“IGC-CT”).
On May 31, 2014, we completed the acquisition of 51% of the issued and outstanding share capital of Golden Gate Electronics Limited, a corporation organized and existing under the laws of Hong Kong and now known as IGC International (“IGC-INT”). IGC-INT, headquartered in Hong Kong, operates an e-commerce platform for trading of commodities and electronic components. The purchase price of the acquisition consisted of up to 1,209,765 shares of our common stock, valued at approximately $1,052,496 on the closing date of the acquisition. As we are curtailing our low margin trading activity and realigning resources to the phytocannabinoid industry and real estate development and international project management industry, we are negotiating an exit from our ownership of Golden Gate.
On June 27, 2014, we entered into an agreement with TerraSphere Systems, LLC to develop multiple facilities to produce organic leafy green vegetables utilizing TerraSphere’s advanced pesticide-free organic indoor farming technology. Under the agreement, we will own 51% of each venture once production is operational, and will have a right of first refusal to participate in all future build-outs. We are negotiating a conversion of the advance into shares of a Canadian public vehicle that TerraSphere expects to merge into.
On December 18, 2014, we entered into a Purchase Agreement with Apogee Financial Investments, Inc. (“Apogee”), the previous sole owner of the outstanding membership interests of Midtown Partners & Co., LLC, a Florida limited liability company registered as a broker-dealer under the Securities Exchange Act of 1934 (“Midtown Partners”), and acquired, in an initial closing, 24.9% of the outstanding membership interests in Midtown Partners. In consideration of the initial membership interests, we are required to issue to Apogee 1,200,000 shares of our common stock (subject to downward adjustment based on certain fourth quarter 2014 financial statement matters). Following the receipt of all required SEC, FINRA and other regulatory approvals, we have agreed to acquire, in a final closing, the remaining 75.1% of the outstanding membership interests in Midtown Partners in consideration of our issuance to Apogee of an additional 700,000 shares of our common stock (subject to downward adjustment based on certain financial statement matters prior to the final closing). The agreement had a deadline of June 30, 2015, for Apogee and Midtown Partners to obtain the requisite approvals from FINRA. Apogee did not file for approval on time, and consequently pursuant to the terms of the Agreement, there are several penalties that will apply, including the cancellation of 700,000 shares of IGC stock and a penalty of $125,000 owed by Apogee to us. We are not seeking to consummate the acquisition of the remaining interest in Midtown Partners at this time. The parties are in the process of negotiating a settlement.
In February 2016, we completed the acquisition of 100% of the outstanding share capital of Cabaran Ultima Sdn. Bhd., a corporation organized and existing under the laws of Malaysia (“Ultima”), from RGF Land Sdn. Bhd. (“Land”), the sole shareholder of Ultima, pursuant to the terms of a Share Purchase Agreement among the parties. Ultima holds 51% of RGF Cabaran Sdn. Bhd., which holds 75% of RGF Construction Sdn. Bhd. The purchase price of the acquisition consists of up to 998,571 shares of our common stock, valued at approximately $169,757 on the closing date of the Share Purchase Agreement. Ultima and its management’s expertise include the following: (i) building agro-infrastructure for growing medicinal plants and botanical extraction, and (ii) construction of high-end luxury complexes such as service apartments, luxury condominiums and hotels.
b)
Merger and Accounting Treatment
Most of the shares of Sricon and TBL when acquired were purchased directly from the companies. The shares of HK Ironman, Golden Gate and Cabaran Ultima were acquired from the shareholders of each company.
Unless the context requires otherwise, all references in this report to “IGC,” “we,” “our” and “us” refer to India Globalization Capital, Inc., together with our subsidiaries.
India Globalization Capital, Inc. (the Registrant, the Company, or we) and its subsidiaries are engaged in 1) research on phytocannabinoid-based therapies, 2) trading commodities and electronic components, leasing heavy machinery, and developing real estate.
The corporate structure of our company direct and indirect consolidated operating subsidiaries is as follows:
c) Our Securities
The Company had three securities listed on the NYSE MKT (1) Common Stock, $.0001 par value (ticker symbol: IGC) (“Common Stock”), (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). As reported on Form 8-K on February 5, 2013, the Company voluntarily delisted the units from the NYSE MKT and requested its unit holders to contact IGC to get the existing units 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. As reported on Form 8-K filed with the SEC on February 29, 2016, the NYSE delisted the Company’s warrants with CUSIP number 45408X118 expiring on March 6, 2017, due to their abnormally low trading price.
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 IGC or the transfer agent, Continental Stock Transfer & Trust Company. The Company has 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 the Company calls the warrants, either the holder will have to exercise the warrants by purchasing the Common Stock from the Company for $5.00 or the warrants will expire. In accordance with the terms of the outstanding warrant agreements between the Company and its warrant holders, the Company in its sole discretion may lower the price of its warrants at any time prior to their expiration date.
The Company had 1,298,921 shares of Common Stock issued and outstanding as of March 31, 2010. During the twelve months ended March 31, 2011, the Company also issued 3,000 shares of Common Stock to American Capital Ventures and Maplehurst Investment Group for services rendered and 914 shares to Red Chip Companies valued at $8,039 for investor relations related services rendered.
The Company also issued a total of 40,000 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 68,850 shares of Common Stock valued at approximately $419,985 as consideration for the exchange, as discussed in corresponding note. In March 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 stated value over a specific term. As of December 31, 2011, the Company has issued 157,000 shares of Common Stock valued at $798,176 to this debt holder, which constituted an element of repayment of principal as well as the interest in equated installments.
On December 30, 2011, the Company finalized the purchase of HK Ironman pursuant to a stock purchase agreement (the “Stock Purchase Agreement”) that was approved by the shareholders of the Company on that date. Related to the acquisition of HK Ironman, the Company’s shareholders approved the issuance of 3,150,000 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 of $1 million provided certain post-closing covenants are met within 30 days of closing. These post-closing covenants were not met within 30 days of closing and therefore the Company did not make the payment. In addition, there were certain contingent payments by IGC to 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. These post-closing covenants were not met and therefore the Company did not make the payments. 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 not offered or advertised to the general public and such offering occurs outside of the United States to non-U.S. persons. No underwriting discounts or commissions were paid with respect to such sale. These securities were subsequently registered in a Form S-1.
As reported on a Current Report on Form 8-K filed by the Company on April 6, 2012, the Company retired a note payable to Oliveira in the amount of $2,232,627.79 on April 5, 2012. The Company projected a reduction in annual interest costs of about $612,000. The Company paid off the loan with 442,630 shares of newly issued Common Stock. There remains a disagreement on some of the technical features of the note that the lender claims result in IGC owing additional principal, interest, and penalty fees. The lender has sought relief through summary judgment from the court. IGC believes that IGC followed the clear terms of the note and that the lender's claims are frivolous. Further, IGC believes that the lender has demonstrated a malicious pattern of harassing behavior in an effort to unduly increase their gains. IGC was considering a counter suit in response to the lenders actions. However, on April 8, 2014, IGC decided to issue 12,026 more shares of its common stock to settle the dispute with Oliveira.
As reported on a Current Report on Form 8-K filed by the Company on October 9, 2012, the Company and Bricoleur agreed to exchange the promissory note held by Bricoleur 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. As of March 31, 2014, the Company has issued 205,200 shares of Common Stock valued at $270,522 to this debt holder, which constituted an element of repayment of interest. Effective March 31, 2014, as reported on a Current Report on Form 8-K filed by the Company on March 26, 2014, the Company and Bricoleur Partners, L. P. agreed to amend the outstanding $1,800,000 promissory note (“2012 Security”), subject to the same terms of the 2012 Agreement and Amendments No.1 and No.2, to extend the maturity date of the 2012 Security from July 31, 2014 to July 31, 2016. During the years ended March 31, 2015 and 2016, the Company issued 232,823 and 305,350 shares of its common stock to Bricoleur valued at $204,031 and $114,678 respectively, which constituted an element of repayment of interest.
In fiscal 2015 and 2016, we issued 56,193 shares valued at $48,800 and 20,000 shares valued at $8,000 respectively to Marketing Group (MMGI) and others. In fiscal year 2015 and 2016, the Company issued 50,000 and 40,000 shares of Common Stock to Axiom Financial Inc. valued at $43,500 and $16,000, respectively, both for financial and marketing consulting services rendered. During the year ended March 31, 2016, we also issued 50,000 shares of our common stock to Cherin Group, LLC. and 250,000 shares to International Pharma Trials valued at $20,000 and $100,000, respectively, both for research and development consulting services; Further, we issued 100,000 shares valued at $40,000 to Acorn Management Partners for investor relations services.
On August 22, 2013, IGC entered into an At The Market (“ATM”) Agency Agreement with Enclave Capital LLC. Under the ATM Agency Agreement, IGC 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 MKT at market prices, or as otherwise agreed with Enclave. The Company estimated that the net proceeds from the sale of the shares of common stock that were being offered were going to be approximately $3.6 million. On June 8, 2014, IGC entered into a new At The Market (“the June ATM”) Agency Agreement with Enclave Capital LLC. Under the June ATM Agency Agreement, IGC may offer and sell shares of our common stock having an aggregate offering price of up to $1.5 million, for a total of $5.5 million of gross proceeds from the combined ATM agreements. During the year fiscal year ended March 31, 2014, 2015 and 2016, the Company issued a total of 1,256,005 shares of common stock valued at $1,251,896; 2,001,815 shares valued at $2,961,022; and a total of 1,358,769 shares valued at $332,054, under this agreement, respectively. On May 20, 2016, IGC entered into an At The Market (“ATM”) Agency Agreement with IFS Securities, Inc. (dba Brinson Patrick, a division of IFS Securities, Inc.). Under the ATM Agency Agreement, IGC may offer and sell shares of our common stock having an aggregate offering price of up to $10 million from time to time through Brinson Patrick.
On April 2, 2014, as reported on a Current Report on Form 8-K filed by the Company on April 3, 2014, we entered into a securities purchase agreement with certain institutional investors relating to the sale and issuance by our company to the investors of an aggregate of 750,000 shares of our common stock, for a total purchase price of $506,250. Midtown Partners & Co., LLC, (“Midtown”) acted as our exclusive placement agent in this offering. IGC intends to use the net proceeds from the sale of securities offered for working capital needs, repayment of indebtedness, and other general corporate purposes.
On September 12, 2014, IGC shareholders approved 1,500,000 shares of common stock as a special grant valued at $615,000 to IGC’s CEO and the directors of the board subject to vesting. In fiscal year 2015 out of the amount approved, we issued 1,200,000 shares of common stock with a value of $492,000.
Under the December 18, 2014 Purchase Agreement with Apogee, we issued 1,200,000 common shares of IGC valued at $888,000 for the purchase of 24.9% ownership interest in Midtown Partners & Co., LLC. Pending downward adjustments, subject to certain balance sheet items of MTP, a total of 500,000 shares of IGC common stock have been held back. Pending the resolution of these balance sheet items, the shares that have been held back may be cancelled. The agreement had a deadline of June 30, 2015, for Apogee and Midtown Partners to obtain the requisite approvals from FINRA. Apogee did not file for approval on time, and consequently pursuant to the terms of the Agreement, there are several penalties that will apply, including the cancellation of 700,000 shares of IGC stock and a penalty of $125,000 owed by Apogee to us. We are not seeking to consummate the acquisition of the remaining interest in Midtown Partners at this time.
Under the February 11, 2016 Purchase Agreement with Cabaran Ultima, we issued 998,571 common shares of IGC valued at $169,757 for the purchase of 100% ownership interest in Ultima. Between February 24, 2016 and March 23, 2016 we issued a total of 4,253,246 unregistered shares of common stock for an aggregate amount of $1.5 million.
Further, pursuant to IGC’s employee stock option plan, the Company granted options to purchase 130,045 shares at an average exercise price of $5.60 per share, all of which are outstanding and exercisable as of March 31, 2016 and granted a total of 1,391,705 shares to its directors and some of its employees. As of March 31, 2016, IGC has 23,265,531 shares of Common Stock issued and outstanding. Disclosures relating to the common shares and options and warrants reflect a 10:1 reverse split that was effected on April 19, 2013.
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
a) Principles of Consolidation
The consolidated financial statements include the accounts of the Company and all of its subsidiaries that are more than 50% owned and controlled. The financial statements of the parent company and its majority owned or controlled subsidiaries have been combined on a line by line basis by adding together the book values of all items of assets, liabilities, incomes and expenses after eliminating all inter-company balances and transactions and resulting unrealized gain or loss. Operating results of companies acquired are included from the dates of acquisition.
b) Non-controlling interests
Non-controlling interests in the Company’s consolidated financial statements result from the accounting for non-controlling interests in its subsidiaries. Non-controlling interests represent the subsidiaries’ earnings and components of other comprehensive income that are attributed to the non-controlling parties’ equity interests. The Company consolidates the subsidiaries into its consolidated financial statements. Transactions between the Company and its subsidiaries have been eliminated in the consolidated financial statements.
The Company accounts for investments by the equity method where its investment in the voting stock gives it the ability to exercise significant influence over the investee but not control. In situations, such as the Company’s ownership interest in Sricon Infrastructure Private Limited (“Sricon”) and Midtown Partners & Co., LLC (“MTP”), wherein the Company is not able to exercise significant influence in spite of having 20% or more ownership, the Company has accounted for the investment based on the cost method. In addition, the Company consolidates any Variable Interest Entity (“VIE”) if it is determined to be the primary beneficiary. However, as of March 31, 2016, the Company does not have any interest in any VIE investment.
The non-controlling interest disclosed in the accompanying financial statements for fiscal year 2016 represent the non-controlling interest in IGC International, Linxi H&F Economic and Trade Co. (PRC Ironman) and Cabaran Ultima's subsidiaries 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.
c) Reclassifications
We are reclassifying the Investment in affiliates (22% minority interest investment we had in Sricon) to Investment others (five acres of prime land in Nagpur, India) as the company has returned the shares after transfer of land in its name as per the settlement agreement. The land, valued at approximately $5 million, based on various factors including the exchange rate, is located a few miles from MIHAN, which is the largest development zone in terms of investment in India. The Company beneficially registered the land in its name on March 4, 2016.
d) 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.
Management believes that the estimates and assumptions used in the preparation of the consolidated financial statements are prudent and reasonable. Significant estimates and assumptions are used for, but not limited to: allowance for uncollectible accounts receivable; future obligations under employee benefit plans; the useful lives of property, plant, equipment; intangible assets; the valuation of assets and liabilities acquired in a business combination; impairment of goodwill and investments; recoverability of advances; the valuation of options granted and warrants issued; and income tax and deferred tax valuation allowances. Actual results could differ from those estimates. Appropriate changes in estimates are made as management becomes aware of changes in circumstances surrounding the estimates. Critical accounting estimates could change from period to period and could have a material impact on IGC’s results, operations, financial position and cash flows. Changes in estimates are reflected in the financial statements in the period in which changes are made and, if material, their effects are disclosed in the notes to the consolidated financial statements.
e) Revenue Recognition
The majority of the revenue recognized for the years ended March 31, 2016 and 2015 was derived from the Company’s subsidiaries, 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.
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. We consider 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:
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Contract – Persuasive evidence of our arrangement with the customers;
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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;
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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.
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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.
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Revenue for any sale is recognized only if all of the four conditions set forth above are met. The Company assesses these criteria 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 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.
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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.
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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 both, the customer and the Company with respect to both the scope and invoicing and payment terms, approve them.
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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.
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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.
f) Earnings 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.
g) 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 March 31, 2016 and 2015, there was no significant liability for income tax associated with unrecognized tax benefits.
The issuance by IGC of its common stock to (1) HK Ironman stockholders in exchange for HK Ironman stock; to (2) Golden Gate Electronics Ltd (“GG”) in exchange for GG stock; to (3) Apogee Financial in exchange for a membership interest in Midtown Partners, LLC; and to (4) Cabaran Ultima (“Ultima”) in exchange for Ultima’s stock, as contemplated by the respective stock purchase agreements between the Company and HK Ironman, PRC Ironman and their stockholders; between the Company and Golden Gate Electronics Ltd and its stockholders; between the Company and Apogee Financial and their stockholders; and between the Company and Cabaran Ultima and its stockholders, generally will not be taxable transactions 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 because of the approval of the shares for U.S. federal income tax purposes.
h) 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, India, Hong Kong, and Malaysia, 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.
i) 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.
j) Foreign currency transactions
IGC operates in India, Hong Kong, China and Malaysia and a substantial portion of the Company’s sales are denominated in INR, HKD, RMB and RM, as of those respective operations. As a result, changes in the relative values of the U.S. dollar and INR, HKD, RMB or the RM 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 INR, HKD, RMB and the RM are the functional currencies 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 follows:
|
|
Period End Average Rate
|
|
|
Period End Rate
|
|
Period
|
|
(P&L rate)
|
|
|
(Balance sheet rate)
|
|
Year ended March 31, 2016
|
|
INR
|
|
65.39
|
|
per
|
|
USD
|
|
|
INR
|
|
66.25
|
|
per
|
|
USD
|
|
|
|
RMB
|
|
6.32
|
|
per
|
|
USD
|
|
|
RMB
|
|
6.44
|
|
per
|
|
USD
|
|
|
|
HKD
|
|
7.76
|
|
per
|
|
USD
|
|
|
HKD
|
|
7.76
|
|
per
|
|
USD
|
|
|
|
RM
|
|
4.11
|
|
per
|
|
USD
|
|
|
RM
|
|
3.90
|
|
per
|
|
USD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31, 2015
|
|
INR
|
|
61.11
|
|
per
|
|
USD
|
|
|
INR
|
|
62.31
|
|
per
|
|
USD
|
|
|
|
RMB
|
|
6.21
|
|
per
|
|
USD
|
|
|
RMB
|
|
6.20
|
|
per
|
|
USD
|
|
|
|
HKD
|
|
7.80
|
|
per
|
|
USD
|
|
|
HKD
|
|
7.80
|
|
per
|
|
USD
|
|
k) Accounts receivable
Accounts receivable from customers in the electronics business are recorded at the invoiced amount, taking into consideration any adjustments made for returns. Also, the Company evaluates the collectability of selected accounts receivable on a case-by-case basis and makes adjustments to the bad debt reserve for expected losses. For all other accounts, the Company estimates reserves for bad debts based on general aging, experience and past-due status of the accounts. When applicable, 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. If circumstances related to customers change, estimates of recoverability would be further adjusted.
Regarding our collection policy on electronics trading receivables, there are three types of trades: (1) payment guaranteed through letters of credit, (2) deposit or spot payment on delivery or (3) delivery on credit. With the first type of trade: our policy for collection is to ask the customer to open a letter of credit with a bank. The typical terms of the letter of credit are that 100% of the payment is made when the material is shipped. With the second type of trade, customers pay on delivery. On the third type of trade, our policy is to allow the customer to have a payment credit term of 90 days.
l) Left intentionally blank
m) Inventories
We provide for inventory obsolescence, excess inventory and inventories with carrying values in excess of market values based on our assessment of the future demands, market conditions and our specific inventory management procedures. If market conditions and actual demands are less favorable than our estimates, additional inventory write-downs may be required. In all cases, inventory is carried at the lower of historical cost or market value.
n) 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. Where the Company’s ownership interest in spite of being in excess of 20% is not sufficient to exercise significant influence, the Company has accounted for the investment based on the cost method, as is the case of Midtown Partners & Co., LLC (“MTP”).
o) Property, Plant and Equipment (PP&E)
Property and equipment are recorded at cost net of accumulated depreciation and depreciated over their estimated useful lives using the straight-line method. The estimated useful lives of assets are as follows:
Buildings
|
5-25 years
|
Plant and machinery
|
10-20 years
|
Computer equipment
|
3-5 years
|
Office equipment
|
3-5 years
|
Furniture and fixtures
|
5-10 years
|
Vehicles
|
5-10 years
|
Upon retirement or disposition, cost and related accumulated depreciation of the property and equipment are de-recognized from the books of 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 as incurred.
p) Fair Value of Financial Instruments
As of March 31, 2016 and 2015, 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.
q) 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.
During this fiscal year, sales were spread across many customers in Hong Kong, China, India and Malaysia, and the credit concentration risk is low.
r) Left intentionally blank
s) Business combinations
In accordance with ASC Topic 805, Business Combinations, the Company uses the purchase method of accounting for all business combinations consummated after June 30, 2001. Intangible assets acquired in a business combination are recognized and reported apart from goodwill if they meet the criteria specified in ASC Topic 805. Any purchase price allocated to an assembled workforce is not accounted separately.
t) Employee Benefits Plan
In accordance with applicable Indian laws, the Company provides for gratuity, a defined benefit retirement plan (Gratuity Plan) covering certain categories of employees. The Gratuity Plan provides a lump sum payment to vested employees, at retirement or termination of employment, an amount based on the respective employee’s last drawn salary and the years of employment with the Company. In addition, 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.
At this time, the Company does not participate in a multi-employer defined contribution plan in China to provide employees with certain retirement, medical and other fringe benefits because most of the Company’s workers are contractors employed through agencies or other companies. In the United States, we provide health insurance, life insurance, and 401 K benefits. The Company makes a 401-K matching contribution up to 6% of the employee’s annual salary.
u) Commitments and contingencies
Liabilities for loss contingencies arising from claims, assessments, litigations, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment and/or remediation can be reasonably estimated.
v) Accounting for goodwill and related impairment
Goodwill represents the excess cost of an acquisition over the fair value of our 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 impairment losses incurred, if any.
The Company adopted the provisions of 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.
Pursuant to 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 it operates in a single operating segment. While the Company’s Chief Executive Officer reviews the consolidated financial information for the purposes of decisions relating to resource allocation, the Company’s Chief Financial Officer, on an as-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, IGC International and Cabaran Ultima, which are two of the legal entities in Hong Kong and in Malaysia, respectively, are also considered separate reporting units and therefore the Company believes that the assessment of goodwill impairment at the subsidiaries level, which are also a reporting unit each, 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.
w) Impairment of long – lived assets
The Company reviews its long-lived assets, with finite lives, for impairment whenever events or changes in business circumstances indicate that the carrying amount of assets may not be fully recoverable. Such circumstances include, though are not limited to, significant or sustained declines in revenues or earnings, future anticipated cash flows, business plans and material adverse changes in the economic climate, such as changes in operating environment, competitive information and impact of changes in government policies. For assets that the Company intends to hold for use, if the total of the expected future undiscounted cash flows produced by the assets or subsidiary company is less than the carrying amount of the assets, a loss is recognized for the difference between the fair value and carrying value of the assets. For assets the Company intends to dispose of by sale, a loss is recognized for the amount by which the estimated fair value less cost to sell is less than the carrying value of the assets. Fair value is determined based on quoted market prices, if available, or other valuation techniques including discounted future net cash flows.
x) 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.
Recognition and Measurement of Financial Assets and Financial Liabilities:
In January 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. This ASU requires entities to present separately in OCI the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk (DVA) when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. It will also require equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income, thus eliminating eligibility for the current available-for-sale category. The company is evaluating the effect that ASU 2015-03 will have on its Consolidated Financial Statements.
Disclosures for Investments in Certain Entities That Calculate Net Asset Value (NAV) per Share
: In May 2015, the FASB issued ASU No. 2015-07, Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent), which is intended to reduce diversity in practice related to the categorization of investments measured at NAV within the fair value hierarchy. The ASU removes the current requirement to categorize investments for which fair value is measured using the NAV per share practical expedient within the fair value hierarchy. Adoption of the ASU did not have a material effect on the Company's financial statements.
Debt Issuance Costs
: In April 2015, the FASB issued Accounting Standards Update (ASU) 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, to conform the presentation of debt issuance costs to that of debt discounts and premiums. Thus, the ASU requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. The guidance is effective beginning on January 1, 2016. Early adoption is permitted, including adoption in interim period. The company is evaluating the effect that ASU 2015-03 will have on its Consolidated Financial Statements.
Consolidation
: In February 2015, the FASB issued ASU No. 2015-02,
Consolidation (Topic 810): Amendments to the Consolidation Analysis
, which is intended to improve certain areas of consolidation guidance for legal entities such as limited partnerships, limited liability companies, and securitization structures. The ASU will reduce the number of consolidation models. The ASU will be effective on January 1, 2016. Early adoption is permitted, including adoption in an interim period. The Company is evaluating the effect that ASU 2015-02 will have on its Consolidated Financial Statements.
Revenue from Contracts with Customers
: In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in GAAP when it becomes effective on January 1, 2017. Early application is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its financial statements.
Discontinued Operations and Significant Disposals
: In April 2014, the FASB issued ASU 2014-08 "Presentation of Financial Statements (Topic 810) and Property, Plant, and Equipment" (Topic 360), "Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity." ASU 2014-08 provides a narrower definition of discontinued operations than under previous U.S. GAAP. ASU 2014-08 requires that a disposal of components of an entity (or groups of components) be reported as discontinued operations if the disposal represents a strategic shift that will have a major effect on the reporting entity's operations and financial results. ASU 2014-08 is effective prospectively for disposals (or classifications of businesses as held-for-sale) of components of an entity that occur in annual or interim periods beginning after December 15, 2014. Additionally, the ASU requires expanded disclosures about discontinued operations that will provide more information about the assets, liabilities, income and expenses of discontinued operations. The impact of adopting the ASU was not material.
NOTE 3 – ACQUISITIONS
Cabaran Ultima Sdn. Bhd.
On February 11, 2016, we completed the acquisition of 100% of the outstanding share capital of Cabaran Ultima Sdn. Bhd., a corporation organized and existing under the laws of Malaysia (“Ultima”), from RGF Land Sdn. Bhd (“Land”), the sole shareholder of Ultima, pursuant to the terms of a Share Purchase Agreement among the parties. Ultima is a real estate development and international project management company incorporated in Kuala Lumpur, Malaysia. The purchase price of the acquisition consists of up to 998,571 shares of our common stock, valued at approximately $169,757 on the closing date of the Share Purchase Agreement. Ultima is an international real estate project management company with expertise in (i) building agro-infrastructure for growing medicinal plants and botanical extraction, (ii) construction of high-end luxury complexes such as service apartments, luxury condominiums and hotels, and (iii) design management of other large-scale infrastructure.
Purchase price of the acquisition consisted of up to 998,571 shares of our common stock, valued at approximately $169,757on the closing date of the acquisition and the same will be discharged as follows:
|
|
All amounts in USD
|
|
Particulars
|
|
Fair Value
|
|
|
|
|
|
IGC Stock Consideration
|
|
$
|
169,757
|
|
|
|
|
|
|
Total Purchase Consideration
|
|
$
|
169,757
|
|
The purchase has been preliminarily allocated to the acquired assets and liabilities, as follows:
|
|
All amounts in USD
|
|
Particulars
|
|
Fair Value
|
|
|
|
|
|
Property, Plant and Equipment
|
|
$
|
1,421
|
|
Trade and other receivables
|
|
|
12,385
|
|
Reimbursement Account
|
|
|
63,564
|
|
Cash and bank balances
|
|
|
16,438
|
|
Deposit & Prepayment
|
|
|
6,205
|
|
Trade and other payables
|
|
|
(133,804
|
)
|
Other payables
|
|
|
(12,789
|
)
|
Non-Controlling interest
|
|
|
18,168
|
|
Goodwill
|
|
|
198,169
|
|
|
|
|
|
|
Total Purchase Consideration
|
|
|
169,757
|
|
The above purchase price allocation includes provisional amounts for certain assets and liabilities. The purchase price allocation will continue to be refined primarily in the areas of goodwill and other identifiable intangibles, if any. During the measurement period, the Company expects to receive additional detailed information to refine the provisional allocation above. Non-controlling interests are valued based on the proportional interest in the fair value of the net assets of the acquired entity.
Ultima is subject to legal and regulatory requirements, including but not limited to those related to taxation matters, in the jurisdiction in which it operates. The Company has conducted a preliminary assessment of liabilities arising out of these matters and has recognized provisional amounts in its initial accounting for the Acquisition for all identified liabilities in accordance with the requirements of ASC Topic 805. However, the Company is continuing its review of these matters during the measurement period, and if new information obtained about facts and circumstances that existed at the Acquisition date identifies adjustments to the liabilities initially recognized, as well as any additional liabilities that existed at the Acquisition date, the acquisition accounting will be revised to reflect the resulting adjustments to the provisional amounts initially recognized.
The following unaudited pro-forma results of the operations of the Company for the fiscal year ended March 31, 2016 and 2015 assume that the Ultima acquisition occurred during the beginning of the comparable period.
|
|
Year ended March 31,
|
|
Particulars
|
|
2016
|
|
|
2015
|
|
Pro forma revenue
|
|
$
|
6,727,396
|
|
|
$
|
8,795,596
|
|
Pro forma other income
|
|
$
|
284,186
|
|
|
$
|
(56,367
|
)
|
Pro forma net income attributable to IGC Stockholders
|
|
|
(2,525,174
|
)
|
|
|
(3,579,764
|
)
|
Pro forma Earnings per share
|
|
|
|
|
|
|
|
|
Basic
|
|
|
0.15
|
|
|
|
0.23
|
|
Diluted
|
|
|
0.15
|
|
|
|
0.23
|
|
Midtown Partners & Co., LLC
On December 18, 2014, we entered into a Purchase Agreement with Apogee the previous sole owner of the outstanding membership interests of Midtown Partners & Co., LLC, a Florida limited liability company registered as a broker-dealer under the Securities Exchange Act of 1934 (“Midtown”), and acquired, in an initial closing, 24.9% of the outstanding membership interests in Midtown. In consideration of the initial membership interests, we have to issue to Apogee 1,200,000 shares of our common stock, subject to downward adjustment. Following the receipt of all required SEC, FINRA and other regulatory approvals, by June 30, 2015, we have agreed to acquire, in a final closing, the remaining 75.1% of the outstanding membership interests in Midtown in consideration of our issuance to Apogee of an additional 700,000 shares of our common stock, subject to downward adjustment.
The agreement had a deadline of June 30, 2015, for Apogee and Midtown Partners to obtain the requisite approvals from FINRA. Apogee did not file for approval on time, and consequently pursuant to the terms of the Agreement, there are several penalties that will apply, including the cancellation of 700,000 shares of IGC stock and a penalty of $125,000 owed by Apogee to us.
Golden Gate Electronics Ltd.
On May 31, 2014, the Company acquired 51% of the issued and outstanding share capital of Golden Gate Electronics Limited, a corporation organized and existing under the laws of Hong Kong, now known as IGC International. IGC-INT, headquartered in Hong Kong, operates an e-commerce platform for trading of commodities and electronic components.
The acquisition has been accounted for under the acquisition method of accounting in accordance with ASC Topic 805, “Business Combinations”. The total purchase price has been allocated to IGC-INT’s net tangible assets based on their estimated fair values at the date of acquisition. The Purchase Price Allocation is based upon preliminary estimates and assumptions that may be subject to change during the measurement period (up to one year from the Acquisition Date). The Company generally does not expect the goodwill recognized to be deductible for income tax purposes. The results of operations of IGC-INT for the month of December 2014 have been included in the consolidated results as shown in the Statement of Operations included herein. The assets and liabilities of IGC-INT have been recorded in the Consolidated Balance Sheet of the Company as of December 31, 2014.
Purchase price of the acquisition consisted of up to 1,209,765 shares of our common stock, valued at approximately $1,052,496 on the closing date of the acquisition and the same will be discharged as follows:
|
|
All amounts in USD
|
|
Particulars
|
|
Fair Value
|
|
|
|
|
|
IGC Stock Consideration
|
|
$
|
178,925
|
|
|
|
|
|
|
Estimated earn out payment (in the form of Stock)
|
|
|
873,571
|
|
|
|
|
|
|
Total Purchase Consideration
|
|
$
|
1,052,496
|
|
The purchase has been preliminarily allocated to the acquired assets and liabilities, as follows:
|
|
All amounts in USD
|
|
Particulars
|
|
Fair Value
|
|
|
|
|
|
Cash and Cash Equivalents
|
|
$
|
166,916
|
|
Property, Plant and Equipment
|
|
|
81,730
|
|
Accounts Receivable
|
|
|
427,594
|
|
Inventory
|
|
|
749,133
|
|
Other Assets
|
|
|
211,264
|
|
Accounts Payable
|
|
|
(162,757
|
)
|
Loans - Others
|
|
|
(1,322,415
|
)
|
Other Current Liabilities
|
|
|
(14,771
|
)
|
Non-Controlling Interest
|
|
|
(66,980
|
)
|
Goodwill
|
|
|
982,782
|
|
|
|
|
|
|
Total Purchase Consideration
|
|
$
|
1,052,496
|
|
The above purchase price allocation includes provisional amounts for certain assets and liabilities. The purchase price allocation will continue to be refined primarily in the areas of goodwill and other identifiable intangibles, if any. During the measurement period, the Company expects to receive additional detailed information to refine the provisional allocation above. Non-controlling interests are valued based on the proportional interest in the fair value of the net assets of the acquired entity.
IGC-INT is subject to legal and regulatory requirements, including but not limited to those related to taxation matters, in the jurisdiction in which it operates. The Company has conducted a preliminary assessment of liabilities arising out of these matters and has recognized provisional amounts in its initial accounting for the Acquisition for all identified liabilities in accordance with the requirements of ASC Topic 805. However, the Company is continuing its review of these matters during the measurement period, and if new information obtained about facts and circumstances that existed at the Acquisition date identifies adjustments to the liabilities initially recognized, as well as any additional liabilities that existed at the Acquisition date, the acquisition accounting will be revised to reflect the resulting adjustments to the provisional amounts initially recognized.
The following unaudited pro-forma results of the operations of the Company for the fiscal year ended March 31, 2016 and 2015 assume that the IGC-INT acquisition occurred during the beginning of the comparable period.
|
|
Year ended March 31,
|
|
Particulars
|
|
2016
|
|
|
2015
|
|
Pro forma revenue
|
|
$
|
6,366,550
|
|
|
$
|
8,883,164
|
|
Pro forma other income
|
|
|
284,186
|
|
|
|
(54,970
|
)
|
Pro forma net income attributable to IGC Stockholders
|
|
$
|
(2,956,246
|
)
|
|
$
|
(4,610,277
|
)
|
Pro forma Earnings per share
|
|
|
|
|
|
|
|
|
Basic
|
|
|
0.16
|
|
|
|
0.31
|
|
Diluted
|
|
|
0.16
|
|
|
|
0.31
|
|
HK Ironman
On December 30, 2011, the Company acquired 100% of the issued and outstanding shares of capital stock of H&F Ironman Limited (“HK Ironman”), a Hong Kong company. HK Ironman owns 95% equity in H&F Venture Trade Ltd. aka Linxi Hefei Economic and Trade Co. (“PRC Ironman”). One of IGC’s areas of focus is the export of iron ore to China. HK Ironman through its subsidiary, PRC Ironman, operates a beneficiation plant in China, which converts low-grade iron ore to high-grade iron ore through a dry and wet separation processes. This Acquisition is intended to provide IGC with a platform in China to expand its business and ship low-grade iron ore, which is available for export in India, to China and convert the iron ore to a higher-grade iron ore before selling it to customers in China.
The date of Acquisition, December 30, 2011, is the date on which the Company obtained control of HK Ironman by acquiring control over the majority of the Board of Directors of HK Ironman. The Acquisition has been accounted for under the acquisition method of accounting in accordance with ASC Topic 805, “Business Combination.” For further information on this acquisition and on purchase price allocation, please refer to Form 10-K for fiscal year ended 2012 filed with the SEC on July 16, 2012. In February 2015, IGC filed a lawsuit in the circuit court of Maryland, against 24 defendants related to the acquisition of Ironman, seeking to have the court order rescission of the underlying Acquisition Agreement and to void any past or future transfer of IGC shares to the defendants. It is anticipated that the lawsuit will go to trial in mid-2017. The assets of Ironman are currently shown on the balance sheet of IGC. Depending on the outcome off the law-suit, the assets may be removed from the balance sheet of IGC and the corresponding acquisition shares returned to treasury. The assets of Ironman are currently shown on the balance sheet of IGC. Depending on the outcome off the lawsuit, the assets may be removed from the balance sheet of IGC and the corresponding acquisition shares returned to treasury.
Advance to TerraSphere System
On June 27, 2014, we entered into an agreement with TerraSphere Systems, LLC. to develop multiple facilities to produce organic leafy green vegetables utilizing TerraSphere’s advanced pesticide-free organic indoor farming technology. Under the agreement, IGC will own 51% of each venture once production is operational, and will have a right of first refusal to participate in all future build-outs. IGC made a $150,000 investment in cash in the venture. The Company is negotiating a conversion of the investment into shares of a Canadian public vehicle that TerraSphere expects to merge into.
Advance to Purchase land from Sricon
In October 2014, pursuant to a Memorandum of Settlement with Sricon and related parties and in exchange for the 22% minority interest we had in Sricon, we received approximately five acres of prime land in Nagpur, India, valued at approximately $5 million, based on various factors including the exchange rate. The land is located a few miles from MIHAN, which is the largest development zone in terms of investment in India. The Company beneficially registered the land in its name on March 4, 2016.
NOTE 4 –Left intentionally blank
NOTE 5 – OTHER CURRENT AND NON-CURRENT ASSETS
Prepaid expenses and other current assets consist of the following:
|
|
As of March 31, 2016
|
|
|
As of March 31, 2015
|
|
Prepaid /preliminary expenses
|
|
$
|
|
|
|
$
|
1,070
|
|
Advance to suppliers & services
|
|
|
315,659
|
|
|
|
900,864
|
|
Security/statutory advances
|
|
|
14,399
|
|
|
|
18,528
|
|
Advances to employees
|
|
|
878,042
|
|
|
|
978,142
|
|
Prepaid /accrued interest
|
|
|
1,239
|
|
|
|
2,149
|
|
Deposit and other current assets
|
|
|
17,168
|
|
|
|
49,542
|
|
Total
|
|
$
|
1,226,507
|
|
|
$
|
1,950,295
|
|
* Advances to Employees represent advances made to employees of Ironman by Ironman, prior to its acquisition by IGC.
|
Other Non-current assets consist of the following:
|
|
As of March 31, 2016
|
|
|
As of March 31, 2015
|
|
Statutory/Other advances
|
|
$
|
507,300
|
|
|
$
|
434,284
|
|
Total
|
|
$
|
507,300
|
|
|
$
|
434,284
|
|
On May 21, 2012, TBL entered into an agreement with Weave & Weave for the purchase of land value $640,000. TBL gave Weave and Wave and advance of $393,195. As of the date of this filing, the parties are in the process of negotiating a settlement that includes the purchase and sale of land as well as the refund of the advance given by TBL.
NOTE 6 – SHORT-TERM BORROWINGS
For fiscal year 2016 and fiscal year 2015, the Company had a total of $27,762 and $1,280,356, respectively, in short-term borrowings.
NOTE 7 – NOTES PAYABLE AND LOANS - OTHERS
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 53,000 shares of Common Stock to Oliveira.
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 issued 53,000 shares of Common Stock to Bricoleur.
During the three months ended December 31, 2010, the Company issued an additional 20,000 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 February-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 was due on March 24, 2012, bearded interest at a rate of 30% per annum and provided for monthly payments of principal and interest, which the Company chose to settle through the issue of equity shares at an equivalent value. The Bricoleur Note was due on June 30, 2011 with no prior payments due and will not bear interest. The Company issued additional 68,850 shares of its common stock to Bricoleur in connection with the extension of the term regarding the Bricoleur note. This note is due on July 31, 2016.
As reported on a Current Report on Form 8-K filed by the Company on April 6, 2012, the Company retired the note payable to Oliveira in the amount of $2,232,627.79 on April 5, 2012. The Company paid off the loan with 4,426,304 (now 442,630) shares of newly issued Common Stock. There remains a disagreement on some of the technical features of the note that the lender claims result in IGC owing additional principal, interest, and penalty fees. The lender has sought relief through summary judgment from the court. IGC believes that IGC followed the clear terms of the note and that the lender's claims are frivolous. Further, IGC believes that the lender has demonstrated a malicious pattern of harassing behavior in an effort to unduly increase their gains. IGC was considering a counter suit in response to the lenders actions. However, on April 8, 2014, IGC decided to issue 12,026 more shares of its common stock to settle the dispute with Oliveira.
As reported on a Current Report on Form 8-K filed by the Company on October 9, 2012, the Company and Bricoleur agreed to exchange the 2011 Note for a new note (the “2012 Note”) which bore no interest and was due on December 31, 2012. In consideration for the exchange, the Company issued 30,000 shares of IGC to Bricoleur and issued additional 34,200 shares for February and March 2013 penalty payments. Effective March 31, 2013, the Company and Bricoleur Partners, L.P. agreed to amend the outstanding $1,800,000 promissory note (“2012 Security”), subject to the same terms of the 2012 Agreement, to extend the maturity date of the 2012 Security from July 31, 2014 to July 31, 2016. The Bricoleur Note remains outstanding. Contractually the Company makes a penalty payment (booked under interest payment) of 17,100 shares of common stock for each month the loan remains unpaid. No other "interest" payment is made on the loan. During the years ended March 31, 2014, 2015 and 2016 the Company issued a total of 205,200, 232,823 shares and 305,357 shares each year valued at $270,522, $204,031 and $114,678, respectively, to this debt holder, which constituted an element of repayment of interest.
The Company’s total interest expense was $213,928 for the year ended March 31, 2016 and $286,332 for the year ended March 31, 2015, respectively. The Company capitalized no interest for the year ended March 31, 2016 and March 31, 2015.
One of our previous directors has loaned the Company, on an unsecured basis, working capital of $40,000 at 10% annual interest payable on April 25, 2018. In Hong Kong the Company has banking facilities for $1,038,961 whose principal, interest and other charges are guaranteed by our CEO and Sunny Tsang, the Managing Director and Founder of IGC International.
NOTE 8 – OTHER CURRENT AND NON-CURRENT LIABILITIES
Other current liabilities consist of the following:
|
|
As of March 31, 2016
|
|
|
As of March 31, 2015
|
|
Statutory payables
|
|
$
|
31,756
|
|
|
$
|
9,338
|
|
Employee related liabilities
|
|
|
518,587
|
|
|
|
487,647
|
|
Other liabilities /expenses payable
|
|
|
534
|
|
|
|
-
|
|
Total
|
|
$
|
550,877
|
|
|
$
|
496,985
|
|
Other non-current liabilities consist of the following:
|
|
|
|
|
|
|
|
|
As of March 31, 2016
|
|
|
As of March 31, 2015
|
|
Creditors
|
|
$
|
37,012
|
|
|
$
|
136,318
|
|
Special reserve
|
|
|
0
|
|
|
|
-
|
|
Acquisition related liabilities
|
|
|
873,571
|
|
|
|
873,571
|
|
Total
|
|
$
|
910,583
|
|
|
$
|
|
|
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
The total other income for the fiscal year is $284,186. The majority of the other income or $251,264 comes from the sale of land belonging to TBL and located in Kochi, India.
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 – INTANGIBLE ASSETS & GOODWILL
The movement in goodwill and intangible assets is given below:
|
|
As of March 31, 2016
|
|
|
As of March 31, 2015
|
|
Intangible assets at the beginning of the period
|
|
$
|
306,131
|
|
|
|
468,091
|
|
Amortization
|
|
|
(158,780
|
)
|
|
|
(164,704
|
)
|
Effect of foreign exchange translation
|
|
|
(34,030
|
)
|
|
|
2,744
|
|
Total intangible assets
|
|
$
|
113,321
|
|
|
$
|
306,131
|
|
|
|
|
|
|
|
|
|
|
Goodwill of IGC International Ltd
|
|
$
|
982,782
|
|
|
$
|
982,782
|
|
Goodwill of Cabaran Ultima
|
|
|
198,169
|
|
|
|
-
|
|
Total intangible assets
|
|
$
|
1,180,951
|
|
|
$
|
982,782
|
|
The value of intangible assets as of March 31, 2016 amounted to $113,321 as compared to $306,131 as of March 31, 2015. The increase is from goodwill associated with the acquisition of Golden Gate the electronic trading company and Cabaran Ultima.
NOTE 12 – RELATED PARTY TRANSACTIONS
On April 2, 2014, as reported on a Current Report on Form 8-K filed by the Company on April 3, 2014, we entered into a securities purchase agreement with certain institutional investors relating to the sale and issuance by our company to the investors of an aggregate of 750,000 shares of our common stock, for a total purchase price of $506,250. Midtown Partners & Co., LLC, (“Midtown”) acted as our exclusive placement agent in this offering.
During fiscal 2015 and part of fiscal 2016, the Company had loans with a commercial bank for $350,000 at a variable interest rate from 3.25% to 3.75%. Loans are revolving interest only loans personally guaranteed by our CEO. In Hong Kong the Company has banking facilities for $1,038,961 whose principal, interest and other charges are guaranteed by our CEO and Sunny Tsang, the Managing Director and Founder of IGC International.
As of March 31, 2016, the Company has an unpaid balance of $150,00 in paid salary payable to our CEO.
We pay IGN, LLC, an affiliate of Mr. Mukunda, $4,500 per month for office space and certain general and administrative services. We believe, based on rents and fees for similar services in the Washington, D.C. metropolitan area, that the fee charged by IGN LLC is at least as favorable as we could have obtained from an unaffiliated third party. The agreement is on a month-to-month basis and may be terminated by the Board of Directors at any time without notice.
In fiscal year 2016, the Company made a $400,000 advance to acquire property for the purpose of building a vertical farm. Our CEO’s spouse and others also contributed to the acquisition of the property. This transaction is at arm’s length and is based on the contribution made by the parties. In September 2015, the Company decided to cancel the joint agreement and was paid back in full.
NOTE 13 – COMMITMENTS AND CONTINGENCIES
No significant comments and contingencies were made or existed during fiscal year 2016.
NOTE 14 – PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
Category
|
|
Useful Life (years)
|
|
|
As of March 31, 2016
|
|
|
As of March 31, 2015
|
|
Land
|
|
|
N/A
|
|
|
|
-
|
|
|
$
|
12,069
|
|
Building (flat)
|
|
|
25
|
|
|
|
1,238,569
|
|
|
|
1,295,420
|
|
Plant and machinery
|
|
|
20
|
|
|
|
6,666,402
|
|
|
|
9,179,482
|
|
Computer equipment
|
|
|
3
|
|
|
|
218,124
|
|
|
|
286,329
|
|
Office equipment
|
|
|
5
|
|
|
|
114,508
|
|
|
|
163,974
|
|
Furniture and fixtures
|
|
|
5
|
|
|
|
118,753
|
|
|
|
142,911
|
|
Vehicles
|
|
|
5
|
|
|
|
345,830
|
|
|
|
534,327
|
|
Assets under construction
|
|
|
N/A
|
|
|
|
4,885,844
|
|
|
|
4,927,271
|
|
Total
|
|
|
|
|
|
$
|
13,588,030
|
|
|
$
|
16,541,783
|
|
Less: Accumulated depreciation
|
|
|
|
|
|
$
|
(6,513,593
|
)
|
|
$
|
(8,757,336
|
)
|
Net Assets
|
|
|
|
|
|
$
|
7,074,437
|
|
|
$
|
7,784,447
|
|
Depreciation and amortization expense for the fiscal years ended March 31, 2016 and March 31, 2015 was $728,741 and $781,546, 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 – SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
During the year ended March 31, 2016 and 2015, the Company recorded selling, general and administrative expenses of $2,702,753 and $4,140,434, respectively.
NOTE 16 – 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, 2011, we had granted 7,882 shares of Common Stock and 139,300 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 $10.0 per share; the options expired on May 13, 2014. No options were granted during the fiscal year ended March 31, 2011. In fiscal year ended March 31, 2012, 137,045 stock options (the “2012 Options”) were granted. The exercise price of the 2012 Options, which vest immediately, was $5.6 per share. These options will expire on June 27, 2016. The aggregate fair value of the underlying stock on the grant date was $39,410 and the fair value of the stock options on the grant dates was $90,997 and $235,267, respectively. For fiscal year 2014, the Company issued 625,148 shares of common stock.
As of March 31, 2015, under the 2008 Omnibus Plan, 269,345 stock options have been awarded, of which 139,300 have expired, and 1,391,705 shares of common stock have been awarded. As of March 31, 2016, 139,300 stock options have been awarded, 2,214,950 shares of common stock have been awarded. As of April 1, 2016 there were an aggregate of 1,276,359 shares of common stock available for future grants of options or stock awards.
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 as of March 31, 2016:
|
|
Granted in June 2011 quarter
|
|
Expected life of options
|
|
5 years
|
|
Vested options
|
|
|
100
|
%
|
Risk free interest rate
|
|
|
4.10
|
%
|
Expected volatility
|
|
|
83.37
|
%
|
Expected dividend yield
|
|
Nil
|
|
The volatility estimate was derived using historical data for the IGC stock.
NOTE 17 – 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
|
|
|
|
2016
|
|
|
2015
|
|
Projected Benefit Obligation (PBO) at the beginning of the year
|
|
$
|
12,403
|
|
|
$
|
15,266
|
|
Service cost
|
|
|
698
|
|
|
|
817
|
|
Interest cost
|
|
|
933
|
|
|
|
1,273
|
|
Benefits paid
|
|
|
(1,244
|
)
|
|
|
(1,986
|
)
|
Actuarial (loss) /gain
|
|
|
(913
|
)
|
|
|
(2,967
|
)
|
PBO at the end of the year
|
|
$
|
11,877
|
|
|
$
|
12,403
|
|
Funded statue
|
|
$
|
12,581
|
|
|
$
|
13,493
|
|
Net gratuity cost for the years ended March 31, 2016 and 2015 included:
|
|
Year ended March 31
|
|
|
|
2016
|
|
|
2015
|
|
Service cost
|
|
$
|
698
|
|
|
$
|
817
|
|
Interest cost
|
|
|
933
|
|
|
|
1,273
|
|
Expected return on plan assets
|
|
|
(1,024
|
)
|
|
|
(891
|
)
|
Actuarial (loss) /gain
|
|
|
(913
|
)
|
|
|
(2,967
|
)
|
Net gratuity cost
|
|
$
|
(306
|
)
|
|
$
|
(1,768
|
)
|
The weighted average actuarial assumptions used to determine benefit obligations and net periodic gratuity cost are:
|
|
Year ended March 31
|
|
|
|
2016
|
|
|
2015
|
|
Discount rate
|
|
|
8.00
|
%
|
|
|
8.45
|
%
|
Rate of increase in compensation levels
|
|
|
7.00
|
%
|
|
|
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
|
|
|
|
2016
|
|
|
2015
|
|
Expected contribution during the year ending Year 1
|
|
$
|
4,544
|
|
|
$
|
4,831
|
|
Expected benefit payments for the years ending March 31:
|
|
|
|
|
|
|
|
|
Year 2
|
|
$
|
1,433
|
|
|
$
|
1,524
|
|
Year 3
|
|
|
468
|
|
|
|
498
|
|
Year 4
|
|
|
4,212
|
|
|
|
4,478
|
|
Year 5
|
|
|
317
|
|
|
|
337
|
|
Thereafter
|
|
|
5,313
|
|
|
|
5,649
|
|
Provident fund.
In addition to the above benefits, all employees in India 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 a gain/(expense) of $526 and $2,863 towards contribution to various defined contribution and benefit plans during the years ended March 31, 2016 and March 31, 2015 respectively.
On September 12, 2014, IGC shareholders approved 1,500,000 of common stock as a special grant valued at $615,000 to IGC’s CEO and the directors of the board subject to vesting. In fiscal year 2016 out of the amount approved, we issued 1,200,000 shares of common stock with a value of $492,000.
NOTE 18 – INCOME TAXES
Income tax expense (benefit) for each of the years ended March 31 consists of the following:
|
|
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Current:
|
|
|
|
|
|
|
Federal
|
|
$
|
-
|
|
|
$
|
-
|
|
Foreign
|
|
|
38,715
|
|
|
|
2,029
|
|
State
|
|
|
-
|
|
|
|
-
|
|
Net Current
|
|
$
|
38,715
|
|
|
|
2,029
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
|
-
|
|
|
|
-
|
|
Foreign
|
|
|
(38,136
|
)
|
|
|
3,128
|
|
State
|
|
|
-
|
|
|
|
-
|
|
Net Deferred
|
|
|
(38,136
|
)
|
|
|
3,128
|
|
Total tax provision
|
|
$
|
579
|
|
|
$
|
5,157
|
|
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,
|
|
|
|
2016
|
|
|
2015
|
|
Deferred tax expense (benefit)
|
|
$
|
(38,136
|
)
|
|
$
|
3,128
|
|
Net operating loss carry forward
|
|
|
1,291,744
|
|
|
|
1,732,369
|
|
Foreign Tax Credits
|
|
|
-
|
|
|
|
-
|
|
Less: Valuation Allowance
|
|
|
1,291,744
|
|
|
|
1,732,369
|
|
Net deferred tax expense
|
|
$
|
(38,136
|
)
|
|
$
|
3,128
|
|
The table below sets forth income tax expense (benefit) for 2016 and 2015 computed by applying the applicable United States federal income tax rate and is reconciled to the tax expense (benefit) computed at the effective income tax rate:
|
|
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Computed expected income tax (benefit)
|
|
|
(1,172,590
|
)
|
|
|
(1,590,585
|
)
|
State tax benefit net of federal tax
|
|
|
-
|
|
|
|
-
|
|
Change in valuation allowance
|
|
|
1,100,645
|
|
|
|
1,493,232
|
|
Deferred expenses from foreign acquisition
|
|
|
-
|
|
|
|
-
|
|
Impairment loss on goodwill
|
|
|
-
|
|
|
|
-
|
|
Impairment loss on investments
|
|
|
-
|
|
|
|
-
|
|
Capitalized interest costs
|
|
|
72,759
|
|
|
|
97,353
|
|
Deferred Tax Assets from foreign subsidiaries
|
|
|
-
|
|
|
|
-
|
|
Other
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
(0.0
|
%)
|
|
|
(0.0
|
%)
|
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,
|
|
|
|
2016
|
|
|
2015
|
|
Current deferred tax liabilities (assets):
|
|
|
|
|
|
|
Deferred Acquisition Costs – Foreign taxes
|
|
$
|
0
|
|
|
$
|
0
|
|
Valuation allowance
|
|
|
0
|
|
|
|
0
|
|
Net current deferred tax liabilities (assets)
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
Noncurrent deferred tax (assets) liabilities:
|
|
|
|
|
|
|
|
|
Deferred Acquisition Costs- Foreign taxes
|
|
|
(356,684
|
)
|
|
|
(318,548
|
)
|
Net Operating Losses
|
|
|
1,291,744
|
|
|
|
1,732,369
|
|
Valuation allowance
|
|
|
(1,291,744
|
)
|
|
|
(1,732,369
|
)
|
Non-Current net deferred tax (assets) liabilities
|
|
$
|
(356,684
|
)
|
|
$
|
(318,548
|
)
|
Deferred income tax assets, net of valuation allowances are expected to be realized through future taxable income. The valuation allowance increased in 2016 by $1.29 million, primarily related to US net-operating losses. The company intends to maintain valuation allowances for deferred tax assets until there is sufficient evidence to support the reversal of the valuation allowance. Deferred tax assets relating to foreign acquisitions costs are expected to be utilized. Therefore, those deferred tax assets remain as part of deferred tax assets.
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 March 31, 2016 IGC could not use its’ net operating losses because it is more likely it will not utilize net operating losses in the foreseeable future.
NOTE 19 – 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.
The following provides information required by ASC 280-10-50-38 Entity-Wide Information:
1) The table below shows revenue reported by product and service:
Product & Service
|
|
Amount
|
|
|
% on total revenues
|
|
Trading
|
|
$
|
6,251,802
|
|
|
|
97.20
|
%
|
Rental / Lease /Real estate
|
|
|
114,748
|
|
|
|
2.80
|
%
|
TOTAL
|
|
$
|
6,366,550
|
|
|
|
100
|
%
|
2(a) The table below shows the revenue attributed to the country of domicile (USA) and foreign countries. Revenue is attributed to an individual country if the invoice made to the customer originates in that country. The basis for originating an invoice is the underlining agreement.
Geographic Location
|
|
Amount
|
|
|
% on total revenues
|
|
HONG KONG
|
|
$
|
6,251,802
|
|
|
|
97.20
|
%
|
INDIA & MALAYSIA
|
|
|
114,748
|
|
|
|
2.80
|
%
|
TOTAL
|
|
$
|
6,366,550
|
|
|
|
100
|
%
|
2(b) The table below shows the long-term assets other than financial instruments held in the country of domicile and foreign countries.
Nature of Assets
|
|
USA (Country of Domicile)
|
|
|
Foreign Countries (India and China)
|
|
|
Total
|
|
Intangible Assets
|
|
$
|
|
|
|
$
|
113,321
|
|
|
$
|
113,321
|
|
Property, Plant and Equipment, Net
|
|
|
765,750
|
|
|
|
6,308,687
|
|
|
|
7,074,437
|
|
Investments in Affiliates
|
|
|
609,148
|
|
|
|
|
|
|
|
609,148
|
|
Investments Others
|
|
|
5,149,611
|
|
|
|
25,781
|
|
|
|
5,175,392
|
|
Deferred Tax Assets
|
|
|
|
|
|
|
356,684
|
|
|
|
356,684
|
|
Other Non-Current Assets
|
|
|
|
|
|
|
507,300
|
|
|
|
507,300
|
|
Total Long Term Assets
|
|
$
|
6,524,509
|
|
|
$
|
7,311,773
|
|
|
$
|
13,836,282
|
|
3) For the fiscal year 2016 we had forty customers that accounted for 80% of our total revenue. 55.1% of the customers are in China, 15.2% of the customers are in Europe, 8.6% are in rest of Asia, and 1% of the customers are in the Americas. All customers were involved in buying electronics from us.
NOTE 20 – RECONCILIATION OF EPS
For the Fiscal Year Ended March 31, 2016 and 2015, 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, shares issued to HK Ironman shareholders, Golden Gate Electronics Ltd, Apogee Financial, and Cabaran Ultima 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, 2016, was applied using the treasury method of calculating the fully diluted shares. The weighted average number of shares outstanding as of March 31, 2016 used for the computation of basic EPS is. Due to the loss incurred during the year ended March 31, 2016, all of the potential equity shares are anti-dilutive and accordingly, the diluted EPS is equal to the basic EPS.
NOTE 21 – INVESTMENTS – OTHERS
Investments – others for each of the years ended March 31, 2016 and 2015 consists of the following:
|
|
As of March 31, 2016
|
|
|
As of March 31, 2015
|
|
Investment in equity shares of an unlisted company
|
|
$
|
25781
|
|
|
$
|
30,477
|
|
Investment in Land
|
|
|
5149611
|
|
|
|
|
|
Total
|
|
$
|
5,175,392
|
|
|
$
|
30,477
|
|
NOTE 22 – IMPAIRMENT
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 fiscal 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 fiscal 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.
For the year ended March 31, 2012, the Company again conducted an impairment test of its 22% investment in Sricon. Based on a revaluation of the assets including the real estate owned by Sricon, the Company has determined that a further impairment loss amounting to $1.2 million relating to the investment in Sricon is required. The carrying value of the investment in Sricon is accordingly $5.1 million as at March 31, 2012. The carrying value as at March 31, 2012 approximates the recoverable assessed value as determined as on that date. We did not perform an impairment analysis during 2013 and no further impairment was made on the investment. We entered into a memorandum of settlement with Sricon on June 21, 2012, in which we mutually agreed to receive a plot of five acres of land owned by Sricon in Nagpur against the investment. The land has an estimated value of $5 million, based on a variety of factors.
In 1995, IGC's subsidiary TBL made an investment of $50,000 (INR 3,000,000) in Bhagheeratha Developers Limited. Based on the latest review of the balance sheet of this entity, we impaired this investment by $18,244.
NOTE 23 – CERTAIN AGED RECEIVABLES
The receivable and other assets as of March 31, 2016 and March 31, 2015 include certain aged receivables in the amount of $421,588. The aged receivables are due from the Cochin International Airport. Cochin International Airport is partially owned by the State Government of Kerala. The receivables have been due for periods in excess of one year as of March 31, 2016. These receivables are included in Accounts Receivable and have been classified as current for the following reasons:
The Company’s subsidiary in India, TBL, worked on the building of an airport runway at the Cochin International Airport. During the execution of these projects the clients of the Company requested several changes to the engineering drawings. The claims of the Company against each of the clients involve reimbursement of expenses associated with the change orders and variances as well as compensation for delays caused by the client. The delay part of the claim involves equipment that is idle on the job, including interest or lease charges for the equipment while it is idle, and workers that are idle, among others. The expense reimbursement involves cost of new material including any escalation in the cost of materials, usage of equipment, personnel and other charges that were incurred as a result of the delays caused by the change orders. These invoices were disputed by the clients and referred to arbitration. The process of arbitration involves each party choosing an arbitrator and the arbitrators appointing a third chief arbitrator. Each party then presents its case over several months and the arbitrator makes an award.
The receivables occurred and became due when TBL won the arbitration award against Cochin International Airport on July 22, 2009. The arbitration awards stipulate that interest be accrued for the period of non-payment. However, the receivables do not have an interest component as the Company will try and use the accrued interest as negotiating leverage for an earlier payment. Although the receivables are contractually due, and hence its classification as current, it may take the Company anywhere from the next 30 days to 6 months to actually realize the funds, depending on final verdict to happen in few months. The Company continues to carry the full value of the receivables without interest and without any impairment, because the Company believes that there is minimal risk that these organizations will become insolvent and unable to make payment.
NOTE 24 – INVESTMENT IN AFFILIATES
Pursuant to the December 18, 2014 Purchase Agreement with Apogee, we issued 1,200,000 common shares of IGC valued at $888,000 for the purchase of 24.9% ownership interest in Midtown Partners & Co., LLC. Pending downward adjustments, subject to certain balance sheet items of MTP, a total of 500,000 shares of IGC common stock have been held back. Pending the resolution of these balance sheet items, the shares that have been held back may be cancelled. Further, the Company has written down the investment by $314,589 to reflect the latest available book value of Midtown Partners.
NOTE 25 – SUBSEQUENT EVENTS
1.
|
On May 20, 2016, we entered into an At-The-Market Agency Agreement (“ATM Agreement”) with IFS Securities, Inc. (dba Brinson Patrick, a division of IFS Securities, Inc.), as sales agent (“Brinson Patrick” or the “Agent”). Under the ATM Agreement with Brinson Patrick, the Company may offer and sell shares of its common stock (the “Shares”), having an aggregate offering price of up to $10 million from time to time through Brinson Patrick, as its sales agent. Brinson Patrick will be entitled to compensation at a fixed commission rate of 5.0% of the gross sales price per share. The Shares are registered under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to the Company’s shelf registration statement (the “Registration Statement”) on Form S-3 (File No. 333-201822), which became effective on April 8, 2015.
|