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, 2017 and 2016, 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, 2017. 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, 2017 and 2016, and the results of their operations and their cash flows for each of the years in two-year period ended March 31, 2017, 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
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. Our filings are available on www.sec.gov. The information contained on our website, www.igcinc.us, is
not incorporated by reference in this report, and you should not consider it a part of this report.
NOTE 1 – NATURE OF OPERATIONS AND BASIS OF PRESENTATION
IGC develops cannabis-based combination therapies to treat Alzheimer’s, pain, nausea, eating disorders, several end points of Parkinson’s, and epilepsy in humans, dogs and cats. In support of this effort, IGC has assembled a portfolio of patent filings and four lead product candidates addressing these conditions. In India, the Company is engaged in heavy equipment rental, and in Malaysia, real-estate management. The Company is a Maryland Corporation formed in April 2005.
a) Business Organization and Corporate Update
IGC is a Maryland corporation formed in April 2005 for the purpose of acquiring one or more businesses with operations primarily in India through a merger, capital stock exchange, asset acquisition or other similar business combination. In March 2006, IGC completed an initial public offering of its common stock. Our principal office in the U.S. is located in Bethesda, Maryland, in addition we have a facility in Washington State. Our back office is in Kochi, Kerala India. In addition, many of our staff and advisors work from their home offices.
The table below lists our subsidiaries.
Subsidiaries
|
|
Immediate
holding company
|
|
Country of
Incorporation
|
|
Percentage of holding
as of March 31, 2017
|
|
|
Percentage of holding
as of March 31, 2016
|
|
H&F Ironman Limited
(“HK Ironman”)
|
|
IGC
|
|
Hong Kong
|
|
|
0
|
|
|
|
100
|
|
Linxi H&F Economic and Trade Co.
(“PRC Ironman”)
|
|
HK Ironman
|
|
Peoples’ Republic of China
|
|
|
0
|
|
|
|
95
|
|
IGC – Mauritius
(“IGC-M”)
|
|
IGC
|
|
Mauritius
|
|
|
100
|
|
|
|
100
|
|
Techni Bharathi Private Limited
(“TBL”)
|
|
IGC-M
|
|
India
|
|
|
100
|
|
|
|
100
|
|
India Mining and Trading Private Limited
(“IGC-IMT”)
|
|
IGC-M
|
|
India
|
|
|
100
|
|
|
|
100
|
|
IGC Materials Private Limited
(“IGC-MPL”)
|
|
IGC-M
|
|
India
|
|
|
100
|
|
|
|
100
|
|
IGC Logistic Private Limited
(“IGC-LPL”)
|
|
IGC-M
|
|
India
|
|
|
100
|
|
|
|
100
|
|
IGC Cleantech Limited
(“IGC-CT”) (1)
|
|
IGC-M
|
|
Hong Kong
|
|
|
100
|
|
|
|
100
|
|
IGC International Limited
(“IGC-INT”) (2)
|
|
IGC
|
|
Hong Kong
|
|
|
0
|
|
|
|
51
|
|
Cabaran Ultima Sdn. Bhd.,
(“Ultima”)
|
|
IGC
|
|
Malaysia
|
|
|
100
|
|
|
|
100
|
|
RGF Cabaran Sdn. Bhd. (“RGF”)
|
|
Ultima
|
|
Malaysia
|
|
|
51
|
|
|
|
51
|
|
RGF Construction Sdn. Bhd.
|
|
RGF
|
|
Malaysia
|
|
|
75
|
|
|
|
75
|
|
(1) Formerly known as IGC HK Mining and Trading Limited.
(2) Formerly known as Golden Gate Electronics Limited.
As at April 1, 2016 our operational subsidiaries were in China, Hong Kong, India and Malaysia. As at March 31, 2017 our operational subsidiaries are in India and Malaysia.
In October 2014, pursuant to a Memorandum of Settlement with Sricon, one of our Indian subsidiaries, 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. 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 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.” 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.
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. As of March 31, 2017, IGC has redeemed and subsequently retired, as required by Maryland State law, part of the 3,150,000 shares of common stock issued in connection with its purchase of Ironman, as a treasury stock transaction, thus reducing IGC’s investment in Ironman to zero while still pursuing any and all legal avenues to recover as many of the originally issued shares as possible.
In January 2013, we incorporated IGC HK Mining and Trading Limited (“IGC-HK”), whose name we later changed to IGC Cleantech Ltd (“IGC-CT”). Please see Note 25 Subsequent Events for an update.
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 previously announced we curtailed activity in IGC-INT and since the quarter ended June 30, 2016 we have no revenue. We also impaired the goodwill associated with the acquisition. As of March 31, 2017, we exited the business. We retired 205,661 shares of common stock, and returned control of IGC International to the original owners. We also impaired the goodwill associated with the acquisition. We have no disputes with the initial principals 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. In fiscal 2018, we expect to convert this investment into shares of a public Canadian company where assets including this project is being merged.
On December 18, 2014, we acquired 24.9% of the outstanding membership interests in Midtown Partners, a Florida limited liability company registered as a broker-dealer under the Securities Exchange Act of 1934, from Apogee Financial Investments, Inc. The Purchase Agreement expired on June 30, 2015, and the Company is pursuing its rights under the terms of the Purchase Agreement to recover certain damages.
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 $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.
In August 2016, we subscribed to 10% of Brilliant Hallmark, Sdn. Bhd. a corporation organized and existing under the laws of Malaysia (“Brilliant”). We paid 4,000,000 shares of common stock with a Fair Market Value of $1.88 million for the 10% stake in Brilliant that holds the exclusive rights to build a hotel and develop the property in Genting Malaysia. IGC had recourse to the land assets in the event of non-performance through a separate Tag Along Agreement dated August 1, 2016 between IGC on the one hand and RGF Land Sdn. Bhd., the shareholders of RGF Land Sdn. Bhd., and Brilliant on the other hand. Pursuant to the terms of the Share Subscription Agreement, Brilliant assigned, sold, and transferred to IGC 11 shares of Brilliant, which shares constituted 10% of the issued and outstanding shares of Brilliant. Likewise, as a consideration for the transaction, IGC issued to Brilliant the 4 million shares of its common stock. Please see Note 25 Subsequent Events for further information.
b)
Merger and Accounting Treatment
Most of the shares of Sricon and TBL when acquired were purchased directly from the companies. The shares of 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 the “Company”, “IGC”, “IGC Inc.”, “we”, “our”, and “us” refer to India Globalization Capital, Inc., together with its wholly owned subsidiaries as described in Note 1 Business Organization and Corporate History. As of March 31, 2017, IGC and its subsidiaries derived all of its revenue from one segment, its construction management and heavy equipment rental business and we exited the electronics business. The corporate structure of our company’s direct and indirect consolidated operating subsidiaries is as follows:
c) Our Securities
We have one security listed on the NYSE MKT: Common Stock, $.0001 par value (ticker symbol: IGC) (“Common Stock”). This security is also available for trading on the Borse Frankfurt, Stuttgart, and Berlin Exchanges
(ticker symbol: IGS1)
. We have redeemable warrants (CUSIP number 45408X118 expiring on March 6, 2019) to purchase Common Stock (ticker symbol: IGC.WT) listed on the OTC markets.
We have
Units
consisting of one share of Common Stock and two redeemable warrants to purchase Common Stock that are not listed. The
Unit
holders are requested to contact the Company to get their existing
Units
separated into Common Stock and Warrants.
On April 19, 2013, the Company implemented a 10:1 reverse split of the common stock and all disclosures in this report reflects the reverse split.
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.
For a description of the Bricoleur Partners, L.P. loan and no-tax deductible interest payments made using our common stock please see Note 7 Notes Payable and Loans-Others.
On December 30, 2011, the Company finalized the purchase of 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 Ironman, the Company’s shareholders approved the issuance of 3,150,000 equity shares to the owners of Ironman in exchange for 100% of the equity of Ironman (refer to Note 3). The acquisition of 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. These securities were subsequently registered in a Form S-1. As of March 31, 2017, IGC has redeemed and subsequently retired, as required by Maryland State law, part of the 3,150,000 shares of common stock issued in connection with its purchase of Ironman, as a treasury stock transaction, thus reducing IGC’s investment in Ironman to zero, while still pursuing any and all legal avenues to recover as many of the originally issued shares as possible.
In fiscal 2016, we issued 20,000 shares valued at $8,000 to Marketing Group (MMGI) and others, in January 2017 we agreed to deliver 90,000 shares, valued at $23,400, to MMGI for investor communications related services rendered during calendar year 2017.
In fiscal 2016, the Company issued 40,000 shares of Common Stock to Axiom Financial Inc. valued at $16,000 for financial and marketing consulting services. In fiscal 2016, we issued 250,000 shares to International Pharma Trials valued at $100,000, for research and development services related to drug development. In fiscal 2016, 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. During fiscal year 2017, the Company issued a total of 1,697,021 shares of common stock valued at $642,164.
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. Through fiscal year end 2017 all shares have been granted and vested.
Under the December 18, 2014 Purchase Agreement with Apogee, we issued 1,200,000 common shares of IGC in the name of Apogee, valued at $888,000 for the purchase of 24.9% ownership interest in Midtown Partners & Co., LLC. The Purchase Agreement expired on June 30, 2015, and the Company is pursuing its rights under the terms of the Purchase Agreement to recover certain damages.
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, to foreign investors, for an aggregate amount of $1.5 million.
In August 2016, we subscribed to 10% of Brilliant Hallmark, Sdn. Bhd. a corporation organized and existing under the laws of Malaysia (“Brilliant”) by issuing 4,000,000 shares of common stock with a Fair Market Value of $1.880 million. Please see Note 25, Subsequent Events for further information.
In fiscal 2016 we issued 50,000 shares of our common stock to Cherin Group, LLC., for consulting services, and in fiscal 2017, we issued a total of 250,000 shares, vesting over two years, for services as our Chief Financial Officer.
In fiscal 2017, we issued 160,000 options to some of our Advisors, at an exercise price of $0.10, expiring on October 31, 2023. The fair value of options was valued at $22,300 using a Black-Scholes Pricing Model with the following assumptions:
|
Granted in Fiscal 2017
|
|
Expected life of options
|
7 years
|
|
Vested options
|
|
|
100
|
%
|
Risk free interest rate
|
|
|
0.70
|
%
|
Expected volatility
|
|
|
119.5
|
%
|
Expected dividend yield
|
Nil
|
|
Pursuant to IGC’s employee stock option plan, as of March 31, 2017 there are no stock options outstanding and exercisable. The Company as of March 31, 2017 has issued a total of 3,491,278 shares to its directors and some of its employees.
As of March 31, 2017, the Company has 99,227 UNITS and 28,272,667 shares of Common Stock issued and outstanding. In addition, the Company has 11,656,668 outstanding public warrants, that trade on the OTC, expiring on March 6, 2019, to purchase 1,165,667 shares of common stock at $50.00 a share and we have 831,768 private warrants to buy 83,176 shares of common stock at an exercise price of $9.0, expiring on December 8, 2017.
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 non-controlling interest disclosed in the accompanying financial statements for fiscal year 2017 represent the non-controlling interest in 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 $2,192,226 loans from current liability to non-current liability, as management does not expect to pay these loans back within 12 months.
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, 2017 and 2016 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:
-
|
Contract – Persuasive evidence of our arrangement with the customers;
|
-
|
Delivery – Based on the terms of the contracts, the Company assesses whether the underlying goods have been delivered and therefore the risks and rewards of ownership are completely transferred;
|
-
|
Fixed or determinable price – The Company enters into contracts where the price for the goods being sold is fixed and not contingent upon other factors.
|
-
|
Collection is deemed probable – At the time of recognition of revenue, the Company makes an assessment of its ability to collect the receivable arising on the sale of the goods and determines that collection is probable.
|
Revenue for any sale is recognized only if all of the four conditions set forth above are met. 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.
-
|
In many of the fixed price contracts entered into by the Company, significant expenses are incurred in the mobilization stage in the early stages of the contract. The expenses include those that are incurred in the transportation of machinery, erection of heavy machinery, clearing of the campsite, workshop ground cost, overheads, etc. All such costs are booked to deferred expenses and written off over the period in proportion to revenues earned.
|
-
|
Where the modifications of the original contract are such that they effectively add to the existing scope of the contract, the same are treated as a change orders. On the other hand, where the modifications are such that they change or add an altogether new scope, these are accounted for as a separate new contract. The Company adjusts contract revenue and costs in connection with change orders only when both, the customer and the Company with respect to both the scope and invoicing and payment terms, approve them.
|
-
|
In the event of claims in our percentage of completion contracts, the additional contract revenue relating to claims is only accounted after the proper award of the claim by the competent authority. The contract claims are considered in the percentage of completion only after the proper award of the claim by the competent authority.
|
Full provision is made for any loss in the period in which it is foreseen.
Revenue from service related activities and miscellaneous other contracts are recognized when the service is rendered using the proportionate completion method or completed service contract method.
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, 2017 and 2016, there was no significant liability for income tax associated with unrecognized tax benefits.
The issuance by IGC of its common stock to (1) Ironman stockholders in exchange for 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; to (4) Cabaran Ultima (“Ultima”) in exchange for Ultima’s stock, and to (5) Brilliant Hallmark, as contemplated by the respective stock purchase agreements between the Company and 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 from these transactions 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 it
s
cash in bank accounts in the United States of America, Mauritius, India, and Malaysia, which at times may exceed applicable insurance limits.
i) Left intentionally blank
j) Foreign currency transactions
IGC operates in India and Malaysia and a substantial portion of the Company’s sales are denominated in INR, and RM, as of those respective operations. As a result, changes in the relative values of the U.S. dollar and INR 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, 2017
|
|
INR
|
|
67.01
|
|
per
|
|
USD
|
|
INR
|
|
64.85
|
|
per
|
|
USD
|
|
|
|
RMB
|
|
6.69
|
|
per
|
|
USD
|
|
RMB
|
|
6.95
|
|
per
|
|
USD
|
|
|
|
HKD
|
|
7.76
|
|
per
|
|
USD
|
|
HKD
|
|
7.77
|
|
per
|
|
USD
|
|
|
|
RM
|
|
4.20
|
|
per
|
|
USD
|
|
RM
|
|
4.42
|
|
per
|
|
USD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
k) Accounts receivable
Accounts receivable from customers in the electronics business were 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 were 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) Left intentionally blank
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 is in excess of 20% the Company has accounted for the investment based on the equity method, as in 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, 2017 and 2016, 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) Left intentionally blank
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 the Company has exited the business in China. In the United States, we provide health insurance, life insurance, and 401-K benefits.
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, Cabaran Ultima, which is the legal entities in Malaysia, is 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.
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 and is effective on January 1, 2017. 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.
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, 2017 and 2016 assume that the Ultima acquisition occurred during the beginning of the comparable period.
Particulars
|
|
2017
|
|
|
2016
|
|
Pro forma revenue
|
|
$
|
580,372
|
|
|
$
|
6,727,396
|
|
Pro forma other income
|
|
$
|
547,105
|
|
|
$
|
284,186
|
|
Pro forma net income attributable to IGC Stockholders
|
|
$
|
(1,867,260
|
)
|
|
$
|
(2,525,174
|
)
|
Pro forma Earnings per share
|
|
|
|
|
|
|
|
|
Basic
|
|
|
(0.07
|
)
|
|
|
(0.15
|
)
|
Diluted
|
|
|
(0.07
|
)
|
|
|
(0.15
|
)
|
Golden Gate Electronics Ltd. and Ironman for FYE 2017
The following unaudited pro-forma results of the operations of the Company for the fiscal year ended March 31, 2017 assume that the IGC-INT and Ironman acquisitions occurred during the beginning of the comparable period.
|
|
Year ended March 31, 2017
|
|
Particulars
|
|
With IGC-INT and Ironman
|
|
|
Without IGC-INT and Ironman
|
|
Pro forma revenue
|
|
$
|
580,372
|
|
|
$
|
367,279
|
|
Pro forma other income
|
|
|
547,105
|
|
|
|
283,886
|
|
Pro forma net income attributable to IGC Stockholders
|
|
$
|
(1,867,260
|
)
|
|
$
|
(1,801,139
|
)
|
Pro forma Earnings per share
|
|
|
|
|
|
|
|
|
Basic
|
|
|
(0.07
|
)
|
|
|
(0.07
|
)
|
Diluted
|
|
|
(0.07
|
)
|
|
|
(0.07
|
)
|
Golden Gate Electronics Ltd. and Ironman for FYE 2016
The following unaudited pro-forma results of the operations of the Company for the fiscal year ended March 31, 2016 assume that the IGC-INT and Ironman acquisitions occurred during the beginning of the comparable period.
|
|
Year ended March 31, 2016
|
|
Particulars
|
|
With IGC-INT and Ironman
|
|
|
Without IGC-INT and Ironman
|
|
Pro forma net revenue
|
|
$
|
6,366,550
|
|
|
$
|
114,748
|
|
Pro forma other income net
|
|
|
284,186
|
|
|
|
274,537
|
|
Pro forma net income attributable to IGC Stockholders
|
|
$
|
(2,808,244
|
)
|
|
$
|
(2,137,352
|
)
|
Pro forma Earnings per share
|
|
|
|
|
|
|
|
|
Basic
|
|
|
(0.17
|
)
|
|
|
(0.13
|
)
|
Diluted
|
|
|
(0.17
|
)
|
|
|
(0.13
|
)
|
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, 2017
|
|
|
As of
March 31, 2016
|
|
|
Prepaid /preliminary expenses
|
|
$
|
6,750
|
|
|
$
|
-
|
|
Advance to suppliers & services
|
|
|
240,968
|
|
|
|
315,659
|
|
Security/statutory advances
|
|
|
14,216
|
|
|
|
14,399
|
|
Advances to employees
|
|
|
111,882
|
|
|
|
878,042
|
|
Prepaid and accrued interest
|
|
|
1,436
|
|
|
|
1,239
|
|
Deposit and other current assets
|
|
|
35,156
|
|
|
|
17,168
|
|
Total
|
|
$
|
410,408
|
|
|
$
|
1,226,507
|
|
* Advances to Employees shown in fiscal 2016 represent advances made to employees of Ironman by Ironman, prior to its acquisition by IGC. In fiscal 2017 no advances to Ironman employees are shown.
|
Other Non-current assets consist of the following:
|
|
As of
March 31, 2017
|
|
|
As of
March 31, 2016
|
|
|
Statutory/Other advances
|
|
$
|
539,720
|
|
|
$
|
507,300
|
|
Total
|
|
$
|
539,720
|
|
|
$
|
507,300
|
|
On May 21, 2012, TBL entered into an agreement with Weave & Weave for the purchase of land value $616,806. TBL gave Weave and Wave and advance of $377,795. 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 2017 and fiscal year 2016, the Company had a total of zero and $27,762, respectively, in short-term borrowings.
NOTE 7 – NOTES PAYABLE AND LOANS - OTHERS
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 cash interest payable on the Note and the Note had an initial maturity date of 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. In February-March 2011, the Company finalized an agreement with Bricoleur to exchange the loan promissory note issued to Bricoleur on October 16, 2009 (the “Bricoleur Note”) for new a new loan with later maturity dates. The Bricoleur Note was extended to June 30, 2011 with no prior payments due and with no cash 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. 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 cash interest with a new maturity of 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 as non-tax-deductible payments that were booked as interest. Effective March 31, 2013, the Company and Bricoleur Partners, L.P. agreed to amend the outstanding $1,800,000 loan (“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. Contractually, there is no cash interest paid to Bricoleur on the Note. Instead, the parties have agreed that the Company will make a payment (booked under interest payment) of 30,000 shares of common stock for each month the loan remains unpaid, regardless of the trading price of the stock. The arrangement allows the Company and Bricoleur to pursue permanent conversion of the principal to common stock, or repayment of the principal using common stock. During the years ended March 31, 2014, 2015, 2016 and 2017 the Company issued a total of 205,200, 232,823 305,357 and 333,956 shares each year valued at $270,522, $204,031, $114,678 and $129,816, respectively, to this debt holder, which constitutes non-tax-deductible interest payments for the Company.
The Company’s total interest expense was $223,464 for the year ended March 31, 2017 and $213,928 for the year ended March 31, 2016, respectively. No interest was capitalized for the years ended March 31, 2017 and March 31, 2016.
As on March 31, 2017 the Company has five loans categorized as Loans Others totaling $392,226 at an average annual interest rate of 10%:
Loan 1: We have a loan for $59,726, due on April 25, 2018 bearing 10% annual interest rate. This loan is from one of our Advisors and former director.
Loan 2: We have a loan from an individual for $100,000, at an annual interest rate of 24%, due February 23, 2022. There is no prepayment penalty. The assets of the Company secure the loan.
Loan 3: We have a loan from an individual for $50,000, at an annual interest rate of 15%, due February 23, 2022. There is no prepayment penalty. The assets of the Company secure the loan.
Loan 4: We have a loan of $85,000 from an affiliate of our CEO, at an annual interest rate of 15%, due February 23, 2022. There is no prepayment penalty. The assets of the Company secure the loan.
Loan 5: We have a working capital loan that has a loan balance as of March 31, 2017 of $97,500 from an affiliate of our CEO, at an annual interest rate of zero percent, due February 23, 2022. There is no prepayment penalty. The assets of the Company secure the loan.
Please see Note 12 Related Party Transactions for more details on Other Loans.
NOTE 8 – OTHER CURRENT AND NON-CURRENT LIABILITIES
Other current liabilities consist of the following:
|
|
As of
March 31, 2017
|
|
|
As of
March 31, 2016
|
|
|
Statutory payables
|
|
$
|
15,203
|
|
|
$
|
31,756
|
|
Employee related liabilities
|
|
|
676,511
|
|
|
|
518,587
|
|
Other liabilities /expenses payable
|
|
|
-
|
|
|
|
534
|
|
Total
|
|
$
|
691,714
|
|
|
$
|
550,877
|
|
Other non-current liabilities consist of the following:
|
|
As of
March 31, 2017
|
|
|
As of
March 31, 2016
|
|
|
Creditors
|
|
$
|
-
|
|
|
$
|
37,012
|
|
Acquisition related liabilities
|
|
|
-
|
|
|
|
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 & INVESTMENTS / ASSOCIATES / JOINT VENTURES
The total other income for the fiscal year 2017 is $119,933, which includes $78,886 from our Indian subsidiaries.
In fiscal year 2017, IGC, under the heading Investments / Associates / Joint Ventures, booked $227,472 from its disposition of Ironman and $199,700 from its 24.9% ownership of Midtown Partner LLC.
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
|
|
|
As of
|
|
|
|
March 31, 2017
|
|
|
March 31, 2016
|
|
Intangible assets at the beginning of the period
|
|
$
|
113,321
|
|
|
$
|
306,131
|
|
Amortization
|
|
|
(113,321
|
)
|
|
|
(158,780
|
)
|
Effect of foreign exchange translation
|
|
|
-
|
|
|
|
(34,030
|
)
|
Total Intangible assets
|
|
$
|
-
|
|
|
$
|
113,321
|
|
Goodwill of IGC International Ltd
|
|
|
-
|
|
|
|
982,782
|
|
Goodwill of Cabaran Ultima SDN BHD
|
|
|
198,169
|
|
|
|
198,169
|
|
Total Goodwill
|
|
$
|
198,169
|
|
|
$
|
1,180,951
|
|
The value of intangible assets as of March 31, 2017 amounted to zero as compared to $113,321 as of March 31, 2016. Decrease in goodwill is due to impairment of IGC International goodwill in books of IGC
NOTE 12 – RELATED PARTY TRANSACTIONS
We pay an affiliate of our CEO $4,500 per month for office space and certain general and administrative services rendered in Maryland. In addition, we pay another affiliate of our CEO $6,100 per month for office and facilities in Washington State. We believe, based on rents and fees for similar services in the Washington, D.C. metropolitan area, and Washington State that the fee charged by the affiliates are at least as favorable as we could have obtained from an unaffiliated third party and these payments are not considered, or meant to be compensation to our CEO. The rental agreement for the Maryland location is on a month-to-month basis and may be terminated by our Board of Directors of the Company at any time without notice. The rental agreement for Washington State facilities expires on December 31, 2017, unless renewed by mutual consent. During fiscal year ended March 31, 2017, the total rent paid to the affiliates were $54,000 for the office space (and services) in Maryland, and $73,200 for the facilities in Washington State. We expect that these expenses will remain at approximately this level during the fiscal year ending March 31, 2018.
All compensation paid to our CFO, including the 300,000 stock grants, and monthly compensation, are paid to an affiliate of our CFO, specifically a limited liability company (LLC) wholly owned by our CFO. There are no payments, other than what is mentioned in this filing, that have been made to the CFO directly or to his LLC. The Company treats payments and issuances of stock made to the LLC as if they are made directly to our CFO.
Loans by Related Parties:
During fiscal 2015 and part of fiscal 2016, the Company had working capital loans with a U.S. commercial bank for $250,000 at a variable interest rate ranging from 3.25% to 3.75%. These loans are interest only loans that are personally guaranteed and securitized by our CEO. As of March 31, 2017, these loans have been repaid.
During fiscal 2016, the Company had Hong Kong based banking facilities for $1,038,961 whose principal, interest, and other charges were guaranteed by our CEO and Sunny Tsang, the Managing Director and Founder of IGC International. As of fiscal year end 2017, IGC and our CEO no longer guarantee these loans because IGC no longer owns IGC International.
As of March 31, 2017, the Company has a net unpaid balance of $97,105 in compensation to our CEO.
We have a loan of $97,500 from an affiliate of our CEO, at an annual interest rate of zero percent, due February 23, 2022. There is no prepayment penalty. This loan is shown Loan 5 in Note 7.
Loans to Related Parties
On April 30, 2015, FYE 2016, we loaned Apogee Financial Services $70,000 as working capital for Midtown partners. The loan is outstanding as on March 31, 2017.
In FYE 2016 and FYE 2017 we funded our subsidiary TBL for $42,162 and $43,000 respectively for working capital.
NOTE 13 – COMMITMENTS AND CONTINGENCIES
No significant comments and contingencies were made or existed during fiscal year 2016 and fiscal year 2017.
NOTE 14 – PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
Category
|
|
Useful Life (years)
|
|
|
As of March 31, 2017
|
|
|
As of March 31, 2016
|
|
Building (flat)
|
|
|
25
|
|
|
$
|
241,181
|
|
|
$
|
1,238,569
|
|
Plant and machinery
|
|
|
20
|
|
|
|
1,710,055
|
|
|
|
6,666,402
|
|
Computer equipment
|
|
|
3
|
|
|
|
157,349
|
|
|
|
218,124
|
|
Office equipment
|
|
|
5
|
|
|
|
119,528
|
|
|
|
114,508
|
|
Furniture and fixtures
|
|
|
5
|
|
|
|
70,368
|
|
|
|
118,753
|
|
Vehicles
|
|
|
5
|
|
|
|
292,764
|
|
|
|
345,830
|
|
Assets under construction
|
|
|
N/A
|
|
|
|
957,880
|
|
|
|
4,885,844
|
|
Total
|
|
|
|
|
|
$
|
3,549,125
|
|
|
$
|
13,588,030
|
|
Less: Accumulated depreciation
|
|
|
|
|
|
$
|
(2,595,189
|
)
|
|
$
|
(6,513,593
|
)
|
Net Assets
|
|
|
|
|
|
$
|
953,936
|
|
|
$
|
7,074,437
|
|
Depreciation and amortization expense for the fiscal years ended March 31, 2017 and March 31, 2016 was $
396,346
and $728,741, 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 fiscal year 2017 and 2016, the Company recorded selling, general and administrative expenses of $1,875,344 and $2,702,753, 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, 2016, 130,045 stock options were awarded that expired on June 27, 2016, and 2,214,950 shares of common stock have been awarded.
As of March 31, 2017, a total of 3,491,278 shares of common stock have been awarded and there are no options outstanding and exercisable. As of March 31, 2017, there are no shares of common stock available for future grants of options or stock awards.
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
|
|
|
|
2017
|
|
|
2016
|
|
Projected Benefit Obligation (PBO) at the beginning of the year
|
|
$
|
11,877
|
|
|
$
|
12,403
|
|
Service cost
|
|
|
696
|
|
|
|
698
|
|
interest cost
|
|
|
971
|
|
|
|
933
|
|
Benefits paid
|
|
|
(1,018
|
)
|
|
|
(1,244
|
)
|
Actuarial (gain)/loss
|
|
|
(67
|
)
|
|
|
(913
|
)
|
PBO at the end of the year
|
|
$
|
12,459
|
|
|
$
|
11,877
|
|
Funded status
|
|
$
|
12,852
|
|
|
$
|
12,581
|
|
Net gratuity cost for the years ended March 31, 2017 and 2016 included:
|
|
Year ended March 31
|
|
|
|
|
2017
|
|
|
|
2016
|
|
Service cost
|
|
$
|
696
|
|
|
$
|
698
|
|
Interest cost
|
|
|
971
|
|
|
|
933
|
|
Expected return on plan assets
|
|
|
(1,045
|
)
|
|
|
(1,024
|
)
|
Actuarial (gain)/loss
|
|
|
(67
|
)
|
|
|
(913
|
)
|
Net gratuity cost
|
|
$
|
555
|
|
|
$
|
(306
|
)
|
The weighted average actuarial assumptions used to determine benefit obligations and net periodic gratuity cost are:
|
|
Year ended March 31
|
|
|
|
|
2017
|
|
|
|
2016
|
|
Discount rate
|
|
|
8
|
%
|
|
|
8
|
%
|
Rate of increase in compensation levels
|
|
|
7
|
%
|
|
|
7
|
%
|
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
|
|
|
|
2017
|
|
|
2016
|
|
Expected contribution during the year ending Year 1
|
|
$
|
4,642
|
|
|
$
|
4,544
|
|
Expected benefit payments for the years ending March 31:
|
|
|
|
|
|
|
|
|
Year 2
|
|
$
|
1,464
|
|
|
$
|
1,433
|
|
Year 3
|
|
|
478
|
|
|
|
468
|
|
Year 4
|
|
|
4,303
|
|
|
|
4,212
|
|
Year 5
|
|
|
324
|
|
|
|
317
|
|
Thereafter
|
|
|
5,428
|
|
|
|
5,313
|
|
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.
NOTE 18 – INCOME TAXES
Income tax expense (benefit) for each of the years ended March 31 consists of the following:
|
|
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Current:
|
|
|
|
|
|
|
Federal
|
|
$
|
-
|
|
|
$
|
-
|
|
Foreign
|
|
|
14,431
|
|
|
|
38,715
|
|
State
|
|
|
-
|
|
|
|
-
|
|
Net Current
|
|
$
|
14,431
|
|
|
|
38,715
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
|
-
|
|
|
|
-
|
|
Foreign
|
|
|
-
|
|
|
|
(38,136
|
)
|
State
|
|
|
-
|
|
|
|
-
|
|
Net Deferred
|
|
|
-
|
|
|
|
(38,136
|
)
|
Total tax provision
|
|
$
|
14,431
|
|
|
$
|
579
|
|
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,
|
|
|
|
2017
|
|
|
2016
|
|
Deferred tax expense (benefit)
|
|
$
|
-
|
|
|
$
|
(38,136
|
)
|
Net operating loss carry forward
|
|
|
652,283
|
|
|
|
1,291,744
|
|
Foreign Tax Credits
|
|
|
-
|
|
|
|
-
|
|
Less: Valuation Allowance
|
|
|
652,283
|
|
|
|
1,291,744
|
|
Net deferred tax expense
|
|
$
|
-
|
|
|
$
|
(38,136
|
)
|
The table below sets forth income tax expense (benefit) for 2017 and 2016 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,
|
|
|
|
2017
|
|
|
2016
|
|
Computed expected income tax (benefit)
|
|
$
|
652,283
|
|
|
$
|
(1,172,590
|
)
|
State tax benefit net of federal tax
|
|
|
-
|
|
|
|
-
|
|
Change in valuation allowance
|
|
|
652,283
|
|
|
|
1,100,645
|
|
Deferred expenses from foreign acquisition
|
|
|
-
|
|
|
|
-
|
|
Impairment loss on goodwill
|
|
|
-
|
|
|
|
-
|
|
Impairment loss on investments
|
|
|
410
|
|
|
|
18,244
|
|
Capitalized interest costs
|
|
|
-
|
|
|
|
72,759
|
|
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,
|
|
|
|
2017
|
|
|
2016
|
|
Current deferred tax liabilities (assets):
|
|
|
|
|
|
|
Deferred Acquisition Costs – Foreign taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
Valuation allowance
|
|
|
-
|
|
|
|
-
|
|
Net current deferred tax liabilities (assets)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Noncurrent deferred tax (assets) liabilities:
|
|
|
|
|
|
|
|
|
Deferred Acquisition Costs- Foreign taxes
|
|
$
|
-
|
|
|
$
|
(356,684
|
)
|
Net Operating Losses
|
|
|
652,283
|
|
|
|
1,291,744
|
|
Valuation allowance
|
|
|
(652,283
|
)
|
|
|
(1,291,744
|
)
|
Non-Current net deferred tax (assets) liabilities
|
|
$
|
-
|
|
|
$
|
(356,684
|
)
|
The company has a book and tax carry forward of approximately $26 million. The company provides a full allowance against any tax benefit which may be realized in the future, if ever. Therefore, the financial statements do not reflect any current or deferred provisions for income taxes.
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
|
|
|
Percent of total revenues
|
|
Real estate/rental
|
|
$
|
367,279
|
|
|
|
63
|
%
|
Trading, electronic component
|
|
|
213,093
|
|
|
|
37
|
%
|
TOTAL
|
|
$
|
580,372
|
|
|
|
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
|
|
|
Percent of total revenues
|
|
India
|
|
$
|
124,871
|
|
|
|
22
|
%
|
Hong Kong
|
|
|
213,093
|
|
|
|
37
|
%
|
Malaysia
|
|
|
242,408
|
|
|
|
41
|
%
|
TOTAL
|
|
$
|
580,372
|
|
|
|
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 Malaysia)
|
|
|
Total
|
|
Intangible Assets
|
|
$
|
-
|
|
|
$
|
198,169
|
|
|
$
|
198,169
|
|
Property, Plant and Equipment, Net
|
|
|
894,026
|
|
|
|
59,910
|
|
|
|
953,936
|
|
Investments in Affiliates
|
|
|
773,111
|
|
|
|
-
|
|
|
|
773,111
|
|
Investments Others
|
|
|
5,174,611
|
|
|
|
63,392
|
|
|
|
5,238,003
|
|
Deferred Tax Assets
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other Non-Current Assets
|
|
|
-
|
|
|
|
539,720
|
|
|
|
539,720
|
|
Total Long-Term Assets
|
|
$
|
6,841,748
|
|
|
$
|
861,191
|
|
|
$
|
7,702,939
|
|
NOTE 20 – RECONCILIATION OF EPS
For the Fiscal Year Ended March 31, 2017 and 2016, 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 Ironman shareholders, Golden Gate Electronics Ltd, Apogee Financial, Cabaran Ultima, Brilliant Hallmark and shares issued to employees, directors and vendors.
The fully diluted shares include the basic shares plus public warrants, private warrants, UNITS and options.
Under the treasury method the weighted average shares for March 31, 2017, is 25,658,544. These are used to calculate basic EPS. The weighted average number of shares outstanding as of March 31, 2016 used for the computation of basic EPS is 16,387,290.
Due to the loss incurred during the year ended March 31, 2017, 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, 2017 and 2016 consists of the following:
|
|
As of March 31, 2017
|
|
|
As of March 31, 2016
|
|
Investment in equity shares of unlisted company & associates
|
|
$
|
63,392
|
|
|
$
|
25,781
|
|
Investment in Land
|
|
|
5,174,611
|
|
|
|
5,149,611
|
|
Total
|
|
$
|
5,238,003
|
|
|
$
|
5,175,392
|
|
NOTE 22 – Left intentionally blank
NOTE 23 – CERTAIN AGED RECEIVABLES
The receivable and other assets as of March 31, 2017 and March 31, 2016 include certain aged receivables in the amount of $430,689. 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, 2017. 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. The Purchase Agreement expired on June 30, 2015, and the Company is pursuing its rights under the terms of the Purchase Agreement to recover certain damages. Using the equity method the Company has increased the value of its investment in Midtown Partners. Please see Note 9- Other Income and Note 12-Related Party Transactions.
NOTE 25 – SUBSEQUENT EVENTS
We acquired a 10% stake in a 1,000-room luxury hotel development project encompassing 6+ acres in Genting Highlands, Malaysia by subscribing to 10% stake in Brilliant Hallmark Sdn. Bhd. (“Brilliant”) free and clear of all encumbrances in exchange for 4,000,000 shares of our common stock. On April 3, 2017, IGC sold back its ten percent holding in Brilliant Hallmark for a consideration of 4 million shares of IGC’s Common Stock that will be returned and retired, thereby reducing the outstanding IGC shares. The Brilliant Hallmark investment will, once the IGC shares are retired, be removed from the IGC balance sheet, with an associated reduction of approximately $1,880,000. The Company does not expect to record a gain or loss from this transaction.
In April 2017, we closed a non-operational Hong Kong based subsidiary that we incorporated in January 2013 named IGC HK Mining and Trading Limited (“IGC-HK”), whose name we later changed to IGC Cleantech Ltd (“IGC-CT”).
As reported on Current Report on Form 8-K filed on June 2017, IGC acquired exclusive rights to a patent filing, made by the University of South Florida entitled “THC as a Potential Therapeutic Agent for Alzheimer’s Disease.”