The accompanying notes should be read in connection with these Condensed Consolidated Financial Statements.
The accompanying notes should be read in connection with these Condensed Consolidated Financial Statements.
The accompanying notes should be read in connection with these Condensed Consolidated Financial Statements.
The accompanying notes should be read in connection with these Condensed Consolidated Financial Statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED
JUNE 30, 2019
(
in thousands, except for share
data
and
loss
per share, unaudited
)
Unless the context requires otherwise, all references in this report to “IGC,” “the Company”, “we,” “our” and “us” refer to India Globalization Capital, Inc., together with our subsidiaries
listed on the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2019
. Our filings are available on www.sec.gov. The information contained on our websites including www.igcinc.us are not incorporated by reference in this report, and you should not consider it a part of this report.
We exclude our investments and minority non-controlling interests, and any information provided by them is not incorporated by reference in this report, and you should not consider it a part of this report.
NOTE 1 – BUSINESS DESCRIPTION
Business
IGC has two lines of business: 1) Infrastructure Business and 2) Plant and Cannabinoid Business. The Company’s Infrastructure Business, managed from India, involves: (a) the rental of heavy construction equipment; (b) execution of construction contracts; and (c) the purchase and resale of physical commodities used in infrastructure.
Our second line of business, Plant and Cannabinoid Business, stems from plant material and cannabinoids produced by the cannabis plant. It involves several brands that the Company develops and expects to commercialize as alternative plant and cannabinoid-based products and therapies. The Company’s flagship branded, patent pending, product is Hyalolex™. Further information is available at www.igcpharma.com and www.hyalolex.com. In addition, the Company, under the brand name Holi Hemp™, sells hemp crude extract, hemp isolate, and hemp distillate. Further information is available at www.holihemp.com.
Corporate and Product Update
During the three months ended June 30, 2019, the Company took the following steps, among others:
●
|
The Company’s subsidiary, Holi Hemp LLC, was awarded a license to grow and process hemp in the State of Arizona.
|
●
|
The Company established a business-to-business sales team, and a raw materials supply chain, for the sale of Holi Hemp™ branded products such as hemp crude, cannabinol (“CBD”) distillate, tetrahydrocannabinol-free (“T-free”) oil, and other hemp derivatives, in compliance with applicable laws and regulations.
|
●
|
The Company significantly expanded the number of dispensaries in Puerto Rico where Hyalolex™ (the Company’s flagship product) is sold, to about 34 at the end of June 2019.
|
●
|
The Company contracted with a medical center in Puerto Rico to run a double-blind, placebo-controlled clinical trial with IGC-AD1 on 60 Alzheimer’s patients. The protocol has been submitted to the Institutional Review Board (“IRB”) in Puerto Rico and approval is pending. Following approval from the IRB, the Company plans to submit an Investigational New Drug Application (“INDA”) to the FDA.
|
●
|
The Company’s subsidiary, Techni Bharathi Private Limited (“TBL”), commenced the execution of a National Highway Authority of India (“NHAI”) sponsored local highway construction contract in Kerala, India.
|
Business Organization
As of June 30, 2019, the Company had the following direct operating subsidiaries: TBL, IGCare LLC, Holi Hemp LLC and IGC Pharma LLC. The Company’s fiscal year is the 52- or 53-week period that ends on March 31. The Company is a Maryland corporation established in 2005. We have employees, contract workers and advisors in the United States of America (“U.S.”), India, and Hong Kong.
| June 30, 2019 Form 10-Q
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The accompanying unaudited condensed consolidated financial statements (“interim statements”) of the Company have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) as determined by Financial Accounting Standards Board (the “FASB”) within its Accounting Standards Codification (“ASC”) and under the rules and regulations of the SEC. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of Management, all adjustments and disclosures necessary for a fair presentation of these interim statements have been included. The results reported in these interim statements are not necessarily indicative of the results that may be reported for the entire year. These interim statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended March 31, 2019 contained in the Company’s Form 10-K for the Fiscal 2019, filed with the SEC on June 14, 2019, specifically in Note 2 to the consolidated financial statements.
Principles of consolidation
The interim statements include the consolidated accounts of the Company and its subsidiaries. Intercompany accounts and transactions have been eliminated. In the opinion of the Company’s Management, the interim statements reflect all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation.
Use of estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the GAAP requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of 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 interim statements are prudent and reasonable. Significant estimates and assumptions are generally used for, but not limited to: allowance for uncollectible accounts receivable; future obligations under employee benefit plans; the useful lives of property, plant, equipment; intangible assets; valuations; impairment of goodwill and investments; recoverability of advances; the valuation of options granted and warrants issued; and income tax and deferred tax valuation allowances, if any. Actual results could differ from those estimates. Appropriate changes in estimates are made as Management becomes aware of changes in circumstances surrounding the estimates. Critical accounting estimates could change from period to period and could have a 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.
Presentation and functional currencies
IGC operates in India, U.S., and Hong Kong and a substantial portion of the Company’s revenues are denominated in the Indian Rupee (“INR”) or the Hong Kong Dollar (“HKD”). The local currency is the functional currency for the operations outside the U.S. Changes in the exchange rates between this currency and the Company’s reporting currency, are partially responsible for some of the periodic changes in the consolidated financial statements. Assets and liabilities of the Company’s foreign operations are translated into U.S. dollars (“USD”) at the spot rate in effect at the applicable reporting date. Revenues and expenses of the Company’s foreign operations are translated at the average exchange rate during the applicable period. The resulting unrealized cumulative translation adjustment is recorded as a component of accumulated other comprehensive income/(loss) in stockholders’ equity. Transaction gains and losses are recognized in the consolidated statements of operations.
Impairment
No impairment has been recorded for the three-month periods ended June 30, 2019 and 2018.
| June 30, 2019 Form 10-Q
Inventory
Inventory is valued at the lower of cost or market, or at sales price (fair value) less costs of disposal when certain conditions are met. The term market means current replacement cost, provided that it meets both the following conditions: a) market shall not exceed the net realizable value, and b) market shall not be less than net realizable value reduced by an allowance for an approximately normal profit margin. This valuation requires us to make judgments, based on currently available information, about the likely method of disposition, such as through sales to individual customers, returns to product vendors, or liquidations, and expected recoverable values of each disposition category. These assumptions about future disposition of inventory are inherently uncertain and changes in our estimates and assumptions may cause us to realize material write-downs in the future.
Inventory consists of raw materials, finished goods and work-in progress such as extracted crude oil, growing crops and crude oil in process. The costs of growing cannabis including but not limited to labor, utilities, fertilizers and irrigation, are capitalized into inventory until the time of harvest. It is primarily accounted for using the weighted average cost method. Primary costs include raw materials, packaging, direct labor, overhead, shipping and the depreciation of manufacturing equipment. Manufacturing overhead and related expenses include salaries, wages, employee benefits, utilities, maintenance and property taxes.
Crops are segregated into “growing crops” and “harvested crops”. Growing crops are valued at the lower of cost or market value. Direct and indirect development costs of groves, orchards and vineyards are required to be capitalized during the development period and depreciated over the estimated useful life of the particular asset. Harvested crops are measured at sales price less costs of disposal, with changes recognized in profit or loss only when the harvested crop:
- has a reliable, readily determinable and realizable market value;
- has relatively insignificant and predictable costs of disposal; and
- is available for immediate delivery.
See Note 3, Inventory of this report for further information.
Fair value of financial instruments
FASB ASC No. 820, “Fair Value Measurement” defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. It also establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1: Observable inputs such as quoted prices in active markets;
Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
The carrying amounts of the Company’s financial instruments includes cash and cash equivalents, accounts receivable, accounts payable and accrued and other liabilities, which is approximate to their fair values due to the nature of the items.
As of June 30, 2019, the Company’s short-term investment consists of mutual fund, which have been classified as Level 1 of the fair value hierarchy because they have been valued using quoted prices in active markets. Company’s cash and cash equivalents have also been classified as Level 1 on the same principle. Financial instruments are classified as current if they are expected to be liquidated within the next twelve months. Company’s remaining investments have been classified as Level 3 instruments as there is little or no market data. Level 3 investments are valued using cost-method. For further information refer Note 7 – Investments in Unlisted Securities, which is classified as non-current asset.
| June 30, 2019 Form 10-Q
The following table presents information about the Company’s assets that are measured at fair value on a recurring basis as of June 30, 2019 and March 31, 2019, and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value:
|
|
Level 1
($)
|
|
|
Level 2
($)
|
|
|
Level 3
($)
|
|
|
Total
($)
|
|
June 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents:
|
|
|
16,554
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16,554
|
|
Total cash and cash equivalents
|
|
|
16,554
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16,554
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-Short-term investment in mutual fund
|
|
|
5,009
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,009
|
|
-Investment in unlisted securities
|
|
|
-
|
|
|
|
-
|
|
|
|
794
|
|
|
|
794
|
|
Total Investment
s
|
|
|
5,009
|
|
|
|
-
|
|
|
|
794
|
|
|
|
5,803
|
|
|
|
Level 1
($)
|
|
|
Level 2
($)
|
|
|
Level 3
($)
|
|
|
Total
($)
|
|
March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents:
|
|
|
25,610
|
|
|
|
-
|
|
|
|
-
|
|
|
|
25,610
|
|
Total cash and cash equivalents
|
|
|
25,610
|
|
|
|
-
|
|
|
|
-
|
|
|
|
25,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Short-term investment in mutual fund
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
-Investment in unlisted securities
|
|
|
-
|
|
|
|
-
|
|
|
|
794
|
|
|
|
794
|
|
Total Investment
|
|
|
-
|
|
|
|
-
|
|
|
|
794
|
|
|
|
794
|
|
Earnings
/
(Loss) per Share
The computation of basic loss per share for the three months ended June 30, 2019, excludes potentially dilutive securities of 3.4 million shares which includes share options, unvested shares granted to employees, warrants, and shares from the conversion of outstanding units, if any, because their inclusion would be antidilutive.
The weighted average number of shares outstanding as of June 30, 2019 and 2018, used for the computation of basic earnings per share (“EPS”) is 39,508,110 and 30,981,422, respectively. Due to the loss incurred during the three-month periods ended June 30, 2019, and 2018, all the potential equity shares are anti-dilutive and accordingly, the fully diluted EPS is equal to the basic EPS.
Leases
Lessor
For leases that are accounted for as operating leases, income is recognized on a straight-line basis over the term of the lease contract.
Generally, when a lease is more than 180 days delinquent (where more than three monthly payments are owed), the lease is classified as being on nonaccrual and the Company stops recognizing leasing income on that date. Payments received on leases in nonaccrual status generally reduce the lease receivable. Leases on nonaccrual status remain classified as such until there is sustained payment performance that, in the Company’s judgment, would indicate that all contractual amounts will be collected in full.
| June 30, 2019 Form 10-Q
Lessee
The Company categorizes leases at their inception as either operating or capital leases. On certain lease agreements, the Company may receive rent holidays and other incentives. The Company recognizes lease costs on a straight-line basis without regard to deferred payment terms, such as rent holidays, that defer the commencement date of required payments.
The Company has operating leases primarily consisting of office spaces with the remaining lease term being less than 12 months, subject to certain renewal options as applicable. The total operating lease expense and cash paid for operating leases for the three months ended June 30, 2019 and June 30, 2018 are $39 thousand and $37 thousand respectively.
Recent Accounting Pronouncements
Recently adopted
ASC 842,
Leases
In February 2016, the FASB established Topic 842, Leases, by issuing ASU No. 2016-02 (“ASU 2016-02”), which requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; ASU No. 2018-11, Targeted Improvements; and ASU No. 2018-20, Narrow-Scope Improvements for Lessors.
Lessor Accounting
For lessors, however, the accounting remains largely unchanged from the current model, changes have been made to align certain lessor and lessee accounting guidance and the key aspects of the lessor accounting model with new revenue recognition standard. Under the new guidance, contract consideration will be allocated to its lease components and non-lease components (such as maintenance). For the Company as a lessor, any non-lease components will be accounted for under ASC Topic 606, Revenue from Contracts with Customers, unless the Company elects a lessor practical expedient to not separate the non-lease components from the associated lease component. The amendments in ASU 2018-11 also provide lessors with a practical expedient, by class of underlying asset, to not separate non-lease components from the associated lease component and, instead, to account for those components as a single component if the non-lease components otherwise would be accounted for under the new revenue guidance (“Topic 606”). To elect the practical expedient, the timing and pattern of transfer of the lease and non-lease components must be the same and the lease component must meet the criteria to be classified as an operating lease if accounted for separately. If these criteria are met, the single component will be accounted for under either under Topic 842 or Topic 606 depending on which component(s) are predominant. The lessor practical expedient to not separate non-lease components from the associated component must be elected for all existing and new leases.
As lessor, the Company expects that post-adoption substantially all existing leases will have no change in the timing of revenue recognition until their expiration or termination. The Company expects to elect the lessor practical expedient to not separate non-lease components such as maintenance from the associated lease for all existing and new leases and to account for the combined component as a single lease component. The timing of revenue recognition is expected to be the same for the majority of the Company’s new leases as compared to similar existing leases; however, certain categories of new leases could have different revenue recognition patterns as compared to similar existing leases.
Lessee Accounting
The Company will adopt ASU 2016-02 effective April 1, 2019 using the modified retrospective approach. The new standard establishes a right-of-use model (“ROU”) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. In connection with the adoption, the Company will elect to utilize the modified retrospective presentation whereby the Company will continue to present prior period financial statements and disclosures under ASC 840. In addition, the Company will elect the transition package of three practical expedients permitted within the standard, which eliminates the requirements to reassess prior conclusions about lease identification, lease classification and initial direct costs. Further, the Company will adopt a short-term lease exception policy, permitting us to not apply the recognition requirements of this standard to short-term leases (i.e. leases with terms of 12 months or less) and an accounting policy to account for lease and non-lease components as a single component for certain classes of assets.
| June 30, 2019 Form 10-Q
The Company has concluded that all lease arrangements would be classified as short-term in nature and as such, not recorded on the balance sheet. The standard did not materially affect the Company's consolidated net earnings or have any impact on cash flows.
The Company adopted the guidance as of April 1, 2019, and the adoption did not have a material effect on the financial statements. Additional information and disclosures required by this new standard for the Company as a lessor are contained above.
Not yet adopted
Not yet adopted
Credit Losses:
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial instruments. The amendments in this update change how companies measure and recognize credit impairment for many financial assets. The amendment is effective from December 15, 2022, due to the tentative decisions made by the FASB at its July 17, 2019 Board Meeting. The Company is evaluating the impact of this update.
Disclosures:
In August 2018, the FASB issued ASU 2018-13. Fair Value Measurement (Topic 820) Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. The amendments in the standard apply to all entities that are required, under existing GAAP, to make disclosures about recurring or nonrecurring fair value measurements. ASU 2018-13 removes, modifies, and adds certain disclosure requirements in ASC 820, Fair Value Measurement. The standard is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company is evaluating the impact of this update.
Collaborative Arrangement:
Clarifying the Interaction Between Topic 808 and Topic 606
, which clarifies when transactions between participants in a collaborative arrangement are within the scope of the FASB’s revenue standard, Topic 606. The standard is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years, with early adoption permitted. The Company is evaluating the impact of this update.
Intangibles-Goodwill and Other-Internal-Use Software
:
In August 2018, the FASB issued ASU 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. ASU 2018-15 (Subtopic 350-40)
aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The standard is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted. The Company is evaluating the impact of this update.
NOTE 3 – INVENTORY
|
|
As of
June 30, 2019
($)
|
|
|
As of
March 31, 2019
($)
|
|
Raw Materials
|
|
|
828
|
|
|
|
-
|
|
Work in Progress
|
|
|
1,142
|
|
|
|
248
|
|
Finished Goods
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
|
1,970
|
|
|
|
248
|
|
Inventory as of June 30, 2019 is comprised of raw materials such as crude oil, work-in-progress such as growing crops and crude oil in process.
| June 30, 2019 Form 10-Q
NOTE
4
– DEPOSITS AND ADVANCES
|
|
As of
June 30, 2019
($)
|
|
|
As of
March 31, 2019
($)
|
|
Advance to suppliers and consultants
|
|
|
715
|
|
|
|
720
|
|
Statutory advances
|
|
|
45
|
|
|
|
43
|
|
Prepaid Expense and other current assets
|
|
|
92
|
|
|
|
18
|
|
Total
|
|
|
852
|
|
|
|
781
|
|
The advance to suppliers and consultants primarily relates to retainers given to lawyers as well as advance to suppliers in our trading business.
NOTE
5
– INTANGIBLE ASSETS
|
|
As of
June 30, 2019
($)
|
|
|
As of
March 31, 2019
($)
|
|
Patent & other intangible assets at the beginning of the period
|
|
|
184
|
|
|
|
128
|
|
Patent acquisition and filing expenses for the three months ended June 30, 2019
|
|
|
5
|
|
|
|
56
|
|
Amortization
|
|
|
(2
|
)
|
|
|
-
|
|
Total
|
|
|
187
|
|
|
|
184
|
|
|
The value of intangible assets includes the cost of acquiring patent rights, supporting data, and the expense associated with filing patents. The amortization of acquired patent rights is 13 years commencing in Fiscal 2020. The Company uses the straight-line method to determine the amortization expense for its definite lived intangible assets.
|
NOTE 6 – PROPERTY, PLANT AND EQUIPMENT, NET
Category
|
|
Useful Life (years)
|
|
|
As of
June 30, 2019
($)
|
|
|
As of
March 31, 2019
($)
|
|
Land
|
|
|
N/A
|
|
|
|
4,889
|
|
|
|
4,872
|
|
Buildings & facilities
|
|
|
25
|
|
|
|
2,304
|
|
|
|
1,268
|
|
Plant and machinery
|
|
|
20
|
|
|
|
1,609
|
|
|
|
1,603
|
|
Computer equipment
|
|
|
3
|
|
|
|
169
|
|
|
|
165
|
|
Office equipment
|
|
|
5
|
|
|
|
109
|
|
|
|
109
|
|
Furniture and fixtures
|
|
|
5
|
|
|
|
62
|
|
|
|
61
|
|
Vehicles
|
|
|
5
|
|
|
|
280
|
|
|
|
279
|
|
Equipment
|
|
|
5
|
|
|
|
134
|
|
|
|
-
|
|
Total Gross Value
|
|
|
|
|
|
|
9,556
|
|
|
|
8,357
|
|
Less: Accumulated depreciation
|
|
|
|
|
|
|
(2,501
|
)
|
|
|
(2,471
|
)
|
Total
Property, plant and equipment, net
|
|
|
|
|
|
|
7,055
|
|
|
|
5,886
|
|
Depreciation expense in the three months ended June 30, 2019 and June 30, 2018, amounted to approximately $17 thousand and $15 thousand respectively. The net increase in total Property, Plant & Equipment as well as the accumulated depreciation is primarily due to purchase of building and equipment in the U.S. subsidiaries. For more information, please refer to Note 15 – Segment Information for the long-term assets other than financial instruments held in the country of domicile and foreign countries.
| June 30, 2019 Form 10-Q
NOTE
7
– INVESTMENTS IN UNLISTED SECURITIES
|
|
As of
June 30, 2019
($)
|
|
|
As of
March 31, 2019
($)
|
|
Investment in equity shares of unlisted company
|
|
|
21
|
|
|
|
21
|
|
Investment in affiliate (i)
|
|
|
773
|
|
|
|
773
|
|
Total
|
|
|
794
|
|
|
|
794
|
|
(i)
|
Pursuant to the December 18, 2014 Purchase Agreement with Apogee, we issued Apogee 1.2 million shares of IGC’s common stock valued at $888 thousand for the purchase of a 24.9% ownership interest in Midtown Partners & Co., LLC (“MTP”). During Fiscal 2018, after considering several factors, the Company concluded that it no longer had significant influence over MTP. Hence, we do not record any impact from MTP’s earnings/(losses) and instead we maintain the same value of approximately $773 thousand since Fiscal 2018.
|
The Company regularly reviews its investment portfolio to determine if any security is other-than-temporarily impaired, which would require the Company to record an impairment charge in the period. We concluded that, as of June 30, 2019, no impairment provision was required against the carrying value of investments.
NOTE
8
– CLAIMS AND ADVANCES
:
|
|
As of
June 30, 2019
($)
|
|
|
As of
March 31, 2019
($)
|
|
Claims receivable (1)
|
|
|
405
|
|
|
|
404
|
|
Non-current deposits
|
|
|
22
|
|
|
|
18
|
|
Other advances (2)
|
|
|
468
|
|
|
|
456
|
|
Total
|
|
|
895
|
|
|
|
878
|
|
(1)
|
The claims receivable is due from the Cochin International Airport (“CIA”) that is partially owned by the State Government of Kerala. As of June 30, 2019, the receivable is due for over one year. The Company continues to carry the full value of the receivables without interest and without any impairment, because it believes that there is minimal risk that CIA will become insolvent and unable to make the payment. However, the Company currently believes it will be difficult to receive the amount in the next 12 months because of the time required for legal collection proceedings. The Company has initiated such proceedings.
|
|
|
(2)
|
Includes a loan of $200 thousand, to one of our manufacturers, for the purchase of equipment, at an annual interest rate of three percent (3%), due on April 1, 2021.
|
NOTE
9
–
ACCRUED AND OTHER LIABILITIES
Particulars
|
|
As of
June 30, 2019
($)
|
|
|
As of
March 31, 2019
($)
|
|
Salaries and other contribution
|
|
|
127
|
|
|
|
115
|
|
Provision for expenses
|
|
|
238
|
|
|
|
355
|
|
Other current liability
|
|
|
87
|
|
|
|
39
|
|
Total
|
|
|
452
|
|
|
|
509
|
|
Salaries and other contribution related liabilities consist of accrued salary to employees. Provision for expenses include provision for legal, professional, and marketing expenses. Other current liability also includes statutory payables of approximately $3 thousand and $4 thousand as of June 30, 2019 and March 31, 2019 respectively.
| June 30, 2019 Form 10-Q
NOTE 1
0
– COMMITMENTS AND CONTINGENCIES
The Company may be involved in legal proceedings, claims and assessments arising in the ordinary course of business. Such matters are subject to many uncertainties and outcomes are not predictable with assurance. There are no such matters that are deemed material to the condensed consolidated financial statements as of June 30, 2019.
As of June 30, 2019, several law firms have filed shareholder lawsuits, including two derivative suits, citing, among other things, the NYSE American delisting proceedings and subsequent fall in share price. The Company has reached a preliminary agreement to resolve the derivative suits and intends to vigorously defend all other actions. However, the exact amount of liability, if any, arising from such lawsuits cannot be determined at this stage. No provision has been made in the consolidated financial statements as of June 30, 2019. See Part II – Other Information. For the current state of affairs regarding these Shareholder Class Action Litigation, please refer to Note 16 - Subsequent Events.
In the U.S., we provide health insurance, life insurance, and a 401(k) plan wherein the Company matches up to 6% of the employee’s pretax contribution up to a maximum annual amount determined by the IRS. In accordance with applicable Indian laws, the Company provides for gratuity, a defined benefit retirement plan (“Gratuity Plan”) covering certain categories of employees. The Gratuity Plan provides a lump sum payment to vested employees, at retirement or termination of employment, an amount based on the respective employee’s last drawn salary and the years of employment with the Company. In addition, employees receive benefits from a provident fund, a defined contribution plan. The employee and employer each make monthly contributions to the plan equal to 12% of the covered employee’s salary. The contribution is made to the Government’s provident fund.
NOTE 1
1
– SECURITIES
We have one security listed on the NYSE American: common stock, $.0001 par value (ticker symbol: IGC). This security is also available for trading on the Frankfurt, Stuttgart, and Berlin stock exchanges (ticker symbol: IGS1). We have redeemable warrants quoted on the OTC markets (ticker symbol: IGC.IW, CUSIP number 45408X118 expiring on March 8, 2021) to purchase common stock. As of June 30, 2019, the Company was authorized to issue up to 150,000,000 shares of common stock, par value $0.0001, and has 91,472 units and 39,511,407 shares of common stock issued and outstanding.
The Company has 11,672,178 outstanding public warrants (IGC: IW) to purchase 1,167,217 shares of common stock by surrendering 10 warrants and a payment of $5.00 in exchange for each share of common stock. We have 91,472 units outstanding that can be separated into common stock and warrants. The Units are not listed on an exchange. Ten units may be separated into one share of common stock and 20 warrants (IGC: IW).
NOTE 1
2
– RELATED PARTY TRANSACTIONS
We pay an affiliate of our CEO approximately $10.5 thousand per month for office space and certain general and administrative services rendered in Maryland. In addition, we pay another affiliate of our CEO approximately $6.1 thousand per month for office and facilities in Washington State.
As of June 30, 2019, the Company had one secured loan of $50 thousand due to related party that carries prepaid interest at an annual interest rate of 15%.
NOTE 1
3
– STOCK-BASED COMPENSATION
During the three months ended June 30, 2019, under the combined 2008 and renewed 2018 Omnibus Incentive Plans (“IGC ESOP Plan”), no share options have been granted. During the three months ended June 30, 2019, 92 thousand shares, vesting over three years, have been granted as inducement shares to employees.
Under the IGC ESOP Plan, as of June 30, 2019, a total of 6,372,127 shares of common stock have been issued to employees, and 1.77 million shares fair valued at $667 thousand with a weighted average value of $0.38 per share are granted but are yet to be issued. As of June 30, 2019, we also have options held by Advisors to purchase 270 thousand shares of common stock, vesting between Fiscal 2020 and Fiscal 2024, with a weighted average exercise price of $0.45 per share. The options are fair valued at $121 thousand.
| June 30, 2019 Form 10-Q
The options are fair valued using a Black-Scholes Pricing Model with the following assumptions:
|
|
Granted in Fiscal 20
20
|
|
|
Granted in Fiscal 20
19
|
|
Expected life of options
|
|
5 years
|
|
|
5 years
|
|
Vested options
|
|
|
100
|
%
|
|
|
100
|
%
|
Risk free interest rate
|
|
|
2.57
|
%
|
|
|
0.70
|
%
|
Expected volatility
|
|
|
249
|
%
|
|
|
119.5
|
%
|
Expected dividend yield
|
|
Nil
|
|
|
Nil
|
|
The expense associated with share-based payments to employees, directors, advisors and contractors is allocated over the vesting or service period and recognized in the Common Stock and Additional Paid in Capital. For the three months ended June 30, 2019, the Company’s share-based expense and option-based expense shown in General and administrative expenses (including research and development) are $202 thousand and $6 thousand respectively.
For the three months ended June 30, 2018 the share-based expense and option-based expense for employees and advisors are $162 thousand and $16 thousand respectively, of which $147 thousand share-based expense and $6 thousand option-based expense related to General and administrative expenses (including research and development).
Summary of Options
|
|
Number of
O
ptions
as of
June 30, 2019
(in thousands)
|
|
|
Number of
O
ptions
as of
March 31, 2019
(in thousands)
|
|
Opening balance
|
|
|
270
|
|
|
|
650
|
|
Option granted during the period
|
|
|
-
|
|
|
|
110
|
|
Option exercised during the period
|
|
|
-
|
|
|
|
(490
|
)
|
Closing balance
|
|
|
270
|
|
|
|
270
|
|
NOTE
1
4
– REVENUE RECOGNITION
Revenue in the Infrastructure Business is recognized for the renting and contracting business once the performance obligation as per the agreement has been satisfied by the Company. In the Plant and Cannabinoid Business, the revenue from the cannabinoid-based products is recognized in Holi Hemp once control of the goods has been transferred to the customer and the performance obligation has been completed. With IGCare, we license our products to processors. The revenue from the cannabinoid-based products and therapies is recognized once goods have been sold by the processor to its customer and the performance obligation is completed as per the agreement.
Net sales disaggregated by significant products and services for the three months ended June 30, 2019 and the three months ended June 30, 2018 were as follows (in thousands):
|
|
Three
M
onth
s
Ended June 30,
|
|
|
|
2019
($)
|
|
|
2018
($)
|
|
Infrastructure Business
|
|
|
|
|
|
|
|
|
Rental income (1)
|
|
|
3
|
|
|
|
16
|
|
Purchase and resale of infrastructure commodities (2)
|
|
|
1,542
|
|
|
|
1,462
|
|
|
|
|
|
|
|
|
|
|
Plant and Cannabinoid Business
|
|
|
|
|
|
|
|
|
Plant and Cannabinoid products and therapies (3)
|
|
|
104
|
|
|
|
-
|
|
Total
|
|
|
1,649
|
|
|
|
1,478
|
|
(1) Rental income consists of income from short-term rental of heavy construction equipment. There is no revenue from construction contracts during the three months ended June 30, 2019.
(2) Relates to the income from purchase and resale of physical commodities used in infrastructure, such as steel, marble and tiles.
(3) Relates to revenue from plant and cannabinoid-based products and therapies such as Hyalolex
TM
and hemp crude extract.
| June 30, 2019 Form 10-Q
NOTE
1
5
– SEGMENT INFORMATION
FASB ASC No. 280, “Segment Reporting” establishes standards for reporting information about reportable segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group (“CODM”), in deciding how to allocate resources and in assessing performance. The CODM evaluates revenues and gross profits based on product lines and routes to market. Based on our integration and Management strategies, we operate in two reportable segments: (i) Infrastructure Business and (ii) Plant and Cannabinoids Business.
The Company’s CODM is considered to be the Company’s chief executive officer (“CEO”). The CEO reviews financial information presented on an operating segment basis for purposes of making operating decisions and assessing financial performance. Therefore, and before our Plant and Cannabinoid Business started, the Company had determined that it operated in a single operating and reportable segment. As of the date of this report and in preparation for the new and different source of revenue, the Company has determined that it operates in two operating and reportable segments: a) Infrastructure Business and b) Plant and Cannabinoid Business.
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
Segments
|
|
Three
M
onths
E
nded June 30, 2019
($)
|
|
|
Percentage of Total Revenue
|
|
|
|
|
|
|
|
|
|
|
Infrastructure Business
|
|
|
1,545
|
|
|
|
94
|
%
|
Plant and Cannabinoid Business
|
|
|
104
|
|
|
|
6
|
%
|
Total
|
|
|
1,649
|
|
|
|
100
|
%
|
Segments
|
|
Three
M
onths
E
nded June 30, 2018
($)
|
|
|
Percentage of Total Revenue
|
|
|
|
|
|
|
|
|
|
|
Infrastructure Business
|
|
|
1,478
|
|
|
|
100
|
%
|
Plant and Cannabinoid Business
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
|
1,478
|
|
|
|
100
|
%
|
2) The table below shows the revenue attributed to the country of domicile (U.S.) and foreign countries. Revenue is generally attributed to the geographic location of customers:
Segments
|
|
Country
|
|
Three
M
onths
E
nded June 30, 2019
($)
|
|
|
Percentage of
Total Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia (1)
|
|
India
|
|
|
3
|
|
|
|
0
|
%
|
(2)
|
|
Hong Kong
|
|
|
1,542
|
|
|
|
94
|
%
|
North America
|
|
U.S.
|
|
|
104
|
|
|
|
6
|
%
|
Total
|
|
|
1,649
|
|
|
|
100
|
%
|
| June 30, 2019 Form 10-Q
|
|
Country
|
|
Three
M
onths
E
nded June 30, 2018
($)
|
|
|
Percentage of
Total Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia (1)
|
|
India
|
|
|
16
|
|
|
|
1
|
%
|
(2)
|
|
Hong Kong
|
|
|
1,462
|
|
|
|
99
|
%
|
North America
|
|
U.S.
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
|
1,478
|
|
|
|
100
|
%
|
3) The table below shows the non-current assets other than financial instruments held in the country of domicile and foreign countries.
Nature of Assets
|
|
USA (Country of Domicile)
($)
|
|
|
Foreign Countries (India)
($)
|
|
|
Total as of
June 30
, 2019
($)
|
|
Intangible assets, net
|
|
|
187
|
|
|
|
-
|
|
|
|
187
|
|
Property, plant and equipment, net
|
|
|
2,110
|
|
|
|
4,945
|
|
|
|
7,055
|
|
Investments in unlisted securities
|
|
|
773
|
|
|
|
21
|
|
|
|
794
|
|
Claims and advances
|
|
|
457
|
|
|
|
438
|
|
|
|
895
|
|
Total long-term assets
|
|
|
3,527
|
|
|
|
5,404
|
|
|
|
8,931
|
|
Nature of Assets
|
|
USA (Country of Domicile)
($)
|
|
|
Foreign Countries (India)
($)
|
|
|
Total as of
March
3
1
, 201
9
($)
|
|
Intangible assets, net
|
|
|
184
|
|
|
|
-
|
|
|
|
184
|
|
Property, plant and equipment, net
|
|
|
958
|
|
|
|
4,928
|
|
|
|
5,886
|
|
Investments in unlisted securities
|
|
|
773
|
|
|
|
21
|
|
|
|
794
|
|
Claims and advances
|
|
|
440
|
|
|
|
438
|
|
|
|
878
|
|
Total long-term assets
|
|
|
2,355
|
|
|
|
5,387
|
|
|
|
7,742
|
|
NOTE
16
– SUBSEQUENT EVENTS
On July 18, 2019, the Company incorporated SAN Holdings LLC (“SAN”) as a wholly owned subsidiary of IGC. SAN is expected to own all U.S. based real-estate assets.
On July 31, 2019, the Company incorporated Hamsa BioChem SAS (“Hamsa”) as a wholly owned subsidiary of IGC. Hamsa, headquartered in Bogota, Colombia, is expected to be the hub for handling all business operations related with the cultivation, processing and distribution of legal cannabis products in Latin America and Europe; only in countries where it is legal to do so under applicable law and regulation.
On July 31, 2019, the Company and its directors and officers executed a memorandum of understanding on the preliminary terms of a full settlement of each of the derivative lawsuits currently pending against them, identified in Part II – Other Information as Erny v. Mukunda, et al., Hamdan v. Mukunda, et al., and Patel v. Mukunda, et al. The settlement is subject to final negotiation of specific terms and approval by the court. Upon the court’s approval of the settlement, it is anticipated that the cases will be dismissed with prejudice.
| June 30, 2019 Form 10-Q