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Item 7. Management’s Discussion and Analysis

2020-07-13 compared with 2019-06-14 · 145 added, 104 removed, 92 unchanged (73% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes that appear elsewhere in this Annual Report on Form 10-K.

The following discussion and analysis apply to Fiscal 2020 that ends on March 31, 2020, and Fiscal 2019 that ends on March 31, 2019.

These statements should be read in conjunction with our consolidated financial statements and the related notes that appear elsewhere in this Annual Report on Form 10-K.

In addition to historical information, this report contains forward-looking statements that involve risks and uncertainties that may cause our actual results to differ materially from plans and results discussed in forward-looking statements.

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We disclaim any obligation, except as specifically required by law and the rules of the SEC, to publicly update or revise any such statements to reflect any change in our expectations or in events, conditions, or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements.

Our primary source of revenue in Fiscal 2019 and Fiscal 2018 is from our I nfrastructure B usiness .

The Company’s Infrastructure Business, involves:

Rental of heavy construction equipment including bulldozers, excavators, rollers, and pavers, among others.

Bidding and execution of construction contracts.

Our subsidiary TBL, with over 30 years of experience with infrastructure projects recently, began work on a construction project building and modifying a road in Kerala, India.

In January 2019, TBL received a construction contract for the building of a National Highway Authority of India (“NHAI”) sponsored local highway for approximately $0.6 million.

This is a line that the Company expects to expand with the purchase of heavy equipment, bank guarantees, and the retention of additional employees and consultants.

TBL is currently executing this contract and expects to recognize revenue in Fiscal 2020.

Apart from working capital, in Fiscal 2019, the Company invested $300 thousand in TBL to specifically increase the construction business.

The purchase and resale of physical commodities, used in infrastructure, such as steel, marble and tiles, among others (collectively, the “Infrastructure Business”).

Our business expansion strategy includes our Plant and Cannabinoid Business.

Our second line of business (collectively, the “Plant and Cannabinoid Business”), stems from plant material, and cannabinoids produced by the cannabis plant.

The Company’s strategy is to create, build, and manage several brands of plant and cannabinoid-based products and therapies, such as Hyalolex™, Serosapse™, Natrinol™, and Holi Hemp™, among others.

As part of this strategy, the Company expects to secure the quantity, availability, and effective cost of its supply chain by setting up and controlling facilities that grow and extract the active ingredients for our products.

In addition, we are also exploring acquisitions, investments, or the creation of joint ventures with competitive and complementary businesses, products and technologies.

As market demand for hemp grows, as predicted by some analysts, we expect to sell these and other products on a retail and wholesale basis.

As previously announced, our product mix is expected to include hemp/CBD-infused drinks including an energy drink;

full spectrum oil;

hemp distillate;

and hemp isolate, among others.

Our primary source of revenue in Fiscal 2020 and 2019, is from our Infrastructure segment.

In Fiscal 2020, we significantly reduced the buying and selling of construction materials in Hong Kong because of what we believe to be a slow-down in the Hong Kong economy due, in part, to widespread protests, along with the spread of COVID-19.

The Company’s Infrastructure segment, involves:

Execution of Construction Contracts – The Company is executing a road building contract in Kerala, India valued initially at approximately $0.6 million.

Throughout Fiscal 2020, the Company worked on execution of the contract as well as sought approval for an expansion of the contract.

The total value of the contract was increased to approximately $1.1 million.

The Company estimates that it will take between 12 and 15 months to complete the work.

Work on this project has been temporarily suspended due to COVID-19.

We expect to re-start the project in second quarter of Fiscal 2021.

Purchase and Resale of Physical Commodities Used in Infrastructure – This business line includes the purchase and resale of commodities, including steel, wooden doors, marble, and tiles, among others.

This work has been adversely affected due to COVID-19.

Rental of Heavy Construction Equipment – We own heavy construction equipment such as motor grader, transit mixers and rollers, that we rent to construction contractors.

This business is seasonal and had minimal revenue during Fiscal 2020.

Our second segment, Life Sciences, includes a biotech component, and a vertically integrated hemp-cannabinoid based healthcare and wellness business, which involves:

development of potential new drugs, subject to applicable regulatory approvals, that use ultra-low doses of phytocannabinoids including cannabidiol (CBD), cannabigerol (CBG), and tetrahydrocannabinol (THC), among others, in combination with other compounds, believed to assist in the treatment of diseases like Alzheimer’s,

several CBD-based products and brands, in various stages of development, for sale online and/or through stores,

wholesale of hemp extracts including hemp crude extract, and hemp isolate, among others,

hemp growing and processing facilities,

white labeling of hemp-based products, and

the offering of tolling services like extraction and distillation to hemp-farmers and retailers.

Since the legal industrial hemp industry remains relatively new, during Fiscal 2020, the Company focused on setting up facilities for long-term expansion of its Life Sciences segment.

The Company filed an Investigative New Drug Application (INDA) with the FDA for a double-blind, placebo-controlled, 100-person trial, for its proprietary patent pending formulation based on IGC-AD1 and established an approximately $0.5 million facility in San Juan, Puerto Rico to conduct the trial.

The Company also established an approximately $2.4 million facility it intends to qualify as a Good Manufacturing Practice (GMP)-certified processing facility in the State of Washington for:

a) production of products such as lotions, creams, and oils, among others, to support our products and to support white labeling;

b) extraction of hemp into crude oil;

and c) distillation of crude oil into hemp extracts.

The crop that was grown in Arizona, passed inspection by the Arizona Department of Agriculture (AZDA) with the harvest certified as legal under the United States Department of Agriculture (USDA) rules.

The Company operates both segments in compliance with applicable state, national, and local laws, and regulations and only in locations and regions where it is legal to do so.

Further information on the Company highlights in Fiscal 2020 can be found in Item 1, “Fiscal 2020 Highlights”.

Results of Operations

Fiscal Year Ended March 31, 2019 compared to Fiscal Year Ended March 31, 201 8

Fiscal 2020 compared to Fiscal 2019

The following table presents an overview of our results of operations for Fiscal 2020 and Fiscal 2019:

Statement of Operations (in thousands)

Fiscal Year Ended March 31,

Cost of revenues

Statement of Operations (in thousands, audited)

Cost of revenue

General and administrative expenses

Research & development expenses

Research and development expenses

Operating loss

Impairment loss

Other income, net

Loss before income taxes

Revenues – Revenue was primarily derived from our Infrastructure Business in Fiscal 2019 and Fiscal 2018.

This amounted to approximately $5.12 million and $2.19 million, respectively, representing an increase of $2.92 million or 133%.

The increase in revenue was attributable to an increase in the sales of infrastructure related physical commodities.

In the last quarter of Fiscal 2019, we also commenced sales in the Plant and Cannabinoid Business, which contributed $25 thousand in revenue in Fiscal 2019.

Cost of revenue – Cost of revenue was primarily from our Infrastructure Business in Fiscal 2019 and Fiscal 2018.

This amounts to approximately $4.98 million for Fiscal 2019 compared to $2.11 million in Fiscal 2018, an increase of approximately $2.87 million or 136%.

This increase in cost of revenue was attributable to increased purchase of physical commodities, with the margins remaining stable.

In the last quarter of Fiscal 2019, we commenced sales in the Plant and Cannabinoid Business, which contributed $22 thousand in cost of revenue.

G eneral and administrative expenses – These consist primarily of employee-related expenses, professional fees, legal fees, other corporate expenses, allocated general overhead and provisions, depreciation and write-offs relating to doubtful accounts and advances (if any).

General and administrative expenses increased by approximately $1.8 million or 103% to $3.5 million for Fiscal 2019 from $1.7 million for the year ended March 31, 2018.

The increase in general and administrative expenses is primarily attributable to increased legal & professional fees of $1.1 million attributable to among others, the NYSE delisting proceedings, and various lawsuits filed against the Company during Fiscal 2019.

Research and Development expenses - R&D expenses which are attributed to our Plant and Cannabinoid Business, increased approximately $1.1 million or 817%, to $1.3 million for Fiscal 2019, compared to $137 thousand for Fiscal 2018.

These expenses relate to reformulating Hyalolex™, formulations for Serosapse™ and Natrinol™, the preparation of FDA filings, and preparation for medical trials.

It also includes inventory that was shown as work in progress in Fiscal 2018.

Other Income, net – Other income increased by approximately $545 thousand or 18,167% during Fiscal 2019.

The total other income for Fiscal 2019 and Fiscal 2018 is approximately $548 thousand and $3 thousand, respectively.

In Fiscal 2019, such amounts include income received from interest, miscellaneous rental income, and a non-recurring gain of $300 thousand earned by repayment of $1.5 million for the settlement against a $1.8 million note payable with Bricoleur Partners L.P.

In Fiscal 2018, other income (net) consisted of $31 thousand interest paid for loans, $5 thousand interest received from cash deposits, and $29 thousand from other income like rent and others

Balance Sheet (in thousands)

Accounts receivable – Our accounts receivable for Fiscal 2019 and Fiscal 2018 amounted to $84 thousand and $558 thousand, respectively, a decrease of $474 thousand, approximately 85% compared to Fiscal 2018.

The primary component of our accounts receivable in Fiscal 2019 is the receivable from rental of heavy construction equipment.

The decrease in account receivable is attributable to reclassification of one receivable to non-current assets from current assets.

Further information on the reclassification can be referred to in Note 8 of Part II, Item 8.

Inventory – Inventory in Fiscal 2019 is $248 thousand compared to $486 thousand in Fiscal 2018, decrease of 238 thousand, approximately 49% as compared to Fiscal 2018.

For Fiscal 2019 and Fiscal 2018 our inventory relates to the Plant and Cannabinoid Business.

Fiscal 2019 inventory consists of hemp crude oil and hemp distillate, whereas Fiscal 2018 inventory consisted of Hyalolex™ and its components.

The 2018 Farm Bill that legalized hemp created an opportunity to reformulate some of our formulations to comply with the 2018 Farm Bill by keeping THC below 0.3% by dry weight.

Management decided to repurpose the formulation of Hyalolex™ and its components for other products as well as for reformulating Hyalolex™ and therefore expensed the inventory as R&D in Fiscal 2019.

Investment held for sale – The investment held for sale in Fiscal 2019 is Nil compared to $148 thousand in Fiscal 2018 as we sold our Malaysian subsidiary Cabaran Ultima, our infrastructure and consultancy business, on March 23, 2019, for 80,000 shares of IGC common stock that we received.

Intangible assets – The value of intangible assets in Fiscal 2019 amounted to $184 thousand as compared to $128 thousand in Fiscal 2018.

The increase of $56 thousand (44%) in intangible assets are attributable to the cost of acquisition and filing of patents.

The amortization of acquired patent rights is 13 years from Fiscal 2020.

There was no amortization of intangible assets during Fiscal 2019 and Fiscal 2018.

Property, plant and equipment, net – PP&E decreased by approximately $351 thousand, or 6%, to $5.89 million for Fiscal 2019, compared to $6.24 million for Fiscal 2018.

The decrease in PP&E was mainly due to depreciation and foreign exchange translation due to decline in value of Indian Rupee.

Investments – Investments decreased approximately by $5 thousand to $794 thousand for Fiscal 2019 compared to $799 thousand for Fiscal 2018.

The decrease of approximately 1% is attributable to sale of small portion of investment by our subsidiary to its director.

Impact of the sale is not material.

We also impaired the value of all non-operating subsidiaries to zero in the holding company in Fiscal 2019.

It has no impact on the consolidated financial statement presented in the report.

There was no impairment in Fiscal 2018.

Total liabilit ies – Total liabilities decreased by $1.9 million, or 68%, to $893 thousand for Fiscal 2019 compared to $2.79 million for Fiscal 2018.

The decrease was attributable to the repayment of loans of $1.9 million.

Revenue – Revenue was primarily derived from our Infrastructure segment in both Fiscal 2020 and 2019.

Revenue was approximately $4,072 thousand and $5,116 thousand, for Fiscal 2020 and 2019, respectively, representing a decline of $1,044 thousand or 20%.

This decrease in revenue is attributed to a decrease in the infrastructure business, especially in the last quarter of Fiscal 2020 due to the outbreak of COVID-19 and the slowing down of the Hong Kong economy as a result of widespread protests.

We have limited visibility on when the infrastructure business will normalize and expect a significant decrease in revenue from the infrastructure business until operations resume following the COVID-19 pandemic.

Cost of revenue – Cost of revenue amounted to approximately $3,957 thousand for Fiscal 2020, compared to $4,984 thousand in Fiscal 2019, a decrease of approximately $1,027 thousand or 21%.

This decrease in cost of revenue is attributable to a decrease in our Infrastructure businesses in the last quarter of Fiscal 2020 due to the outbreak of COVID-19 and the slowing down on the Hong Kong economy as a result of the widespread protests.

General and administrative expenses – General and administrative expenses consist primarily of employee-related expenses, professional fees, legal fees, marketing, other corporate expenses, allocated general overhead and provisions, depreciation and write-offs relating to doubtful accounts and advances, if any.

General and administrative expenses increased by approximately $2,449 thousand or 70% to $5,968 thousand for Fiscal 2020, from $3,519 thousand for Fiscal 2019.

The increase of $2,449 thousand is attributed largely to legal and professional fees that amounted to approximately $0.8 million, and approximately $0.9 million compensation expenses attributed to increased head count and associated employee-related expenses.

In addition, we had approximately $754 thousand of non-cash expenses and $150 thousand provision for advance in Fiscal 2020.

Research and Development expenses – R&D expenses were attributed to our Life Sciences segment.

The R&D expenses decreased approximately $245 thousand or 20%, to $1,011 thousand for Fiscal 2020, compared to $1,256 thousand for Fiscal 2019.

The cost associated with this work is mostly research comprising of plant extracts that could be productized and data to support the efficacy of the extracts, including running FDA trials, product research, designing, formulating and market analysis.

All research and development costs are expensed in the quarter in which they are incurred.

The decrease is attributed to a slowdown of R&D activity in the last quarter of Fiscal 2020 due to COVID-19.

Impairment loss – 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 and hence maintained the same value of investment of approximately $773 thousand.

During Fiscal 2020, the Company decided to impair this investment.

The Company still owns 24.9% ownership in MTP as on March 31, 2020.

Other Income, net – Other net income decreased by approximately $217 thousand or 40% during Fiscal 2020.

The total other income for Fiscal 2020 and 2019 is approximately $331 thousand and $548 thousand, respectively.

The major decrease is due to a one-off $300 thousand gain on the settlement of a note payable in Fiscal 2019.

In Fiscal 2020, such amount includes interest income, rental income and approximately $84 thousand dividend income from marketable securities, net.

Liquidity and capital resources

This liquidity and capital resources discussion compares the consolidated company results for Fiscal 2019 and Fiscal 2018.

The following table represents this (in thousands).

Year Ended March 31,

Our sources of liquidity are cash and cash equivalents, cash flows from operations, short-term borrowings, and short-term liquidity arrangements.

The Company continues to evaluate various financing sources and options to raise working capital to help fund current research and development programs and operations.

The Company does not have any material long-term debt, capital lease obligations or other long-term liabilities, except as disclosed in this report.

Please refer to Note 12, “Commitments and contingencies” and Note 9, “Leases” in Item 8 of this report for further information on Company commitments and contractual obligations.

The Company believes its existing balances of cash, cash equivalents and marketable securities and other short-term liquidity arrangements, will be sufficient to satisfy its working capital needs, capital asset purchases, share repurchases, debt repayments, investments and other liquidity requirements, if any, associated with its existing operations over the next 12 months.

Management is actively monitoring the impact of COVID-19 on its financial condition, liquidity, operations, suppliers, industry, and workforce.

Please refer to Item 1A.

“Risk Factors” for further information on the risks related to the Company.

This liquidity and capital resources discussion compares the audited consolidated Company financials.

(in thousands, audited)

March 31, 2020

March 31, 2019

Percent Change

Cash, cash equivalents and marketable securities

Working capital

Cash and cash equivalents

Cash and cash equivalents decreased by approximately $18,352 thousand to $7,258 thousand in Fiscal 2020, from $25,610 thousand in Fiscal 2019, a decrease of approximately 72%.

The major decrease was due to investments of approximately $5,081 thousand in marketable securities, $4,389 thousand in purchase of property, plant and equipment, and $3,998 thousand in inventory.

Summary of Cash flows

(in thousands, audited)

Percent Change

Cash used in operating activities

Cash used in investing activities

Cash generated by financing activities

Cash and cash equivalents

Cash and cash equivalents increased by almost $24 million to $25.61 million in Fiscal 2019 from $1.66 million in Fiscal 2018, an increase of approximately 1,445%.

The increase is from funds raised in Fiscal 2019 through the sale of Company’s common stock in public offerings and a private placement.

O perating Activities

Cash provided by/ (used in) financing activities

Effects of exchange rate changes on cash and cash equivalents

Net increase/(decrease) in cash and cash equivalents

Cash and Cash Equivalents at the beginning of period

Cash and cash equivalents at the end of the period

Operating Activities

Net cash used for operating activities for Fiscal 2020 was $8.7 million.

Cash was consumed from continuing operations, with the net loss of $4.1 million, non-cash items totaling $387 thousand, consisting of a depreciation charge of $59 thousand and stock-based expenses totaling $610 thousand.

This is offset by a gain of $300 on the settlement of a note payable.

Changes in working capital accounts had a positive impact of $380 thousand on cash.

Net cash used in operating activities was $1.9 million for Fiscal 2018.

Cash was consumed from continuing operations by the loss of $1.8 million less non-cash items totaling $609 thousand, consisting principally of stock-based compensation totaling $576 thousand and depreciation charge of $19 thousand.

Changes in working capital accounts had a negative impact of $754 thousand on cash.

This consists of a net loss of $7.3 million and non-cash items totaling $1.7 million, which in turn consist of an amortization/depreciation charge of $144 thousand, impairment loss of $782 thousand, and stock-based expenses totaling $770 thousand.

Changes in operating assets and liabilities had a negative impact of $3,058 thousand on cash of which $3,998 was due to increase in inventory.

Net cash used for operating activities for Fiscal 2019 was $3.3 million.

This consists of a net loss of $4.1 million and non-cash items totaling $387 thousand, which in turn consist of an amortization/depreciation charge of $59 thousand, one-time settlement gain of $300 thousand, and stock-based expenses totaling $610 thousand.

Changes in operating assets and liabilities had a positive impact of $380 thousand on cash.

Investing Activities

Net cash used in investing activities during Fiscal 2020 was $9.5 million which is comprised of approximately $77 thousand for the acquisition and filing expenses related to patents and trademarks, purchase of property, plant and equipment of $4,389 thousand and investments of approximately $5,081 thousand in marketable securities.

Net cash used in investing activities during Fiscal 2019 was $260 thousand which is comprised of approximately $45 thousand for the acquisition of the patent from the University of South Florida, purchase of property, plant and equipment of $15 thousand and a loan for the procurement of equipment in the amount of $200 thousand at an interest rate of 3 percent per annum.

Net cash used by investing activities during Fiscal 2018 was $657 thousand comprised of a de-consolidation adjustment of $456 thousand and the purchase of a patent for $65 thousand.

Financing Activities

Net cash used in financing activities was $59 thousand during Fiscal 2020, consisting of $18 thousand from the exercise of share options, and the $77 thousand share related expenses.

Net cash provided by financing activities was $27.6 million during Fiscal 2019, consisting of $29.5 million received net from the sale of common shares through the Company’s public offering and private placement program, offsetting the payment of $1.9 million of payment of outstanding loans.

Net cash provided by financing activities was $3.7 million during Fiscal 2018, consisting of approximately $3.5 million received net from the sale of common shares through the Company’s public offering and private placement program.

Critical Accounting Policies and Estimates

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Recognize revenue when or as the performing party satisfies performance obligations.

The consideration/price for the transaction (performance obligation(s)) is determined as per the agreement or invoice (contract) for the services and products in the Infrastructure Business and Plant and Cannabinoid Business.

Revenue in the Infrastructure Business is recognized for the renting and contracting business once the obligation as per the agreement has been completed by the company.

Revenue in the Infrastructure Business is recognized for the renting business when the equipment is rented, and terms of the agreement has been fulfilled during the period.

The revenue from the purchase and resale of physical infrastructure commodities is recognized once the bill of lading along with the invoice have been transferred to the customer.

In the Plant and Cannabinoid Business, the revenue from the cannabinoid-based products is recognized in Holi Hemp once goods have been sold to the customer and the performance obligation has been completed.

While in IGCare, we license our products to processors.

The revenue from the cannabinoid-based products and therapies is recognized once goods have been sold to the customer by the outlets and the performance obligation is completed as per the agreement.

Revenue from the execution of infrastructure contracts is recognized on the basis of output method as and when part of the performance obligation has been completed and approval from the contracting agency has been obtained after survey of the performance completion as of that date.

In the Life Sciences segment, the revenue from the wellness and lifestyle business is recognized once goods have been sold to the customer and the performance obligation has been completed.

We license our products to processors.

The royalty income is recognized once goods have been sold to its customer by the processor.

Net sales disaggregated by significant products and services for Fiscal 2020 and Fiscal 2019 were as follows (in thousands):

Year Ended March 31,

Infrastructure Business

Infrastructure segment

Rental income (1)

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Purchase and resale of physical commodities (3)

Plant and Cannabinoid Business

Plant and Cannabinoid products and therapies (4)

Life Sciences segment

Wellness and Lifestyle (4)

Tolling/White labeling service (5)

(1) Rental income consists of income from rental of heavy construction equipment.

(2) Relates to the income from execution of construction contracts.

(3) Relates to the income from purchase and resale of physical commodities used in infrastructure, like steel, marble and tiles.

(4) Relates to revenue from plant and cannabinoid-based products and therapies such as hemp crude extract, hemp isolate, and hemp distillate.

There was no revenue from Hyalolex™ in Fiscal 2019.

(2) Construction income stems from the execution of contracts either directly or as a subcontractor.

There was revenue of $101 thousand from the $1.1 million NHAI construction contract during Fiscal 2020.

The Company expects to complete the project 12 and 15 months.

(3) Relates to the income from purchase and resale of physical commodities used in infrastructure, like steel, wooden doors, marble, and tiles.

(4) Relates to revenue from Life Sciences segment such as sale of hemp crude extract, hemp isolate, and hemp distillate and royalty income from sale of Hyalolex™, now named Hyalolex™ Drops of Clarity™.

(5) Relates to income from tolling services.

Accounts receivable

We make estimates of the collectability of our accounts receivable by analyzing historical payment patterns, customer concentrations, customer creditworthiness, and current economic trends.

If the financial condition of a customer deteriorates, additional allowances may be required.

We had $133 thousand of accounts receivable, net of provision, for doubtful debt of $9 thousand as of March 31, 2020 as compared to $84 thousand, net of provision, for doubtful debt of $6 thousand as of March 31, 2019.

Short-term and long-term investments

Our policy for short-term and long-term investments is to establish a high-quality portfolio that preserves principal, meets liquidity needs, avoids inappropriate concentrations, and delivers an appropriate yield in relationship to our investment guidelines and market conditions.

Short-term and long-term investments consist of corporate, various government agency and municipal debt securities, as well as certificates of deposit that have maturity dates that are greater than 90 days.

Certificates of deposit and commercial paper are carried at cost which approximates fair value.

Available-for-sale securities:

Investments in debt securities that are classified as available for sale shall be measured subsequently at fair value in the statement of financial position.

Unrealized holding gains and losses for available-for-sale securities (including those classified as current assets) shall be excluded from earnings and reported in other comprehensive income until realized except as indicated in the following sentence.

All or a portion of the unrealized holding gain and loss of an available-for sale security that is designated as being hedged in a fair value hedge shall be recognized in earnings during the period of the hedge, pursuant to paragraphs 815-25-35-1 through 35-4.

Investments are initially measured at cost, which is the fair value of the consideration given for them, including transaction costs.

Where the Company’s ownership interest is in excess of 20% and the Company enjoys significant interest, the Company has accounted for the investment based on the equity method in accordance with ASC 323, “Investments – Equity method and Joint Ventures”.

Under the equity method, the Company’s share of the post-acquisition profits or losses of the equity investee is recognized in the consolidated statements of operations and its share of post-acquisition movements in accumulated other comprehensive income (loss) is recognized in other comprehensive income (loss).

Where the Company does not have significant influence, the Company has accounted for the investment in accordance with ASC Topic 321 “Investments-Equity Securities”.

Impairment of investment

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The estimated amount of liability is based on the information available with us with respect of bank debt and other borrowings.

During Fiscal 2020 the Company impaired investments of $782 thousand.

Change in inventory valuation method

On April 1, 2019, the Company changed its methodology for the valuation of inventory from first-in-first-out to weighted average cost method, because the newly adopted accounting principle is preferable in the circumstances because the weighted average cost method of accounting for all inventories will improve financial reporting by better matching revenues and expenses and better reflecting the current value of inventory.

The change did not impact the financial statements for the prior years.

Inventory is valued at the lower of cost or net realizable value, net realizable value defined as estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.

Inventory consists of raw materials, finished goods and work-in-progress such as extracted crude oil, CBD isolate, growing crops, crude oil, herbal oils, among others.

Work-in-progress also includes product manufacturing in process, costs of growing hemp, in accordance with applicable laws and regulations including but not limited to labor, utilities, fertilizers and irrigation.

Inventory is primarily accounted for using the weighted average cost method.

Primary costs include raw materials, packaging, direct labor, overhead, shipping and the depreciation of manufacturing equipment.

Manufacturing overhead and related expenses include salaries, wages, employee benefits, utilities, maintenance, and property taxes.

Harvested crops are measured at net realizable value, with changes recognized in profit or loss only when the harvested crop:

- has a reliable, readily determinable, and realizable market value;

- has relatively insignificant and predictable costs of disposal;

- is available for immediate delivery.

The Company believes its harvested crops does not have a readily available market.

Hence, the Company values its harvested crops at cost.

Stock-based compensation

Stock-based compensation expense is measured at the grant date, based on the estimated fair value of the award.

The cost is recognized as expense ratably over the employee’s requisite service period or vesting period, which is generally up to one or two years, on a straight-line basis.

The cost is recognized as expense ratably over the employee’s requisite service period or vesting period, which is generally up to one or three years, on a straight-line basis.

We account for forfeitures when they occur.

Equity awards issued to non-employees are recorded at their fair value on the grant date as they are immediately exercisable and not forfeitable at the date of grant.

The adoption of ASU 2018-07 had approximately $30 thousand impact on our Consolidated Financial Statements.

For further information refer to Note-15 “Stock-Based Compensation”.

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements.

Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.

Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax base of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.

Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

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Foreign currency translation

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).

IGC operates in India, U.S., Colombia and Hong Kong and a substantial portion of the Company’s financials are denominated in the Indian Rupee (INR), the Hong Kong Dollar (HKD) or the Colombian Peso (COP).

As a result, changes in the relative values of the U.S.

Dollar (USD), the INR or the HKD affect revenues and expenses.

Dollar (USD), the INR, the HKD or the COP affect financial statements.

The accompanying financial statements are reported in USD.

The INR and HKD are the functional currencies for certain subsidiaries of the Company.

The INR, HKD and COP are the functional currencies for certain subsidiaries of the Company.

The translation of the functional currencies into U.S.

9 unchanged sentences

Year ended March 31, 2019

Cyber s ecurity

Cybersecurity

We have a cybersecurity policy in place and have implemented tighter cybersecurity measures to safeguard against hackers.

15 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis