IGC Pharma, Inc. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Index to Consolidated Financial Statements Page Report of Independent Registered Public Accounting Firms 41 Consolidated Balance Sheets 42 Consolidated Statements of Operations and Comprehensive Loss 43 Consolidated Statements of Stockholders’ Equity 44 Consolidated Statements of Cash Flows 45 Notes to Consolidated Financial Statements 46 40 Table of Contents Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors of India Globalization Capital, Inc. Opinions on the Consolidated Financial Statements We have audited the accompanying Consolidated balance sheets of India Globalization Capital, Inc. and its subsidiaries (the "Company") as of March 31, 2020 and 2019, the related consolidated statements of operations and comprehensive loss, stockholders’ equity and cash flows, for each of the two years in the period ended March 31, 2020, and the related notes (collectively referred to as the "Consolidated financial statements"). In our opinion, the Consolidated financial statements present fairly, in all material respects, the Consolidated financial position of the Company as at March 31, 2020 and 2019, and the Consolidated results of its operations and its cash flows for each of the two years in the period ended March 31, 2020, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These Consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's Consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the Consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the Consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Manohar Chowdhry & Associates Chartered Accountants We have served as the Company’s auditor since 2018. Chennai, India Date: July 9, 2020 41 Table of Contents India Globalization Capital, Inc. CONSOLIDATED BALANCE SHEETS (in thousands, except share data) March 31, 2020 ($) March 31, 2019 ($) ASSETS Current assets: Cash and cash equivalents 7,258 25,610 Marketable Securities 5,081 - Accounts receivable, net 133 84 Inventories 4,245 248 Deposits and advances 1,040 781 Total current assets 17,757 26,723 Intangible assets, net 252 184 Property, plant and equipment, net 9,780 5,886 Non-Marketable Securities 11 794 Claims and advances 610 878 Operating lease asset 574 - Total long-term assets 11,227 7,742 Total assets 28,984 34,465 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable 762 319 Accrued liabilities and others 1,134 509 Short-term loan 50 50 Total current liabilities 1,946 878 Other liabilities 16 15 Operating lease liability 485 - Total non-current liabilities 501 15 Total liabilities 2,447 893 Commitments and Contingencies – See Note 1 2 Stockholders' equity: Preferred stock, $0.0001 per value: authorized 1,000,000 shares, no share issued or outstanding as on March 31, 2020 and March 31, 2019 - - Common stock and additional paid-in capital, $0.0001 par value: 150,000,000 shares authorized; 39,320,116 and 39,501,407 shares issued and outstanding as on March 31, 2020 and March 31, 2019, respectively. 94,754 94,043 Accumulated other comprehensive loss (2,850 ) (2,419 ) Accumulated deficit (65,367 ) (58,052 ) Total stockholders' equity 26,537 33,572 Total liabilities and stockholders' equity 28,984 34,465 The accompanying notes should be read in connection with these consolidated financial statements. 42 Table of Contents India Globalization Capital, Inc. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (in thousands, except loss per share) Years Ended March 31, 2020 ($) 2019 ($) Revenues 4,072 5,116 Cost of revenues (3,957 ) (4,984 ) Gross profit 115 132 General and administrative expenses (5,968 ) (3,519 ) Research and development expenses (1,011 ) (1,256 ) Operating loss (6,864 ) (4,643 ) Impairment of investment (782 ) - Other income – net 331 548 Loss before income taxes (7,315 ) (4,095 ) Income taxes expense - (2 ) Net loss attributable to common stockholders (7,315 ) (4,097 ) Foreign currency translation adjustments (431 ) (362 ) Comprehensive loss (7,746 ) (4,459 ) Loss per share attributable to common stockholders: Basic & diluted $ (0.19 ) $ (0.13 ) Weighted-average number of shares used in computing loss per share amounts: 39,490 35,393 The accompanying notes should be read in connection with these consolidated financial statements. 43 Table of Contents India Globalization Capital, Inc. CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (in thousands) Number of Common Shares Common Stock and Additional Paid in Capital ($) Accumulated Deficit ($) Accumulated Other Comprehensive Loss ($) Total Stockholders' Equity ($) Balances as of March 31, 201 8 30,764 63,917 (53,795 ) (2,057 ) 8,065 Bricoleur Note penalty shares 30 18 - - 18 Common stock issued through public offering, net 5,899 28,508 - - 28,508 Share based compensation & other expenses 2,019 638 - - 638 Common stock issued through private placement, net 870 950 - - 950 Adoption of ASU 2018-07 - 31 (31 ) - - Cancellation of IGC shares (80 ) (19 ) (129 ) (148 ) Net income loss - - (4,097 ) - (4,097 ) Loss on foreign currency translation - - - (362 ) (362 ) Balances as of March 31, 201 9 39,502 94,043 (58,052 ) (2,419 ) 33,572 Share based compensation & other expenses 70 711 - - 711 Cancellation of IGC shares (252 ) - - - - Net income loss - - (7,315 ) - (7,315 ) Loss on foreign currency translation - - - (431 ) (431 ) Balances as of March 31, 20 20 39,320 94,754 (65,367 ) (2,850 ) 26,537 The accompanying notes should be read in connection with these consolidated financial statements. 44 Table of Contents India Globalization Capital, Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Years Ended March 31, 20 20 ($) 201 9 ($) Cash flows from operating activities: Net loss (7,315 ) (4,097 ) Adjustment to reconcile net loss to net cash: Depreciation and amortization 144 59 Non-cash Interest - 18 Gain on settlement of note payable, net - (300 ) Impairment of investment 782 - Share based compensation and other expenses 770 610 Changes in: Accounts receivable (49 ) 474 Inventories (3,998 ) 239 Deposits and advances (259 ) (422 ) Claims and advances (307 ) (193 ) Accounts payable 442 (30 ) Accrued liabilities and others 1,113 312 Net cash used in operating activities (8,677 ) (3,330 ) Cash flow from investing activities: Purchase of property, plant and equipment (4,389 ) (15 ) Investment in marketable securities (5,081 ) - Loan repayment - (200 ) Acquisition and filing cost of patents and rights (77 ) (45 ) Net cash used by investing activities (9,547 ) (260 ) Cash flows from financing activities: Issuance of equity stock through public offering (net of expenses) (59 ) 28,508 Issuance of equity stock through private placement (net of expenses) - 950 Proceed from option exercised - 18 Repayment of loan - (1,878 ) Net cash (used in)/ provided by financing activities (59 ) 27,598 Effects of exchange rate changes on cash and cash equivalents (69 ) (56 ) Net increase in cash and cash equivalents (18,352 ) 23,952 Cash and cash equivalent at the beginning of the period 25,610 1,658 Cash and cash equivalent at the end of the period 7,258 25,610 Supplementary information: Cash paid for interest 8 14 Non-cash items: Common stock issued/granted including ESOP, consultancy, and patent acquisition 770 610 Common stock issued as penalty on notes payable - 18 Amortization of operating lease 7 - The accompanying notes should be read in connection with these consolidated financial statements. 45 Table of Contents India Globalization Capital, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For Fiscal Years Ended March 31, 2020 and 201 9 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. NOTE 1 – NATURE OF OPERATIONS AND MANAGEMENT’S PLANS IGC has two segments: Infrastructure and Life Sciences. The Company’s Infrastructure Business, managed from India, involves: (a) the execution of construction contracts, (b) the rental of heavy construction equipment, and (c) the purchase and resale of physical commodities used in infrastructure. Our revenue in Fiscal 2020 was primarily derived from this business. Information about our infrastructure products and service offerings is available at www.igcinc.us. The Company’s Life Sciences segment, managed from the United States, involves: a) the development of potential new drugs, subject to applicable regulatory approvals , b) several CBD-based products and brands, in various stages of development, for sale online and through stores, c) wholesale of hemp extracts including hemp crude extract and hemp isolate, among others, d) hemp growing and processing facilities, e) white labeling of hemp-based products and f) the offering of tolling services like extraction and distillation to hemp farmers. In Fiscal 2020 we completed the development of several products building out our “house of brands” that we intend to market online and through retail stores. We are enthusiastic about what we believe to be the immense potential of these unique concepts to address various segments of the exponentially growing cannabinoid wellness and lifestyle product market. In Fiscal 2020, the Company generated $411 thousand revenue from its Life Sciences segment, however COVID-19 has forced the Company to delay the launch of some of the brands and products. In Fiscal 2020 the Company in response to the COVID-19 pandemic adapted its manufacturing facilities and operations to include alcohol-based hand sanitizers which go on sale in Fiscal 2021. The Company’s principal office in the U.S. is in Potomac, Maryland, and the Company has a facility in Washington State and offices in Colombia, Hong Kong, and India. As of March 31, 2020, the Company had the following direct operating subsidiaries: Techni Bharathi Private Limited (TBL), IGCare LLC, Holi Hemp LLC, IGC Pharma LLC, SAN Holdings LLC, Sunday Seltzer, LLC and Colombia-based beneficially-owned subsidiary Hamsa Biochem SAS (Hamsa). 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. The Company’s filings are available on www.sec.gov. Business updates • 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. • The Company filed an INDA with the FDA for a double-blind, placebo-controlled, 100-person trial, for its proprietary patent pending formulation based on IGC-AD1 that uses ultra-low doses of tetrahydrocannabinol (“THC”) with other natural compounds intended to assist in the management of the care of patients suffering from Alzheimer’s disease. • IGC filed a provisional patent, IGC 510, Compositions and Methods using CBD for treating stammering and symptoms of Tourette syndrome with the USPTO. • The Company established an approximately $0.5 million facility in San Juan, Puerto Rico to house and conduct trials. • As part of an out-reach and marketing campaign, we distributed samples of Hyalolex™ Drops of Clarity™, to dispensaries in Puerto Rico. The formulation is currently available in about 51 dispensaries in Puerto Rico. While this is a small market penetration, it allows us to collect data. Based on feedback received from customers and dispensaries in Puerto Rico, the Company has expanded the scope of the Hyalolex™ formulation to potentially target other ailments, such as anxiety and sleep disorders, and has introduced a line of products including tinctures, among others. These will all be branded under Hyalolex™, with the original formulation branded as Hyalolex™ Drops of Clarity™. Post COVID-19 based stay-in-place restrictions we expect to manufacture and distribute these products initially in Puerto Rico and subsequently online and in other states. 46 Table of Contents • In Fiscal 2020 the Company in response to the COVID-19 pandemic adapted its manufacturing facility to include FDA-registered alcohol-based hand sanitizers, which go on sale in Fiscal 2021. • The Company advanced its branding and product strategy with the development of several brands aimed at various sectors of the market. The progress includes filing trademark applications and intent to use applications; securing URLs; creating product formulations, labelling, and packaging; obtaining product insurance; securing product development teams; conducting focus groups; performing quality and taste testing; and organizing and registering limited liability companies to mitigate risk, among others. • The Company grows hemp in Arizona. The crop has passed inspection by the Arizona Department of Agriculture (“AZDA”) and has been certified as legal by AZDA. However, the harvest is delayed due to of the difficulty in finding workers because of the social distancing rules brought on by COVID-19. • We prepared our facilities in Washington for the dual purpose of manufacturing finished products as well as for extraction and distillation. Most of our hemp processing and distillation equipment is sourced from China. Currently, due to COVID-19 the commissioning and certification of the equipment is delayed as the technicians are unable to travel from China to the U.S. • On February 15, 2020, the Company signed a Share Subscription Agreement (“SSA”) with Evolve I, to acquire 20% of Evolve I. As of March 31, 2020, the Company has not completed its due diligence. • In January 2020, the Company and the named defendant directors and officers executed a formal settlement agreement on specific final terms of settlement with the plaintiffs in all pending derivative lawsuits. On June 30, 2020, the Court held a hearing to evaluate the fairness and reasonableness of the settlement and to determine whether the settlement will be approved. On July 6, 2020, the Court entered an order formally and finally approving the settlement and resolving all pending derivative suits. Please See Item 3 Legal Proceedings. • IGC recently received notification that on March 24, 2020, the USPTO issued a method and composition patent (#10,596,159 B2) for the Company’s cannabinoid formulation for the treatment of cachexia and eating disorders in humans and veterinary animals. IGC filed this application for its IGC-504 formulation (#15/751,901) on August 11, 2016. NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES a) Principles of consolidation The consolidated financial statements include the accounts of the Company and all its subsidiaries. Intercompany accounts and transactions have been eliminated. In the opinion of the Company’s management, the consolidated financial statements reflect all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation. Transactions between the Company and its subsidiaries are eliminated in the consolidated financial statements. b ) Use of estimates The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. (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 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. c ) Revenue recognition The Company recognizes revenue under ASC 606, Revenue from Contracts with Customers (“ASC 606”). The core principle of this standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. 47 Table of Contents ASC 606 prescribes a 5-step process to achieve its core principle. The Company recognizes revenue from trading, rental, or product sales as follows: I. Identify the contract with the customer. II. Identify the contractual performance obligations. III. Determine the amount of consideration/price for the transaction. IV. Allocate the determined amount of consideration/price to the contractual obligations. V. 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 segment and Life Sciences segment. Refer to Note 19 - “Revenue Recognition”. d ) Cost of Sales Our cost of sales includes costs associated with in-house and outsourced distribution, labor expense, components, manufacturing overhead, and outbound freight for our products division. In our products division, cost of sales also includes the cost of refurbishing, if required, on products returned by customers that will be offered for resale and the cost of inventory write-downs associated with adjustments of held inventories to their net realizable value. These expenses are reflected in the Company’s consolidated statements of operations when the product is sold and net sales revenues are recognized or, in the case of inventory write-downs, when circumstances indicate that the carrying value of inventories is in excess of their net realizable value. ( e ) Earnings/(Loss) per Share The computation of basic loss per share for Fiscal 2020, excludes potentially dilutive securities of about 5 million shares which includes share options, unvested shares such as restricted shares and restricted share units, granted to employees and advisors, warrants, and shares from the conversion of outstanding units, shares to be issued to Evolve I pursuant to the Share Subscription Agreement, if any, because their inclusion would be anti-dilutive. The weighted average number of shares outstanding for Fiscal 2020 and 2019, used for the computation of basic earnings per share (“EPS”) is 39,490,014 and 35,393,407, respectively. Due to the loss incurred during Fiscal 2020 and 2019, all the potential equity shares are anti-dilutive and accordingly, the fully diluted EPS is equal to the basic EPS. f ) 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, 2020, and 2019, there was no significant liability for income tax associated with unrecognized tax benefits. g) 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. 48 Table of Contents h) Cash and cash equivalents For financial statement purposes, the Company considers all highly liquid debt instruments with maturity of three months or less, to be cash equivalents. The Company maintains its cash in bank accounts in the U.S., India, Colombia, and Hong Kong, which at times may exceed applicable insurance limits. The cash and cash equivalents in the Company on March 31, 2020 and 2019, was approximately $7,258 thousand and $25,610 thousand, respectively. i) 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”. j) 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. Upon retirement or disposition, cost and related accumulated depreciation of the property and equipment are de-recognized, and any gain or loss is reflected in the results of operation. Cost of additions and substantial improvements to property and equipment are capitalized. The cost of maintenance and repairs of the property and equipment are charged to operating expenses as incurred. k) 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 instrument includes cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, approximate their fair values due to the nature of the items. Please refer to Note -16 “Fair value of financial instruments”, for further information. 49 Table of Contents l) 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, accounts receivable and unbilled accounts receivable, if any. The Company places its cash, investments 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 Fiscal 2020, sales were spread across customers in Asia and U.S. and the credit concentration risk is low. m) Stock – Based Compensation The Company accounts for stock-based compensation to employees and non-employees in conformity with the provisions of ASC 718, Stock-Based Compensation . The Company expenses stock-based compensation to employees over the requisite vesting period based on the estimated grant-date fair value of the awards. The Company accounts for forfeitures as they occur. Stock-based awards are recognized on a straight-line basis over the requisite vesting period. For stock-based employee compensation cost recognized at any date will be at least equal to the amount attributable to the share-based compensation that is vested at that date. The Company estimates the fair value of stock option grants using the Black-Scholes option-pricing model. The assumptions used in calculating the fair value of stock-based awards represent management’s best estimates. The closing share price of the Company’s common stock on the date of grant is considered the fair-value of the share. The volatility factor is determined based on the Company’s historical stock prices. The expected term represents the period that our stock-based awards are expected to be outstanding. The Company has never declared or paid any cash dividends. Equity awards issued to non-employees are recorded at their fair value on the grant date as they are immediately exercisable and not forfeitable on the date of grant. n) 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. We record associated legal fees as incurred. Information regarding our commitments and contingencies is incorporated by reference in Note 12 of this Annual Report on Form 10-K. o) 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. Unlike goodwill, long-lived assets are assessed for impairment only where there are any specific indicators for impairment. p) 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. The newly adopted accounting principle is preferable 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. q) Inventory 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. 50 Table of Contents 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; and - 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. r ) Cybersecurity We have a cybersecurity policy in place and tighter cybersecurity measures to safeguard against hackers. In Fiscal 2020, there were no impactful breaches in cybersecurity. s) Research and Development Expenses During Fiscal 2020 and 2019, the Company recorded research and development expenses of approximately $1 million and $1.3 million, respectively. All research and development costs are expensed in the period in which they are incurred. t) Goodwill 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 would be disclosed separately. Goodwill is stated at cost less impairment losses incurred, if any. As of March 31, 2020, there was no Goodwill. u) Leases 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 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. 51 Table of Contents 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. Lessee Accounting The Company adopted 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. Under ASU 2016-02 (Topic 842), lessees are required to recognize the following for all leases (with the exception of short-term leases) on the commencement date: (i) lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (ii) right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. At the commencement date, the Company recognizes the lease liability at the present value of the lease payments not yet paid, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental borrowing rate for the same term as the underlying lease. The right-of-use asset is recognized initially at cost, which primarily comprises the initial amount of the lease liability, plus any initial direct costs incurred, consisting mainly of brokerage commissions, less any lease incentives received. All right-of-use assets are reviewed for impairment. There was no impairment for right-of-use lease assets as of March 31, 2020. The Company categorizes leases at their inception as either operating or finance 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. v) 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. Not yet adopted 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. We do not believe the adoption of this guidance will have a material impact on our consolidated financial statements 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. We do not believe the adoption of this guidance will have a material impact on our consolidated financial statements. 52 Table of Contents 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. We do not believe the adoption of this guidance will have a material impact on our consolidated financial statements. 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 for fiscal years beginning after January 2023. The Company is evaluating the impact of this update. NOTE 3 – INVENTOR Y On April 1, 2019, the Company changed its methodology for the valuation of inventory from first-in-first-out to weighted average cost method. The newly adopted accounting principle is preferable 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. (in thousands) As of March 31, 2020 ($) As of March 31, 2019 ($) Raw Materials 227 - Work-in-Progress 3,713 248 Finished Goods 305 - Total 4,245 248 Inventory in the form of work-in-progress as of March 31, 2020, is comprised of, but not limited to, various hemp-based extracts such as, crude oil, hemp distillate, and hemp isolate. The Company accounts all hemp extracts as work-in-progress until they are in the processing facility. Inventory also includes cost related to growing crops like seeds, fertilizer, other raw materials, labor, farm related overhead and the depreciation of farming equipment, among others. NOTE 4 – DEPOSITS AND ADVANCES (in thousands) As of March 31, 2020 ($) As of March 31, 2019 ($) Advances to suppliers and consultants 558 600 Other advances 16 120 Advances for Property, Plant and Equipment 259 - Statutory advances 27 43 Prepaid expense and other current assets 180 18 Total 1,040 781 The Advances to suppliers and consultants primarily relate to retainers given to attorneys and advance to suppliers in our infrastructure business. Advances for Property, Plant and Equipment include advance paid for equipment for processing facility in the State of Washington. 53 Table of Contents NOTE 5 – INTANGIBLE ASSETS Amortized intangible assets (in thousands) As of March 31, 2020 ($) As of March 31, 2019 ($) Patents 125 - Other intangibles 20 - Amortization (10 ) - Total amortized intangible assets 135 - Unamortized intangible assets Patents 107 184 Trademarks 10 - Total unamortized intangible assets 117 184 Total Intangible assets 252 184 The value of intangible assets includes the cost of acquiring patent rights, supporting data, and the expense associated with filing 10 patents and 26 trademarks. It also includes acquisition costs related to brands and domains. The amortization of patent and patent rights is up to 20 years, commencing from the date of grant. The amortization of website/domains is up to 10 years. Trademarks and other patents that have not been granted have not been amortized. The Company uses the straight-line method to determine the amortization expense for its definite lived intangible assets. The Company regularly reviews its Intangible assets to determine if any intangible asset is other-than-temporarily impaired, which would require the Company to record an impairment charge in the period and concluded that, as of March 31, 2020, there was no impairment. Estimated amortization expense (in thousands) ($) For the year ended 2021 11 For the year ended 2022 13 For the year ended 2023 16 For the year ended 2024 19 For the year ended 2025 22 NOTE 6 – PROPERTY, PLANT, AND EQUIPMENT (in thousands, except useful life) Useful Life (years) As of March 31, 2020 ($) As of March 31, 2019 ($) Land N/A 4,508 4,872 Buildings & facilities 25 2,540 1,268 Plant and machinery 5-20 3,867 1,603 Computer equipment 3 194 165 Office equipment 5 106 109 Furniture and fixtures 5 104 61 Vehicles 5 120 279 Construction in progress N/A 768 Total Gross Value 12,207 8,357 Less: Accumulated depreciation (2,427 ) (2,471 ) Total Property, plant and equipment, net 9,780 5,886 54 Table of Contents Depreciation expense in Fiscal 2020 and 2019, amounted to approximately $134 thousand and $59 thousand, respectively. The net increase in total Property, Plant & Equipment is primarily due to the purchase of an office building, a facility for clinical trials in Puerto Rico, and set-up of hemp cultivation, product manufacturing, processing and packaging facilities, in the U.S. subsidiaries during Fiscal 2020. The net decrease in land and accumulated depreciation is primarily due to foreign exchange translations as a result of a decline in value of Indian Rupee. The construction is progress relates to the Washington facility under construction. For more information, please refer to Note 20 – Segment Information for the non-current assets other than financial instruments held in the country of domicile and foreign countries. NOTE 7 – INVESTMENTS IN NON-MARKETABLE SECURITIES (in thousands) As of March 31, 2020 ($) As of March 31, 2019 ($) Investment in equity shares of unlisted company 11 21 Investment in MTP (i) - 773 Total 11 794 (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 $773 thousand since Fiscal 2017. In the last quarter of Fiscal 2020 Midtown Partners LLC became noncompliant with FINRA. Based on this and the Company impaired its investment in MTP. The Company regularly reviews its investment portfolio to determine if any security is other-than-temporarily impaired, which would require the Company to record an impairment charge in the period. NOTE 8 – CLAIMS AND ADVANCES (in thousands) As of March 31, 2020 ($) As of March 31, 2019 ($) Claims receivable (1) 374 404 Non-current deposits 24 18 Non-current advances (2) 212 456 Total 610 878 (1) The claims receivable is due from the Cochin International Airport (“CIA”) that is partially owned by the State Government of Kerala. As of March 31, 2020, 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. While the Company has initiated collection proceedings, it believes it will be difficult to receive the amount in the next 12 months because of the time required for legal collection proceedings. The decrease in claims receivable was mainly due to foreign exchange translation as a result of a decline in value of Indian Rupee. (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. The decrease is due to a provision for advances of $240 thousand in Fiscal 2020. 55 Table of Contents NOTE 9 – LEASES The Company has short-term leases primarily consisting of spaces with the remaining lease term being less than or equal to 12 months. The total short- term lease expense and cash paid for Fiscal 2020 and 2019 are approximately $206 thousand and $135 thousand, respectively. The Company also has an operating lease as on March 31, 2020. In November 2019, the Company entered into an office lease agreement with lease a term of less than 12 months. This lease was amended in March 2020, with a new lease term from March 1, 2020 to November 30, 2025. The annual lease expense is approximately $123 thousand. The lease contract does not contain any material residual value guarantees or material restrictive covenants. The weighted average remaining lease term for the operating lease is 5.67 year and discount rate of 7%. The lease does not provide a readily determinable implicit rate. Therefore, the Company discount lease payments based on an estimate of its incremental borrowing rate. (in thousands) Year Ended March 31, 2020 ($) Operating lease costs 10 Short term lease costs 206 Variable lease costs - Total lease costs 216 Right of use assets and lease liabilities for our operating leases were recorded in the consolidated balance sheet as follows: (in thousands) Year Ended March 31, 2020 ($) Assets Operating lease asset 574 Total lease assets 574 Liabilities Current liabilities: Accrued liabilities and others (current portion – operating lease liability) 89 Noncurrent liabilities: Operating lease liability (non-current portion – operating lease liability) 485 Total lease liability 574 Supplemental cash flow and non-cash information related to leases is as follows: (in thousands) Year Ended March 31, 2020 ($) Cash paid for amounts included in the measurement of lease liabilities – Operating cash flows from operating leases 10 Right-of-use assets obtained in exchange for operating lease obligations 581 As of March 31, 2020, the following table summarizes the maturity of our lease liabilities: Mar-21 116 Mar-22 119 Mar-23 122 Mar-24 125 Mar-25 128 Mar-26 87 Less: Present value discount (123 ) Total Lease liabilities 574 56 Table of Contents NOTE 10 – ACCRUED LIABILITIES AND OTHERS (in thousands) As of March 31, 2020 ($) As of March 31, 2019 ($) Salaries and other contribution 424 115 Provision for expenses 412 355 Other current liability 298 39 Total 1,134 509 Salaries and other contribution related liabilities consist of accrued salaries to employees. Provision for expenses include provision for legal, professional, and marketing expenses, including a provision of $200 thousand for the lawsuit as discussed in Note 12, Commitments and contingencies. Other current liability also includes $89 thousand of current operating lease liability in Fiscal 2020 and statutory payables of approximately $27 thousand and $4 thousand as of March 31, 2020 and 2019, respectively. NOTE 1 1 – LOANS AND OTHER LIABILITIES Short-term loan: As of March 31, 2020, the Company had one secured loan of $50 thousand, at an annual interest rate of 15%. Other Liability: (in thousands) As of March 31, 2020 ($) 201 9 ($) Statutory reserve 16 15 Total 16 15 The statutory reserve is a gratuity reserve for employees in our subsidiaries in India. NOTE 1 2 – 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 consolidated financial statements as of March 31, 2020, except as disclosed below. As of March 31, 2020, several law firms have filed shareholder lawsuits, including three derivative suits (two of which have been consolidated), citing, among other things, the NYSE American delisting proceedings initiated in October 2018 (and overturned in February 2019) and subsequent fall in share price. During the quarter ended September 30, 2019, the Company reached a preliminary agreement to resolve all derivative suits, subject to agreement on specific final terms of settlement and approval by the court. In January 2020, the Company and the named defendant directors and officers reached agreement with the plaintiffs in all pending derivative lawsuits on specific final terms of settlement, and all parties executed a mutually acceptable settlement agreement. Pursuant to the settlement agreement, which was filed with the Court as an exhibit to an Amended Consent Motion for Preliminary Approval of Derivative Settlement on April 30, 2020, the Company will adopt certain corporate governance modifications, and the derivative plaintiffs will receive $200,000.00 from the Company’s insurer to cover their attorneys’ fees and a nominal service award. The Company has created a provision for $200,000 as of March 31, 2020. On June 30, 2020, the Court held a hearing to evaluate the fairness and reasonableness of the settlement and to determine whether the settlement will be approved. On July 6, 2020, the Court entered an order formally and finally approving the settlement and resolving all pending derivative suits. For the current state of the consolidated Shareholder Class Action Litigation, please refer to Note 21 - Subsequent Events. 57 Table of Contents 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 pre-tax 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 Indian Government’s provident fund. NOTE 1 3 – SECURITIES As of March 31, 2020, the Company was authorized to issue up to 150,000,000 shares of common stock, par value $0.0001, and 39,320,116 shares of common stock were issued and outstanding. The Company is also authorized to issue of up to 1,000,000 shares of preferred stock, par value $0.0001 per share. 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. We have one security listed on the NYSE American: common stock, $.0001 par value (ticker symbol: IGC). This security also trades 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. The units are not listed on an exchange. Ten units may be separated into one share of common stock and 20 warrants (IGC: IW) which effectively allows the holder to exercise the warrants into two shares of common stock. NOTE 1 4 – RELATED PARTY TRANSACTIONS We pay an affiliate of our CEO $4,500 per month for office space and certain general and administrative services, provided in Maryland, and $6,100 per month for facilities and services provided in the State of Washington. The payment for the facilities and services provided in the State of Washington ended on December 31, 2019. NOTE 1 5 – STOCK-BASED COMPENSATION During Fiscal 2020, no stock options were granted under 2018 Omnibus Incentive Plan (“2018 ESOP Plan”). During Fiscal 2020, 252 thousand restricted share units, vesting over three years, were granted as inducement shares to employees. These inducement shares are not part of 2018 ESOP Plan. On February 25, 2020, the Company filed a Registration Statement on Form S-8 which registered 4 million shares of common stock $0.0001 par value of the Company issuable pursuant to the 2018 ESOP Plan, along with 2 million shares as a special grant of common stock to be issued, from time to time and at the Company’s Board of Directors’ discretion, to current and new directors, officers, employees, and advisors, as approved by the Company’s shareholders on January 7, 2020. The Company has granted 1,610 thousand restricted stock and restricted stock units from the special grant fair valued at $521 thousand vesting between Fiscal 2021 and 2022. As of March 31, 2020, under both the Company’s previous 2008 and current 2018 Omnibus Incentive Plans: a total of 6,432,127 shares of common stock have been issued to employees and advisors; 1.7 million restricted share units fair valued at $621 thousand with a weighted average value of $0.37 per share, have been granted; along with options held by Advisors to purchase 160 thousand shares of common stock fair valued at $65 thousand, that have been granted but are to be issued over a vesting period, between Fiscal 2020 and Fiscal 2024. The options are fair valued using a Black-Scholes Pricing Model with the following assumptions: Granted in Fiscal 2020 Granted in Fiscal 2019 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 58 Table of Contents 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 general and administrative expenses (including research and development). For Fiscal 2020, the Company’s share-based expense and option-based expense shown in general and administrative expenses and (including research and development) were $747 thousand and $23 thousand, respectively. For Fiscal 2019, the share-based expense and option-based expense for employees and advisors were $515 thousand and $59 thousand, respectively, of which $515 thousand share-based expense and $48 thousand option-based expense related to general and administrative expenses (including research and development). (in thousands) Non-vested shares Shares (#) Weighted average grant date fair value ($) Non-vested shares as on March 31, 2019 1,750 0.45 Granted 1,787 0.38 Vested (1,686 ) 0.42 Cancelled/Forfeited - - Non-vested shares as on March 31, 2020 1,851 0.40 (in thousands) Options Shares (#) Weighted average grant date fair value ($) Weighted average exercise price ($) Options outstanding as on March 31, 2019 270 0.45 0.41 Granted - - Exercised (60 ) 0.45 0.30 Cancelled/Forfeited (50 ) 0.58 0.60 Options outstanding as on March 31, 2020 160 0.40 0.39 There was combined unrecognized expense of $671 thousand related to non-vested shares and share options that the Company expects to be recognized over weighted average life of 1.32 years. NOTE 1 6 – FAIR VALUE OF FINANCIAL INSTRUMENTS As of March 31, 2020, the Company’s marketable securities consist of liquid funds, which have been classified as Level 1 of the fair value hierarchy because they have been valued using quoted prices in active markets. The increase in value of marketable securities is comprised of re-invested income of approximately $86 thousand and approximately $4 thousand unrealized gain during Fiscal 2020. The Company’s cash and cash equivalents have also been classified as Level 1 on the same principle. Financial instruments are classified as current if they are expected to be liquidated within the next twelve months. The Company’s remaining investments have been classified as Level 3 instruments as there is little or no market data. Level 3 investments are valued using cost-method. For further information refer Note 7 – Investments in Non-Marketable Securities. 59 Table of Contents The following table presents information about the Company’s assets that are measured at fair value on a recurring basis as of March 31, 2020 and 2019, and indicates the fair value hierarchy of the valuation techniques the Company used to determine such fair value: (in thousands) Level 1 ($) Level 2 ($) Level 3 ($) Total ($) March 31, 2020 Cash and cash equivalents: 7,258 - - 7,258 Total cash and cash equivalents 7,258 - - 7,258 Investments: -Marketable securities 5,081 - - 5,081 -Non-marketable securities - - 11 11 Total Investments 5,081 - 11 5,092 Level 1 ($) Level 2 ($) Level 3 ($) Total ($) March 31, 2019 Cash and cash equivalents: 25,610 - - 25,610 Total cash and cash equivalents 25,610 - - 25,610 Investments: -Marketable securities - - - - -Non-marketable securities - - 794 794 Total Investment - - 794 794 NOTE 1 7 – EMPLOYEE BENEFITS In accordance with applicable Indian laws, the Company provides for gratuity, a defined benefit retirement plan (Gratuity Plan) covering certain categories of employees. The Gratuity Plan provides a lump sum payment to vested employees, at retirement or termination of employment, an amount based on the respective employee’s last drawn salary and the years of employment with the Company. (in thousands) Year Ended March 31, 2020 ($) 201 9 ($) Projected Benefit Obligation (PBO) at the beginning of the year 16 15 Foreign exchange adjustment (2 ) - Service cost 1 1 interest cost 1 1 Benefits paid - - Actuarial (gain)/loss - (1 ) PBO at the end of the year 16 16 Funded status 16 15 60 Table of Contents Net gratuity cost for the years ended March 31, 2020 and 2019 included: (in thousands) Year Ended March 31, 2020 ($) 2019 ($) Service cost 1 1 Interest cost 1 1 Expected return on plan assets (1 ) (1 ) Actuarial (gain)/loss - (1 ) Net gratuity cost 1 - The weighted average actuarial assumptions used to determine benefit obligations and net periodic gratuity cost are: Year Ended March 31, 20 20 201 9 Discount rate 7.25 % 7.50 % Rate of increase in compensation levels 5 % 7 % The Company assesses these assumptions with its projected long-term plans of growth and prevalent industry standards. The expected payout of the accumulated benefit obligation as of March 31 is as follows. (in thousands) As of March 31, 2020 ($) 2019 ($) Expected contribution during the year ending Year 1 1 5 Expected benefit payments for the years ending March 31: Year 2 8 2 Year 3 2 0.5 Year 4 1 4 Year 5 - 0.3 Thereafter 5 6 Provident fund . In addition to the above benefits, all employees in India receive benefits from a provident fund, a defined contribution plan. The employee and employer each make monthly contributions to the plan equal to 12% of the covered employee’s salary. The contribution is made to the Government’s provident fund. NOTE 1 8 – INCOME TAXES The Company calculates its provision for foreign and U.S. federal income taxes based on the current tax law. As the Company maintains a full valuation allowance against its deferred tax assets, there is no income tax expense recorded related to this change other than the Federal AMT credit which are refundable due to the passage of tax reform. Due to the Company’s history of losses and uncertainty of future taxable income, a valuation allowance sufficient to fully offset net operating losses and other deferred tax assets has been established. The valuation allowance will be maintained until sufficient positive evidence exists to support a conclusion that a valuation allowance is not necessary. 61 Table of Contents Income tax expense/(benefit) for each of the years ended March 31 consists of the following: Year Ended March 31, (in thousands) Income Tax Expense 2020 ($) 2019 ($) Net Income Loss before tax (7,315 ) (4,095 ) Tax rate 21 % 21 % Expected income tax recovery (1,536 ) (860 ) Impact of tax rate differences in foreign jurisdictions (7 ) - Tax rate changes and other adjustments (3,085 ) 860 Permanent differences 243 - Change in valuation allowance 4,385 - - 2 The significant components of deferred income tax expense/(benefit) from operations before non-controlling interest for each of the years ended March 31 are approximated as following: Year Ended March 31, (in thousands) Deferred income taxes 2020 ($) 2019 ($) Net operating loss carry-forwards foreign 618 - Non-capital loss carry-forwards – USA 5,087 758 Temporary differences (562 ) - Net deferred tax asset 5,143 758 Valuation allowance (5,143 ) (758 ) - - The table below sets forth the details of expiration of the non-financial carried forward losses of the Company as of March 31, 2020 as under: Year Amount (in thousands) ($) 2022 384 2023 36 2024 1,584 2025 51 2026 336 2027 3 2028 13 2029 49 2030 37 2031 3,081 2032 4,141 2033 627 2034 1,269 2035 1,735 2036 1,176 2037 819 2038 1,256 2039 4,131 2040 5,954 Total 26,682 62 Table of Contents Realization of deferred tax assets, including those related to net operating loss carryforwards, are dependent upon future earnings, if any, of which the timing and amount are uncertain. Accordingly, the net deferred tax assets have been fully offset by a valuation allowance. Based upon the Company’s current operating results management cannot conclude that it is more likely than not that such assets will be realized. The Company files income tax returns in India, Hong Kong, Colombia, and the U.S. NOTE 1 9 – REVENUE RECOGNITION 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. 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, 2020 ($) 2019 ($) Infrastructure segment Rental income (1) 7 30 Construction contracts (2) 101 - Purchase and resale of physical commodities (3) 3,553 5,061 Life Sciences segment Wellness and Lifestyle (4) 386 25 Tolling/White labeling service (5) 25 - Total 4,072 5,116 (1) Rental income consists of income from rental of heavy construction equipment. (2) Construction income consists of the execution contracts directly or through subcontractors. There was revenue of $101 thousand from the $1.1 million NHAI construction contracts 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 and white label services. NOTE 20 – 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 segment and (ii) Life Sciences segment. The Company’s CODM is 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 Life Sciences segment 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) Life Sciences segment. The Company does not include intercompany transfers between segments for management reporting purposes. 63 Table of Contents The following provides information required by ASC 280-10-50-38 “Entity-wide Information”: 1) The table below shows revenue reported by segment: Product & Service (in thousands) Segments Fiscal 2020 ($) Percentage of Total Revenue (%) Infrastructure segment 3,661 90 % Life Sciences segment 411 10 % Total 4,072 100 % (in thousands) Segments Fiscal 2019 ($) Percentage of Total Revenue (%) Infrastructure segment 5,091 99 % Life Sciences segment 25 1 % Total 5,116 100 % For information for revenue by product and service, refer Note 19, “Revenue Recognition”. 2) The table below shows the revenue attributed to the country of domicile (U.S.) and foreign countries. Revenue is generally attributed to the geographic location of customers: (in thousands) Segments Country Fiscal 2020 ($) Percentage of Total Revenue (%) Asia (1) India 108 3 % (2) Hong Kong 3,553 87 % North America U.S. 411 10 % Total 4,072 100 % (in thousands) Segments Country Fiscal 2019 ($) Percentage of Total Revenue (%) Asia (1) India 70 1 % (2) Hong Kong 5,021 98 % North America U.S. 25 1 % Total 5,116 100 % 64 Table of Contents 3) The table below shows the non-current assets other than financial instruments held in the country of domicile and foreign countries. (in thousands) Nature of Assets USA (Country of Domicile) ($) Foreign Countries (India, Hong Kong, and Colombia) ($) Total as of March 31, 2020 ($) Intangible assets, net 252 - 252 Property, plant and equipment, net 5,216 4,564 9,780 Investments in unlisted securities - 11 11 Claims and advances 200 410 610 Operating lease asset 574 - 574 Total non-current assets 6,242 4,985 11,227 (in thousands) Nature of Assets USA (Country of Domicile) ($) Foreign Countries (India Hong Kong and Colombia) ($) Total as of March 31, 2019 ($) 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 Operating lease asset - - - Total non-current assets 2,355 5,387 7,742 NOTE 2 1 – SUBSEQUENT EVENTS In January 2020, the Company entered into a binding agreement for the settlement of three (3) previously disclosed derivative lawsuits: Erny v. Mukunda, et al. , Civil Action No. 1:18-cv-03698-DKC, filed in the United States District Court for the District of Maryland on November 30, 2018; Hamdan v. Mukunda, et al. , Civil Action No. 8:19-cv-00493-DKC, filed in the United States District Court for the District of Maryland on February 20, 2019; and Patel v. Mukunda, et al. , Civil Action No. 8:19-cv-01673-PWG, filed in the United States District Court for the District of Maryland on June 6, 2019. Pursuant to the settlement agreement, which was filed with the Court as an exhibit to an Amended Consent Motion for Preliminary Approval of Derivative Settlement on April 30, 2020, the Company will adopt certain corporate governance modifications, and the derivative plaintiffs will receive $200,000.00 from the Company’s insurer to cover their attorneys’ fees and a nominal service award. Shareholders were given notice of the proposed settlement through the Company’s filing of an SEC Form 8-K report, the issuance of a press release, publication in Investor’s Business Daily, and posting in the “Investors” section of the Company’s website, all of which were deemed by the court to constitute sufficient notice to shareholders of the settlement. Shareholders were given the opportunity to assert objections to the final settlement, and no objections were received by the parties to the derivative suit or filed with the court. On June 30, 2020, the Court held a hearing to evaluate the fairness and reasonableness of the settlement and to determine whether the settlement will be approved. On July 6, 2020, the Court entered an order formally and finally approving the settlement and resolving all pending derivative suits. 65 Table of Contents On May 3, 2020, the Company signed the Paycheck Protection Program Promissory Note and Agreement for a loan of approximately $430,000. The Loan is established under the terms and conditions of the SBA program of the United States Small Business Administration (“SBA”) and the USA CARES Act (2020)(H.R. 748)(15 U.S.C 636 et seq.) (the “Act”) and matures after 2 years on May 3, 2022, with monthly repayments of approximately $18,000 commencing November, 2020. On May 5, 2020, the Company also received Economic Injury Disaster Loan Emergency Advance for $10,000 and an Economic Injury Disaster Loan for approximately $150 thousand on June 11, 2020. We continue to monitor the impact from restrictions imposed by the COVID-19 pandemic on our financial condition, liquidity, operations, suppliers, industry, and workforce. Revenue from the infrastructure segment continues to be adversely affected as we are unable to fully deploy our workforce. In response to the evolving circumstances, we adapted our facilities to manufacture, label, and distribute FDA-registered alcohol-based hand sanitizers and hand rubs. While there is a general lack of visibility, we anticipate drastically reduced revenue from Infrastructure, compensated by increased revenue in the Life Sciences segment based on the strategic positioning. 66 Table of Contents ITEM 9 – CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.