The following is a discussion and analysis of the consolidated statement of operations, liquidity and capital resources, and summary of cash flows, which apply to Fiscal 2022 ending on
March 31, 2022and Fiscal 2021 ending on March 31, 2021. 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 the plans and results discussed in forward-looking statements. We encourage you to review the risks and uncertainties discussed in the sections entitled Item 1A. "Risk Factors" and "Forward-Looking Statements" are included at the beginning of this Annual Report on Form 10-K. The risks and uncertainties can cause actual results to differ significantly from those in our forward-looking statements or implied in historical results and trends. We caution readers not to place undue reliance on any forward-looking statements made by us, which speak only as of the date they are made. 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. Overview
IGC has two segments: Life Sciences and Infrastructure.
The infrastructure business, in operation since 2008. The Company intends to continue infrastructure operations as the COVID-19 pandemic permits, including:
(i) Execution of construction contracts – The Company executes a
(ii) Rental of Heavy Construction Equipment - We rent equipment, such as motor grader and rollers, to construction contractors. There was minimal revenue from rentals in Fiscal 2022 due to seasonality and COVID-19 pandemic disruptions. Life Sciences Segment Over the Counter Products: We have created a cannabinoid-based women's wellness brand, Holief™ for the online channel and a CBD and caffeine infused energy drink, Sunday Seltzer™, for distribution in wholesale channels.
? Holief™ is an all-natural, non-GMO, vegan, over-the-counter (“OTC”) line
products intended to treat menstrual cramps (dysmenorrhea) and premenstrual disorders
symptoms (“PMS”). Products are available online and through Amazon and
other online channels.
o Sunday Seltzer™ is an all-natural, organic, carbonated energy drink with
natural caffeine from green tea extract, CBD, B vitamins, vitamin C, no added
sugars and no preservatives. The energy drink is available in two flavors,
pomegranate-lemon and peach-ginger. In addition, Sunday Seltzer™ is also
available in four flavors with CBD, B vitamins, vitamin C and caffeine free.
Both Holief™ and Sunday Seltzer™ comply with applicable federal, state and local laws and regulations.
Table of Contents Biopharmaceutical: Since 2014, we have focused a portion of our business on the application of phytocannabinoids such as Tetrahydrocannabinol ("THC") and Cannabidiol ("CBD"), among others, in combination with other compounds, to address efficacy for various ailments and diseases such as Alzheimer's disease. As previously disclosed, IGC submitted IGC-AD1, our investigational drug candidate for Alzheimer's, to the FDA under Section 505(i) of the Federal Food, Drug, and Cosmetic Act and received approval on
July 30, 2020, to proceed with the Phase 1 trial on Alzheimer's patients. The Company completed all dose escalation studies, and as announced by the Company on December 2, 2021, the results of the clinical trial have been submitted in the Clinical/Statistical Report ("CSR") filed with the FDA. The Company is motivated by the potential that, with future successful results from appropriate further trials, IGC-AD1 could contribute to relief for some of the 55 million people around the world expected to be impacted by Alzheimer's disease by 2030 (WHO, 2021). We have a two-pronged approach for our Alzheimer's drug development strategy, the first prong is to investigate IGC-AD1 as an Alzheimer's symptoms modifying agent and the second is to investigate TGR-63 as a disease modifying agent. This involves conducting more trials on IGC-AD1 over the next few years, subject to FDA approval, with the anticipated goal of demonstrating safety and efficacy and potentially obtaining FDA approval for IGC-AD1 as a cannabinoid-based new drug that can help manage agitation for patients suffering from Alzheimer's disease. The second prong is to investigate the potential efficacy of TGR-63 on memory and/or decreasing or managing plaques and tangles, some of the hallmarks of Alzheimer's disease. Our pipeline of investigational and development cannabinoid formulations also includes pain creams and tinctures for pain relief. We believe that the biopharmaceutical component of our Life Sciences strategy will take several more years to mature and involves considerable risk; however, we also believe it may involve greater defensible growth potential and first-to-market advantage. Although there can be no assurance, we believe that additional investment in clinical trials, research, and development ("R&D"), facilities, marketing, advertising, and acquisition of complementary products and businesses supporting our Life Sciences segment will be critical to the development and delivery of innovative products and positive patient and customer experiences. We hope to leverage our R&D and intellectual property to develop ground-breaking, science-based products that are proven effective through planned pre-clinical and clinical trials. Although there can be no assurance, we believe this strategy has the potential to improve existing products and lead to the creation of new products, which, based on scientific study and research, may offer positive results for the management of certain conditions, symptoms, and side effects. While the bulk of our medium and longer-term focus is on clinical trials and getting IGC-AD1 to be an FDA approved drug, our shorter-term strategy, is to use our resources to provide white label services and market Holief™ and Sunday Seltzer™. We believe this may provide us with several profit opportunities, although there can be no assurance of such profit opportunities. COVID-19 Update The infrastructure business, based in Indiaand Hong Kong, had significantly lower revenue in Fiscal Year 2022 due to the continued impact of the COVID-19 pandemic and restrictions imposed by governmental entities. We have limited visibility into when economic conditions will recover in Indiaand especially Hong Kong. Specifically: 1. We incurred increased expenses on a $1.2 millionroad-building contract in Indiadue to COVID-19 restrictions. 2. We manufactured, distributed, and donated alcohol-based hand sanitizers to help communities hit hard by the COVID-19 pandemic. We incurred the expense to provide hand sanitizers to the Federal Emergency Management Agency("FEMA"), the Navajo Nationin Arizona, the Crow reservation in Montana, and the Sioux reservation in South Dakota. 3. Pandemic restrictions made it difficult to transport and process our harvested hemp crop in Arizonaon a timely basis. This resulted in a $1.7 millionadjustment to our inventory that also increased our SG&A. 36
The global economic environment
In addition to the industry-specific factors such as regulations around cannabinoid research, we are exposed to economic cycles. Factors in the global economic environment that may impact our operations include, among other things, currency fluctuations, capital and exchange controls, global economic conditions including inflation, restrictive government actions, changes in intellectual property, legal protections and remedies, trade regulations, tax laws and regulations and procedures and actions affecting approval, production, pricing, and marketing of our products, as well as impacts of political or civil unrest or military action, including the current conflict between
Russiaand Ukraine, terrorist activity, unstable governments, and legal systems, inter-governmental disputes, public health outbreaks, epidemics, pandemics, natural disasters or disruptions related to climate change. Operational Excellence We remain focused on continuing to build excellence broadly in three areas, cannabinoid-based investigations, drug development and product manufacturing, and online marketing. We believe these will give us a competitive advantage, including building an increasingly agile and adaptable commercialization engine with a strong customer-focused market expertise. Workplace and Employees We support broad public health strategies designed to prevent the spread of COVID-19 and are focused on the health and welfare of our employees. We have mobilized to enable our employees to accomplish our most critical goals through a combination of remote work and in-person initiatives. In addition to rolling out new technologies and collaboration tools, we have implemented processes and resources to support our employees in the event an employee receives a positive COVID-19 diagnosis. We have developed plans regarding the opening of our sites to enable our employees to return to work in our global offices, the field, and our manufacturing facilities, which take into account applicable public health authority and local government guidelines, and which are designed to ensure community and employee safety. We are moving to a more flexible mix of virtual and in-person working to advance our culture, drive innovation and agility and enable greater balance and well-being for our workforce. Research and Development With respect to our clinical trial activities, we have taken measures to implement remote and virtual approaches, including remote data monitoring where possible, to maintain safety and trial continuity, and to preserve study integrity. We have seen delays in initiating trial sites, due to COVID-19. We cannot guarantee that we will continue to perform our trials in a timely and satisfactory manner as a result of the evolving effects of the COVID-19 pandemic. Similarly, our ability to recruit and retain patients and principal investigators, and site staff who, as health care providers, may have heightened exposure to COVID-19, may adversely impact our clinical trial operations. Fiscal 2022 Highlights
subsidiary of the Company, has signed a License Agreement with
an exclusive license to the proprietary technology and know-how developed, and
ownership or assignment of certain patents and patent filings relating to
small molecule inhibitors with a naphthalene monoimide scaffold. The agreement
with JNCASR is filed on Form 8K on
May 12, 2022.
("GMP") certification for its R&D facility in
? The Company has completed all dose escalation studies and, as announced by the
IGC’s new THC-based investigational drug candidate, IGC-AD1, for patients with
Alzheimer’s disease, were submitted in the clinical/statistical report
("CSR") filed with the FDA. ?
October 28, 2021, the Company won Best CBD Topical award for its
broad-spectrum hemp extract cream called Holi Wonder™ in
event held in
Chicago, Illinois, U.S.37
Table of Contents
certification for its facilities
the USPTO for our IGC-513 for compositions and methods for treating patients
with dementia due to Alzheimer's disease.
? The Company licenses a patent application from the
entitled “Ultra-Low dose THC as a potential therapeutic and prophylactic agent
for Alzheimer’s disease.” The USPTO has issued a patent (#11,065,225) for this
formulation, IGC-AD1, intended to aid in the treatment of individuals
living with Alzheimer's disease.
? In fiscal 2022, the Company raised approximately
proceeds from the issue of shares. The Company had entered into an “à la
market” (“ATM”) in accordance with the sales agreement (the “Agreement”)
Agent”) for the issue and sale of up to
of common stock, par value
$0.0001per share (the "Shares"). ? On June 10, 2021, the Company received forgiveness for the full amount
borrowed pursuant to the Paycheck Protection Program Promissory Note (the “PPP
the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”)
and administered by the
U.S. Small Business Administration("SBA"). Results of Operations
Fiscal 2022 vs. Fiscal 2021
The following table provides an overview of our operating results for fiscal years 2022 and 2021:
Statement of Operations (in thousands, audited)
Fiscal 2022 2021 Change Percent ($) ($) ($) Change Revenue 397 898 (501 ) (56 )% Cost of revenue (203 ) (785 ) 582 (74 )% Gross profit 194 113 81 72 %
Selling, general and administrative expenses (13,292 ) (7,908 )
(5,384 ) 68 % Research and development expenses (2,330 ) (929 ) (1,401 ) 151 % Operating loss (15,428 ) (8,724 ) (6,704 ) 77 % Impairment (49 ) (169 ) 120 (71 )% Other income, net 461 82 379 462 % Loss before income taxes (15,016 ) (8,811 ) (6,205 ) 70 % Income tax expense/benefit - - - -
Net loss attributable to common shareholders (15,016 ) (8,811 )
(6,205 ) 70 % Revenue - Revenue in Fiscal 2022 and Fiscal 2021, was primarily derived from our Life Sciences segment, which involved sales of in-house brands and alcohol-based hand sanitizers, among others. Revenue was approximately
$397 thousandand $898 thousandfor Fiscal 2022 and Fiscal 2021, respectively. In Fiscal 2022 we de-emphasized the manufacturing and sale of low margin hand sanitizers and shifted our focus to higher margin white label services and the sale of products under our brands. This decreased our revenue. The infrastructure business had lower revenue in Fiscal 2022 due to the continued impact of the COVID-19 pandemic and restrictions imposed by government entities. Cost of revenue - Cost of revenue amounted to approximately $203 thousandfor Fiscal 2022, compared to $785 thousandin Fiscal 2021. This decrease in the cost of revenue was attributable to decreased revenue. The cost of revenue in Fiscal 2022 is primarily attributable to the cost of raw materials, labor, and other direct overheads required to produce our products. Our gross margin increased from 12% to 48%, which reflects our increased focus on higher-margin services and the sale of products under our brand. 38
Selling, general and administrative expenses - Selling, general and administrative expenses consist primarily of employee-related expenses, sales commission, 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. Selling, general, and administrative expenses increased by approximately
$5.3 millionor 68% to $13.2 millionfor Fiscal 2022, from approximately $7.9 millionfor Fiscal 2021. The increase of approximately $5.3 millionis attributed to one-time expenses, which include law-suit settlement expenses of approximately $264 thousand; impairment of facility of $833 thousand; net realizable value ("NRV") adjustment of $1.7 millionfor the hemp crop; approximately $475 thousandin provisions for advances paid; and approximately $1.7 millionin provisions against inventory that was stolen at our vendor's facility. In addition, the increase of approximately $1.3 millionis attributable to an increase in non-cash expenses. Adjusting for approximately $5.3 millionin one-time and non-cash expenses, the SG&A for the fiscal year 2022 was lower by approximately $500 thousand. Research and Development expenses: Research and Development ("R&D") expenses were attributed to our Life Sciences segment. The R&D expenses increased by approximately $1.4 millionor 151% to $2.3 millionin Fiscal 2022, from approximately $929 thousandfor Fiscal 2021. Expenses increased by $1.4 milliondue to the now completed Phase 1 clinical trial. We expect R&D expenses to increase with the progression of Phase 2 trials on IGC-AD1 and pre-clinical trials on TGR-63. Impairment loss - Impairment loss amounted to approximately $49 thousandfor Fiscal 2022, compared to $169 thousandin Fiscal 2021. This decrease in the impairment loss was attributable to the Company recording an impairment of $169 thousandas of March 31, 2021, in Evolve I. During Fiscal 2022, the Company received 44 thousand shares of IGC common stock, which had been granted pursuant to the Purchase Agreement. Accordingly, the Company canceled the shares and impaired its remaining investment of approximately $37 thousand. Other Income, net -Other income for Fiscal 2022 and 2021 is approximately $461 thousandand $82 thousand, respectively. The increase was due to the forgiveness of a PPP loan in the amount of $430 thousand. Other income includes interest income, rental income, dividend income, and unrealized gains from marketable securities, net, and income from sale of scrap, among others.
Cash and capital resources
Our sources of liquidity are cash and cash equivalents, funds raised through "at the market" ("ATM") offerings, cash flows from operations, short-term and long-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", Note 11, "Loans and Other Liabilities" and Note 9, "Leases" in Item 8 of this report for further information on Company commitments and contractual obligations. While 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, including but not limited to, mutual funds, treasury bonds, cryptocurrencies, and other asset classes, clinical trials and other liquidity requirements, if any, associated with its existing operations over the next 12 months, it will raise money as and when it is able to do so. The Company continues to utilize the ATM to raise capital. Shares issuable under the ATM could be dilutive to the Company's shareholders. In addition, the Company shifted its focus to higher margin white label services and the sale of products under our brands. Management is actively monitoring the impact of COVID-19 on the Company's financial condition, liquidity, operations, suppliers, industry, legal expenses, and workforce. Please refer to Item 1A. "Risk Factors" for further information on the risks related to the Company. (in thousands, audited) As of As of March 31, 2022 March 31, 2021 Change ($) ($) ($) Percent Change
Cash, cash equivalents 10,460 14,548 (4,088 ) (28 )% Working capital 12,670 21,149 (8,470 ) (40 )% 39
Table of Contents Cash and cash equivalents Cash and cash equivalents decreased by approximately
$4 millionto $10.5 millionin Fiscal 2022, from $14.5 millionin Fiscal 2021, a decrease of approximately 28%. The major decrease was due to approximately $741 thousandused in the purchase of property, plant, and equipment and acquisition of intangible assets and a net cash loss of approximately $7.5 million, part of which was set-off with approximately $4.1 millionof net proceeds from the issuance of equity stock through an ATM offering. Summary of Cash flows (in thousands, audited) Fiscal 2022 2021 Change ($) ($) ($) Percent Change Cash used in operating activities (7,462 ) (10,800 ) 3,338 (31 )% Cash (used in)/provided by investing activities (742 ) 3,387 (4,129 ) (122 )% Cash provided by financing activities 4,142 14,688 (10,546 ) (72 )% Effects of exchange rate changes on cash and cash equivalents (26 ) 15 (41 ) (273 )% Net increase/(decrease) in cash and cash equivalents (4,088 ) 7,290 (11,378 ) (156 )% Cash and cash equivalents at the beginning of the period 14,548 7,258 7,290 100 % Cash and cash equivalents at the end of the period 10,460 14,548 (4,088 ) (28 )% Operating Activities Net cash used in operating activities for Fiscal 2022, was approximately $7.5 million. It consists of a net loss of approximately $15 million, a positive impact on cash due to non-cash expenses of approximately $5 million, and changes in operating assets and liabilities of approximately $2.5 million. Non-cash expenses consist of an amortization/depreciation charge of approximately $651 thousand, impairment of investment of $49 thousand, provision against debtor & advances of $1.7 million, stock-based expenses of approximately $2.2 million, and a one-time impairment of PPE of $833 thousandand an off set of $430 thousanddue to the forgiveness of a PPP Loan. In addition, changes in operating assets and liabilities had a positive impact of approximately $2.5 millionon cash, of which approximately $1.9 millionis due to an adjustment in inventory and approximately $504 thousandincrease in accounts payable.. Net cash used in operating activities for Fiscal 2021 was approximately $10.8 million. It consists of a net loss of approximately $8.8 million, a positive impact on cash due to non-cash expenses of approximately $1.3 million, and a negative impact due to changes in operating assets and liabilities of approximately $3.3 million. Non-cash expenses consist of an amortization/depreciation charge of approximately $478 thousand, impairment of investment of $169 thousand, and stock-based expenses of approximately $658 thousand. In addition, changes in operating assets and liabilities had a negative impact of approximately $3.3 millionon cash, of which approximately $1.2 millionis due to an adjustment in inventory, approximately $2.2 milliondue to deposits and advances, and a positive impact of approximately $100 thousandfor other adjustments in net assets. Investing Activities
Net cash used in investing activities for fiscal year 2022 was approximately
Net cash provided by investing activities during Fiscal 2021 was approximately
$3.4 millionwhich comprises approximately $122 thousandfor the acquisition and filing expenses related to intellectual property, purchase of property, plant, and equipment of $1.5 million, sale of property, plant, and equipment of approximately $47 thousandand investments of approximately $149 thousandin non-marketable securities, and proceeds from investment of approximately $5 million, in marketable securities. 40
Table of Contents Financing Activities Net cash provided by financing activities was approximately
$4.1 millionfor Fiscal 2022, which comprises net proceeds from issuance of equity stock through the ATM offering, net of all expenses related to the issuance of stock. Net cash provided by financing activities was approximately $14.7 millionfor Fiscal 2021, which comprises proceeds from borrowings of approximately $580 thousand, repayment of loan of approximately $50 thousand, and approximately $14.2 millionnet proceeds from ATM sales.
Significant Accounting Policies and Estimates
The preparation of financial statements and related disclosures in conformity with
U.S.GAAP and the Company's discussion and analysis of its financial condition and operating results require the Company's management to make judgments, assumptions, and estimates that affect the amounts reported in its consolidated financial statements and accompanying notes. We base our estimates on historical experience, as appropriate, and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates, and such differences may be material. Management believes that the following accounting policies are the most critical to understanding and evaluating our consolidated financial condition and results of operations. Revenue Recognition
The Company recognizes revenue under ASC 606, Revenue from Contracts with Customers (ASC 606). The basic principle of this standard is that a company should recognize revenue to represent 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.
ASC 606 prescribes a 5-step process to achieve its basic principle. The Company recognizes revenue from the trading, rental or sale of products as follows:
I. Identify the contract with the customer.
II. Identify contractual performance obligations.
III. Determine the consideration amount/transaction price.
IV. Allocate the determined amount of consideration/price to the performance obligations.
V. Recognize revenue when or as the performing party meets performance obligations.
The transaction consideration/price (performance obligation(s)) is determined according to the agreement or invoice (contract) for the services and products of the Infrastructure and Life Sciences segment.
Revenue in the Infrastructure segment is recognized for the renting business when the equipment is rented and terms of the agreement have been fulfilled during the period. Revenue from the execution of infrastructure contracts is recognized on the basis of the 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. In retail sales, we offer consumer products through our online stores. Revenue is recognized when control of the goods is transferred to the customer. This generally occurs upon our delivery to a third-party carrier or, to the customer directly. Revenue from tolling services is recognized when the performance obligation, such as processing of the material, has been completed and output material has been transferred to the customer. 41
Net sales disaggregated by significant products and services for Fiscal 2022 and 2021 are as follows: (in thousands) Year Ended March 31 2022 2021 ($) ($) Infrastructure segment Rental income (1) 23 1 Construction contracts (2) 15 174 Life Sciences segment Wellness and lifestyle (3) 316 688 White label services (4) 43 35 Total 397 898
(1) Rental income consists of rental income from heavy construction equipment.
(2) Construction revenue consists of the execution of contracts directly or through subcontractors.
(3) Relates to Life Sciences segment revenues, including the sale of wellness and lifestyle products such as hand sanitizers, bath bombs, lotions, gummies, beverages, l raw hemp extract, hemp isolate and hemp distillate.
(4) Relates to revenue from the Life Sciences segment, including income white label services, which refers to a fully supported product or service that is made by us but sold by another company. 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
$124 thousandof accounts receivable, net of provision for the doubtful debt of $93 thousandas of March 31, 2022, as compared to $175 thousandof accounts receivable, net of provision for the doubtful debt of $63 thousandas of March 31, 2021. Most of our account receivables are from infrastructure segment.
Short 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. 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 has a significant influence, the Company has accounted for the investment based on the equity method in accordance with ASC Topic 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, "
Table of Contents Impairment 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 any such determination is made. In making this determination, the Company evaluates, among other things, the duration and extent to which the fair value of a security is less than its cost; the financial condition of the issuer and any changes thereto; and the Company's intent to sell, or whether it will more likely than not be required to sell, the security before recovery of its amortized cost basis. The Company's assessment of whether a security is other-than-temporarily impaired could change in the future due to new developments or changes in assumptions related to any particular security, which would have an adverse impact on the Company's financial condition and operating results. The estimated amount of liability is based on the information available to us with respect of bank debt and other borrowings. During Fiscal 2022 and Fiscal 2021 the Company impaired investments of approximately
$49 thousandand $169 thousand, respectively. Inventory
Inventories are valued at the lower of cost or net realizable value, which is defined as estimated selling prices in the ordinary course of business less reasonably foreseeable costs of completion, disposal and transportation.
Inventory consists of raw materials, finished goods related to wellness products, hand sanitizers, finished hemp-based products, beverages, among others as well as work-in-progress such as extracted crude oil, hemp-based isolate, growing crops, and 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 valued at net realizable value, with changes recognized in profit or loss only when the harvested crop:
– has a reliable, easily determinable and realizable market value;
– has relatively insignificant and predictable disposal costs; and
– is available for immediate delivery.
The Company believes its harvested crops do not have a readily available market. Hence, in fiscal 2021, the Company values its harvested crops at cost. Please refer to Note 3, "Inventory," of Notes to Consolidated Financial Statements for further information. Abnormal amounts of idle facility expense, freight, handling costs, scrap, discontinued products and wasted material (spoilage) are expensed in the period they are incurred. For further information refer to Note 3, "inventory" of Notes to Consolidated Financial Statements. Stock-Based compensation The Company accounts for stock-based compensation to employees and non-employees in conformity with the provisions of ASC Topic 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. For performance-based awards, stock-based compensation expense is recognized over the expected performance achievement period of individual performance milestones when the achievement of each individual performance milestone becomes probable by best of management estimate. For performance-based awards with a vesting schedule based entirely on the attainment of performance conditions, stock-based compensation expense associated with each tranche is recognized over the expected achievement period for the operational milestone, beginning at the point in time when the relevant operational milestone is considered probable to be achieved. For market-based awards, stock-based compensation expense is recognized over the expected achievement period. The fair value of such awards is estimated on the grant date using binomial lattice model. 43
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. Generally, 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. For further information refer to Note 14, "Stock-Based Compensation" of Notes to Consolidated Financial Statements. Income Taxes 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 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. The Company has incurred net operating loss for financial-reporting and tax-reporting purposes. Accordingly, for Federal and State income tax purposes, the benefit for income taxes has been offset entirely by a valuation allowance against the related federal, state, and foreign deferred tax assets. Foreign currency translation 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, the HKD, or the COP affect financial statements. The accompanying financial statements are reported in USD. The INR, HKD, and COP are the functional currencies for certain subsidiaries of the Company. The translation of the functional currencies into U.S.dollars is performed for assets and liabilities using the exchange rates in effect at the balance sheet date and for revenues and expenses using average exchange rates prevailing during the reporting periods. Adjustments resulting from the translation of functional currency financial statements to reporting currency are accumulated and reported as other comprehensive income/(loss), a separate component of shareholders' equity. Transactions in currencies other than the functional currency during the year are converted into the functional currency at the applicable rates of exchange prevailing when the transactions occurred. Transaction gains and losses are recognized in the consolidated statements of operations. The exchange rates used for translation purposes are as follows: Period End Average Rate Period End Rate Period (P&L rate) (Balance sheet rate) Year ended March 31, 2022 INR 74.50 Per USD INR 75.91 Per USD HKD 7.78 Per USD HKD 7.83 Per USD COP 3,830 Per USD COP 3,748 Per USD Year ended March 31, 2021 INR 74.23 Per USD INR 73.15 Per USD HKD 7.75 Per USD HKD 7.77 Per USD COP 3,693 Per USD COP 3,691 Per USD Cybersecurity
We have implemented a cybersecurity policy and have implemented stricter cybersecurity measures to protect against hackers. Adhering to these security and compliance measures is expected to incur additional expense. In fiscal year 2022 and fiscal year 2021, there were no known or detected cybersecurity breaches.
Recently issued and adopted accounting pronouncements
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 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. Recent accounting pronouncements which may be applicable to us are described in Note 2, "Significant Accounting Policies" in our Consolidated Financial Statements contained herein in Part II, Item 8.
Off-balance sheet arrangements
We do not have any outstanding derivative financial instruments, off-balance sheet guarantees, interest rate swap transactions or foreign currency forward contracts. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity, or market risk support to such entity. We do not have any variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit support to us or that engages in leasing, hedging or research and development services with us.
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