indiaglobal-s1_121109.htm
As
filed with the Securities and Exchange Commission on December 18,
2009
Registration
No. 333- [ ]
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
S-1
REGISTRATION
STATEMENT
UNDER
THE
SECURITIES ACT OF 1933
INDIA
GLOBALIZATION CAPITAL, INC.
(Exact
Name of Registrant as Specified in Its Charter)
Maryland
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1600
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20-2760393
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(State
or Other Jurisdiction of
Incorporation
or Organization)
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(Primary
Standard Industrial
Classification
Code Number)
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(I.R.S.
Employer
Identification
Number)
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4336
Montgomery Ave.
Bethesda, Maryland
20814
(301) 983-0998
(Address,
Including Zip Code, and Telephone Number,
Including
Area Code, of Registrant’s Principal Executive Offices)
Ram
Mukunda
Chief
Executive Officer and President
India
Globalization Capital, Inc.
4336
Montgomery Ave.
Bethesda,
Maryland, 20814
(301) 983-0998
(Name,
Address, Including Zip Code, and Telephone Number,
Including
Area Code, of Agent for Service)
Copies
to:
Stanley
S. Jutkowitz, Esq.
Seyfarth
Shaw LLP
975
F Street, N.W.
Washington,
D.C. 20004
Telephone:
(202) 463-2400
Facsimile:
(202) 828-5393
Approximate date of commencement of
proposed sale to public: As soon as practicable after this
registration statement becomes effective.
If any of
the securities being registered on this form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933,
check the following box: þ
If this
form is filed to register additional securities for an offering pursuant to
Rule 462(b) under the Securities Act, please check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: o
If this
form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering: o
If this
Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering: o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
accelerated filer o
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Accelerated
filer o
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Non-accelerated
filer o
(Do
not check if a smaller reporting company)
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Smaller
reporting company þ
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CALCULATION
OF REGISTRATION FEE
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Proposed
Maximum
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Title
of Each Class of
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Aggregate
Offering
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Amount
of
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Securities
to be Registered
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Price
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Registration
Fee
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Common
Stock, $0.0001 par value per share
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(1)
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$
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4,000,000
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(1)
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$
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223.20
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(1)
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Estimated
solely for purposes of calculating the registration fee in accordance with
Rule 457(o) under the Securities Act of 1933, as
amended.
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The Registrant hereby amends this
Registration Statement on such date or dates as may be necessary to delay its
effective date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of 1933 or
until the Registration Statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may
determine.
The
information in this Prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and is not soliciting an offer to buy these
securities in any state where the offer or sale is not
permitted.
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SUBJECT
TO COMPLETION, DATED December [ ], 2009
PROSPECTUS
India
Globalization Capital, Inc.
Common
Stock
This
prospectus relates to the offering of
[ ] shares of common
stock of India Globalization Capital, Inc. (“IGC” or “the Company”), par value
$0.0001 per share. We have retained ___________ as
underwriter in connection with this offering, which is made on a ______
basis.
Our
units, shares of common stock and warrants are currently traded on the NYSE Amex
Equities (“NYSE Amex”) under the symbols “IGC.U,” “IGC” and “IGC.WS,”
respectively. As of December 17, 2009, the closing sale price of our units was
$1.35, the closing sale price of our common stock was $1.42 and the closing sale
price of our warrants was $0.07.
In
reviewing this prospectus, you should carefully consider the matters described
under the heading “Risk Factors” beginning on page 4.
Neither
the Securities and Exchange Commission nor any state securities commission has
approved or disapproved these securities or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal
offense.
The date
of this prospectus is __________, 2009.
Table
of Contents
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Prospectus
Summary
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1
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Risk
Factors
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4
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Forward-Looking
Statements
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11
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Use
of Proceeds
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12
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Dividend
Policy
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12
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Market
Price of Our Common Stock
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12
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Determination
of Offering Price
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12
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Underwriting
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13
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Selected
Historical Financial Information
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15
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operation
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20
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Business
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33
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Management
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39
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Executive
Compensation
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45
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Certain
Relationships and Related Transactions
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50
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Beneficial
Ownership of Certain Owners and Management
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50
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Description
of Capital Stock
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52
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Shares
Eligible for Future Sale
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55
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Legal
Matters
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57
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Experts
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57
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Where
You Can Find More Information
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57
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Index
to India Globalization Capital, Inc. Financial Statements
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58
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All
references to “IGC,” “we,” “our,” “us,” and similar terms in this prospectus
refer to India Globalization Capital, Inc.
Some of
the industry data contained in this prospectus are derived from data from
various third-party sources. We have not independently verified any of this
information and cannot assure you of its accuracy or completeness. While we are
not aware of any misstatements regarding any industry data presented herein,
such data is subject to change based on various factors, including those
discussed under the heading “Risk Factors” in this prospectus.
ABOUT
THIS PROSPECTUS
This
prospectus is part of a registration statement that we have filed with the
Securities and Exchange Commission (the “SEC” or the “Commission”) utilizing a
shelf registration process. Under this shelf registration process, we may, from
time to time, offer and sell shares of the common stock of the Company pursuant
to this prospectus. It is important for you to read and consider all of the
information contained in this prospectus and any applicable prospectus
supplement before making a decision whether to invest in the common stock. You
should also read and consider the information contained in the documents that we
have incorporated by reference as described in “Where You Can Find More
Information” and “Incorporation of Certain Documents by Reference” in this
prospectus.
You
should rely only on the information contained in this prospectus and any
applicable prospectus supplement, including the information incorporated by
reference. We have not authorized anyone to provide you with different
information. We are not offering to sell or soliciting offers to buy, and will
not sell, any securities in any jurisdiction where it is unlawful. You should
assume that the information contained in this prospectus or any prospectus
supplement, as well as information contained in a document that we have
previously filed or in the future will file with the SEC and incorporate by
reference into this prospectus or any prospectus supplement, is accurate only as
of the date of this prospectus, the applicable prospectus supplement or the
document containing that information, as the case may be.
PROSPECTUS
SUMMARY
The
following is a summary of some of the information contained in this prospectus.
In addition to this summary, we urge you to read the entire prospectus
carefully, especially the risks relating to our business and common stock
discussed under the heading “Risk Factors” and our financial
statements.
India
Globalization Capital, Inc.
Our
Business
Background of India Globalization
Capital, Inc. (IGC)
IGC, a
Maryland corporation, was organized on April 29, 2005 as a blank check
company formed for the purpose of acquiring one or more businesses with
operations primarily in India through a merger, capital stock exchange, asset
acquisition or other similar business combination or acquisition. On March 8,
2006, we completed an initial public offering. On February 19, 2007,
we incorporated India Globalization Capital, Mauritius, Limited (IGC-M), a
wholly owned subsidiary, under the laws of Mauritius. On March 7,
2008, we consummated the acquisition of 63% of the equity of Sricon
Infrastructure Private Limited (Sricon) and 77% of the equity of Techni Bharathi
Limited (TBL). The shares of the two Indian companies, Sricon and TBL, are held
by IGC-M.
Most of
the shares of Sricon and TBL acquired by IGC were purchased directly from the
companies. IGC purchased a portion of the shares from the existing owners of the
companies. The founders and management of Sricon own 37% of Sricon
and the founders and management of TBL own 23% of TBL.
In
connection with the acquisitions, IGC borrowed approximately $17 million from
Sricon. If the loan is not repaid, the result could be a
reduction in IGC’s ownership percentage of Sricon.
The
acquisitions were accounted for under the purchase method of
accounting. Under this method of accounting, for accounting and
financial purposes, IGC-M, Limited was treated as the acquiring entity and
Sricon and TBL as the acquired entities. The financial statements
provided here and going forward are the consolidated statements of IGC, which
include IGC-M, Sricon, TBL and our other subsidiaries. However,
historical description of our business for periods and dates prior to March 7,
2008 include information on Sricon and TBL.
Unless
the context requires otherwise, all references in this report to the “Company”,
“IGC”, “we”, “our”, and “us” refer to India Globalization Capital, Inc, together
with its wholly owned subsidiary IGC-M, and its direct and indirect subsidiaries
(Sricon, TBL, IGC-MPL, IGC-LPL and IGC-IMT).
Background
of Indian Subsidiaries
Sricon
Infrastructure Private Limited (“Sricon”) was incorporated as a private limited
company on March 3, 1997 in Nagpur, India. Sricon is an engineering
and construction company that is engaged in three business areas: 1) civil
construction of highways and other heavy construction, 2) mining and quarrying
and 3) the construction and maintenance of high temperature cement and steel
plants. Sricon's present and past clients include various Indian
government organizations.
Techni
Bharathi Limited (“TBL”) was incorporated as a public (but not listed on the
stock market) limited company on June 19, 1982 in Cochin, India. TBL
is an engineering and construction company engaged in the execution of civil
construction and structural engineering projects. TBL has a focus in
the Indian states of Andhra Pradesh, Karnataka, Assam and Tamil Nadu. Its
present and past clients include various Indian government
organizations.
IGC
Materials, Private Limited (“IGC-MPL”) and IGC Logistics, Private
Limited (“IGC-LPL”), are based in Nagpur India and were incorporated in June
2009. The two companies focus on infrastructure materials like rock
aggregate, bricks, concrete and other material as well as the logistical support
for the transportation of infrastructure material. IGC India Mining
and Trading (“IGC-IMT”) was incorporated in December 2008 in Chennai,
India. IGC-IMT is involved in the
export of iron ore to China. IGC-MPL, IGC-LPL and IGC-IMT are all wholly owned
subsidiaries of IGC-M.
Our
approach is to offer a suite of services to customers involving construction as
well as sale and transportation of materials.
Core Business
Competencies
We offer
an integrated approach in our customer service delivery based on core
competencies that we have demonstrated over the years. This
integrated approach provides us with an advantage over our
competitors.
Our core
business competencies include the following:
1)
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Highway
and heavy construction
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3)
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Construction
and maintenance of high temperature
plants
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Our
Growth Strategy and Business Model
Our
growth strategy and business model is the following:
1)
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Deepen
our relationships with our existing construction customers by providing
them infrastructure materials like iron ore, rock aggregate, concrete,
coal and associated logistical
support.
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2)
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Expand
our materials offering by expanding the number of rock aggregate quarries
and other material infrastructure.
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3)
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Leverage
our expertise in the logistics and supply of iron ore by increasing the
number of shipping hubs we operate from and expand our offering into China
and other Asian countries to take advantage of the infrastructure growth
in India, China and other Asian
countries.
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4)
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Expand
the number of recurring contracts for infrastructure build out to
customers that can benefit from our portfolio of
offerings.
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5)
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As
part of our financing plan, aggressively pursue the collection of delay
claims in past projects.
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Please
see the “Risk Factors” section commencing on page 4 for more information
concerning the risks of investing in our company.
Where
You Can Find More Information
We have
three securities listed on the NYSE Amex: (1) common stock, $.0001 par value
(ticker symbol: IGC), (2) redeemable warrants to purchase common stock (ticker
symbol: IGC.WS) and (3) units consisting of one share of common stock and two
redeemable warrants to purchase common stock (ticker symbol:
IGC.U).
We will
make available on our website, www.indiaglobalcap.com,
our annual reports, quarterly reports, proxy statements as well as up to- date
investor presentations. The registration statement and its exhibits, as
well as our other reports filed with the SEC, can be inspected and copied at the
SEC’s public reference room at 100 F Street, N.E., Washington, D.C.
20549. The public may obtain information about the operation of the public
reference room by calling the SEC at 1-800-SEC-0330. In addition, the SEC
maintains a web site at http://www.sec.gov which contains
the Form S-1 and other reports, proxy and information statements and
information regarding issuers that file electronically with the
SEC.
We have
filed a registration statement on Form S-1 with the SEC registering under
the Securities Act the common stock that may be distributed under this
prospectus. This prospectus, which is a part of such registration statement,
does not include all of the information contained in the registration statement
and its exhibits. For further information regarding us and our common stock, you
should consult the registration statement and its exhibits.
Statements
contained in this prospectus concerning the provisions of any documents are
summaries of those documents, and we refer you to the documents filed with the
SEC for more information. The registration statement and any of its amendments,
including exhibits filed as a part of the registration statement or an amendment
to the registration statement, are available for inspection and copying as
described above.
The
Offering
We are
offering ____________ shares of our common stock pursuant to this
prospectus.
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Issuer
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India
Globalization Capital, Inc., a Maryland corporation
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Shares
Offered
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[ ]
shares
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Shares
Outstanding
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12,898,291 shares
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Use
of Proceeds
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We
expect proceeds from this offering to us to be approximately
$[ ], after underwriters’ discounts and before
deducting the estimated expenses for the offering. We intend to use
the proceeds for working capital, operating expenses and other general
corporate purposes. We may also use the proceeds to repay
indebtedness.
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NYSE
Amex Symbol for Common Stock:
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IGC
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Risk
Factors
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You
should carefully consider the matters discussed under the heading “Risk
Factors”
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RISK
FACTORS
You
should carefully consider the following risk factors, together with all of the
other information included in this prospectus in evaluating us and our common
stock and other securities. If any of the following risks and uncertainties
develop into actual events, they could have a material adverse effect on our
business, financial condition or results of operations. In that case, the
trading price of our common stock and other securities also could be
adversely affected. We make various
statements in this section, which constitute “forward-looking statements.” See
“Forward-Looking Statements.” We refer to Sricon Infrastructure Private
Limited as Sricon and Techni Bharathi Limited as TBL.
RISKS
ASSOCIATED WITH OUR INDUSTRY AND DOING BUSINESS IN INDIA
Any downgrading
of India’s debt rating by an international rating agency, or an increase in
interest rates in India, could have a negative impact on our ability to borrow
in India.
As we
scale our operations we may increase the amount of money we borrow for working
capital and leasing of equipment. Any adverse revisions to India’s credit
ratings for domestic and international debt by international rating agencies as
well as an increase in Indian interest rates may adversely impact our ability to
finance growth through debt and could lead to a tightening of our margins,
adversely affecting our operating income.
A
change in government policy, a down turn in the Indian economy or a natural
disaster could adversely affect our business, financial condition, results of
operations and future prospects.
Our
construction business is dependent on the government of India as well as the
state governments for contracts. Their operations and financial
results may be affected by changes in the government’s policy towards building
infrastructure. In addition, the slow down in the Indian economy has
caused the government to slow down the pace of infrastructure building, which if
unchanged could adversely affect our future performance. We foresee
no immediate changes to government policy or market conditions that would
adversely affect our ability to conduct business other than limited access to
credit.
Political,
economic, social and other factors in India may adversely affect
business.
Our
ability to grow our business may be adversely affected by political, economic,
social and religious factors, changes in Indian law or regulations and the
status of India’s relations with other countries. In addition, the economy of
India may differ favorably or unfavorably from the U.S. economy in such respects
as the rate of growth of gross domestic product, the rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position.
According to the World Factbook published by the United States Central
Intelligence Agency, the Indian government has exercised and continues to
exercise significant influence over many aspects of the economy, and
privatization of government-owned industries proceeds at a slow pace.
Accordingly, Indian government actions in the future could have a significant
effect on the Indian economy, which could have a material adverse affect on our
ability to achieve our business objective.
Since
mid-1991, the Indian government has committed itself to implementing an economic
structural reform program with the objective of liberalizing India’s exchange
and trade policies, reducing the fiscal deficit, controlling inflation,
promoting a sound monetary policy, reforming the financial sector, and placing
greater reliance on market mechanisms to direct economic activity. A significant
component of the program is the promotion of foreign investment in key areas of
the economy and the further development of, and the relaxation of restrictions
in, the private sector. These policies have been coupled with the express
intention to redirect the government’s central planning function away from the
allocation of resources and toward the issuance of indicative guidelines. While
the government’s policies have resulted in improved economic performance, there
can be no assurance that the economic improvement will be sustained. Moreover,
there can be no assurance that these economic reforms will persist, and that any
newly elected government will continue the program of economic liberalization of
previous governments. Any change may adversely affect Indian laws and policies
with respect to foreign investment and currency exchange. Such changes in
economic policies could negatively affect the general business and economic
conditions in India, which could in turn adversely affect our
business.
Terrorist
attacks and other acts of violence or war within India or involving India and
other countries could adversely affect the financial markets and our
business.
Terrorist
attacks and other acts of violence could have the direct effect of destroying
our plant and property causing a loss and interruption of
business. According to the World Factbook, religious and border
disputes persist in India and remain pressing problems. For example, India has
from time to time experienced civil unrest and hostilities with neighboring
countries such as Pakistan. The longstanding dispute with Pakistan over the
border Indian states of Jammu and Kashmir, a majority of whose population is
Muslim, remains unresolved. If the Indian government is unable to control the
violence and disruption associated with these tensions, the results could
destabilize the economy and, consequently, adversely affect our
business.
Since
early 2003, there have also been military hostilities and civil unrest in
Afghanistan, Iraq, Pakistan and other Asian countries. These events could
adversely influence the Indian economy and, as a result, negatively affect our
business.
While we
may have insurance to cover some of these risks and can file claims against the
contracting agencies, there can be no guarantee that we will be able to collect
in a timely manner. Further, India has seen an increase in
politically motivated insurgencies and a fairly active communist
following. Any uprising from these groups can delay our roadwork and
disrupt our business. Terrorist attacks, insurgencies or the threat
of violence could slow down road building activity and acquisition of materials
which could adversely affect our business.
Exchange controls
that exist in India may limit our ability to utilize our cash flow
effectively.
We are
subject to India’s rules and regulations on currency conversion. In India, the
Foreign Exchange Management Act or FEMA, regulates the conversion of the Indian
rupee into foreign currencies. However, comprehensive amendments have
been made to FEMA to support the economic liberalization. Companies
are now permitted to operate in India without any special restrictions,
effectively placing them on par with wholly Indian owned companies. In addition,
foreign exchange controls have been substantially relaxed. Notwithstanding these
changes, the Indian foreign exchange market is not yet fully developed and we
cannot assure that the Indian authorities will not revert back to regulating
companies and imposing new restrictions on the convertibility of the Indian
rupee. Any future restrictions on currency exchanges may limit our ability to
use our cash flow for the distribution of dividends to our stockholders or to
fund operations we may have outside of India.
Changes in the
exchange rate of the Indian rupee may negatively impact our revenues and
expenses.
Our
operations are primarily located in India and we receive payment in Indian
rupees. As the results of operations are reported in US dollars, to
the extent that there is a decrease in the exchange rate of Indian rupees into
US dollars, such a decrease could have a material impact on our operating
results or financial condition.
Returns
on investment in Indian companies may be decreased by withholding and other
taxes.
Our
investments in India will incur tax risk unique to investment in India and in
developing economies in general. Income that might otherwise not be subject to
withholding of local income tax under normal international conventions may be
subject to withholding of Indian income tax. Under treaties with
India and under local Indian income tax law, income is generally sourced in
India and subject to Indian tax if paid from India. This is true whether or not
the services or the earning of the income would normally be considered as from
sources outside India in other contexts. Additionally, proof of payment of
withholding taxes may be required as part of the remittance procedure. Any
withholding taxes paid by us on income from our investments in India may or may
not be creditable on our income tax returns.
We intend
to avail ourselves of income tax treaties with India and minimize any Indian
withholding tax or local taxes. However, there is no assurance that
the Indian tax authorities will always recognize such treaties and its
applications. We have also created a foreign subsidiary in Mauritius, in
order to limit the potential tax exposure.
RISKS
ASSOCIATED WITH OUR BUSINESS
The
cost of obtaining bank financing may reduce our income.
TBL and,
to a lesser extent, Sricon, have restructured some of their bank debt and may,
in the future, face higher interest rates or will require higher collateral with
the banks. This increases the cost of money for the construction
business and could decrease our margins. IGC expects to provide
collateral support for two to three years, by which time we expect the credit
worthiness of the construction business to increase to adequate
levels. Further, collateral that has been provided to the banks
consists mostly of real estate, which has fallen in value, thus reducing our
ability to borrow.
Availability
of raw materials at competitive prices.
Construction
contracts are primarily dependent on adequate and timely supply of raw
materials, such as cement, steel and aggregates, at competitive prices. As the
demand from competing larger and well-established firms increases for procuring
raw materials, we could face an increase in the price of raw materials that may
negatively impact profitability.
Some
of our business is dependent on contracts awarded by the Government and its
agencies.
The
construction business is dependent on central and state budget allocations to
the infrastructure sector. We derive the bulk of our construction revenue from
contracts awarded by the central and state governments of India and their
agencies. If there are delays in the payment of invoices by the
government, our working capital requirements could increase.
Compliance
with the Foreign Corrupt Practices Act could adversely impact our competitive
position. Failure to comply could subject us to penalties and other adverse
consequences.
We are
subject to the United States Foreign Corrupt Practices Act, which generally
prohibits United States public companies from engaging in bribery of or other
prohibited payments to foreign officials to obtain or retain business. While we
will take precautions to educate the employees of our subsidiaries of the
Foreign Corrupt Practices Act, there can be no assurance that we or the
employees or agents of our subsidiaries will not engage in such conduct, for
which we might be held responsible. We could suffer penalties that may have a
material adverse effect on our business, financial condition and results of
operations.
We may issue shares of our capital
stock, including through convertible debt securities, which would reduce the
equity interest of our stockholders and likely cause a change in control of our
ownership.
Our
certificate of incorporation authorizes the issuance of up to
75,000,000 shares of common stock, par value $.0001 per share and
1,000,000 shares of preferred stock, par value $.0001 per share. There
are currently approximately 47,000,000 authorized but unissued shares of our
common stock available for issuance (after appropriate reservation for the
issuance of shares upon full exercise of our outstanding warrants and the
purchase option granted to Ferris, Baker Watts, Inc. and shares authorized for
issuance under our 2008 Omnibus Incentive Plan, including outstanding options
issued there under) and all of the 1,000,000 shares of preferred stock
available for issuance. We have recently issued 1,060,000 shares of our common
stock in connection with a private placement of debt securities and an exchange
of previously issued debt securities for new debt securities and the common
stock and may engage in similar private placements in the future. The
issuance of additional shares of our common stock including upon conversion of
any debt securities:
·
|
may
significantly reduce the equity interest of our existing shareholders;
and
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·
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may
adversely affect prevailing market prices for our common stock, warrants
or units.
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We
may issue notes or other debt securities, which may adversely affect our
leverage and financial condition.
During
each of 2008 and 2009, we sold debt securities in the principal amount of
$2,000,000 in a private placement and may engage in similar private
placements in the future. The incurrence of this debt:
·
|
may
lead to default and foreclosure on our assets if our operating
revenues are insufficient to pay our debt
obligations;
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·
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may
cause an acceleration of our obligations to repay the debt even if we make
all principal and interest payments when due if we breach the covenants
contained in the terms of the debt
documents;
|
·
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may
create an obligation to immediately repay all principal and accrued
interest, if any, upon demand to the extent any debt securities are
payable on demand; and
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·
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may
hinder our ability to obtain additional financing, if necessary, to the
extent any debt securities contain covenants restricting our ability to
obtain additional financing while such security is outstanding, or to the
extent our existing leverage discourages other potential
investors.
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Additional
capital may be costly or difficult to obtain.
Additional
capital, whether through the offering of equity or debt securities, may not be
available on reasonable terms or at all, especially in light of the recent
downturn in the economy and dislocations in the credit and capital markets. If
we are unable to obtain required additional capital, we may have to curtail our
growth plans or cut back on existing business and, further, we may not be able
to continue operating if we do not generate sufficient revenues from operations
needed to stay in business. We may incur substantial costs in
pursuing future capital financing, including investment banking fees, legal
fees, accounting fees, securities law compliance fees, printing and distribution
expenses and other costs. We may also be required to recognize non-cash expenses
in connection with certain securities we issue, such as convertible notes and
warrants, which may adversely impact our financial condition.
If
we are unable to repay the loan from Sricon, they may have difficulty competing
for future large contracts.
We
believe that Sricon will ultimately require the amounts they loaned us in order
to expand their operations and the scope of contracts on which they can
bid. If we are unable to repay the loan made to us by Sricon, they
may be required to find alternative sources of funding for such expansion, and
the costs and timing of obtaining such funding may make it more difficult for
these companies to expand the scope of contracts for which they can
compete. To the extent Sricon obtains additional funding, or we are
unable to repay the loan, it may result in the issuance of
additional shares of capital stock by Sricon to other parties or our tender
to Sricon of a portion of the shares we acquired from them, resulting in the
dilution of our interest in Sricon with a corresponding write down of our
assets.
Leveled
penalties for time overruns may adversely affect our economic
performance.
Sricon
and TBL execute construction contracts primarily in the roads and infrastructure
development sectors. Sricon and TBL typically enter into high value contracts
for these activities, which impose penalties if contracts are not executed in a
timely manner. If Sricon and TBL are unable to meet the performance
criteria as prescribed by respective contracts, then levied penalties may
adversely affect our financial performance.
Our
business is dependent on continuing relationships with clients and strategic
partners.
Our
business is dependent on developing and maintaining strategic alliances with
contractors that undertake turnkey contracts for infrastructure development
projects as well as government organizations. The business and our
results could be adversely affected if we are unable to maintain continuing
relationships and pre-qualified status with key clients and strategic
partners.
Our
business model relies heavily on our management team and any
unexpected loss of key officers may adversely affect our
operations
The
continued success of our business is largely dependent on the continued services
of key employees. The loss of the services of certain key personnel,
without adequate replacement, could have an adverse effect on our performance.
Our senior management as well as the senior management of our subsidiaries have
played a significant role in developing and executing the overall business plan,
maintaining client relationships, proprietary processes and
technology. While no one is irreplaceable, the loss of the
services of any would be disruptive to our business. Our
strategy, management, financial and operational oversight are heavily dependent
on our Founder and CEO. The loss of our CEO could have a significant adverse
effect on our business. In order to mitigate these risk factors we
are recruiting professional managers and expanding the executive ranks as well
as pursuing succession-planning initiatives, but this will take time and
there can be no guarantees that these mitigation efforts will be
successful.
Quarterly financial
results will vary.
Factors
that may contribute to the variability of quarterly revenue, operating results
or profitability include:
·
|
Fluctuations
in revenue due to seasonality: For example, during the monsoon
season, the heavy rains slow down construction work resulting
in an overall slow down of the supply of materials as well as construction
activity. This results in uneven revenue and operating results
through the quarters. In general, the months between June
and September are the rainy seasons and these tend to be slower quarters
than the others.
|
Our
future operating results and the market price of our common stock could be
materially adversely affected if we are required to write down the carrying
value of goodwill associated with any of our businesses in the
future.
We review
our goodwill balance for impairment on at least an annual basis through the
application of a fair value-based test. Our estimate of fair value is based
primarily on projected future results and cash flows and other assumptions. In
addition, we review long-lived assets whenever events or changes in
circumstances indicate that its carrying amount may not be recoverable. In the
fourth quarter of our 2009 fiscal year, we performed our annual test for
goodwill impairment and determined that our goodwill was not impaired. In the
future, if our projected discounted cash flows associated with our businesses do
not exceed the carrying value of their net assets, we may be required to record
write downs of the carrying value of goodwill or other long-lived assets
associated with any of our businesses and our operating results and the market
price of our common stock may be materially adversely affected.
As of
September 30, 2009 our goodwill balance was $17.5 million
respectively. We perform an annual goodwill impairment test during the fourth
quarter of each fiscal year, or more frequently if an event occurs or
circumstances change between annual tests that would more likely than not reduce
the fair value of a reporting unit below its carrying amount. The 2008-2009
recession has impacted our financial results and has reduced near-term purchases
from certain of our key customers. We may determine that our expectations of
future financial results and cash flows from one or more of our businesses has
decreased or a decrease in stock valuation may occur, which could result in a
review of our goodwill associated with these businesses. Since a large portion
of the value of our intangibles has been ascribed to projected revenues from
certain key customers, a change in our expectation of future cash from one or
more of these customers could indicate potential impairment to the carrying
value of our assets.
Our
subsidiaries may become involved in litigation in the future.
Our
subsidiaries are fairly large companies and may have to initiate actions in the
Indian Courts to enforce their rights and may also be drawn into legal
litigation. The expenses of litigation and any judgments against us
could have a material adverse effect on us.
We
face competition in the Indian infrastructure industry.
The
Indian real estate and infrastructure industries are increasingly attracting
foreign capital. We currently have competition from international as
well as domestic companies that operate at the national
level. Smaller localized contractors and companies are also competing
in their respective regions. If we are unable to offer competitive
prices and obtain contracts, there could be a significant reduction in our
revenue.
A
down turn in the economy could adversely affect our business, financial
condition, results of operations and future prospects.
A
generally adverse financial global economy or global recession could adversely
affect commodity prices and infrastructure build out in Asia which in turn could
adversely affect our future performance and result in a drop in our stock
price.
Our
operations are sensitive to weather conditions.
Our
business activities in India could be materially and adversely affected by
severe weather conditions. Severe weather conditions may require us to evacuate
personnel or curtail services and may result in damage to a portion of our fleet
of equipment or to our facilities, resulting in the suspension of operations,
and may further prevent us from delivering materials to project sites in
accordance with contract schedules or generally reduce our
productivity. Difficult working conditions and extremely high
temperatures also adversely affect our operations during summer months and
during monsoon season, which restrict our ability to carry on construction and
mining activities and fully utilize our resources.
Depending
on the onset of the monsoons, revenue recorded in the first half of our fiscal
year, particularly between June through September, is traditionally lower than
revenue recorded during the second half of our fiscal year. During
periods of curtailed activity due to adverse weather conditions, we may continue
to incur operating expenses as well as build material reserves reducing
profitability.
We incur costs as a result of
operating as a public company. Our management is required to
devote substantial time to new compliance initiatives. Because we
report in India in IGAAP and in the US in USGAAP, we may experience untimely
close of our books and records and delays in the preparation of financial
statements and related disclosures.
As part
of a public company with substantial operations, we are experiencing an
increase in legal, accounting and other expenses. In addition the
Sarbanes-Oxley Act of 2002 (the “SOX” act), as well as new rules subsequently
implemented by the SEC and the NYSE Amex, have imposed various requirements on
public companies, including requiring changes in corporate governance
practices. Our management and other personnel need to devote a
substantial amount of time to these compliance initiatives. We have
completed the testing of internal controls in all our subsidiaries except
Sricon. We expect to carry out the evaluations and install
systems and processes as required. However, we cannot be certain as to the
timing of completion of evaluation testing and remediation actions or the impact
of the same on our operations. Further, it is difficult to hire
personnel in India that are familiar with USGAAP. However, we have
hired several reputed consultants to help review internal reporting and
disclosures as well as train our India based staff in the rigors of SEC
reporting and USGAAP. We currently, do not foresee a problem other
than the time required to adequately train and streamline the
processes.
The
audit report provided by Yoganandh and Ram will require a review by a
US firm.
While our
audit firm, Yoganandh & Ram, is registered with the Public Company
Accounting Oversight Board (the “PCAOB”), the SEC requires that the audits
conducted by Yoganandh & Ram, be reviewed by another PCAOB registered
firm. If the review identifies changes to an audit, we will be
required to amend our annual report as filed on Form 10-K incorporating the
audited financial statements. The requirement of the review is
expected to increase our legal, accounting and other
expenses.
RISKS
RELATED TO OUR SECURITIES
The
Company has warrants outstanding, which could dilute the number of shares
outstanding.
At the
time the warrants are exercised, the company will get the exercise price, unless
the exercise is cashless. In either case, such an exercise will
also increase the number of shares outstanding. This may adversely
affect the share price as the supply of shares eligible for sale in the public
market will increase. The increased number of shares offered for sale
in the public market may exceed the public demand to buy shares at a given
market price resulting in the market price adjusting downward to equalize supply
and demand.
Although
we are required to use our best efforts to have an effective registration
statement covering the issuance of the shares underlying the public warrants at
the time that our warrant holders exercise their public warrants, we cannot
guarantee that a registration statement will be effective, in which case our
warrant holders may not be able to exercise our public warrants and such
warrants may expire worthless.
Holders
of our public warrants will be able to exercise the warrants only if a current
registration statement under the Securities Act of 1933 relating to the shares
of our common stock underlying the warrants is then effective. Although we have
undertaken in the warrant agreement, and therefore have a contractual
obligation, to use our best efforts to maintain a current registration statement
covering the shares underlying the public warrants to the extent required by
federal securities laws, and we intend to comply with such undertaking, with
such a registration statement currently effective, we cannot assure you that we
will be able to do so. In no event shall we be liable for, or any registered
holder of any warrant be entitled to receive, (a) physical settlement in
securities unless the conditions and requirements set forth in the warrant
agreement have been satisfied or (b) any net-cash settlement or other
consideration in lieu of physical settlement in securities. The value of the
public warrants may be greatly reduced if a registration statement covering the
shares issuable upon the exercise of the warrants is not kept current. Such
warrants may expire worthless.
Because
the warrants sold in the private placements were originally issued pursuant to
an exemption from registration requirements under the federal securities laws,
the holders of the warrants sold in the private placement will be able to
exercise their warrants even if, at the time of exercise, a prospectus relating
to the common stock issuable upon exercise of such warrants is not current. As a
result, the holders of the warrants purchased in the private placements will not
have any restrictions with respect to the exercise of their warrants. As
described above, the holders of the public warrants will not be able to exercise
them unless we have a current registration statement covering the shares
issuable upon their exercise.
If
equity research analysts do not publish research or reports about our business
or if they issue unfavorable commentary or downgrade our common stock, the price
of our common stock could decline.
The
trading market for our common stock will rely in part on the research and
reports that equity research analysts publish about our business and us. We do
not control these analysts. The price of our stock could decline if one or more
equity analysts downgrade our stock or if those analysts issue other unfavorable
commentary or cease publishing reports about our business or us.
We
do not currently intend to pay dividends, which may limit the return on your
investment in us.
We
currently intend to retain all available funds and any future earnings for use
in the operation and expansion of our business and do not anticipate paying any
cash dividends in the foreseeable future.
FORWARD-LOOKING
STATEMENTS
We
believe that some of the information in this prospectus constitutes
forward-looking statements within the definition of the Private Securities
Litigation Reform Act of 1995. You can identify these statements by
forward-looking words such as “may,” will,” “should,” “believes,” “expects,”
“intends,” “anticipates,” “thinks,” “plans,” “estimates,” “seeks,” “predicts,”
“potential” or similar words or the negative of these words or other variations
on these words or comparable terminology. You should read statements that
contain these words carefully because they discuss future expectations, contain
projections of future results of operations or financial conditions or state or
other forward looking information.
While we
believe it is important to communicate our expectations to our stockholders,
there may be events in the future that we are not able to accurately predict or
over which we have no control. The risk factors and cautionary language
discussed in this prospectus provide examples of risks, uncertainties and events
that may cause actual results to differ materially from the expectations
described by us in our forward-looking statements, including among other
things:
· Competition in the road building
sector.
· Legislation by the government of
India.
· General economic conditions and the
Indian growth rates.
· Our ability to win licenses, contracts
and execute.
You
should be aware that the occurrence of the events described in these risk
factors and elsewhere in this prospectus could have a material adverse effect on
our business, financial condition and results of operations.
You are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date of this prospectus.
All
forward-looking statements included herein attributable to us or any person
acting on either party’s behalf are expressly qualified in their entirety by the
cautionary statements contained or referred to in this section. Except to the
extent required by applicable laws and regulations, we undertake no obligation
to update these forward-looking statements to reflect events or circumstances
after the date of this prospectus or to reflect the occurrence of unanticipated
events.
Before
you decide to invest in our securities, you should be aware that the occurrence
of the events described in the “Risk Factors” section and elsewhere in this
prospectus could have a material adverse effect on us.
USE
OF PROCEEDS
We expect
proceeds from this offering to us to be approximately
$[ ], after underwriters’ discounts and before deducting
the estimated expenses for the offering. We are contractually required to
use 40% of the net proceeds of this offering in excess of $500,000 to repay two
outstanding promissory notes in the principal amount of $2,120,000 and
$2,000,000, respectively. We intend to use the balance of the
proceeds for working capital, operating expenses and other general corporate
purposes. We may also use the balance of the proceeds to further repay
outstanding indebtedness.
DIVIDEND
POLICY
We have
not paid any cash dividends on its common stock to date. It is the
present intention of the board of directors to retain all earnings, if any, for
use in the business operations, and consequently, the board does not anticipate
declaring any dividends in the foreseeable future. The payment of any
dividends will be with the discretion of the board of directors and will be
contingent upon our financial condition, results of operations, capital
requirements and other factors our board deems relevant.
MARKET
PRICE OF OUR COMMON STOCK, WARRANTS AND UNITS
The
following table shows, for the last eight fiscal quarters, the high and low
closing prices per share of the Common Stock, Warrants and Units as quoted on
the NYSE Amex:
|
|
|
|
|
|
|
|
|
|
Quarter
Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2007
|
|
$ |
5.94 |
|
|
$ |
5.69 |
|
|
$ |
0.59 |
|
|
$ |
0.34 |
|
|
$ |
6.90 |
|
|
$ |
6.35 |
|
March
31, 2008
|
|
$ |
5.90 |
|
|
$ |
3.60 |
|
|
$ |
0.73 |
|
|
$ |
0.25 |
|
|
$ |
7.45 |
|
|
$ |
4.15 |
|
June
30, 2008
|
|
$ |
5.90 |
|
|
$ |
3.81 |
|
|
$ |
1.30 |
|
|
$ |
0.58 |
|
|
$ |
8.80 |
|
|
$ |
5.28 |
|
September
30, 2008
|
|
$ |
4.99 |
|
|
$ |
4.50 |
|
|
$ |
1.00 |
|
|
$ |
0.55 |
|
|
$ |
6.86 |
|
|
$ |
5.65 |
|
December
31, 2008
|
|
$ |
4.78 |
|
|
$ |
0.70 |
|
|
$ |
0.53 |
|
|
$ |
0.01 |
|
|
$ |
5.75 |
|
|
$ |
0.01 |
|
March
31, 2009
|
|
$ |
1.10 |
|
|
$ |
0.33 |
|
|
$ |
0.13 |
|
|
$ |
0.02 |
|
|
$ |
1.07 |
|
|
$ |
0.40 |
|
June
30, 2009
|
|
$ |
1.25 |
|
|
$ |
1.12 |
|
|
$ |
0.06 |
|
|
$ |
0.06 |
|
|
$ |
1.80 |
|
|
$ |
1.02 |
|
September
30, 2009
|
|
$ |
1.86 |
|
|
$ |
0.88 |
|
|
$ |
0.20 |
|
|
$ |
0.05 |
|
|
$ |
2.32 |
|
|
$ |
1.00 |
|
December
31, 2009 (through December 17, 2009)
|
|
$ |
2.20
|
|
|
$ |
1.33
|
|
|
$ |
0.22
|
|
|
$ |
0.04
|
|
|
$ |
2.50
|
|
|
$ |
1.34
|
|
A recent
reported closing price for our common stock, warrants and units is
set forth on the cover page of this prospectus. Continental Stock Transfer &
Trust Company is the transfer agent and registrar for our common stock. As of
September 30, 2009, we had 946 holders of record of
our common stock, 173 holders of record of our units and 1,054 holders of
record of our warrants.
DETERMINATION
OF OFFERING PRICE
The
prices at which the shares of common stock covered by this prospectus may
actually be disposed may be at fixed prices, at prevailing market prices at the
time of sale, at prices related to the prevailing market price, at varying
prices determined at the time of sale, or at negotiated
prices.
UNDERWRITING
Under the
terms and subject to the conditions contained in an underwriting agreement dated
____________ , 2009, we have agreed to sell to the
underwriter, ____________, the following respective numbers of shares
of common stock:
The
underwriting agreement provides that the underwriters are obligated to purchase
all the shares of common stock in the offering if any are purchased, other than
those shares covered by the over-allotment option described below. The
underwriting agreement also provides that if an underwriter defaults, the
purchase commitments of non-defaulting underwriters will be
increased.
We have
granted to the underwriters a 30-day option to purchase up to ________
additional shares at the offering price less the underwriting discounts.
The option may be exercised only to cover any over-allotments of common
stock.
The
underwriters propose to offer the shares of common stock at the offering price
on the cover page of this prospectus supplement. After the offering,
_____________ may change the offering price and concession and discount to
broker/dealers.
The
following table summarizes the compensation and estimated expenses we will
pay:
|
Per
Share
|
|
Total
|
|
Without
Over-Allotment
|
|
With
Over-Allotment
|
|
Without
Over-Allotment
|
|
With
Over-Allotment
|
Underwriting
discounts and commissions paid by us
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We have
agreed that during the period beginning from the date hereof and continuing to
and including the date __ days after the date of the prospectus supplement, we
will not offer, sell, contract to sell or otherwise dispose of any securities of
the Company which are substantially similar to our common stock (other than for
shares or stock options issued under employee stock plans, such plans as are
currently in existence and disclosed in the Prospectus), without the prior
written consent of _____________ (such consent not to be unreasonably
withheld or delayed) other than the sale of the shares to be sold by the Company
hereunder. During the period of __ days after the date of the prospectus
supplement, the Company will not file with the Commission or cause to become
effective any registration statement (other than a registration statement on
Form S-8 filed to register securities issued or to be issued under employee
stock option plans, each such plan as disclosed in the Prospectus) or prospectus
relating to any securities of the Company which are substantially similar to our
common stock without the prior written consent
of _____________
Our
executive officer and directors have agreed that they will not offer, sell,
contract to sell, pledge or otherwise dispose of, directly or indirectly, any
shares of our common stock or securities convertible into or exchangeable or
exercisable for any shares of our common stock, enter into a transaction that
would have the same effect, or enter into any swap, hedge or other arrangement
that transfers, in whole or in part, any of the economic consequences of
ownership of our common stock, whether any of these transactions are to be
settled by delivery of our common stock or other securities, in cash or
otherwise, or publicly disclose the intention to make any such offer, sale,
pledge or disposition, or to enter into any such transaction, swap, hedge or
other arrangement, without, in each case, the
prior written consent of _____________ for a period
__ days after the date of this prospectus supplement, provided, however, that
the foregoing shall not apply to a transfer of shares solely to the extent
necessary to satisfy federal income tax obligations with respect to any shares
of Common Stock issued prior to the date of this offering.
We have
agreed to indemnify the underwriters against liabilities under the Securities
Act, or contribute to payments that the underwriters may be required to make in
that respect.
In
connection with the offering the underwriters may engage in stabilizing
transactions, over-allotment transactions, syndicate covering transactions ad
penalty bids in accordance with Regulation M under the Exchange
Act.
|
·
Stabilizing transactions permit bids to purchase the underlying
security so long as the stabilizing bids do not exceed a specified
maximum.
|
|
·
Over-allotment involves sales by the underwriters of shares in
excess of the number of shares the underwriters are obligated to purchase,
which creates a syndicate short position. The short position may be
either a covered short position or a naked short position. In a
covered short position, the number of shares over-allotted by the
underwriters is not greater than the number of shares that they may
purchase in the over-allotment option. In a naked short position,
the number of shares involved is greater than the number of shares in the
over-allotment option. The underwriters may close out any covered
short position by exercising their over-allotment option and/or purchasing
shares in the open market.
|
|
·
Syndicate covering transactions involve purchases of the common
stock in the open market after the distribution has been completed in
order to cover syndicate short positions. In determining the source
of shares to close out the short position, the underwriters will consider,
among other things, the price of shares available for purchase in the open
market as compared to the price at which they may purchase shares through
the over-allotment option. If the underwriters sell more shares than
could be covered by the over-allotment option, a naked short position, the
position can only be closed out by buying shares in the open market.
A naked short position is more likely to be created if the underwriters
are concerned that there could be downward pressure on the price of the
shares in the open market after pricing that could adversely affect
investors who purchase in the
offering.
|
|
·
Penalty bids permit the representatives to reclaim a selling
concession from a syndicate member when the common stock originally sold
by the syndicate member is purchased in a stabilizing or syndicate
covering transaction to cover syndicate short
positions.
|
These
stabilizing transactions, syndicate covering transactions and penalty bids may
have the effect of raising or maintaining the market price of our common stock
or preventing or retarding a decline in the market price of the common
stock. As a result, the price of our common stock may be higher than the
price that might otherwise exist on the open market. These transactions
may be affected on the NYSE Amex or otherwise and if commenced, may be
discontinued at any time.
A
prospectus supplement and prospectus in electronic format may be made available
on the web sites maintained by one or more of the underwriters participating in
this offering.
SELECTED
HISTORICAL FINANCIAL INFORMATION.
IGC’s
historical information is derived from its audited financial statements for
the period from its inception (April 29, 2005) to March 31, 2006, for the fiscal
years ended March 31, 2007, 2008 and 2009. In addition, historical
information is derived from its unaudited financial statements for the 6 months
period ended September 30, 2009 and 2008. The information is only a
summary and should be read in conjunction with IGC’s historical financial
statements and related notes and IGC’s respective Management’s Discussion and
Analysis of Financial Condition and Results of Operations contained elsewhere
herein. The historical results included below and elsewhere herein are not
indicative of the future financial performance of IGC.
India
Globalization Capital, Inc.
Selected
Summary Statement of Income Data
(Audited)
Annual
results:
Selected
Statement of Operations Data:
|
|
Year
Ended
|
|
|
Year
Ended
|
|
|
Year
Ended
|
|
|
29-Apr-05
|
|
|
|
31-Mar-09
|
|
|
31-Mar-08
|
|
|
31-Mar-07
|
|
|
To
March 31, 2006
|
|
Revenue
|
|
$
|
35,338,725
|
|
|
$
|
2,188,018
|
|
|
$
|
|
|
|
$
|
|
|
Other
Income-Interest, net
|
|
|
(577,934
|
)
|
|
|
471,698
|
|
|
|
3,171,818
|
|
|
|
210,584
|
|
Net
Income (loss)
|
|
|
(521,576
|
)
|
|
|
(5,215,270
|
)
|
|
|
1,517,997
|
|
|
|
(443,840
|
)
|
Per
Share Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share – basic
|
|
$
|
(0.05
|
)
|
|
$
|
(0.61
|
)
|
|
$
|
0.11
|
|
|
$
|
(0.14
|
)
|
Earnings
per share - diluted
|
|
$
|
(0.05
|
)
|
|
$
|
(0.61
|
)
|
|
|
|
|
|
|
|
|
Weighted
Average Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
10,091,171
|
|
|
|
8,570,107
|
|
|
|
13,974,500
|
|
|
|
3,191,000
|
|
Diluted
|
|
|
10,091,171
|
|
|
|
8,570,107
|
|
|
|
|
|
|
|
|
|
India
Globalization Capital, Inc.
Selected
Summary Statement of Income Data
(unaudited)
Most
recent quarterly results:
Selected
Statement of Operations Data:
|
|
Six
Months
|
|
|
Six
Months
|
|
|
|
Ended
September
30, 2009
|
|
|
Ended
September
30, 2008
|
|
Revenue
|
|
$
|
8,085,480
|
|
|
$
|
28,427,252
|
|
Other
Income-Interest, net
|
|
|
(661,475
|
)
|
|
|
(615,686
|
)
|
Net
Income (loss)
|
|
|
(1,116,189
|
)
|
|
|
1,359,243
|
|
Per
Share Data
|
|
|
|
|
|
|
|
|
Earnings
per share – basic
|
|
$
|
(0.09
|
)
|
|
$
|
0.15
|
|
Earnings
per share - diluted
|
|
|
(0.09
|
)
|
|
|
0.15
|
|
Weighted
Average Shares
|
|
|
|
|
|
|
|
|
Basic
|
|
|
11,783,991
|
|
|
|
8,780,107
|
|
Diluted
|
|
|
12,291,208
|
|
|
|
8,780,107
|
|
India
Globalization Capital, Inc.
Selected
Summary Balance Sheet Data
|
|
30-Sept-09
|
|
|
31-Mar-09
|
|
|
|
31-Mar-08
|
|
|
31-Mar-07
|
|
|
|
(unaudited)
|
|
|
(audited)
|
|
|
|
(audited)
|
|
|
(audited)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
held in trust fund
|
|
$
|
|
|
|
$
|
-
|
|
|
|
$
|
-
|
|
|
$
|
66,104,275
|
|
Total
Current Assets
|
|
|
20,200,295
|
|
|
|
19,498,584
|
|
|
|
|
32,896,447
|
|
|
|
70,385,373
|
|
Total
Assets
|
|
|
53,194,285
|
|
|
|
51,832,513
|
|
|
|
|
67,626,973
|
|
|
|
70,686,764
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
9,623,556
|
|
|
|
9,446,345
|
|
|
|
|
17,384,059
|
|
|
|
5,000,280
|
|
Total
Liabilities
|
|
|
13,415,831
|
|
|
|
13,974,638
|
|
|
|
|
26,755,261
|
|
|
|
5,000,280
|
|
Common
stock subject to possible conversion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,762,785
|
|
Total
stockholders’ equity
|
|
$
|
25,450,823
|
|
|
$
|
23,595,269
|
|
|
|
$
|
27,326,056
|
|
|
$
|
52,923,699
|
|
The
following table sets forth certain selected financial data of
Sricon. The selected financial data presented below was derived from
Sricon’s audited consolidated financial statements for the period April 1, 2007
through March 7, 2008 (date of acquisition) and for the three year period ended
March 31, 2007, and from Sricon’s unaudited consolidated financial statements
for the year ended March 31, 2004. The information is only a summary and should
be read in conjunction IGC’s historical financial statements and related notes
and our Management’s Discussion and Analysis of Financial Condition and Results
of Operations contained elsewhere herein. Additional information regarding
Scrion’s historical performance can be found in the Company’s Annual Report on
Form 10-KSB for the year ended March 31, 2008. The historical results included
below and elsewhere herein are not indicative of the future financial
performance of IGC, Sricon and TBL.
Sricon
Infrastructure (Predecessor)
Selected
Summary Statement of Income Data
|
|
|
|
|
|
|
|
|
|
Amounts
in Thousands Except Per Share Data
|
|
Year
Ended
|
|
|
Year
Ended
|
|
|
Year
Ended
|
|
|
|
7-Mar-08
|
|
|
31-Mar-07
|
|
|
31-Mar-06
|
|
Revenue
|
|
$
|
22,614
|
|
$
|
10,604
|
|
|
$
|
11,011
|
|
Income
Before Tax
|
|
|
3,144
|
|
|
778
|
|
|
|
668
|
|
Income
Taxes
|
|
|
(768
|
)
|
|
(368
|
)
|
|
|
(186
|
)
|
Net
Income (loss)
|
|
|
2,376
|
|
|
410
|
|
|
|
482
|
|
Per
Share Data
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share – basic
|
|
$
|
0.81
|
|
$
|
0.14
|
|
|
$
|
0.16
|
|
Earnings
per share - diluted
|
|
$
|
0.78
|
|
|
|
|
|
|
|
|
Weighted
Average Shares
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
2,932,159
|
|
|
2,932,159
|
|
|
|
2,932,159
|
|
Diluted
|
|
|
3,058,881
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited
|
|
Amounts
in Thousands Except Per Share Data |
|
Year
Ended
|
|
|
Year
Ended
|
|
|
|
31-Mar-05
|
|
|
31-Mar-04
|
|
Revenue
|
|
$ |
11,477 |
|
|
$ |
15,298 |
|
Income
Before Tax
|
|
|
907 |
|
|
|
646 |
|
Income
Taxes
|
|
|
(363
|
) |
|
|
(199
|
) |
Net
Income (loss)
|
|
|
544 |
|
|
|
446 |
|
Per
Share Data
|
|
|
|
|
|
|
|
|
Earnings
per share – basic
|
|
$ |
0.19 |
|
|
$ |
0.11 |
|
Earnings
per share - diluted
|
|
|
|
|
|
|
|
|
Weighted
Average Shares
|
|
|
|
|
|
|
|
|
Basic
|
|
|
2,932,159 |
|
|
|
183,259 |
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sricon
Infrastructure Private Limited (Predecessor)
Selected
Summary Balance Sheet Data
|
|
March
7,
|
|
|
March
31,
|
|
|
March
31,
|
|
(Amounts
in Thousand US Dollars)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Accounts
receivables
|
|
$
|
7,764
|
|
|
$
|
2,751
|
|
|
$
|
2,083
|
|
Unbilled
receivables
|
|
|
4,527
|
|
|
|
2,866
|
|
|
|
2,980
|
|
Inventories
|
|
|
447
|
|
|
|
71
|
|
|
|
248
|
|
Property
and equipment, net
|
|
|
5,327
|
|
|
|
4,903
|
|
|
|
4,347
|
|
BOT
Project under progress *
|
|
|
3,485
|
|
|
|
3,080
|
|
|
|
1,584
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
borrowings and current portion of long-term debt
|
|
|
5,732
|
|
|
|
3,646
|
|
|
|
3,868
|
|
Due
to related parties
|
|
|
1,322
|
|
|
|
2,264
|
|
|
|
1,604
|
|
Long-term
debt, net of current portion
|
|
|
1,264
|
|
|
|
2,182
|
|
|
|
1,855
|
|
Other
liabilities
|
|
|
1,519
|
|
|
|
1,913
|
|
|
|
697
|
|
Total
stockholders’ equity
|
|
$
|
9,673
|
|
|
$
|
4,289
|
|
|
$
|
3,740
|
|
|
|
|
|
|
|
|
(Amounts
in Thousand US Dollars)
|
|
|
|
|
Unaudited
March
31, 2004
|
|
ASSETS
|
|
|
|
|
|
|
Accounts
receivables
|
|
$
|
2,128
|
|
|
$
|
2,223
|
|
Unbilled
receivables
|
|
|
974
|
|
|
|
984
|
|
Inventories
|
|
|
154
|
|
|
|
71
|
|
Property
and equipment, net
|
|
|
3,424
|
|
|
|
3,098
|
|
BOT
Project under progress *
|
|
|
0
|
|
|
|
0
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
Short-term
borrowings and current portion of long-term debt
|
|
|
5,103
|
|
|
|
359
|
|
Due
to related parties
|
|
|
1,724
|
|
|
|
1,553
|
|
Long-term
debt, net of current portion
|
|
|
1,278
|
|
|
|
1,089
|
|
Other
liabilities
|
|
|
1,307
|
|
|
|
1,267
|
|
Total
stockholders’ equity
|
|
$
|
2,760
|
|
|
$
|
2,822
|
|
*BOT
Project under progress means Build, Operate, and Transfer. BOT is listed as
Accounts Receivable – Long term in the Consolidated Financial Statements for
IGC. See the Summary of Significant Accounting Policies for a
detailed explanation of BOT projects.
The
following table sets forth certain selected financial data of Techni Bharathi
Limited. The selected financial data presented below
was derived from Techni Bharathi
Limited audited consolidated financial statements for
the period April 1, 2007 through March 7, 2008 (date of acquisition) and for the
three year period ended March 31, 2007, and from TBL’s unaudited consolidated
financial statements for the year ended March 31, 2004. The
information is only a summary and should be read in conjunction IGC’s historical
financial statements and related notes and our Management’s Discussion and
Analysis of Financial Condition and Results of Operations contained elsewhere
herein. Additional information regarding TBL’s historical performance can be
found in the Company’s Annual Report on Form 10-KSB for the year ended March 31,
2008. The historical results included below and elsewhere herein are not
indicative of the future financial performance of IGC, Sricon and
TBL.
Techni
Bharathi Limited (Predecessor)
Selected
Summary Statement of Income Data
(Amounts
in Thousand US Dollars, except share data and as stated
otherwise)
|
|
April
1 2007 to March 7, 2008
|
|
|
31-Mar-07
|
|
|
31-Mar-06
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
5,321
|
|
|
$
|
4,318
|
|
|
$
|
2,285
|
|
Income
(loss) before income taxes
|
|
|
2,245
|
|
|
|
401
|
|
|
|
(2,369
|
)
|
Income
taxes
|
|
|
(86
|
)
|
|
|
135
|
|
|
|
62
|
|
Net
(loss)/income
|
|
|
1,988
|
|
|
|
536
|
|
|
|
(2,307
|
)
|
Per
Share Data
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.46
|
|
|
$
|
0.13
|
|
|
$
|
(0.54
|
)
|
Diluted
|
|
$
|
0.22
|
|
|
$
|
0.13
|
|
|
$
|
(0.54
|
)
|
Weighted
Average Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
4,287,500
|
|
|
|
4,287,500
|
|
|
|
4,287,500
|
|
Diluted
|
|
|
9,089,928
|
|
|
|
4,287,500
|
|
|
|
4,287,500
|
|
(Amounts
in Thousand US Dollars, except share data and as stated
otherwise) |
|
|
31-Mar-05
|
|
|
Unaudited
31-Mar-04
|
|
Revenue
|
|
$
|
8,954
|
|
$
|
8,773
|
|
Income
(loss) before income taxes
|
|
|
(3,823
|
)
|
|
(2,609
|
)
|
Income
taxes
|
|
|
515
|
|
|
(63
|
)
|
Net
(loss)/income
|
|
|
(3,308
|
)
|
|
(2,672
|
)
|
Per
Share Data
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.77
|
)
|
$
|
(0.62
|
)
|
Diluted
|
|
$
|
(0.77
|
)
|
$
|
(0.62
|
)
|
Weighted
Average Shares
|
|
|
|
|
|
|
|
Basic
|
|
|
4,287,500
|
|
|
4,287,500
|
|
Diluted
|
|
|
4,287,500
|
|
|
4,287,500
|
|
Techni
Bharathi Limited (Predecessor)
Selected
Summary Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
(Amounts
in Thousand US Dollars)
|
|
7-Mar-08
|
|
|
31-Mar-07
|
|
|
31-Mar-06
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
736
|
|
|
$
|
1,208
|
|
|
$
|
69
|
|
Inventories
|
|
|
1,428
|
|
|
|
1,284
|
|
|
|
4,182
|
|
Prepaid
and other assets
|
|
|
271
|
|
|
|
1,231
|
|
|
|
1,275
|
|
Property,
plant and equipment (net)
|
|
|
1,979
|
|
|
|
2,265
|
|
|
|
2,417
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Short
term borrowings and current portion of long-term loan
|
|
|
2,437
|
|
|
|
6,079
|
|
|
|
8,125
|
|
Trade
payable
|
|
|
2,222
|
|
|
|
1,502
|
|
|
|
987
|
|
Long
term debts, net of current portion
|
|
|
-
|
|
|
|
2,333
|
|
|
|
3,656
|
|
Advance
from customers
|
|
|
824
|
|
|
|
1,877
|
|
|
|
2,997
|
|
Total
Stockholders' equity
|
|
$
|
(397
|
)
|
|
$
|
(4,895
|
)
|
|
$
|
(5,438
|
)
|
|
|
|
|
|
Unaudited
|
|
(Amounts
in Thousand US Dollars)
|
|
31-Mar-05
|
|
|
31-Mar-04
|
|
ASSETS
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
83 |
|
|
$ |
107 |
|
Inventories
|
|
|
4,459 |
|
|
|
4,922 |
|
Prepaid
and other assets
|
|
|
1,765 |
|
|
|
2,070 |
|
Property,
plant and equipment (net)
|
|
|
3,463 |
|
|
|
3,985 |
|
LIABILITIES
|
|
|
|
|
|
|
|
|
Short
term borrowings and current portion of long-term loan
|
|
|
6,291 |
|
|
|
6,614 |
|
Trade
payable
|
|
|
3,341 |
|
|
|
2,738 |
|
Long
term debts, net of current portion
|
|
|
3,897 |
|
|
|
2,892 |
|
Advance
from customers
|
|
|
3,057 |
|
|
|
2,755 |
|
Total
Stockholders' equity
|
|
$ |
(3,032 |
) |
|
$ |
320 |
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF
FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The
following discussion should be read in conjunction with the financial statements
and notes thereto included in this prospectus. Except for the historical
information contained herein, the discussion in this prospectus contains certain
forward-looking statements that involve risk and uncertainties, such as
statements of the Company’s plans, objectives, expectations and intentions as of
the date of this filing. The cautionary statements made in this document should
be read as being applicable to all related forward-looking statements wherever
they appear in this document. The Company’s actual results could differ
materially from those discussed here. Factors that could cause differences
include those discussed in the “Risk Factors” section as well as discussed
elsewhere herein.
Overview
In
response to India’s rapidly expanding economy, our primary focus is to
execute infrastructure projects through our subsidiaries such as
constructing interstate highways, rural roads, mining and quarrying, and
construction of high temperature cement and steel plants.
IGC, a
Maryland corporation was organized on April 29, 2005 as a blank check
company for the purpose of acquiring one or more businesses with operations
primarily in India through a merger, capital stock exchange, asset acquisition
or other similar business combination or acquisition. On March 8, 2006, we
completed an initial public offering. On February 19. 2007, we
incorporated India Globalization Capital, Mauritius, Limited (IGC-M), a wholly
owned subsidiary, under the laws of Mauritius. On March 7, 2008, we
consummated an agreement to acquire 63% of Sricon Infrastructure Private Limited
(Sricon) and 77% of Techni Bharathi Limited (TBL). The shares of the two Indian
companies, Sricon and TBL, are held by IGC-M.
Most
of the shares of Sricon and TBL acquired by IGC were purchased directly from the
companies. IGC purchased a portion of the shares from the existing owners of the
companies. The founders and management of Sricon own 37% of Sricon
and the founders and management of TBL own 23% of TBL.
The
acquisitions were accounted for under the purchase method of
accounting. Under this method of accounting, for accounting and
financial purposes, IGC-M, Limited, was treated as the acquiring entity and
Sricon and TBL as the acquired entities. The financial statements
provided here and going forward are the consolidated statements of IGC, which
include IGC-M, Sricon, TBL and their subsidiaries. However, the
consolidated financial statements of our business for periods prior
to March 7, 2008 (acquisition date) do not include information on
Sricon and TBL. We have included the financial statements
of both Sricon and TBL prior to March 7, 2008 as separate
disclosures.
Sricon
was incorporated in 1997 with the Registrar of Companies, Maharashtra in the
name of “Srivastava Construction Private Limited.” Sricon is located
in Nagpur, India. TBL was incorporated in 1982.
Until the
formation of Sricon, the infrastructure construction work was carried out in
Vijay Engineering Enterprises (partnership concern)
(“VEE”). Sricon was incorporated with an objective to execute large
scale infrastructure projects in sectors such as Highways, Water Management
System, Power and Cement Plants, etc. In an effort to consolidate all
infrastructure activities under one company to garner better synergy, business
profile, as well as improve cost management, VEE was merged with Sricon
effective March 31, 2004.
On
February 19, 2009 IGC-M beneficially purchased 100% of IGC Mining and Trading,
Limited based in Chennai India. On July 4, 2009 IGC-M beneficially
purchased 100% of IGC Materials, Private Limited, and 100% of IGC Logistics,
Private Limited. Both these companies are based in Nagpur, India.
Indian IGC Materials, Private Limited (IGC-MPL) and IGC Logistics,
Private Limited (IGC-LPL), is also involved in the building of rock quarries,
the export of iron ore and the transport of materials.
The
financial statements provided here and going forward are the consolidated
statements of IGC, which includes all the aforementioned
subsidiaries.
Company
Overview
We are a
construction and materials company engaged in the following core business areas:
1) civil construction of roads and highways, 2) the construction and maintenance
of high temperature cement and steel plants, 3) operations and supply of rock
aggregate and 4) the export of iron ore to China. Our present
and past clients include various Indian government
organizations. Including our subsidiaries, we have
approximately 400 employees and contractors. Our larger construction
subsidiary, Sricon, has the capacity and prior experience to bid on contracts
priced at a maximum of about $116 million. We are focused on winning
construction contracts, building out rock aggregate quarries and setting up
relations and export hubs for the export of iron ore to
China.
The
Indian government has articulated plans to modernize the Indian
Infrastructure. It expects to spend around $22 billion in the next 12
months on roads and highways. We believe that these initiatives will continue to
be favorable to our business. Our model is three fold and tightly
integrated approach: 1) we bid on construction and engineering contracts which
provide us with a backlog which translates into greater revenues and earnings,
2) we are in the process of building rock quarries and selling rock aggregate to
the infrastructure industry and 3) we export iron ore to China. There
is seasonality in our business as outdoor construction activity slows down
during the Indian monsoons. The rains typically last intermittently
from June through September.
Critical
Accounting Policies and Estimates
The
discussion and analysis of our financial condition and results of operations are
based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America. The preparation of these financial statements requires us to make
significant estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. These items are regularly monitored and analyzed by management
for changes in facts and circumstances, and material changes in these estimates
could occur in the future. These estimates include, among others, our revenue
recognition policies related to the proportional performance and percentage of
completion methodologies of revenue recognition of contracts and assessing our
goodwill for impairment annually. Changes in estimates are recorded in the
period in which they become known. We base our estimates on historical
experience and various other assumptions that we believe are reasonable under
the circumstances. Actual results will differ and may differ materially from the
estimates if past experience or other assumptions do not turn out to be
substantially accurate.
The
following summaries should be read in conjunction with our most recent annual
audited statements and quarterly unaudited consolidated financial statements and
the related notes included in this Report. While all accounting policies impact
the financial statements, certain policies may be viewed as critical. Critical
accounting policies are those that are both most important to the portrayal of
financial condition and results of operations and that require management’s most
subjective or complex judgments and estimates. Our management believes the
policies that fall within this category are the policies on revenue recognition,
accounting for stock-based compensation, goodwill and income taxes.
Revenue
Recognition
The
majority of the revenue recognized for three and six month periods ended
September 30, 2009 was derived from the Company’s subsidiaries and as
accordingly:
Revenue
is recognized based on the nature of activity when consideration can be
reasonably measured and there exists reasonable certainty of its
recovery.
Revenue
from sale of goods is recognized when substantial risks and rewards of ownership
are transferred to the buyer under the terms of the contract.
Revenue
from construction/project related activity and contracts for
supply/commissioning of complex plant and equipment is recognized as
follows:
|
a)
|
|
Cost
plus contracts: Contract revenue is determined by adding the aggregate
cost plus proportionate margin as agreed with the customer and expected to
be realized.
|
|
|
|
b)
|
|
Fixed
price contracts: Contract revenue is recognized using the percentage
completion method. Percentage of completion is determined as a proportion
of cost incurred-to-date to the total estimated contract cost. Changes in
estimates for revenues, costs to complete and profit margins are
recognized in the period in which they are reasonably
determinable
|
Full
provision is made for any loss in the period in which it is
foreseen.
Revenue
from property development activity is recognized when all significant risks and
rewards of ownership in the land and/or building are transferred to the customer
and a reasonable expectation of collection of the sale consideration from the
customer exists.
Revenue
from service related activities and miscellaneous other contracts are recognized
when the service is rendered using the proportionate completion method or
completed service contract method.
Foreign
Currency Translation
The
financial statements are reported in U.S. dollars. The Indian rupee is the
functional currency for the Indian Subsidiaries. The translation of the
functional currencies into U.S. dollars is performed for assets and liabilities
using the exchange rates in effect at the balance sheet date and for revenues,
costs and expenses using average exchange rates prevailing during the reporting
periods. Adjustments resulting from the translation of functional currency
financial statements to reporting currency are accumulated and reported as other
comprehensive income/(loss), a separate component of shareholders’
equity.
Transactions
in foreign currency are recorded at the exchange rate prevailing on the date of
the transaction. Monetary assets and liabilities denominated in foreign
currencies are expressed in the functional currency at the exchange rates in
effect at the balance sheet date. Revenues, costs and expenses are
recorded using exchange rates prevailing on the date of transaction. Gains or
losses resulting from foreign currency transactions are included in the
statement of income.
The
exchange rate between the Indian Rupee and the U.S. dollars are as
follows:
Period
|
|
Average
rate used for translating operations. INR to one
U.S.D.
|
|
|
Rate
used for translating Balance Sheet. INR to one U.S.D.
|
|
Six
months ended September 30, 2008
|
|
|
48.72
|
|
|
|
47.74
|
|
Year
ended March 31, 2009
|
|
|
49.75
|
|
|
|
50.87
|
|
Six
months ended September 30, 2009
|
|
|
48.42
|
|
|
|
48.04
|
|
Employee
Stock Options or Share Based Payments
We grant
options to purchase our common stock and award restricted stock to our employees
and directors under our equity incentive plans. The benefits provided under
these plans are share-based payments subject to the provisions of SFAS No. 123R,
Share-Based Payment, and SEC Staff Accounting Bulletin 107, Share-Based
Payments. Effective April 1, 2009, we use the fair value method to apply the
provisions of FAS 123R with the modified prospective application, which provides
for certain changes to the method for valuing share-based compensation.
Share-based compensation expense recognized under FAS 123R for the 6 month
period ended September 30, 2009 was $130,407. At September 30, 2009, total
unrecognized estimated compensation expense related to non-vested awards granted
prior to that date was zero. Stock options vest
immediately.
As a
result of FAS 123R, we estimate the value of share-based awards on the date of
grant using a Black-Scholes option-pricing model. The determination
of the fair value of share-based payment awards on the date of grant using an
option-pricing model is affected by our stock price as well as assumptions
regarding a number of complex and subjective variables. These variables include
our expected stock price volatility over the term of the awards, actual and
projected employee stock option exercise behaviors, risk-free interest rate, and
expected dividends.
If
factors change and we employ different assumptions in the application of FAS
123R during future periods, the compensation expense that we record under FAS
123R may differ significantly from what we have recorded in the current period.
Therefore, we believe it is important for investors to be aware of the high
degree of subjectivity involved when using option-pricing models to estimate
share-based compensation under FAS 123R. Option-pricing models were developed
for use in estimating the value of traded options that have no vesting or
hedging restrictions, are fully transferable and do not cause dilution. Because
our share-based payments have characteristics significantly different from those
of freely traded options, and because changes in the subjective input
assumptions can materially affect our estimates of fair values, in our opinion,
existing valuation models, including the Black-Scholes Option Pricing model, may
not provide reliable measures of the fair values of our share-based
compensation. Consequently, there is a risk that our estimates of the fair
values of our share-based compensation awards on the grant dates may bear little
resemblance to the intrinsic values realized upon the exercise, expiration,
cancellation, or forfeiture of those share-based payments in the future. Certain
share-based payments, such as employee stock options, may expire worthless or
otherwise result in zero intrinsic value as compared to the fair values
originally estimated on the grant date and expensed in our financial statements.
Alternatively, value may be realized from these instruments that are
significantly in excess of the fair values originally estimated on the grant
date and expensed in our financial statements. There currently is neither a
market-based mechanism nor other practical application to verify the reliability
and accuracy of the estimates stemming from these valuation models, nor a way to
compare and adjust the estimates to actual values. Although the fair value of
employee share-based awards is determined in accordance with FAS 123R and SAB
107 using a qualified option-pricing model, that value may not be indicative of
the fair value observed in a willing buyer/willing seller market transaction.
Estimates of share-based compensation expenses are significant to our financial
statements, but these expenses are based on the aforementioned option valuation
model and will never result in the payment of cash by us.
The
guidance in FAS 123R and SAB 107 is still relatively new, and best practices are
not well established. The application of these principles may be subject to
further interpretation and refinement over time. There are significant
differences among valuation models, and there is a possibility that we will
adopt different valuation models in the future. This may result in a lack of
consistency in future periods and materially affect the fair value estimate of
share-based payments. It may also result in a lack of comparability with other
companies that use different models, methods, and assumptions.
Theoretical
valuation models and market-based methods are evolving and may result in lower
or higher fair value estimates for share-based compensation. The timing,
readiness, adoption, general acceptance, reliability, and testing of these
methods is uncertain. Sophisticated mathematical models may require voluminous
historical information, modeling expertise, financial analyses, correlation
analyses, integrated software and databases, consulting fees, customization, and
testing for adequacy of internal controls.
For
purposes of estimating the fair value of stock options granted during the six
months ended September 30, 2009 using the Black-Scholes model, we used the
historical volatility of our stock for the expected volatility assumption input
to the Black-Scholes model, consistent with the guidance in FAS 123R and SAB
107. The risk-free interest rate is based on the risk-free zero-coupon rate for
a period consistent with the expected option term at the time of grant. We do
not currently pay nor do we anticipate paying dividends, but we are required to
assume a dividend yield as an input to the Black-Scholes model. As such, we use
a zero dividend rate. The expected option term is estimated using both
historical term measures and projected termination estimates.
Goodwill
We
account for goodwill in accordance with SFAS No. 142, “Goodwill and
Other Intangible Assets” (“SFAS No. 142”). SFAS No. 142 requires the use
of a non-amortization approach to account for purchased goodwill and certain
intangibles. Under the non-amortization approach, goodwill and certain
intangibles are not amortized into results of operations, but instead are
reviewed for impairment at least annually and written down and charged to
operations only in the periods in which the recorded value of goodwill and
certain intangibles exceeds its fair value. An interim goodwill impairment test
would be performed if an event occurs or circumstances change between annual
tests that would more likely than not reduce the fair value of a reporting unit
below its carrying amount. For purposes of performing the goodwill impairment
test, we concluded there is one reporting unit. During the fourth quarter of the
fiscal year ending March 31, 2009, we completed the required annual test, which
indicated there was no impairment.
Accounting
for Income Taxes
In
connection with preparing our financial statements, we are required to estimate
our income taxes in each of the jurisdictions in which we operate. This process
involves the assessment of our net operating loss carry forwards and credits, as
well as estimating the actual current tax liability together with assessing
temporary differences resulting from differing treatment of items, such as
reserves and accrued liabilities, for tax and accounting purposes. We
then assess the likelihood that deferred tax assets will be recovered from
future taxable income, and to the extent we believe that recovery is not likely,
we must establish a valuation allowance. Based on historical results, we believe
that it is more likely than not that we will not realize the value of our
deferred tax assets and therefore have provided a full valuation allowance
against our net deferred tax assets.
Consolidated
Results of Operations (IGC)
Three
Months Ended September 30, 2009 Compared to Three Months Ended September 30,
2008
Revenue - Total revenue
was $5.4 million for the three months ended September 30, 2009, as compared
$10.5 million for the three months ended September 30, 2008. Due to
increased liquidity requirements in maintaining a high level of growth,
we curtailed the number of contracts we directly performed by
sub-contracting some and cancelling others.
Operating Income (loss) - In
the three month period ending September 30, 2009, operating loss was $ 224
thousand compared to operating income of $1.2 million for the three month period
ending September 30, 2008.
Total Cost of Revenue and Operating
Expenses - Our total cost of revenue and operating expenses principally
consist of construction materials, employee compensation and benefits,
depreciation and amortization, startup costs, and general and administrative
expense. In the three month period ending September 30, 2009, total cost of
revenue and operating expenses decreased by $3.7 million, compared to the three
month period ending September 30, 2008. This was caused by decreasing
business volume and associated costs.
Cost of Revenue - Cost of
revenue consists primarily of compensation and related fringe benefits for
project-related personnel, department management and all other dedicated project
related costs and indirect costs. Cost of Revenue decreased by $3.2
million, compared to the three month period ending September 30,
2008. The decrease was caused by declining business volume and
associated costs.
Selling, General and Administrative
- Consists primarily of employee-related expenses, professional fees,
other corporate expenses and allocated overhead. We expect that in the future,
selling, general and administrative expenses will increase as we add personnel
and incur additional professional fees and insurance costs related to being a
publicly held company. Selling, general and administrative expenses were $666
thousand for the three month period ending September 30, 2009 compared to $1.1
million for the three month period ending September 30, 2008.
Net Income (loss) – Net loss
for the three months ended September 30, 2009 was $580 thousand compared to net
income of $72 thousand for the three months ended September 30,
2008.
Six
Months Ended September 30, 2009 Compared to Six Months Ended September 30,
2008
Revenue - Total revenue
was $8.1 million for the six months ended September 30, 2009, as compared to
$28.4 million for the six months ended September 30, 2008. Due to
increased liquidity requirements in maintaining a high level of growth,
we curtailed the number of contracts we directly performed by
sub-contracting some and cancelling others.
Operating Income (loss) - In
the six month period ending September 30, 2009, operating loss was $232
thousand, compared to operating income of $4.8 million for the six month period
ending September 30, 2008.
Total Cost of Revenue and Operating
Expenses - Our total cost of revenue and operating expenses principally
consist of construction materials, employee compensation and benefits,
depreciation and amortization, startup costs, and general and administrative
expense. In the six month period ending September 30, 2009, total cost of
revenue and operating expenses decreased by $15.3 million, compared to the six
month period ending September 30, 2008. This was caused by decreasing
business volume and associated costs.
Cost of Revenue - Cost of
revenue consists primarily of compensation and related fringe benefits for
project-related personnel, department management and all other dedicated project
related costs and indirect costs. Cost of Revenue decreased by $14.5
million, compared to the six month period ending September 30,
2008. The decrease was caused by declining business volume and
associated costs.
Selling, General and Administrative
- Consists primarily of employee-related expenses, professional fees,
other corporate expenses and allocated overhead. We expect that in the future,
selling, general and administrative expenses will increase as we add personnel
and incur additional professional fees and insurance costs related to being a
publicly held company. Selling, general and administrative expenses were $1.4
million for the six month period ending September 30, 2009 compared to $2.1
million for the six month period ending September 30, 2008. Additional
expenses for the six month period ending September 30, 2009 are $130,407 in
non-cash compensation expenses resulting from SFAS 123(R) and loan discount
amortization expense of a long-tem loan in the amount of $241,338.
Net Interest Income (Expense)
– Net interest expense decreased by $45.8 thousand compared to the six month
period ending September 30, 2008. As discussed in the prior section,
we booked a non-cash charge of $241,338 for loan amortization
expense.
Net Income (loss) – Net loss
for the six months ended September 30, 2009 was $1.1 million compared to net
income of $1.4 million for the six months ended September 30, 2008.
Off-Balance
Sheet Arrangements
We do not
have any off-balance sheet arrangements as defined in Regulation S-K promulgated
under the Securities Exchange Act of 1934.
Liquidity
and Capital Resources
This
liquidity and capital resources discussion compares the consolidated company
results for six months period ended September 30, 2009 and
2008.
Cash used
for operating activities from continuing operations is our net loss adjusted for
certain non-cash items and changes in operating assets and liabilities. During
the first six months of 2009, cash used for operating activities was $121
thousand compared to cash used for operating activities of $7.8 million during
the first six months of 2008. The uses of cash in the first six months of 2009
relate primarily to the payment of general operating expenses of our subsidiary
companies. The large change is due to less business
volume.
During
the first six months of 2009, investing activities from continuing operations
used $517 thousand of cash as compared to $657 thousand used during the
comparable period in 2008.
Financing
cash flows from continuing operations consist primarily of transactions related
to our debt and equity structure. In the first six months of 2009 there was
financing cash provided of approximately $855 thousand, compared to cash
provided of approximately $2.9 million for the first six months of 2008.
The increase of cash from financing was due to the issuance of 1,599,000 shares
of stock.
Our
future liquidity needs will depend on, among other factors, stability of
construction costs, interest rates, and a continued increase in infrastructure
contracts in India. We believe that our current cash balances and anticipated
operating cash flow, will be sufficient to fund our normal operating
requirements for at least the next 12 months. However, we may seek to secure
additional capital to fund further growth of our business, or the repayment of
debt, in the near term.
Pro
Forma and Adjusted Pro Forma Financial Information
In prior
annual filings, we compared annual consolidated results of operations and cash
flows to the preceding year. Since we acquired both TBL and
Sricon at the close of year ending March 31, 2008, we believe a comparison of
the December 31, 2009 consolidated results of operations and cash flows to March
31, 2008 is not an adequate comparison. Only the operating results
for March 8, 2008 to March 31, 2008 are included in our 2008 consolidated
results of operations and cash flows. To reflect a better comparison
of operating results, we are presenting in this Management’s Discussion and
Analysis section, the Pro Forma results of operations for the
Company as if the acquisitions occurred on Apri11, 2007 and April 1,
2008, respectively. We are basing our Pro Forma results of operations
from (1) the audited financial statements of Sricon for the period ended March
7, 2008, (2) the unaudited financial statements of Sricon for the period March
8, 2008 to March 31, 2008, (3) the audited financial statements of TBL for the
period ended March 7, 2008, (4) the unaudited financial statements of TBL for
the period March 8, 2008 to March 31, 2008, and (5) the audited consolidated
financial statements of the Company for the year ended March 31, 2009 and
2008.
We
believe that the presented Pro Forma financial statements and analysis is a more
meaningful comparison of our operating results.
The
following tables represent our Pro Forma Consolidated Financial
Statements.
India
Globalization Capital, Inc.
Adjusted
Pro Forma Consolidated Statements of Operations
(unaudited)
|
|
Year
Ended
March
31, 2009
|
|
|
Year
Ended
March
31, 2008
|
|
|
Percentage
Increase (Decrease)
|
|
Revenue
|
|
$
|
35,338,725
|
|
|
$
|
30,123,348
|
|
|
$
|
17.3
|
%
|
Cost
of revenue
|
|
|
(27,179,494
|
)
|
|
|
(22,462,592
|
)
|
|
|
21.0
|
%
|
Gross
profit
|
|
|
8,159,231
|
|
|
|
7,660,756
|
|
|
|
6.5
|
%
|
Selling,
general and administrative expenses
|
|
|
(4,977,815
|
)
|
|
|
(2,997,983
|
)
|
|
|
66.0
|
%
|
Depreciation
|
|
|
(873,022
|
)
|
|
|
(921,382
|
)
|
|
|
(5.2
|
%)
|
Operating
income
|
|
|
2,308,394
|
|
|
|
3,741,392
|
|
|
|
(38.3
|
%)
|
Legal
and formation, travel and other start up costs
|
|
|
|
|
|
|
(5,765,620
|
)
|
|
|
(100.0
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(1,753,952
|
)
|
|
|
(3,411,357
|
)
|
|
|
48.6
|
%
|
Interest
income
|
|
|
1,176,018
|
|
|
|
319,984
|
|
|
|
267.5
|
%
|
Other
Income
|
|
|
|
|
|
|
2,997,495
|
|
|
|
(100.0
|
%)
|
Income
/ (loss) before income taxes
|
|
|
1,730,461
|
|
|
|
(2,118,106
|
)
|
|
|
(181.7
|
%)
|
Provision
for income taxes, net
|
|
|
(1,535,087
|
)
|
|
|
(946,939
|
)
|
|
|
(62.1
|
%)
|
Income
after Income Taxes
|
|
|
195,373
|
|
|
|
(3,065,046
|
)
|
|
|
106.4
|
%
|
Provision
for Dividend on Preference Stock and its Tax
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority
interest
|
|
|
(716,950
|
)
|
|
|
(1,343,845
|
)
|
|
|
46.6
|
%
|
Net
income / (loss)
|
|
$
|
(521,576
|
)
|
|
$
|
(4,408,891
|
)
|
|
$
|
88.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income / (loss) per share: basic and diluted
|
|
$
|
(0.05
|
)
|
|
|
|
|
|
|
|
|
Weighted
average number of shares outstanding-basic and diluted
|
|
|
10,091,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
Adjustments
The
Consolidated Pro Forma Statement of Operations contains US GAAP to Pro Forma
adjustments consisting of the elimination of interest income held in trust and
provision for income taxes. Had the merger occurred during April 1,
2007, interest income in the amount of $2,192,402 would not have been earned
because funds as reported in US GAAP results would have not been held in
trust. Therefore, we eliminate the applicable interest earned from
the Pro Forma statement of operations for the year ended March 31,
2008. Accordingly, the provision for income taxes is reduced by
$16,955.
Year
Ended March 31, 2009 and March 31, 2008
The
following discussion relates to IGC for the years ended March 31, 2009 and March
31, 2008:
Revenues
Total pro
forma revenue increased 17.1% from $35.3 million for the year ended March
31, 2009, as compared to $30.1 million for the year ended March 31,
2008. Due to increased liquidity requirements in maintaining a high
level of growth, we have curtailed the number of contracts we are working on by
sub-contracting some and cancelling others.
Cost
of Revenues
Costs of
revenue consists primarily of compensation and related fringe benefits for
project-related personnel, department management and all other dedicated project
related costs and indirect costs. Cost of revenue increased by 4.7 million
or 21.0%, compared to the year ended March 31, 2008. The increase was
due to the increase of construction material.
Selling,
General and Administrative Expenses
Consist
primarily of employee-related expenses, professional fees, other corporate
expenses and allocated overhead. Selling, general and administrative expenses
increased by $2 million or 67.5% for the year ended March 31, 2009,
compared to the year ended March 31, 2008. The increase in SG&A
stem partly from overheads related to US compliance, USGAAP filings with the
SEC, and legal costs associated with the warrant tender offer and general fund
raising activity.
Net Interest Income (Expense)
– Net interest expense increased by $484 thousand for the year ended March
31, 2009 compared to the year ended March 31, 2008. The main reason
is that the interest income from money in trust is not included in the pro forma
statements.
Net
Income (loss)
Net loss
for the years ended March 31, 2009 and March 31, 2008 was $522 thousand and $4.4
million, respectively. The 2008 net loss included compensation
expense, legal, interest expense, formation, travel, other and start-up
costs net of interest income related to the cash held in our trust
account. The 2009 loss includes approximately $1.5 million of one
time expenses related to fund raising and non cash expenses related to warrants,
as well as approximately $300,000 of losses due to a strengthening US dollar
against the Indian Rupee.
Impairment
of Goodwill
As a
result of our annual impairment tests which occurred during the fourth quarter,
we have not recorded an impairment adjustment to goodwill. Factors
that influence the analysis include, contracts, potential contracts, ability to
grow the quarry and ore business, among others. While there is
an overall liquidity constraint and we require more cash to grow, the market
potential for the infrastructure business in India remains
unabated.
Off-Balance
Sheet Arrangements
We do not
have any off-balance sheet arrangements as defined in Item 303(a) (4) (ii) of
Regulation S-K promulgated under the Securities Exchange Act of
1934.
Liquidity
and Capital Resources
Cash used
for operating activities from continuing operations is our net loss adjusted for
certain non-cash items and changes in operating assets and liabilities. During
the first three months of 2009, cash used for operating activities was $470
thousand compared to cash used for operating activities of $5.5 million during
the first three months of 2008. The uses of cash in the first three months of
2009 relates primarily to the payment of general operating expenses of our
subsidiary companies. The large change is due to less business
volume.
During
the first three months of 2009, investing activities from continuing operations
used $242 thousand of cash as compared to $5.3 million used during the
comparable period in 2008.
Financing
cash flows from continuing operations consist primarily of transactions related
to our debt and equity structure. In the first three months of 2009 there was
financing cash used of approximately $332 thousand, compared to cash provided of
approximately $4.1 million for the first three months of 2008. The cash
provided in 2009 was primarily due to use of bank credit lines. The
cash used in 2008 was primarily due to repayment of long-term
notes.
Our
future liquidity needs will depend on, among other factors, stability of
construction costs, interest rates, and a continued increase in infrastructure
contracts in India. We believe that our current cash balances and anticipated
operating cash flow, will be sufficient to fund our normal operating
requirements for at least the next 12 months. However, we may seek to secure
additional capital to fund further growth of our business, or the repayment of
debt, in the near term.
Quantitative
and Qualitative Disclosure about Market Risks
The
primary objective of the following information is to provide forward-looking
quantitative and qualitative information about our potential exposure to market
risks. Market risk is the sensitivity of income to changes in
interest rates, foreign exchanges, commodity prices, equity prices, and other
market-driven rates or prices. The disclosures are not meant to be
precise indicators of expected future losses, but rather, indicators of
reasonably possible losses. This forward-looking information provides
indicators of how we view and manage our ongoing market risk
exposures.
Customer
Risk
The
Company’s customers are the Indian government, state government, private
companies and Indian government owned companies. Therefore, our
business requires that we continue to maintain a pre-qualified status with our
clients so we are not disqualified from bidding on future
work. The loss of a significant client, like the National Highway
Authority of India (NHAI), may have an adverse effect on
Company. Disqualification can occur if, for example, we run out of
capital to finish contracts that we have undertaken.
Commodity
Prices and Vendor Risk
The
Company is affected by the availability, cost and quality of raw materials
including cement, asphalt, steel, rock aggregate and
fuel. The prices and supply of raw materials and fuel
depend on factors beyond the control of the Company, including general economic
conditions, competition, production levels, transportation costs and import
duties. The Company typically builds contingencies into the
contracts, including indexing key commodity prices into escalation
clauses. However, drastic changes in the global markets for raw
material and fuel could affect our vendors, which may create disruptions in
delivery schedules that could affect our ability to execute contracts in a
timely manner. We are taking steps to mitigate some of this risk by
attempting to control the supply of raw materials. We do
not currently hedge commodity prices on capital markets.
Labor
Risk
The
building boom in India and the Middle East (India, Pakistan, and Bangladesh
export labor to the Middle East) had created pressure on the availability of
skilled labor like welders, equipment operators, etc. While this has
recently changed with the shortage of financial liquidity and falling oil
prices, we expect a construction boom and although manageable, some regional
shortage of skilled labor.
Compliance,
Legal and Operational Risks
We
operate under regulatory and legal obligations imposed by the Indian
governments and U.S. securities regulators. Those obligations
relate, among other things, to the company’s financial reporting, trading
activities, capital requirements and the supervision of its
employees. For example, we file our financial statements in
three countries under three different Generally Accepted Accounting Standards,
(GAAP). Failure to fulfill legal or regulatory obligations can lead
to fines, censure or disqualification of management and/or staff and other
measures that could have negative consequences for Sricon’s activities and
financial performance. We are mitigating this risk by hiring local consultants
and staff who can manage the compliance in the various jurisdictions in which we
operate. However, the cost of compliance in various jurisdictions
could have an impact on our future earnings.
Interest
Rate Risk
The
infrastructure development industry is one in which leverage plays a large
role. A typical contract requires that we furnish an earnest money
deposit and a performance guaranty. Furthermore, most contracts
demand that we reserve between 7 and 11 percent of contract value in the form of
bank guaranties and/or deposits. Finally, as interest rates rise, our
cost of capital increases thus impacting our margins.
Exchange
Rate Sensitivity
Our
Indian subsidiaries conduct all business in Indian Rupees with the exception of
foreign equipment that is purchased from the U.S. or Europe. Exchange
rates have an insignificant impact on our financial results. However,
as we convert from Indian Rupees to USD and subsequently report in U.S. dollars,
we may see an impact on translated revenue and
earnings. Essentially, a stronger USD decreases our reported earnings
and a weakening USD increases our reported earnings.
Accounting
Developments and their impact
The
Company adopted FASB Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes,” an interpretation of FASB Statement No. 109 (“FIN 48”) on
April 1, 2007. FIN 48 clarifies the criteria for the recognition,
measurement, presentation and disclosure of uncertain tax positions. A tax
benefit from an uncertain position may be recognized only if it is “more likely
than not” that the position is sustainable based on its technical merits. FIN 48
also provides guidance on de-recognition, classification, interest and
penalties, accounting in interim periods, disclosure, and
transition. In May 2007, the FASB issued Staff Position, FIN 48-1,
“Definition of Settlement in
FASB Interpretation No. 48” (FSP FIN 48-1) which provides guidance on how
an enterprise should determine whether a tax position is effectively settled for
the purpose of recognizing previously unrecognized tax
benefits. FSP FIN 48-1 was effective with the initial adoption
of FIN 48. The adoption of FIN 48 or FSP FIN 48-1 did not have a material
effect on the Company’s financial condition or results of
operations.
In
December 2007, the Financial Accounting Standards Board released SFAS 160
“Non-controlling Interests in Consolidated Financial Statements” that is
effective for annual periods beginning December 15, 2008. The pronouncement
resulted from a joint project between the FASB and the International Accounting
Standards Board and continues the movement toward the greater use of fair values
in financial reporting. Upon adoption of SFAS 160, the Company will re-classify
any non-controlling interests as a component of equity.
On April
1, 2009, the Company adopted SFAS No. 123 (revised 2004), Share Based
Payment. SFAS No 123(R) requires all share-based payments to
employees, including grants of employee stock options, to be recognized in the
financial statements based on their fair values.
In
September 2006, the FASB issued FAS No.157, “Fair Value Measurements” (FAS No.
157). FAS No. 157 clarifies the principle that fair value should be based on the
assumptions market participants would use when pricing an asset or liability and
establishes a fair value hierarchy that prioritizes the information used to
develop those assumptions. The Company’s adoption of this Standard on January 1,
2008 did not have a material effect on its financial statements. Relative to FAS
157, the FASB issued FASB Staff Positions (FSP) FAS 157-1, FAS 157-2, and FAS
157-3. FSP FAS 157-1 amends SFAS 157 to exclude SFAS No. 13,“Accounting for
Leases” (SFAS 13), and its related interpretive accounting pronouncements that
address leasing transactions, while FSP FAS 157-2 delays the effective date of
the application of SFAS 157 to fiscal years beginning after November 15, 2008
for all nonfinancial assets and nonfinancial liabilities that are recognized or
disclosed at fair value in the financial statements on a non-recurring basis.
FSP FAS 157-3 clarifies the application of FAS 157 as it relates to the
valuation of financial assets in a market that is not active for those financial
assets. This FSP is effective immediately and includes those periods for which
financial statements have not been issued. We currently do not have any
financial assets that are valued using inactive markets, and as such are not
impacted by the issuance of this FSP.
In
February 2007, the FASB issued FAS No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities— Including an amendment of FASB Statement
No. 115” (FAS No. 159). FAS No. 159 provides companies with a choice to measure
certain financial assets and liabilities at fair value that are not currently
required to be measured at fair value (the “Fair Value Option”). Election of the
Fair Value Option is made on an instrument-by-instrument basis and is
irrevocable. The Company’s adoption of this Standard on January 1, 2008 did not
have a material effect on its financial statements.
In
September 2006, FASB issued FAS No. 158, “Employers’ Accounting for Defined
Benefit Pension and Other Postretirement Benefit Plans” (FAS 158). This
Statement requires companies to recognize the over-funded or under-funded status
of a defined benefit postretirement plan as an asset or liability in its
statement of financial position. The Company has applied FAS 158, and there is
no impact on the financial statements.
In May
2005, FASB issued FAS No. 154, “Accounting Changes and Error Corrections-a
replacement of APB Opinion No. 20 and FASB Statement No. 3” (FAS 154). This
Statement replaces APB Opinion No. 20, “Accounting Changes,” and FASB Statement
No. 3, “Reporting Accounting Changes in Interim Financial Statements.” This
Statement requires retrospective application to prior periods’ financial
statements for changes in accounting principle, unless it is impractical to
determine either the period-specific effects or the cumulative effect of the
change. FAS 154 also requires that a change in depreciation, amortization, or
depletion method for long, non-financial assets be accounted for as a change in
accounting estimate effected by a change in accounting principal. The Company
adopted FAS 154 for accounting changes and corrections of errors made after the
adoption date. The adoption of the provisions of FAS 154 did not have an impact
on the Company’s financial statements.
In
September 2006, the Securities and Exchange Commission (‘SEC’) staff issued
Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year Financial
Statements” (‘SAB 108’). SAB 108 provides guidance on how prior year
misstatements should be taken into consideration when quantifying misstatements
in current year financial statements for purposes of determining whether the
current year’s financial statements are materially misstated. The provisions of
SAB 108 are required to be applied by registrants in their annual financial
statements covering fiscal years ending on or before November 15, 2007. The
adoption of the provisions of SAB 108 did not have an impact on the Company’s
financial statements.
In June
2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes—an interpretation of FASB Statement No. 109” (FIN 48). FIN 48
clarifies the accounting and reporting for uncertainties in income tax law. This
Interpretation prescribes a comprehensive model for the financial statement
recognition, measurement, presentation and disclosure of uncertain tax positions
taken or expected to be taken in income tax returns. The provisions of FIN 48
will be applied beginning in the first quarter of 2008 (i.e. from April 1,
2008), with the cumulative effect of the change in accounting principle recorded
as an adjustment to retained earnings. The Company is currently assessing the
impact of the adoption of this Interpretation on its financial
statements.
In
December 2007, the Financial Accounting Standards Board (FASB) issued SFAS No.
141 (revised 2007), “Business Combinations” (“SFAS 141R”). SFAS 141R
establishes principles and requirements for how an acquirer recognizes and
measures in its financial statements the identifiable assets acquired, the
liabilities assumed, any noncontrolling interest in the acquiree and the
goodwill acquired. SFAS 141R also establishes disclosure requirements
to enable the evaluation of the nature and financial effects of the business
combination. This statement is effective beginning January 1,
2009. The Company does not expect the adoption of SFAS 141R to have a
material impact on its financial position and results of operations.
In
December 2007, FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements – an amendment of ARB No. 51.” This
statement improves the relevance, comparability, and transparency of the
financial information that a reporting entity provides in its consolidated
financial statements by establishing accounting and reporting standards that
require: the ownership interests in subsidiaries held by parties other than the
parent and the amount of consolidated net income attributable to the parent and
to the noncontrolling interest be clearly identified and presented on the face
of the consolidated statement of income, changes in a parent’s ownership
interest while the parent retains its controlling financial interest in its
subsidiary be accounted for consistently, when a subsidiary is deconsolidated,
any retained noncontrolling equity investment in the former subsidiary be
initially measured at fair value, entities provide sufficient disclosures that
clearly identify and distinguish between the interests of the parent and the
interests of the noncontrolling owners. SFAS 160 affects those
entities that have an outstanding noncontrolling interest in one or more
subsidiaries or that deconsolidate a subsidiary. SFAS 160 is
effective for fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2008. Early adoption is
prohibited. The adoption of this statement did not have a material
effect on the Company's financial statements.
In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement
No. 133.” This statement is intended to improve transparency in
financial reporting by requiring enhanced disclosures of an entity’s derivative
instruments and hedging activities and their effects on the entity’s financial
position, financial performance, and cash flows. SFAS 161 applies to
all derivative instruments within the scope of SFAS 133, “Accounting for
Derivative Instruments and Hedging Activities” (SFAS 133) as well as related
hedged items, bifurcated derivatives, and nonderivative instruments that are
designated and qualify as hedging instruments. Entities with
instruments subject to SFAS 161 must provide more robust qualitative disclosures
and expanded quantitative disclosures. SFAS 161 is effective
prospectively for financial statements issued for fiscal years and interim
periods beginning after November 15, 2008, with early application
permitted. The adoption of this statement did not have a material
effect on the Company's financial statements.
In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles.” SFAS 162 identifies the sources of accounting principles
and the framework for selecting the principles used in the preparation of
financial statements of nongovernmental entities that presented in conformity
with generally accepted accounting principles in the United States of
America. SFA 162 will be effective 60 days following the SEC’s
approval of the PCAOB amendments to AU Section 411, The Meaning of Present
Fairly in Conformity With Generally Accepted Accounting
Principles. The Company does not believe SFAS 162 will have a
significant impact on the Company’s financial statements.
In May
2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee
Insurance Contracts, an interpretation of FASB Statement No. 60.” The
scope of this Statement is limited to financial guarantee insurance and
reinsurance contracts, as described in the Statement, issued by enterprises
included within the scope of Statement 60. Accordingly, this
Statement does not apply to financial guarantee contracts issued by enterprises
excluded from the scope of Statement 60 or to some insurance contracts that seem
similar to financial guarantee insurance contracts issued by insurance
enterprises (such as mortgage guaranty insurance or credit insurance on trade
receivables). This Statement also does not apply to financial
guarantee contracts that are derivative instruments included within the scope of
SFAS No. 133, “Accounting for Derivative instruments and Hedging
Activities.” SFAS 163 is effective prospectively for financial
statements issued for fiscal years beginning after December 15, 2008, and
interim periods within those fiscal years; disclosure requirements in paragraphs
30(g) and 31 are effective for the first period (including interim periods)
beginning after May 23, 2008. The adoption of this statement did not have a
material effect on the Company's financial statements.
Management
does not believe that any other recently issued, but not yet effective,
accounting standards if currently adopted would have a material effect on the
accompanying financial statements.
BUSINESS
Background of India Globalization
Capital, Inc. (IGC)
IGC, a
Maryland corporation, was organized on April 29, 2005 as a blank check
company formed for the purpose of acquiring one or more businesses with
operations primarily in India through a merger, capital stock exchange, asset
acquisition or other similar business combination or acquisition. On March 8,
2006, we completed an initial public offering. On February 19, 2007,
we incorporated India Globalization Capital, Mauritius, Limited (IGC-M), a
wholly owned subsidiary, under the laws of Mauritius. On March 7,
2008, we consummated the acquisition of 63% of the equity of Sricon
Infrastructure Private Limited (Sricon) and 77% of the equity of Techni Bharathi
Limited (TBL). The shares of the two Indian companies, Sricon and TBL, are held
by IGC-M. Most of the shares of Sricon and TBL acquired by IGC were
purchased directly from the companies. IGC purchased a portion of the shares
from the existing owners of the companies. The founders and
management of Sricon own 37% of Sricon and the founders and management of TBL
own 23% of TBL.
The
acquisitions were accounted for under the purchase method of
accounting. Under this method of accounting, for accounting and
financial purposes, IGC-M, Limited was treated as the acquiring entity and
Sricon and TBL as the acquired entities.
On
February 19, 2009 IGC-M beneficially purchased 100% of IGC Mining and Trading,
Limited (IGC-IMT based in Chennai, India). IGC-IMT was formed on
December 16, 2008 as a privately held start-up company engaged in the business
of mining and trading. Its current activity is to operate a shipping
hub and export iron ore to China. On July 4, 2009, IGC-M beneficially
purchased 100% of IGC Materials, Private Limited (IGC-MPL based in Nagpur,
India), which will conduct IGC’s quarrying business, and 100% of IGC Logistics,
Private Limited (IGC-LPL based in Nagpur, India), which will be involved in the
transport and delivery of ore, cement, aggregate and other
material. Each of IGC-IMT, IGC-MPL and IGC-LPL were formed by
third parties at the behest of IGC-M to facilitate the creation of the
subsidiaries, and the purchase price paid for each of IGC-IMT. IGC-MPL and
IGC-LPL was equal to the expenses incurred in incorporating the respective
entities with no premium paid. No officer or director of IGC had a
financial interest in the subsidiaries at the time of their acquisition by
IGC-M. India Globalization Capital, Inc. (the Registrant, the
Company, or we) and its subsidiaries are significantly engaged in one segment,
infrastructure construction.
IGC’s
organizational structure is as follows:
Unless
the context requires otherwise, all references in this report to the “Company”,
“IGC”, “we”, “our”, and “us” refer to India Globalization Capital, Inc, together
with its wholly owned subsidiary IGC-M, and its direct and indirect subsidiaries
(Sricon, TBL, IGC-IMT, IGC-MPL and IGC-LPL).
Overview
Sricon
Infrastructure Private Limited (“Sricon”) was incorporated as a private limited
company on March 3, 1997 in Nagpur, India. Sricon is an engineering
and construction company that is engaged in three business areas: 1) civil
construction of highways and other heavy construction, 2) mining and quarrying
and 3) the construction and maintenance of high temperature cement and steel
plants. Sricon’s present and past clients include various Indian
government organizations. It has the prior experience to bid on
contracts that are priced at a maximum of about $116
million. As indicated in previous press releases and quarterly
reports, in October 2008 lack of available credit drove Sricon to curtail much
of its construction activity, as it was unable to provide Bank Guarantees for
construction contracts, and to focus on long term recurring contracts such as
maintenance of high temperature cement factories. This led to a sharp
decline in overall revenue. Sricon took several steps to curtail its
expenses including lay offs. Sricon also turned its attention to
pursuing claims against the contracting agencies for delays it had suffered on
some of its contracts. Due to arbitration requirements in our
contract agreements, we expect our claims to be resolved in arbitration. Sricon
claims losses from having to maintain equipment and personnel during the delay
period, as well as opportunity costs. There can be no assurance that
Sricon will be successful in its claims. While the cost associated
with delays is accounted in the relevant period, any revenue from claims is not
accounted until and unless they are paid.
Techni
Bharathi Limited (“TBL”) was incorporated as a public (but not listed on the
stock market) limited company on June 19, 1982 in Cochin, India. TBL
is an engineering and construction company engaged in the execution of civil
construction and structural engineering projects. TBL has a focus in
the Indian states of Andhra Pradesh, Karnataka, Assam and Tamil Nadu. Its
present and past clients include various Indian government
organizations. The overall lack of liquidity led TBL to curtail its
construction contracts and cut its costs through layoffs. TBL is
re-focused on smaller construction contracts and the settlement of
claims.
IGC-Mauritius
(IGC-M), through its wholly owned Indian subsidiaries (IGC India Mining and
Trading (IGC-IMT), IGC Materials, Private Limited (IGC-MPL)
and IGC Logistics, Private Limited (IGC-LPL), is also involved in the
building of rock quarries, the export of iron ore and the transport of
materials. IGC-M operates a shipping hub in the Krishnapatnam port on
the west coast of India and one at Goa on the east coast of
India. We aggregate ore from smaller mines before shipping to
China. We are also engaged in the production of rock aggregate and
the development of rock quarries. Rock aggregate is used in the
construction of roads, railways, dams, and other infrastructure
development. We are in the process of developing several quarries
through partnerships with landowners. Iron ore is rock and minerals from which
metallic iron can be extracted. The primary form used in industry
today is hematite and is often the principle raw material used to make “pig
iron”, a material critical to the production of industrial steel.
Industry
Overview
The
Indian GDP surpassed $1 Trillion in fiscal 2007. According to the
World Bank, only nine economies at the close of 2005 generated more than $1
Trillion in GDP. According to the CIA World Fact Book, India’s growth
rates have been ranging from 6.2% to 9.6% since 2003. The GDP growth
rate for fiscal year ending March 31, 2008 was 7.4% (estimated). The
Indian stock markets experienced significant growth with the SENSEX peaking at
21,000 (January 8, 2008). The current global financial crisis
created a liquidity crunch starting in October 2008, which
continues.
India’s
GDP growth for fiscal year ended March 31, 2009 is estimated to be lower than
2008’s growth rate. The slowing of the GDP was caused by the global
financial crisis. However, it does indicate that India has withstood the global
downturn better than many nations. The factors contributing to maintaining the
relatively high growth included growth in the agriculture and service
industries, favorable demographic dynamics (India has a large youth population
that exceeds 550 Million), the savings rate and spending habits of the Indian
middle class. Other factors are attributed to changing investment patterns,
increasing consumerism, healthy business confidence, inflows of foreign
investment (India ranks #2 behind China in the A.T. Kearney “FDI Confidence
Index” for 2007) and improvements in the Indian banking system.
To
sustain India’s fast growing economy, the share of infrastructure investment in
India is expected to increase to 9 per cent of GDP by 2014, which is an
increase from 5 per cent in 2006-07. This forecast is based on The
Indian Planning Commission’s statement in its annual publication that for
the Eleventh Plan period (2007-12), a large investment of approximately
$494 Billion is required for Infrastructure build out and
modernization. This industry is one of the largest employers in the
country – the construction industry alone employs more than 30 million
people. According to the Business Monitor International (BMI), by
2012, the construction industry’s contribution to India’s GDP is forecasted to
be 16.98%.
This
ambitious infrastructure development mandate by the Indian Government will
require funding. The Government of India has already raised funds
from multi-lateral agencies such as the World Bank and the Asian Development
Bank. The India Infrastructure Company was set up to support
projects by guaranteeing up to $2 Billion annually. In addition,
the Indian Government has identified public-private partnerships (PPP) as the
cornerstone of its infrastructure development policy. The government
is also proactively seeking additional FDI and approval is not required for up
to 100% of FDI in most infrastructure areas. According to Indian
Prime Minister Dr. Manmohan Singh, addressing the Finance Ministers of ASEAN
countries, at the Indo ASEAN Summit at New Delhi, in August 2007, India
needs $150 billion at the rate of $15 billion per annum for the next 10
years.
The
Government of India is also permitting External Commercial Borrowings (ECB’s) as
a source of financing Indian Companies looking to expand existing
capacity as well as incubation for new startups. ECB’s
include commercial bank loans, buyers' credit, suppliers' credit, securitized
instruments such as Floating Rate Notes and Fixed Rate Bonds, credit from
official export credit agencies, and commercial borrowings from private sector
Multilateral Financial Institutions such as International Finance Corporation
(Washington), ADB, AFIC, CDC, etc. National credit policies seek to
keep an annual cap or ceiling on access to ECB, consistent with prudent debt
management. Also, these policies seek to encourage greater
emphasis on infrastructure projects and core sectors such as power,
oil exploration, telecom, railways, roads & bridges, ports, industrial
parks, urban infrastructure, and fosters exporting. Applicants will
be free to raise ECB from any internationally recognized source such as banks,
export credit agencies, suppliers of equipment, foreign collaborators, foreign
equity-holders, and international capital markets.
ECB can
be accessed in two methods, namely, the Automatic Route and the Approval
Route. The Automatic Route is primarily for investment in Indian
infrastructure, and will not require Reserve Bank of India (RBI)/Government
approval. The maximum amount of ECB’s under the Automatic Route raised by an
eligible borrower is limited to $500 million during any financial year. The
following are additional requirements under the Automatic route:
a) ECB up
to $20 million or equivalent with minimum average maturity of 3
years.
b) ECB
above $20 million and up to $500 million or equivalent with minimum average
maturity of 5 years.
Some of
the areas where ECB’s are utilized is the National Highway Development Project
and the National Maritime Development Program. In addition, the
following represent some of the major infrastructure projects planned for the
next five years:
1.
|
Constructing
dedicated freight corridors between Mumbai-Delhi and
Ludhiana-Kolkata.
|
2.
|
Capacity
addition of 485 million MT in Major Ports, 345 million MT in Minor
Ports.
|
3.
|
Modernization
and redevelopment of 21 railway
stations.
|
4.
|
Developing
16 million hectares through major, medium and minor irrigation
works.
|
5.
|
Modernization
and redevelopment of 4 metro and 35 non-metro
airports.
|
6.
|
Expansion
to six-lanes 6,500 km (4,038 Miles) of Golden Quadrilateral and selected
National Highways.
|
7.
|
Constructing
228,000 miles of new rural roads, while renewing and upgrading the
existing 230,000 miles covering 78,304 rural
habitations.
|
Our
operations are subject to certain risks and uncertainties, including among
others, dependency on the Indian and Asian economy and government policies,
competitively priced raw materials, dependence upon key members of the
management team and increased competition from existing and new
entrants.
Our
Securities
We have
three securities listed on the NYSE Amex: (1) common stock, $.0001 par value
(ticker symbol: IGC), (2) redeemable warrants to purchase common stock (ticker
symbol: IGC.WS) and (3) units consisting of one share of common stock and two
redeemable warrants to purchase common stock (ticker symbol:
IGC.U). On March 8, 2006, we sold 11,304,500 units in our initial
public offering. These 11,304,500 units include 9,830,000 units sold to
the public and the over-allotment option of 1,474,500 units exercised by the
underwriters of the public offering. The units may be separated into common
stock and warrants. Each warrant entitles the holder to purchase one
share of common stock at an exercise price of $5.00. The warrants
expire on March 3, 2011, or earlier upon redemption. The
registration statement for initial public offering was declared effective on
March 2, 2006. The warrants are exercisable and may be exercised by
contacting the Company or the transfer agent Continental Stock Transfer &
Trust Company. We have a right to call the warrants, provided the
common stock has traded at a closing price of at least $8.50 per share for any
20 trading days within a 30 trading day period ending on the third business day
prior to the date on which notice of redemption is given. If we call the
warrants, the holder will either have to redeem the warrants by purchasing the
common stock from us for $5.00 or the warrants will expire.
On March
7, 2008, we bought and redeemed a total of 6,159,346 shares. As a
result of the redemption and the subsequent issuance of 210,000 shares of common
stock in private placements, on September 30, 2008, we had 8,780,107 shares
outstanding (including shares sold to our founders in a private placement prior
to the public offering) and 24,874,000 shares of common stock were reserved for
issuance upon exercise of redeemable warrants and underwriters’ purchase
option.
On
January 9, 2009 we completed an exchange of 11,943,878 public and private
warrants for 1,311,064 new shares of common stock.
In
September 2009 we sold 1,599,000 shares of our common stock and warrants to
purchase an aggregate of 319,800 shares of our common stock (the “New Warrants”)
in a registered direct offering. Each warrant entitles the holder to
purchase one share of common stock at an exercise price of $1.60. The
warrants expire on September 18 2012. The New Warrants are
exercisable and may be exercised by contacting the Company or the transfer agent
Continental Stock Transfer & Trust Company. We do not have a
right to call the New Warrants.
On
October 5, 2009, the Company issued 530,000 new shares of common stock as
partial consideration for the exchange of an outstanding promissory note for a
new note with an extended maturity date
On
October 16, 2009, the Company issued 530,000 new shares of common stock in a
private placement in connection with the sale of a promissory note to an
investor.
In
November 2009 we sold 3,300 shares of our common stock in a registered at the
market offering.
Following
the issuance of the shares in the preceding transactions, we have 12,898,291
shares of common stock outstanding, warrants to purchase 11,855,122 shares of
common stock outstanding and New Warrants to purchase 318,800 shares of common
stock outstanding.
Core Business
Competencies
We offer
an integrated approach in our customer service delivery based on core
competencies that we have demonstrated over the years. This
integrated approach provides us with an advantage over our
competitors.
Our core
business competencies include the following:
Highway and heavy
construction:
The
Indian government has articulated a plan to build and modernize Indian
infrastructure. The government’s plan, calls for spending over $475
billion over the next five years for the expansion and construction of rural
roads, major highways, airports, seaports, freight corridors, railroads and
townships. A significant number of our customers involve highway and
heavy construction contracts.
Mining
and Quarrying
As Indian
infrastructure modernizes, the demand for raw materials like stone aggregate,
coal, ore and similar resources is projected to increase. In 2006, according to
the Freedonia Group, India was the fourth largest stone aggregate market in the
world with demand of up to 1.1 billion metric tons. We are in the
process of teaming with landowners to build out rock quarries; in addition we
have licenses for the installation and production of rock aggregate
quarries. Our mining and trading activity centers on the export
of Iron ore to China. India is the fourth largest producer of
ore.
Construction
and maintenance of high temperature plants
We have
an expertise in the civil engineering, construction and maintenance of high
temperature plants. This requires specialized skills to build and maintain
high temperature chimneys and kilns.
Customers
Over the
past 10 years, Sricon has qualified in all states in India and has worked in
several, including Maharashtra, Gujarat, Orissa and Madhya
Pradesh. The National Highway Authority of India (NHAI) awards
interstate highway contracts on a national level, while intra-state contracts
are awarded by state agencies. The National Thermal Power Corporation (NTPC)
awards contacts for civil work associated with power plants. The National
Coal Limited (NCL) awards large mining contracts. Our customers include, or have
included, NHAI, NTPC, and various state public works departments. Sricon
is registered across India and is qualified to bid on contracts anywhere in
India. For the export of iron ore from India, we are developing
customers in Asia including China.
Contract
bidding process
In order
to create transparency, the Indian government has centralized the contract
awarding process for building inter-state
roads. The new process is as follows: At the “federal” level, as an
example, NHAI publishes a Statement of Work for an interstate highway
construction project. The Statement of Work has a detailed
description of the work to be performed as well as the completion time frame.
The bidder prepares two proposals in response to the Statement of Work. The
first proposal demonstrates technical capabilities, prior work experience,
specialized machinery, and manpower required, and other criteria required to
complete the project. The second proposal includes a financial
bid. NHAI evaluates the technical bids and short lists technically
qualified companies. Next, the short list of technically qualified companies
are invited to place a detailed financial bid and show adequate
financial strength in terms of revenue, net worth, credit lines,
and balance sheets. Typically, the lowest bid wins the contract. Also,
contract bidders must demonstrate an adequate level of capital reserves such as
the following: 1) An earnest money deposit between 2% to 10%
of project costs, 2) performance guarantee of between 5% and 10%, 3)
adequate working capital and 4) additional capital for plant and
machinery. Bidding qualifications for larger NHAI projects
are set by NHAI which are imposed on each contractor. As the
contractor executes larger highway projects, the ceiling is increased by
NHAI.
Our
Growth Strategy and Business Model
Our
business model for the construction business is simple. We bid on
construction, over burden removal at mining sites and or maintenance
contracts. Successful bids increase our backlog of orders,
which favorably impacts our revenues and margins. The
contracting process typically takes approximately six months. Over the
years, we have been successful in winning one out of every seven bids on
average. We currently have one bid team. In the
next year we will focus on the following: 1) build out between two and five rock
quarries, begin production and obtain long term contracts for the sale of rock
aggregate, 2) leverage our shipping hub, develop a second shipping hub, obtain
long term contracts for the delivery and sale of iron ore, 3) execute and expand
recurring contracts for infrastructure build out, 4) aggressively pursue the
collection of accounts receivables and delay claims.
Competition
We
operate in an industry that is fairly competitive. However, there is
a large gap in the supply of well qualified and financed contractors and the
demand for contractors. Large domestic and international firms compete for
jumbo contracts over $250 million in size, while locally based contractors vie
for contracts less than $5 million. The recent capital markets crisis has made
it more difficult for smaller companies to maturate into mid-sized companies, as
their access to capital has been restrained. Therefore, we would like to be
positioned in the $5 million to $50 million contract range, above locally based
contractors and below the large firms, creating a distinct technical and
financial advantage in this market niche. Rock aggregate is supplied
to the industry through small crushing units, which supply low quality
material. Frequently, high quality aggregate is unavailable, or is
transported over large distances. We fill this gap by providing high
quality material in large quantities. We compete on price, quantity
and quality. Iron ore is produced in India where our core assets are
located, and exported to China. While this is a fairly established
business, we compete by aggregating ore from smaller suppliers who do not have
access to customers outside India. Further, at our second shipping hub we expect
to install a crusher that can grind ore pebbles into dust, again providing a
value added service to the smaller mine owners.
Seasonality
The
construction industry (road building) typically experiences recurring and
natural seasonal patterns throughout India. The North East Monsoons,
historically, arrive on June 1, followed by the South West Monsoons, which
usually lasts intermittently until September. Historically, the
monsoon months are slower than the other months because of the
rains. Activity such as engineering, maintenance of high temperature
plants, and export of iron ore are less susceptible to the rains. The
reduced paced in construction activity has historically been used to bid and win
contracts. The contract bidding activity is typically very high during the
monsoon season in preparation for work activity when the rains
abate. During the monsoon season the rock quarries operate to build
up and distribute reserves to the various construction sites.
Employees
and Consultants
As of
September 30, 2009, we employed a work force of approximately 400 employees and
contract workers worldwide. Employees are typically skilled workers
including executives, welders, drivers, and other specialized experts. Contract
workers require less specialized skills. We make diligent efforts to comply with
all employment and labor regulations, including immigration laws in the many
jurisdictions in which we operate. In order to attract and retain
skilled employees, we have implemented a performance based incentive program,
offered career development programs, improved working conditions, and
provided United States work assignments, technology training, and other fringe
benefits. We are hoping that our efforts will make our companies more
attractive. While we have not done so yet, we are exploring adopting
best practices for creating and providing vastly improved labor camps for our
labor force. We are hoping that our efforts will make our companies
“employers of choice” and best of breed. As of March 31, 2009 our
Executive Chairman, Chief Executive Officer is Ram Mukunda and our
Non Executive Chairman is Ranga Krishna. Our over all Country Head in
India is Mr. K. Parthasarathy. Our Managing Director for Construction
is Ravindra Lal Srivastava, our Managing Director for Materials, Mining and
Trading is P. M. Shivaraman. Our Treasurer and Principal
Accounting officer is John Selvaraj. Our General Manager of
Accounting based in India is Santhosh Kumar. We also utilize the
services of several consultants who provide USGAAP systems expertise among
others.
Environmental
Regulations
India has
very strict environmental, occupational, health and safety
regulations. In most instances, the contracting agency regulates and
enforces all regulatory requirements. We internally monitor and
manage regulatory issues on a continuous basis, and we believe that we are in
compliance in all material respects with the regulatory requirements of the
jurisdictions in which we operate. Furthermore, we do not believe that
compliance will have a material adverse effect on our business
activities.
Information
and timely reporting
Our
operations are located in India where the accepted accounting standards is
Indian GAAP, which in many cases, is not congruent to
USGAAP. Indian accounting standards are evolving towards adopting
IFRS (International Financial Reporting Standards). We
annually conduct PCAOB (USGAAP) audits for the company. We
acknowledge that this process is at times cumbersome and places significant
restraints on our existing staff. We believe we are still 6 to 12
months away from having processes and adequately trained personal in place to
meet the reporting timetables set out by the U.S. reporting
requirements. Until then we expect to file for extensions to meet the
reporting timetables. We will make available on our website, www.indiaglobalcap.com,
our annual reports, quarterly reports, proxy statements as well as up to- date
investor presentations. Our SEC filings are also available at
www.sec.gov.
MANAGEMENT
Our
Directors, Executive Officers and Advisory Board Members
The board
of directors, executive officers, advisors and key employees of IGC, Sricon and
TBL are as follows:
Directors,
Executive Officers and Special Advisors of IGC
Name
|
Age
|
Position
|
Dr.
Ranga Krishna
|
45
|
Chairman
of the Board
|
Ram
Mukunda
|
51
|
Chief
Executive Officer, Executive Chairman, President and
Director
|
John
Selvaraj
|
65
|
Principal
Accounting Officer
|
Sudhakar
Shenoy
|
62
|
Director
|
Richard
Prins
|
52
|
Director
|
Suhail
Nathani
|
44
|
Director
|
Larry
Pressler
|
67
|
Special
Advisor
|
|
|
|
P.G.
Kakodkar
|
73
|
Special
Advisor
|
Shakti
Sinha
|
53
|
Special
Advisor
|
Dr.
Prabuddha Ganguli
|
60
|
Special
Advisor
|
Dr.
Anil K. Gupta
|
60
|
Special
Advisor
|
Directors
and Executive Officers of Sricon
Name
|
Age
|
Position
|
Ravindralal
Srivastava
|
56
|
Chairman
and Managing Director
|
Ram
Mukunda
|
51
|
Director
|
Directors
and Executive Officers of TBL
Name
|
Age
|
Position
|
Jortin
Antony
|
43
|
Director
|
M.
Santhosh Kumar
|
44
|
General
Manager of Accounting
|
Ram
Mukunda
|
51
|
Director
|
Ranga Krishna, has served as
our Chairman of the Board since December 15, 2005. Dr. Krishna previously served
as a Director from May 25, 2005 to December 15, 2005 and as our Special Advisor
from April 29, 2005 through June 29, 2005. In 1998, he founded Rising
Sun Holding, LLC, a $120 million construction and land banking
company. In September 1999, he co-founded Fastscribe, Inc., an
Internet-based medical and legal transcription company with its operations in
India with over 200 employees. He has served as a director of Fastscribe since
September 1999. He is currently the Managing Partner. In February
2003, Dr. Krishna founded International Pharma Trials, Inc., a company with
operations in India and over 150 employees, which assists U.S. pharmaceutical
companies performing Phase II clinical trials in India. He is currently the
Chairman and CEO of that company. In April 2004, Dr. Krishna founded
Global Medical Staffing Solutions, Inc., a company that recruits nurses and
other medical professionals from India and places them in U.S. hospitals. Dr.
Krishna is currently serving as the Chairman and CEO of that company. On
November 7, 2008 he joined the board of TransTech Service Partners, a SPAC which
initiated liquidation on May 23 rd, 2009. Dr. Krishna is a member of
several organizations, including the American Academy of Neurology and the
Medical Society of the State of New York. He is also a member of the Medical
Arbitration panel for the New York State Worker’s Compensation Board. Dr.
Krishna was trained at New York’s Mount Sinai Medical Center
(1991-1994) and New York University (1994-1996).
Ram Mukunda has served as our
Founder, Chief Executive Officer, President and a Director since our inception
on April 29, 2005 and was Chairman of the Board from April 29, 2005 through
December 15, 2005. Since September 2004 Mr. Mukunda has served as Chief
Executive Officer of Integrated Global Networks, LLC, a communications
contractor in the U.S. Government. From January 1990 to May 2004, Mr. Mukunda
served as Founder, Chairman and Chief Executive Officer of Startec Global
Communications, an international telecommunications carrier focused on providing
voice over Internet protocol (VOIP) services to the emerging economies. Startec
was among the first carriers to have a direct operating agreement with India for
the provision of telecom services. Mr. Mukunda was responsible for the
organizing, structuring, and integrating a number of companies owned by
Startec. Many of these companies provided strategic investments
in India-based operations or provided services to India-based
companies. Under Mr. Mukunda’s tenure at Startec, the company made an initial
public offering of its equity securities in 1997 and conducted a public
high-yield debt offering in 1998.
From June
1987 to January 1990, Mr. Mukunda served as Strategic Planning Advisor at
INTELSAT, a provider of satellite capacity. Mr. Mukunda serves on the Board of
Visitors at the University of Maryland School of Engineering. From 2001-2003, he
was a Council Member at Harvard’s Kennedy School of Government, Belfer Center of
Science and International Affairs. Mr. Mukunda is the recipient of several
awards, including the University of Maryland’s 2001 Distinguished Engineering
Alumnus Award and the 1998 Ernst & Young, LLP’s Entrepreneur of the Year
Award. He holds B.S. degrees in electrical engineering and mathematics and a MS
in Engineering from the University of Maryland.
John B. Selvaraj has served as our
Treasurer and Principal Accounting Officer since November 27,
2006. From November 15, 1997 to August 10, 2007, Mr. Selvaraj served
in various capacities with Startec, Inc., including from January 2001 to April
2006 as Vice President of Finance and Accounting where he was responsible for
SEC reporting and international subsidiary consolidation. Prior to
joining Startec, from July 1984 to December 1994, Mr. Selvaraj served as the
Chief Financial and Administration Officer for the US office of the European
Union. In 1969, Mr. Selvaraj received a BBA in Accounting from Spicer
Memorial College India, and an Executive MBA, in 1993, from Averette
University, Virginia. Mr. Selvaraj is a Charted Accountant (CA,
1971).
Sudhakar Shenoy, has served as
our Director since May 25, 2005. Since January 1981, Mr. Shenoy has been the
Founder, Chairman and CEO of Information Management Consulting, Inc., a business
solutions and technology provider to the government, business, health and life
science sectors. Mr. Shenoy is a member of the Non Resident Indian Advisory
Group that advises the Prime Minister of India on strategies for attracting
foreign direct investment. Mr. Shenoy was selected for the United States
Presidential Trade and Development Mission to India in 1995. From 2002 to June
2005 he served as the chairman of the Northern Virginia Technology
Council. In 1970, Mr. Shenoy received a B. Tech (Hons.) in electrical
engineering from the Indian Institute of Technology. In 1971 and 1973, he
received an M.S. in electrical engineering and an M.B.A. from the University of
Connecticut Schools of Engineering and Business Administration,
respectively.
Richard Prins, has served as
our Director since May 2007. Mr. Prins has 25 years of
experience in all aspects of corporate finance and has participated directly in
more than 150 transactions with both private and public companies across a
number of industries in North America, Europe, and Asia.
Mr. Prins was the Director of Investment Banking for Ferris, Baker
Watts, Inc., or FBW, from 1996 until June of 2008 when FBW was acquired by
Royal Bank of Canada. At FBW, he managed all of the firm's industry groups
and product offerings including public offerings, mergers and acquisitions,
private placements, restructurings, as well as other corporate advisory services
activities. He was also responsible for executing a variety of financial
and strategic transactions. Mr. Prins served as a
consultant to Royal Bank of Canada Capital Markets through December 2008 to
facilitate the post-acquisition transition. Currently Mr. Prins is a
private investor and involved in various charitable organizations.
Prior to FBW, Mr. Prins was a Managing Director for eight years at Crestar
Bank (now SunTrust Bank) in charge of Mergers and Acquisitions. Mr. Prins began
his career in 1983 as the Assistant to the Chairman of the leverage buyout
company, Tuscarora Corp. He currently serves on the boards of directors of
Amphastar Pharmaceutical, Advancing Native Missions and The Hope
Foundation. Mr. Prins received a B.A. in liberal arts from Colgate
University and an M.B.A. from Oral Roberts
University.
Suhail Nathani, has served as
our Director since May 25, 2005. Since September 2001, he has served as a
partner at the Economics Laws Practice in India, which he co-founded. The
25-person firm focuses on consulting, general corporate law, tax regulations,
foreign investments and issues relating to the World Trade Organization (WTO).
From December 1998 to September 2001, Mr. Nathani was the Proprietor of the
Strategic Law Group, also in India, where he practiced telecommunications law,
general litigation and licensing. Mr. Nathani currently serves on
the boards of the following companies based in India: BLA Industries
Pvt. Ltd, BLA Power Pvt. Ltd., Development Credit Bank Ltd., Phoenix Mills
Limited, Salaam Bombay Foundation, and Siddhesh Capital Market Services Pvt.
Ltd.
Mr.
Nathani earned a LLM in 1991 from Duke University School of Law. In 1990 Mr.
Nathani graduated from Cambridge University, in England, with a MA (Hons)
in Law. In 1987, he graduated from Sydenham College of Commerce and Economics,
Bombay, India.
Sricon
& TBL Management
Rabindralal B. Srivastava is
Founder and Chairman of Sricon. In 1974, he started his career at Larsen and
Toubro (L&T), one of India’s premier engineering and construction
companies. In 1994, his company, Vijay Engineering,
became a civil engineering sub-contractor to L&T. He worked as a
sub-contractor for L&T in Haldia, West Bengal and Tuticorin in South India
among others. Under his leadership, Vijay Engineering expanded to
include civil engineering and construction of power plants, water treatment
plants, steel mills, sugar plants and mining. In 1996, Mr. Srivastava
founded Srivastava Construction Limited, which in 2004 changed its name to
Sricon Infrastructure to address the larger infrastructure needs in India like
highway construction. He merged Vijay Engineering and Sricon in
2004. Mr. Srivastava graduated with a BS from Banaras University
in 1974. Mr. Srivastava founded Hi-tech Pro-Oil Complex in
1996. The company is involved in the extraction of soy bean
oil. He founded Aurobindo Laminations Limited in 2003. The
company manufactures laminated particleboards.
Jortin Antony, has been
a Director of TBL since 2000. Prior to that, he held
various positions at Bhagheeratha starting as a management trainee in
1991. From 1997 to 2000, he was the Director of Projects at
Bhagheeratha. In 2003, Mr. Jortin Antony was awarded the Young Entrepreneur
Award from the Rashtra Deepika. He graduated with a B.Eng, in 1991,
from Bangalore Institute of Technology, University of Bangalore.
M Santhosh Kumar, has been
with TBL since 1991. Since 2008 he has been the General Manager of
Accounting and Finance. From 2002 to January 2008 he has
been the Deputy Manager (Finance and Accounting). From 2000 to 2002,
he was the Marketing Executive for Techni Soft (India) Limited, a subsidiary of
Techni Bharathi Limited. From 1991 to 2000, he held various positions
at TBL in the Finance and Accounting department. From 1986 to 1991,
he worked as an accountant in the Chartered Account firm of Balan and
Company. In 1986 Mr. Santhosh Kumar graduated with a BA in Commerce
from, Gandhi University, Kerala, India.
Special
Advisors
Senator Larry Pressler has
served as our Special Advisor since February 3, 2006. Since leaving the U.S.
Senate in 1997, Mr. Pressler has been a combination of businessman, lawyer,
corporate board director and lecturer at universities. From March 2002 to
present, he has been a partner in the New York firm, Brock law Partners. He was
a law partner with O’Connor & Hannan from March 1997 to March
2002.
In
November 2009 President Obama appointed Mr. Pressler as a Member for the
Commission for the Preservation of America’s Heritage Abroad. From
1979 to 1997, Mr. Pressler served as a member of the United States Senate. He
served as the Chairman of the Senate Commerce Committee on Science and
Transportation, and the Chairman of the Subcommittee on Telecommunications (1994
to 1997). From 1995 to 1997, he served as a Member of the Committee on Finance
and from 1981 to 1995 on the Committee on Foreign Relations. From 1975 to 1979,
Mr. Pressler served as a member of the United States House
of Representatives. Among other bills, Senator Pressler authored the
Telecommunications Act of 1996. As a member of the Senate Foreign Relations
Committee, he authored the “Pressler Amendment,” which became the parity for
nuclear weapons in Asia from 1980 to 1996.
In 2000,
Senator Pressler accompanied President Clinton on a visit to India. He is a
frequent traveler to India where he lectures at universities and business
forums. He serves on the board of directors for The Philadelphia Stock Exchange
and Flight Safety Technologies, Inc. (FLST). From 2002 to 2005 he served on the
board of advisors at Chrys Capital, a fund focused on investments in India. He
was on the board of directors of Spectramind from its inception in 1999 until
its sale to WIPRO, Ltd (WIT) in 2003.
In 1971,
Mr. Pressler earned a Juris Doctor from Harvard Law School and a
Masters in Public Administration from the Kennedy School of Government at
Harvard. From 1964 to 1965 he was a Rhodes Scholar at Oxford University, England
where he earned a diploma in public administration. Mr. Pressler is a Vietnam
war veteran having served in the U.S. Army in Vietnam in 1967-68. He is an
active member of the Veterans of Foreign Wars Association.
P. G. Kakodkar has served as
our Special Advisor since February 3, 2006. Mr. Kakodkar serves on the boards of
several Indian companies, many of which are public in India. Since January of
2005 he has been a member of the board of directors of State Bank of India (SBI)
Fund Management, Private Ltd., which runs one of the largest mutual funds in
India. Mr. Kakodkar’s career spans 40 years at the State Bank of India. He
served as its Chairman from October 1995 to March 1997. Prior to his
Chairmanship, he was the Managing Director of State Bank of India (SBI) Fund
Management Private Ltd., which operates the SBI Mutual Fund.
Since
July 2005, he has served on the board of directors of the Multi Commodity
Exchange of India. Since April 2000, he has been on the board of Mastek, Ltd, an
Indian software house specializing in client server applications. In June 2001,
he joined the board of Centrum Capital Ltd, a financial services company. Since
March 2000, he has been on the board of Sesa Goa Ltd., the second largest mining
company in India. In April 2000, he joined the board at Uttam Galva Steel and in
April 1999 he joined the board of Goa Carbon Ltd, a manufacturer-exporter of
petcoke. Mr. Kakodkar received a BA from Karnataka University and an MA
from Bombay University in economics, in 1954 and 1956, respectively. Mr.
Kakodkar currently is an advisor to Societe Generale, India, which is an
affiliate of SG Americas Securities, LLC and one of the underwriters of the our
IPO.
Shakti Sinha, has served as
our Special Advisor since May 25, 2005. Since July 2004, Mr. Sinha has been
working as a Visiting Senior Fellow, on economic development, with the
Government of Bihar, India. From January 2000 to June 2004, he was a Senior
Advisor to the Executive Director on the Board of the World Bank. From March
1998 to November 1999, he was the Private Secretary to the Prime Minister of
India. He was also the Chief of the Office of the Prime Minister. Prior to that
he has held high level positions in the Government of India, including from
January 1998 to March 1998 as a Board Member responsible for Administration in
the Electricity Utility Board of Delhi. From January 1996 to January 1998, he
was the Secretary to the Leader of the Opposition in the lower house of the
Indian Parliament. From December 1995 to May 1996, he was a Director in the
Ministry of Commerce. In 2002, Mr. Sinha earned a M.S. in International Commerce
and Policy from the George Mason University, USA. In 1978 he earned a M.A. in
History from the University of Delhi and in 1976 he earned a BA (Honors) in
Economics from the University of Delhi.
Prabuddha Ganguli has served
as our Special Advisor since May 25, 2005. Since September 1996, Dr. Ganguli has
been the CEO of Vision-IPR. The company offers management consulting on the
protection of intellectual property rights. His clients include companies in the
pharmaceutical, chemical and engineering industries. He is an adjunct professor
of intellectual property rights at the Indian Institute of Technology, Bombay.
Prior to 1996, from August 1991 to August 1996, he was the Head of Information
Services and Patents at the Hindustan Lever Research Center. In
1986, he was elected as a fellow to the Maharashtra Academy of Sciences. In
1966, he received the National Science Talent Scholarship (NSTS). In 1977, he
was awarded the Alexander von Humboldt Foundation Fellow (Germany). He is
Honorary Scientific Consultant to the Principal Scientific Adviser to the
Government of India. He is a Member of the National Expert Group on Issues
linked to Access to Biological materials vis-à-vis TRIPS and CBD Agreements
constituted by the Indian Ministry of Commerce and Industry. He is also a Member
of the Editorial Board of the intellectual property rights journal “World Patent
Information” published by Elsevier Science Limited, UK. He is a Consultant to
the World Intellectual Property Organization (WIPO), Geneva in intellectual
property rights capability building training programs in various parts of the
world. In 1976, Dr. Ganguli received a PhD from the Tata Institute of
Fundamental Research, Bombay in chemical physics. In 1971, he received a M.Sc.
in Chemistry from the Indian Institute of Technology (Kanpur) and in 1969 he
earned a BS from the Institute of Science (Bombay University).
Anil K. Gupta has served as
our Special Advisor since May 25, 2005. Dr. Gupta has been Professor
of Strategy and Organization at the University of Maryland since
1986. He has been Chair of the Management & Organization
Department, Ralph J. Tyser Professor of Strategy and Organization, and Research
Director of the Dingman Center for Entrepreneurship at the Robert H. Smith
School of Business, The University of Maryland at College Park, since July
2003. Dr. Gupta earned a Bachelor of Technology from the Indian
Institute of Technology in 1970, an MBA from the Indian Institute of Management
in 1972, and a Doctor of Business Administration from the
Harvard Business School in 1980. Dr. Gupta has served on
the board of directors of NeoMagic Corporation (NMGC) since October 2000 and has
previously served as a director of Omega Worldwide (OWWP) from October 1899
through August 2003 and Vitalink Pharmacy Services (VTK) from July 1992 through
July 1999.
Board
of Directors
Our board
of directors is divided into three classes (Class A, Class B and Class C) with
only one class of directors being elected in each year and each class serving a
three-year term. The term of office of the Class A directors, consisting of Mr.
Nathani and Mr. Shenoy, will expire at our fourth annual meeting of
stockholders. The term of office of the Class B directors, consisting of Mr.
Prins and Dr. Krishna, will expire at the second annual meeting of stockholders.
The term of office of the Class C director, consisting of Mr. Mukunda, will
expire at the third annual meeting of stockholders. These individuals
have played a key role in identifying and evaluating prospective acquisition
candidates, selecting the target businesses, and structuring, negotiating and
consummating the acquisition. The NYSE Amex, where we are listed, has rules
mandating that the majority of the board be independent. Our board of
directors will consult with counsel to ensure that the boards of directors’
determinations are consistent with those rules and all relevant securities laws
and regulations regarding the independence of directors. The NYSE Amex listing
standards define an “independent director” generally as a person, other than an
officer of a company, who does not have a relationship with the company that
would interfere with the director’s exercise of independent judgment. Consistent
with these standards, the board of directors has determined that Messrs.
Krishna, Shenoy and Nathani are independent directors.
Committee
of the Board of Directors
Our Board
of Directors has established an Audit Committee currently composed of two
independent directors who report to the Board of Directors. Messrs.
Krishna and Shenoy, each of whom is an independent director under the NYSE
Amex’s listing standards, serve as members of our Audit Committee. In
addition, we have determined that Messrs. Krishna and Shenoy are “audit
committee financial experts” as that term is defined under Item 407 of
Regulation S-K of the Securities Exchange Act of 1934, as
amended. The Audit Committee is responsible for meeting with our
independent accountants regarding, among other issues, audits and adequacy of
our accounting and control systems. We intend to locate and appoint
at least one additional independent director to our Audit Committee to increase
the size of the Audit Committee to three members.
The Audit
Committee will monitor our compliance on a quarterly basis with the terms of our
initial pubic offering. If any noncompliance issues are identified,
then the Audit Committee is charged with the responsibility to take immediately
all action necessary to rectify such noncompliance or otherwise cause compliance
with our initial pubic offering. The Board currently does not have a
nominating and corporate governance committee. However, the majority of the
independent directors of the Board make all nominations.
Audit
Committee Financial Expert
The Audit
Committee will at all times be composed exclusively of “independent directors”
who are “financially literate” as defined under the NYSE Amex listing
standards. The NYSE Amex listing standards define “financially
literate” as being able to read and understand fundamental financial statements,
including a company’s balance sheet, income statement and cash flow
statement.
In
addition, we must certify to the NYSE Amex that the Audit Committee has, and
will continue to have, at least one member who has past employment experience in
finance or accounting, requisite professional certification in accounting, or
other comparable experience or background that results in the individual’s
financial sophistication. The Board of Directors has determined that
Messrs. Krishna and Shenoy satisfy the NYSE Amex’s definition of financial
sophistication and qualify as “audit committee financial experts,” as defined
under rules and regulations of the Securities and Exchange
Commission.
Compensation
Committee
Our Board
of Directors has established a Compensation Committee composed of two
independent directors, Messrs. Krishna and Shenoy and one non-independent
director Richard Prins. The Board determined that Richard Prins is not a
current officer or employee or an immediate family member of such
person. The Board deemed Mr. Prins to be non-independent because his
firm Ferris Baker Watts received compensation for the IPO and bridge
financing. The Board, however, determined that the best interests of
the Company and its shareholders require his membership on the compensation
committee, as Mr. Prins brings a great deal of prior experience with memberships
on public compensation committees. The Board used the exception
provided under Section 805(b) of the NYSE Amex Company Guide in appointing
Richard Prins to the Compensation Committee. The compensation
committee’s purpose will be to review and approve compensation paid to our
officers and directors and to administer the Stock Plan.
Nominating
and Corporate Governance Committee
We intend
to establish a nominating and corporate governance committee. The primary
purpose of the nominating and corporate governance committee will be to identify
individuals qualified to become directors, recommend to the board of directors
the candidates for election by stockholders or appointment by the board of
directors to fill a vacancy, recommend to the board of directors the composition
and chairs of board of directors committees, develop and recommend to the board
of directors guidelines for effective corporate governance, and lead an annual
review of the performance of the board of directors and each of its
committees.
We do not
have any formal process for stockholders to nominate a director for election to
our board of directors. Currently, nominations are selected or recommended by a
majority of the independent directors as stated in Section 804 (a) of the NYSE
Amex Company Guide. Any stockholder wishing to recommend an
individual to be considered by our board of directors as a nominee for election
as a director should send a signed letter of recommendation to the following
address: India Globalization Capital, Inc. c/o Corporate Secretary, 4336
Montgomery Avenue, Bethesda, MD 20817. Recommendation letters must state
the reasons for the recommendation and contain the full name and address of each
proposed nominee as well as a brief biographical history setting forth past and
present directorships, employments, occupations and civic activities. Any such
recommendation should be accompanied by a written statement from the proposed
nominee consenting to be named as a candidate and, if nominated and elected,
consenting to serve as a director. We may also require a candidate to furnish
additional information regarding his or her eligibility and qualifications. The
board of directors does not intend to evaluate candidates proposed by
stockholders differently than it evaluates candidates that are suggested by our
board members, execution officers or other sources.
Code
of Conduct and Ethics
We have
adopted a code of conduct and ethics applicable to our directors, officers and
employees in accordance with applicable federal securities laws and the rules of
the NYSE Amex. We have filed the code of conduct and ethics as
Exhibit 99.1 to our Registration Statement on Form S-1/A, filed with the
Securities and Exchange Commission on March 2, 2006.
Board
Meetings
During
the fiscal year ended March 31, 2009, our board of directors held four meetings.
Although we do not have any formal policy regarding director attendance at our
annual meetings, we will attempt to schedule our annual meetings so that all of
our directors can attend. During the fiscal year ended March 31, 2009, all of
our directors attended 100% of the meetings of the board of
directors.
Compensation
of Directors
Our
directors do not currently receive any cash compensation for their service as
members of the board of directors. In 2009 all board members were awarded stock
options or restricted stock pursuant to our 2008 Omnibus Incentive
Plan. Messers. Prins, Shenoy and Nathani each received options
to purchase 125,000 shares of common stock at an exercise price of $1.00 per
share that were exercisable at the time of grant and which expire on May 13,
2014, five years from the date of grant. Mr. Mukunda and Dr. Krishna
each received grants of 39,410 shares of common stock which vest on December 31,
2009.
We pay
IGN, LLC, an affiliate of Mr. Mukunda, $4,000 per month for office space and
certain general and administrative services. Mr. Mukunda is the Chief
Executive Officer of IGN, LLC. We believe, based on rents and fees
for similar services in the Washington, DC metropolitan area that the fee
charged by IGN LLC was at least as favorable as we could have obtained from an
unaffiliated third party. The agreement is on a month-to-month basis and may be
terminated by the board with out notice.
Section
16 (a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Securities Exchange Act of 1934, as amended, requires our
directors, executive officers and persons who beneficially own more than 10% of
our common stock to file reports of their ownership of shares with the
Securities and Exchange Commission. Such executive officers,
directors and stockholders are required by SEC regulation to furnish us with
copies of all Section 16(a) reports they file. Based solely upon
review of the copies of such reports received by us, our senior management
believes that all reports required to be filed under Section 16(a) for the
fiscal year ended March 31, 2009 were filed in a timely manner.
EXECUTIVE
COMPENSATION
Compensation Discussion and
Analysis
Overview
of Compensation Policy
The
Company’s Compensation Committee is empowered to review and approve, or in some
cases recommend for the approval of the full Board of Directors the annual
compensation for the executive officers of the Company. This Committee has the
responsibility for establishing, implementing, and monitoring the Company’s
compensation strategy and policy. Among its principal duties, the Committee
ensures that the total compensation of the executive officers is fair,
reasonable and competitive.
Objectives
and Philosophies of Compensation
The
primary objective of the Company’s compensation policy, including the executive
compensation policy, is to help attract and retain qualified, energetic managers
who are enthusiastic about the Company’s mission and products. The policy is
designed to reward the achievement of specific annual and long-term strategic
goals aligning executive performance with company growth and shareholder value.
In addition, the Board of Directors strives to promote an ownership mentality
among key leaders and the Board of Directors.
Setting
Executive Compensation
The
compensation policy is designed to reward performance. In measuring executive
officers’ contribution to the Company, the Compensation Committee considers
numerous factors including the Company’s growth and financial performance as
measured by revenue, gross margin and net income before taxes among other key
performance indicators.
Regarding
most compensation matters, including executive and director compensation,
management provides recommendations to the Compensation Committee; however, the
Compensation Committee does not delegate any of its functions to others in
setting compensation. The Compensation Committee does not currently engage any
consultant related to executive and/or director compensation
matters.
Stock
price performance has not been a factor in determining annual compensation
because the price of the Company’s common stock is subject to a variety of
factors outside of management’s control. The Company does not subscribe to an
exact formula for allocating cash and non-cash compensation. However, a
significant percentage of total executive compensation is performance-based.
Historically, the majority of the incentives to executives have been in the form
of non-cash incentives in order to better align the goals of executives with the
goals of stockholders.
Elements
of Company’s Compensation Plan
The
principal components of compensation for the Company’s executive officers
are:
|
·
|
base
salary
|
|
|
|
|
·
|
performance-based
incentive cash compensation
|
|
|
|
|
·
|
right
to purchase the company’s stock at a preset price (stock
options)
|
|
|
|
|
·
|
retirement
and other benefits
|
Base Salary
The
Company provides named executive officers and other employees with base salary
to compensate them for services rendered during the fiscal year. Base salary
ranges for named executive officers are determined for each executive based on
his or her position and responsibility.
During
its review of base salaries for executives, the Committee primarily
considers:
|
·
|
market
data;
|
|
|
|
|
·
|
internal
review of the executives’ compensation, both individually and relative to
other officers; and
|
|
|
|
|
·
|
individual
performance of the executive.
|
Salary
levels are typically evaluated annually as part of the Company’s performance
review process as well as upon a promotion or other change in job
responsibility.
Performance-Based
Incentive Compensation
The
management incentive plan gives the Committee the latitude to design cash and
stock-based incentive compensation programs to promote high performance and
achievement of corporate goals, encourage the growth of stockholder value and
allow key employees to participate in the long-term growth and profitability of
the Company. So that stock-based compensation may continue to be a viable part
of the Company’s compensation strategy, management is currently seeking
shareholder approval of a proposal to increase the number of shares of Company
common stock reserved for issuance pursuant to the Company’s Stock
Plan.
Ownership
Guidelines
To
directly align the interests of the Board of Directors with the interests of the
stockholders, the Committee recommends that each Board member maintain a minimum
ownership interest in the Company. Currently, the Compensation Committee
recommends that each Board member own a minimum of 5,000 shares of the Company’s
common stock with such stock to be acquired within a reasonable time following
election to the Board.
Stock
Option Program
The Stock
Option Program assists the Company to:
|
·
|
enhance
the link between the creation of stockholder value and long-term executive
incentive compensation;
|
|
|
|
|
·
|
provide
an opportunity for increased equity ownership by executives;
and
|
|
|
|
|
·
|
maintain
competitive levels of total
compensation.
|
Stock
option award levels are determined based on market data and vary among
participants based on their positions within the Company and are granted at the
Committee’s regularly scheduled meeting. As of September 30, 2009, we had
granted 78,820 shares of common stock and 1,413,000 stock options under our
Stock Plan.
Perquisites
and Other Personal Benefits
The
Company provides some executive officers with perquisites and other personal
benefits that the Company and the Committee believe are reasonable and
consistent with its overall compensation program to better enable the Company to
attract and retain superior employees for key positions. The Committee
periodically reviews the levels of perquisites and other personal benefits
provided to named executive officers.
Some
executive officers are provided use of company automobiles, an
entertainment budget and assistants based in the US and in India to
alleviate the extensive overseas travel. All employees can
participate in the plans and programs described above.
Each
employee of the Company is entitled to term life insurance, premiums for which
are paid by the Company. In addition, each employee is entitled to receive
certain medical and dental benefits and part of the cost is funded by the
employee.
Accounting
and Tax Considerations
The
Company’s stock option grant policy will be impacted by the implementation of
SFAS No. 123R, which was adopted in the first quarter of fiscal year 2006. Under
this accounting pronouncement, the Company is required to value unvested stock
options granted prior to the adoption of SFAS 123 under the fair value method
and expense those amounts in the income statement over the stock option’s
remaining vesting period.
Section
162(m) of the Internal Revenue Code restricts deductibility of executive
compensation paid to the Company’s chief executive officer and each of the four
other most highly compensated executive officers holding office at the end of
any year to the extent such compensation exceeds $1,000,000 for any of such
officers in any year and does not qualify for an exception under Section 162(m)
or related regulations. The Committee’s policy is to qualify its executive
compensation for deductibility under applicable tax laws to the extent
practicable. In the future, the Committee will continue to evaluate the
advisability of qualifying its executive compensation for full
deductibility.
Compensation
for Executive Officers of the Company
Prior
March 8, 2008, we did not pay any cash compensation to our executive officers or
their affiliates except as follows. As described above in
“Directors, Executive Officers And Special Advisors of the Company – Director
Compensation”, we pay IGN, LLC, an affiliate of Mr. Mukunda, $4,000 per month
for office space and certain general and administrative services, an amount
which is not intended as compensation for Mr. Mukunda. On or
around November 27, 2006, we engaged SJS Associates, an affiliate of Mr.
Selvaraj, which provides the services of Mr. John Selvaraj as our
Treasurer. We have agreed to pay SJS Associates $5,000 per month for
these services. Mr. Selvaraj is the Chief Executive Officer of SJS
Associates. Effective November 1, 2007 the Company and SJS Associates
terminated the agreement. We subsequently entered into a new
agreement with SJS Associates on identical terms subsequent to the acquisition
of Sricon and TBL. On May 22, 2008, the
Company and its subsidiary India Globalization Capital
Mauritius (“IGC-M”) entered into an employment agreement (the
“Employment Agreement”) with Ram Mukunda, pursuant to which he will receive a
salary of $300,000 per year for services to IGC and IGC-M as Chief Executive
Officer. The Employment Agreement was approved in May 2008 and
made effective as of March 8, 2008. For fiscal year 2009, Mr. Mukunda
was paid $300,000.
The
annual executive compensation for the Chief Executive Officer and Chief
Financial Officer of the Company is set out below.
Summary
compensation
|
|
|
|
|
|
|
|
|
FY
2008
|
|
|
FY
2009
|
|
Ram
Mukunda
|
|
$
|
15,000
|
|
|
$
|
450,000
|
|
John
Selvaraj
|
|
$
|
35,000
|
|
|
$
|
63,300
|
|
Compensation
for Executive Officers of Sricon
The
annual executive compensation for the Chairman and Managing Director of Sricon
is set out below. The USD amounts are shown at a conversion rate of
INR 50.64 to USD 1.
Summary
compensation of
executive
of Sricon
|
|
|
|
|
|
|
|
|
FY
2008
|
|
|
FY
2009
|
|
|
|
$
|
INR
600,000
|
|
|
$
|
INR
6,000,000
|
|
|
|
$
|
USD
15,000
|
|
|
$
|
USD
118,494
|
|
Compensation
for Executive Officers of TBL
The
annual executive compensation for the Managing Director of TBL is set out
below. The USD amounts are shown at a conversion rate of INR 50.64 to
USD 1 and INR 40 to USD 1 for 2009 and 2008 respectively.
Summary
compensation of
executive
of TBL
|
|
|
|
|
|
|
|
|
FY
2008
|
|
|
FY
2009
|
|
|
|
$
|
INR
480,000
|
|
|
$
|
INR
657,000
|
|
|
|
$
|
USD
12,000
|
|
|
$
|
USD
12,975
|
|
Compensation
of Directors
No
compensation was paid to the Company’s Board of Directors for the one-year
period ended March 31, 2009.
Certain
Relationships and Related Transactions
As of
March 31, 2009, there were no related party transactions other than the
agreements with IGN, an affiliate of Ram Mukunda, and SJS Associates, an
affiliate of John Selvaraj, described above. We are party to indemnification
agreements with each of the executive officers and directors. Such
indemnification agreements require us to indemnify these individuals to the
fullest extent permitted by law.
Employment
Contracts
Ram
Mukunda has served as President and Chief Executive Officer of the Company since
its inception. The Company, IGC-M and Mr. Mukunda entered into an
Employment Agreement on May 22, 2008, which agreement was made effective as of
March 8, 2008, the date on which the Company completed its acquisition of Sricon
and TBL. Pursuant to the agreement, the Company pays Mr. Mukunda a base salary
of $300,000 per year. Mr. Mukunda is also entitled to receive bonuses of at
least $225,000 for meeting certain targets for net income (before one time
charges including charges for employee options, warrants and other items) for
fiscal year 2009
and $150,000 for meeting targets with respect to obtaining new
contracts. The Agreement further provides that the Board of Directors
of the Company may review and update the targets and amounts for the net revenue
and contract bonuses on an annual basis. The Agreement also provides
for benefits, including insurance, 20 days of paid vacation, a car (subject to
partial reimbursement by Mr. Mukunda of lease payments for the car) and
reimbursement of business expenses. The term of the Employment Agreement is five
years, after which employment will become at-will. The Employment Agreement is
terminable by the Company and IGC-M for death, disability and
cause. In the event of a termination without cause, the Company would
be required to pay Mr. Mukunda his full compensation for 18 months or until the
term of the Employment Agreement was set to expire, whichever is
earlier.
In
partial consideration for the equity shares in Sricon purchased by the Company,
pursuant to the terms of a Shareholders Agreement dated as of September 15, 2007
by and among IGC, Sricon and the Promoters or Sricon, the stockholders of Sricon
as of the date of the acquisition, including Ravindra Lal Srivastava, who
currently serves as the Chairman and Managing Director of Sricon, shall have the
right to receive up to an aggregate of 418,431 equity shares of Sricon over a
three-year period if Sricon achieves certain profit after tax targets for its
2008-2010 fiscal years. The maximum number of shares the Promoters
may receive in any given fiscal year is 139,477 shares. If Sricon’s
profits after taxes for a given fiscal year are less than 100% of the target for
that year but are equal to at least 85% of the target, the Promoters shall
receive a pro rated portion of the maximum share award for that fiscal
year. A copy of this agreement was filed with the SEC in the
Company’s definitive proxy statement filed February 8, 2008 and is incorporated
here by reference.
In
partial consideration for the equity shares in TBL purchased by the Company,
pursuant to the terms of a Shareholders Agreement dated as of September 16, 2007
by and among IGC, TBL and the Promoters of TBL, Jortin Anthony, who currently
serves as the Managing Director of TBL, shall have the right to
receive up to an aggregate of 1,204,000 equity shares of TBL over a
five-year period if TBL achieves certain profit after tax targets for its
2008-2012 fiscal years. The maximum number of shares Mr.
Anthony may receive is 140,800 shares for fiscal year 2008 and 265,800 shares
for each of the following fiscal years. If TBL’s profits after taxes
for a given fiscal year are less than 100% of the target for that year but are
equal to at least 85% of the target Mr. Anthony shall receive a pro rated
portion of the maximum share award for that fiscal year. A copy of
this agreement was filed with the SEC in the Company’s definitive proxy
statement filed February 8, 2008 and is incorporated here by
reference.
Compensation
Committee Interlocks and Insider Participation
A
Compensation Committee comprised of two independent members of the Board of
Directors, Ranga Krishna and Sudhakar Shenoy, and a non-independent director
Richard Prins, administer executive compensation. No executive
officer of the Company served as a director or member of the compensation
committee of any other entity.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
Review,
Approval or Ratification of Related Party Transactions
We do not
maintain a formal written procedure for the review and approval of transactions
with related persons. It is our policy for the disinterested members
of our board to review all related party transactions on a case-by-case
basis. To receive approval, a related-party transaction must have a
business purpose for IGC and be on terms that are fair and reasonable to IGC and
as favorable to IGC as would be available from non-related entities in
comparable transactions.
Pursuant
to the terms of a registration rights agreement with the Company, the holders of
the majority of these shares issued to our officers and directors prior to our
initial public offering are be entitled to make up to two demands that we
register these shares. The holders of the majority of these shares can elect to
exercise these registration rights at any time after the date on which the
lock-up period expires. The lock-up period expired on September 8,
2008. In addition, these stockholders have certain “piggy-back”
registration rights on registration statements filed subsequent to such date. We
will bear the expenses incurred in connection with the filing of any such
registration statements. We have registered these shares for resale
on a registration statement on Form S-1 that was declared effective on November
12, 2008.
BENEFICIAL
OWNERSHIP OF CERTAIN OWNERS AND MANAGEMENT
The
following table sets forth information regarding the beneficial ownership of our
common stock as of November 30, 2009 by:
• each person known by us to be the
beneficial owner of more than 5% of our outstanding shares of common
stock;
• each of our executive officers,
directors and our special advisors; and
• all of our officers and directors
as a group.
Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission and does not necessarily indicate beneficial ownership for
any other purpose. Under these rules, beneficial ownership includes those shares
of common stock over which the stockholder has sole or shared voting or
investment power. It also includes shares of common stock that the stockholder
has a right to acquire within 60 days through the exercise of any option,
warrant or other right. The percentage ownership of the outstanding common
stock, which is based upon 12,898,291 shares of common stock outstanding as of
November 30, 2009, is based on the assumption, expressly required by the rules
of the Securities and Exchange Commission, that only the person or entity whose
ownership is being reported has converted options or warrants into shares of our
common stock.
Unless
otherwise indicated, we believe that all persons named in the table have sole
voting and investment power with respect to all shares of common stock
beneficially owned by them. Unless otherwise noted, the nature of the ownership
set forth in the table below is common stock of the Company.
The table
below sets forth as of November 30, 2009, except as noted in the footnotes to
the table, certain information with respect to the beneficial ownership of the
Company’s Common Stock by (i) all persons known by the Company to be the
beneficial owners of more than 5% of the outstanding Common Stock of the
Company, (ii) each director and director-nominee of the Company, (iii) the
executive officers named in the Summary Compensation Table, and (iv) all such
executive officers and directors of the Company as a group.
|
|
Shares
Owned
|
|
Name and Address of Beneficial
Owner(1)
|
|
Number
of Shares
|
|
|
Percentage
of Class
|
|
Wachovia
Corporation (2)
One
Wachovia Center
Charlotte,
North Carolina 28288-0137
|
|
|
1,879,289
|
|
|
|
14.6
|
%
|
Sage
Master Investments Ltd (3)
500
Fifth Avenue, Suite 930
New
York, New York 10110
|
|
|
947,300
|
|
|
|
7.3
|
%
|
Brightline
Capital Management, LLC (4)
1120
Avenue of the Americas, Suite 1505
New
York, New York 10036
|
|
|
750,000
|
|
|
|
5.8
|
%
|
Ram
Mukunda (5)
|
|
|
1,449,914
|
|
|
|
10.6
|
%
|
Ranga
Krishna (6)
|
|
|
2,215,624
|
|
|
|
16.8
|
%
|
Richard
Prins (7)
|
|
|
196,250
|
|
|
|
1.5
|
%
|
Sudhakar
Shenoy(8)
|
|
|
175,000
|
|
|
|
1.4
|
%
|
Suhail
Nathani(9)
|
|
|
150,000
|
|
|
|
1.2
|
%
|
Larry
Pressler
|
|
|
25,000
|
|
|
|
*
|
|
Dr.
Anil K. Gupta
|
|
|
25,000
|
|
|
|
*
|
|
P.G.
Kakodkar
|
|
|
12,500
|
|
|
|
*
|
|
Shakti
Sinha
|
|
|
12,500
|
|
|
|
*
|
|
Dr.
Prabuddha Ganguli
|
|
|
12,500
|
|
|
|
*
|
|
All
Executive Officers and Directors as a group (5
Persons)(10)
|
|
|
4,186,788
|
|
|
|
29.0
|
%
|
*
Represents less than 1%
(1)
|
Unless
otherwise indicated, the address of each of the individuals listed in the
table is: c/o India Globalization Capital, Inc., 4336 Montgomery Avenue,
Bethesda, MD 20814.
|
(2)
|
Based
on a Schedule 13F filed with the SEC on March 31, 2009 by Wachovia
Corporation. Dr. Ranga Krishna is entitled to 100% of the
economic benefits of the shares.
|
(3)
|
Based
on a Schedule 13G filed with the SEC on June 1, 2009 by Sage Master
Investments Ltd., a Cayman Islands exempted company (“Sage Master”), Sage
Opportunity Fund (QP), L.P., a Delaware limited partnership (“QP Fund”),
Sage Asset Management, L.P., a Delaware limited partnership (“SAM”), Sage
Asset Inc., a Delaware corporation (“Sage Inc.”), Barry G. Haimes and
Katherine R. Hensel (collectively, the “Reporting Persons”). As
disclosed in the Schedule 13G, Each of the Reporting Persons’ beneficial
ownership of 947,300 shares of Common Stock constitutes 7.4% of all of the
outstanding shares of Common Stock. The address for each of the foregoing
parties is c/o 500 Fifth Avenue, Suite 930, New York, New York
10110.
|
(4)
|
Based
on an amended Schedule 13G jointly filed with the SEC on May 28, 2008 by
Brightline Capital Management, LLC (“Management”), Brightline Capital
Partners, LP (“Partners”), Brightline GP, LLC (“GP”), Nick Khera (“Khera”)
and Edward B. Smith, III (“Smith”). As disclosed in the amended
Schedule 13G, Management and Khera are each the beneficial owners of
750,000 shares of common stock (5.8%), Smith is the beneficial owner of
1,031,500 shares of common stock (8.0%) including 281,500 shares over
which he holds sole control of their voting and disposition, and Partners
and GP are each the beneficial owners of 592,560 shares of common stock
(4.6%), respectively. The address for
each of the foregoing parties is 1120 Avenue of the Americas, Suite 1505,
New York, New York 10036.
|
(5)
|
Includes(i)
245,175 shares of common stock directly owned by Mr. Mukunda, (ii) 425,000
shares of common stock owned by Mr. Mukunda’s wife Parveen Mukunda, (iii)
options to purchase 635,000 shares of common stock which are exercisable
within sixty (60) days of November 30, 2009, all of which are currently
exercisable and (iv) warrants to purchase 144,739 shares of common stock,
of which warrants to purchase 28,571 shares of common stock are owned by
Mr. Mukunda’s wife Parveen Mukunda and all which are
exercisable within sixty (60) days of November 30, 2009, all of which are
currently exercisable.
|
(6)
|
Includes warrants to
purchase 290,000 shares of common stock which are exercisable within sixty
(60) days of November 30, 2009, all of which are currently
exercisable. Includes 1,879,279 shares beneficially owned by
Wachovia Corporation, which has sole voting and dispositive control over
the shares. Dr. Krishna is entitled to 100% of the
economic benefits of the shares.
|
(7)
|
Based
on a Form 4 filed with the SEC on May 18, 2009 by Richard
Prins. Includes options to purchase 125,000 shares of common
stock and a unit purchase option to purchase 71,250 units, each consisting
of 1 share of common stock and 2 warrants to purchase a share of common
stock and does not include the warrants underlying the units that may be
acquired upon exercise of the unit purchase option. Both
the options, and the unit purchase option are both exercisable
within sixty (60) days of November 30, 2009 and currently
exercisable.
|
(8)
|
Based
on a Form 4 filed with the SEC on May 18, 2009 by Sudhakar
Shenoy. Includes options to purchase 125,000 shares of common
stock, which are both exercisable within sixty (60) days of November 30,
2009 and currently exercisable.
|
(9)
|
Based
on a Form 4 filed with the SEC on May 18, 2009 by Suhail
Nathani. Includes options to purchase 125,000 shares of common
stock, which are both exercisable within sixty (60) days of November 30,
2009 and currently exercisable.
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(10)
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Does
not include shares owned by our special advisors. Includes: (i)
2,654,464 shares of common stock, (ii) warrants to purchase 1,069,739
shares of common stock, (iii) options to purchase 375,000 shares of common
stock and (iv) a unit purchase option to purchase 71,250 units, each
consisting of 1 share of common stock and 2 warrants to purchase a share
of common stock and does not include the warrants underlying the units
that may be acquired upon exercise of the unit purchase
option. The warrants, options, and the unit purchase option are
all both exercisable within sixty (60) days of November 30, 2009 and
currently exercisable. Includes 1,879,289 shares
beneficially owned by Wachovia Corporation, which has sole voting and
dispositive control over the
shares.
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Messrs.
Mukunda and Krishna may be deemed our “parent,” “founder” and “promoter,” as
these terms are defined under the Federal securities laws.
DESCRIPTION
OF CAPITAL STOCK
General
We are
authorized to issue 75,000,000 shares of common stock, par value $.0001,
and 1,000,000 shares of preferred stock, par value $.0001. As of November
30, 2009, 12,898,291 shares of common stock are outstanding, held
by 946 record holders and no shares of preferred stock are
outstanding.
Units
Each unit
consists of one share of common stock and two warrants. Each warrant entitles
the holder to purchase one share of common stock. Each of the common stock and
warrants can be traded separately.
Common
stock
Our
stockholders are entitled to one vote for each share held of record on all
matters to be voted on by stockholders.
Our board
of directors is divided into three classes (Class A, Class B and
Class C), each of which will generally serve for a term of three years with
only one class of directors being elected in each year. There is no cumulative
voting with respect to the election of directors, with the result that the
holders of more than 50% of the shares voted for the election of directors can
elect all of the directors.
Our
stockholders have no conversion, preemptive or other subscription rights and
there are no sinking fund or redemption provisions applicable to the common
stock.
Preferred
stock
Our
certificate of incorporation authorizes the issuance of 1,000,000 shares of
blank check preferred stock with such designation, rights and preferences as may
be determined from time to time by our board of directors. No shares of
preferred stock are being issued or registered in this offering. Accordingly,
our board of directors is empowered, without stockholder approval, to issue
preferred stock with dividend, liquidation, conversion, voting or other rights
which could adversely affect the voting power or other rights of the holders of
common stock. We may issue some or all of the preferred stock to
effect a business combination. In addition, the preferred stock could be
utilized as a method of discouraging, delaying or preventing a change in control
of us. Although we do not currently intend to issue any shares of preferred
stock, we cannot assure you that we will not do so in the future.
Dividends
We have
not paid any dividends on our common stock to date and do not intend to pay
dividends prior to the completion of a business combination. The payment of
dividends in the future will be contingent upon our revenues and earnings, if
any, capital requirements and general financial condition subsequent to
completion of a business combination. The payment of any dividends subsequent to
a business combination will be within the discretion of our then board of
directors. It is the present intention of our board of directors to retain all
earnings, if any, for use in our business operations and, accordingly, our board
does not anticipate declaring any dividends in the foreseeable
future.
Maryland
Anti-Takeover Provisions and Certain Anti-Takeover Effects of our Charter and
Bylaws
Business
Combinations
Under the
Maryland General Corporation Law, some business combinations, including a
merger, consolidation, share exchange or, in some circumstances, an asset
transfer or issuance or reclassification of equity securities, are prohibited
for a period of time and require an extraordinary vote. These transactions
include those between a Maryland corporation and the following persons (a
“Specified Person”):
•an interested stockholder, which is
defined as any person (other than a subsidiary) who beneficially owns 10% or
more of the corporation’s voting stock, or who is an affiliate or an associate
of the corporation who, at any time within a two-year period prior to the
transaction, was the beneficial owner of 10% or more of the voting power of the
corporation’s voting stock or
•an affiliate of an interested
stockholder.
A person
is not an interested stockholder if the board of directors approved in advance
the transaction by which the person otherwise would have become an interested
stockholder. The board of directors of a Maryland corporation also may exempt a
person from these business combination restrictions prior to the time the person
becomes a Specified Person and may provide that its exemption is subject to
compliance with any terms and conditions determined by the board of directors.
Transactions between a corporation and a Specified Person are prohibited for
five years after the most recent date on which such stockholder becomes a
Specified Person. After five years, any business combination must be recommended
by the board of directors of the corporation and approved by at least 80% of the
votes entitled to be cast by holders of voting stock of the corporation and
two-thirds of the votes entitled to be cast by holders of shares other than
voting stock held by the Specified Person with whom the business combination is
to be effected, unless the corporation’s stockholders receive a minimum price as
defined by Maryland law and other conditions under Maryland law are
satisfied.
A
Maryland corporation may elect not to be governed by these provisions by having
its board of directors exempt various Specified Persons, by including a
provision in its charter expressly electing not to be governed by the applicable
provision of Maryland law or by amending its existing charter with the approval
of at least 80% of the votes entitled to be cast by holders of outstanding
shares of voting stock of the corporation and two-thirds of the votes entitled
to be cast by holders of shares other than those held by any Specified Person.
Our Charter does not include any provision opting out of these business
combination provisions.
Control
Share Acquisitions
The
Maryland General Corporation Law also prevents, subject to exceptions, an
acquiror who acquires sufficient shares to exercise specified percentages of
voting power of a corporation from having any voting rights except to the extent
approved by two-thirds of the votes entitled to be cast on the matter not
including shares of stock owned by the acquiring person, any directors who are
employees of the corporation and any officers of the corporation. These
provisions are referred to as the control share acquisition
statute.
The
control share acquisition statute does not apply to shares acquired in a merger,
consolidation or share exchange if the corporation is a party to the
transaction, or to acquisitions approved or exempted prior to the acquisition by
a provision contained in the corporation’s charter or bylaws. Our Bylaws include
a provision exempting IGC from the restrictions of the control share acquisition
statute, but this provision could be amended or rescinded either before or after
a person acquired control shares. As a result, the control share acquisition
statute could discourage offers to acquire IGC stock and could increase the
difficulty of completing an offer.
Board
of Directors
The
Maryland General Corporation Law provides that a Maryland corporation which is
subject to the Exchange Act and has at least three outside directors (who are
not affiliated with an acquirer of the company) under certain circumstances may
elect by resolution of the board of directors or by amendment of its charter or
bylaws to be subject to statutory corporate governance provisions that may be
inconsistent with the corporation’s charter and bylaws. Under these provisions,
a board of directors may divide itself into three separate classes without the
vote of stockholders such that only one-third of the directors are elected each
year. A board of directors classified in this manner cannot be altered by
amendment to the charter of the corporation. Further, the board of directors
may, by electing to be covered by the applicable statutory provisions and
notwithstanding the corporation’s charter or bylaws:
• provide that a special meeting of
stockholders will be called only at the request of stockholders entitled to cast
at least a majority of the votes entitled to be cast at the
meeting,
• reserve for itself the right to fix the
number of directors,
• provide that a director may be removed
only by the vote of at least two-thirds of the votes entitled to be cast
generally in the election of directors and
• retain for itself sole authority to
fill vacancies created by an increase in the size of the board or the death,
removal or resignation of a director.
In
addition, a director elected to fill a vacancy under these provisions serves for
the balance of the unexpired term instead of until the next annual meeting of
stockholders. A board of directors may implement all or any of these provisions
without amending the charter or bylaws and without stockholder approval.
Although a corporation may be prohibited by its charter or by resolution of its
board of directors from electing any of the provisions of the statute, we have
not adopted such a prohibition. We have adopted a staggered board of directors
with 3 separate classes in our charter and given the board the right to fix the
number of directors, but we have not prohibited the amendment of these
provisions. The adoption of the staggered board may discourage offers
to acquire IGC stock and may increase the difficulty of completing an offer to
acquire our stock. If our board chose to implement the statutory provisions, it
could further discourage offers to acquire IGC stock and could further increase
the difficulty of completing an offer to acquire our stock.
Effect
of Certain Provisions of our Charter and Bylaws
In
addition to the Charter and Bylaws provisions discussed above, certain other
provisions of our Bylaws may have the effect of impeding the acquisition of
control of IGC by means of a tender offer, proxy fight, open market purchases or
otherwise in a transaction not approved by our board of directors. These
provisions of Bylaws are intended to reduce our vulnerability to an unsolicited
proposal for the restructuring or sale of all or substantially all of our assets
or an unsolicited takeover attempt which our board believes is otherwise unfair
to our stockholders. These provisions, however, also could have the effect of
delaying, deterring or preventing a change in control of IGC.
Stockholder Meetings; Advance Notice
of Director Nominations and New Business . Our Bylaws provide that with
respect to annual meetings of stockholders, (i) nominations of individuals for
election to our board of directors and (ii) the proposal of business to be
considered by stockholders may be made only:
• pursuant to IGC’s notice of the
meeting,
• by or at the direction of our board of
directors or
• by a stockholder who is entitled to
vote at the meeting and has complied with the advance notice procedures set
forth in our Bylaws.
Special
meetings of stockholders may be called only by the chief executive officer, the
board of directors or the secretary of IGC (upon the written request of the
holders of a majority of the shares entitled to vote). At a special meeting of
stockholders, the only business that may be conducted is the business specified
in IGC’s notice of meeting. With respect to nominations of persons for election
to our board of directors, nominations may be made at a special meeting of
stockholders only:
• pursuant to IGC’s notice of
meeting,
• by or at the direction of our board of
directors or
• if our board of directors has
determined that directors will be elected at the special meeting, by a
stockholder who is entitled to vote at the meeting and has complied with the
advance notice procedures set forth in our Bylaws.
These
procedures may limit the ability of stockholders to bring business before a
stockholders meeting, including the nomination of directors and the
consideration of any transaction that could result in a change in control and
that may result in a premium to our stockholders.
Our
Transfer Agent and Warrant Agent
The
transfer agent for our securities and warrant agent for our warrants is
Continental Stock Transfer & Trust Company.
SHARES
ELIGIBLE FOR FUTURE SALE
We have
an aggregate of 12,898,291 shares
of common stock outstanding. Of these shares, 9,333,191 shares
are either freely tradable without restriction or further registration under the
Securities Act of 1933, except for any shares purchased by one of our affiliates
within the meaning of Rule 144 under the Securities Act of 1933, or
registered for resale. Shares purchased by our affiliates include the
170,000 shares included in the units purchased in a private placement by
our officers and directors or their nominees, which were the subject of a
lock-up agreement with us and the representative of the underwriters until we
completed a business combination. Since we have completed a business
combination, the lock-up has terminated with respect to those
shares. All of the remaining 3,560,000 shares are restricted
securities under Rule 144, in that they were issued in private transactions
not involving a public offering. None of those will be eligible for sale under
Rule 144 until the one year holding period has elapsed with respect to each
purchase and the additional conditions described in “Restrictions on the Use of
Rule 144 by Shell Companies or Former Shell Companies” below are
satisfied.
Rule 144
In
general, under Rule 144 as currently in effect, a person (or persons whose
shares are aggregated) who is deemed to be an affiliate of ours at the time of
sale, or at any time during the preceding three months, and who has beneficially
owned restricted shares of our common stock for at least six months, would be
entitled to sell within any three-month period a number of shares that does not
exceed the greater of either of the following:
·
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1%
of the number of shares of common s |