india-10ksb3312007.htm
UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-KSB
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Annual
report under Section 13 or 15(d) of the Securities Exchange Act of
1934.
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For
the fiscal year ended March 31,
2007 |
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Transition
report under Section 13 or 15(d) of the Exchange
Act.
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Commission
file number 000-1326205
INDIA
GLOBALIZATION CAPITAL, INC.
(Name
of
small business issuer in its charter)
Maryland
(State
or other jurisdiction of incorporation or
organization)
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20-2760393
(I.R.S.
Employer Identification
No.)
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4336
Montgomery Ave. Bethesda, Maryland 20814
(Address
of principal executive offices)
(301) 983-0998
(Issuer’s
telephone number)
Securities
registered under Section 12(b) of the Exchange Act:
Title
of Each Class
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Name
of exchange on which registered
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Units,
each consisting of one share of Common Stock
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American
Stock Exchange
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and
two Warrants
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Common
Stock
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American
Stock Exchange
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Common
Stock Purchase Warrants
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American
Stock Exchange
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Securities
registered under Section 12(g) of the Exchange Act:
None.
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined
in
Rule 405 of the Securities Act.
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Yes þ No
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. o
Yes þ No
Check
whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past
90 days. þ
Yes
o No
Check
if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained,
to the best of registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. þ
Indicate
by check mark whether the registrant is a large accelerated filer, or a
non-accelerated filer. See definition of “accelerated filer and large
accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
Accelerated Filer o
Accelerated Filer
o
Non-Accelerated Filer þ
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
þ Yes
o
No
State
issuer’s revenues for its most recent fiscal year.
None.
The
aggregate market value of the voting and non-voting common stock held by
non-affiliates of the Company, computed by reference to the closing price of
such stock as of June 1, 2007 was $62,626,930. For purposes of the
computation we consider all directors and holders of 10 percent or more of
our common stock to be affiliates. Therefore, the number of shares of our common
stock held by non-affiliates as of June 1, 2007 was 11,304,500
shares. The
number of shares of Common Stock outstanding on June 1, 2007 was 13,974,500
shares.
Transitional
Small Business Disclosure Format (check one) Yes o No þ
Documents
incorporated by reference: 8K filed on February 12, 2007 and 8K filed on May
2,
2007. Portions of the registrant’s definitive proxy statement for fiscal year
ended March 31, 2007 to be issued in conjunction with the registrant’s annual
meeting of shareholders expected to be held on or about July 31, 2007 are
incorporated by reference in Part III of this Form 10-KSB. The definitive proxy
statement will be filed by the registrant with the SEC not later than 120 days
from the end of the registrant’s fiscal year ended March 31, 2007.
Transitional
Small Business Disclosure Format (Check one): Yes o No þ
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Item
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Item
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Item
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10
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Item
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PART
II
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Item
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11
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Item
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12
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Item
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15
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Item
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15
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Item
8A. |
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15
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Item
8B. |
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16
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PART
III
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Item
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17
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Item
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17
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Item
11. |
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Item
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17
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Item
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18
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19
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Certification
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Certification
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Section
1350 Certification
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Section
1350 Certification
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PART
I
Item 1.
Description of Business
We
were
organized as a Maryland corporation on April 29, 2005. We are a blank check
company formed 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. To date, our efforts
have
been limited to organizational activities, negotiating with prospective
companies and conducting due diligence on potential business combination
candidates. We are currently considered a shell company, and we will remain
a
shell company until we engage in a business combination.
Our
Initial Public Offering
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. Each unit consisted of one share of the company’s common stock,
$.0001 par value, and two redeemable common stock purchase warrants. Each
warrant entitles the holder to purchase one share of common stock at an exercise
price of $5.00 commencing the later of the completion of a business combination
or March 2, 2007 (one year from the effective date of the public offering),
and expiring March 2, 2011 (five years from the effective date of the
public offering). 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 31,
2007, 24,874,000 shares of common stock were reserved for issuance upon exercise
of redeemable warrants and underwriters’ purchase option.
In
connection
with the offering, the company paid the underwriters of the public offering
an
underwriting discount of approximately 5% of the gross proceeds of the public
offering ($3,391,350). In addition, a non-accountable expense allowance of
3% of
the gross proceeds of the public offering, excluding the over-allotment option,
is due to the underwriters, who have agreed to deposit the non-accountable
expense allowance ($1,769,400) into the trust fund until the earlier of the
completion of a business combination or the liquidation of the trust fund.
The
underwriters have further agreed to forfeit any rights to or claims against
such
proceeds unless we successfully complete a business combination.
The
warrants
separated from the units and began to trade separately on the American Stock
Exchange on April 13, 2006. After separation, each warrant entitles the
holder to purchase one share of common stock at an exercise price of $5.00
commencing on the later of March 2, 2007 (one year from the effective date
of the public offering), or the earlier of the completion of a business
combination with a target business or the distribution of the trust fund; or
expiring March 2, 2011 (five years from the date of the public offering).
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.
In
connection
with the offering, the company issued an option for $100 to the underwriter
to
purchase 500,000 units at an exercise price of $7.50 per unit, exercisable
on
the later of March 2, 2007 or the consummation of a business combination.
We have accounted for the fair value of the option, inclusive of the receipt
of
the $100 cash payment, as an expense of the public offering resulting in a
charge directly to stockholders’ equity. We estimated, using the Black-Scholes
method, that the fair value of the option granted to the underwriters as of
the
date of grant was approximately $756,200 using the following assumptions:
(1) expected volatility of 30.1%; (2) risk-free interest rate of 3.9%; and
(3) expected life of five years. The estimated volatility was based on a
basket of Indian companies that trade in the United States or the United
Kingdom. The option may be exercised for cash or on a “cashless” basis, at the
holder’s option, such that the holder may use the appreciated value of the
option (the difference between the exercise prices of the option and the
underlying warrants and the market price of the units and underlying securities)
to exercise the option without the payment of any cash. The warrants underlying
such units are exercisable at $6.25 per share.
The
net proceeds of
this offering and the private placement, approximately $62,815,000, were placed
in a trust account at SunTrust Bank maintained by Continental Stock Transfer
& Trust Company, acting as trustee. Additionally, $1,769,400 of the proceeds
attributable to the underwriters’ non-accountable expense allowance was
deposited in the trust account. The proceeds will not be released from the
trust
account until the earlier of the completion of a business combination or our
liquidation. The proceeds held in the trust account may be used as consideration
to pay the sellers of a target business with which we ultimately complete a
business combination. We may not use all of the proceeds in the trust in
connection with a business combination, either because the consideration for
the
business combination is less than the proceeds in trust or because we financed
a
portion of the consideration with our capital stock or debt securities. Any
amounts not paid as consideration to the sellers of the target business may
be
used to finance operations of the target businesses, other than amounts held
in
trust or paid to Ferris, Baker Watts, Inc. for its services as representative
of
the underwriters as financial advisor (including the $1,500,000 maximum
financial advisory fee), amounts paid for finders’ or professional fees or
amounts paid for any fees or costs incurred in connection with any debt or
equity financing made in connection with the business combination. The company
does not currently have any agreement with any party with respect to the payment
of finders’ or professional fees. If we agree to pay such fees in the future,
such fees shall be negotiated on an arms-length basis.
The
proceeds
held in the trust account that are not immediately required for the purposes
will be invested only in United States “government securities,” defined as any
Treasury Bill issued by the United States. We will allocate $2,150,000 of the
interest paid on the trust proceeds for working capital purposes. A public
stockholder will be entitled to receive funds from the trust account (including
his, her or its portion of any interest earned on the trust account in excess
of
an aggregate of $2,150,000 allocated for working capital purposes) only in
the
event of our liquidation upon our failure to complete a business combination
or
if that public stockholder were to seek to convert such shares into cash in
connection with a business combination which the public stockholder voted
against and which we actually consummate. In no other circumstances will a
public stockholder have any right or interest of any kind to or in the trust
account. Upon the consummation of a business combination, the underwriters
will
be entitled to receive that portion of the proceeds attributable to the
underwriters’ discount and non-accountable expense allowance held in trust and
any accrued interest thereon. In the event that we are unable to consummate
a
business combination and the trustee is forced to liquidate the trust account,
the underwriters have agreed to the following: (i) forfeit any rights or
claims to such proceeds and any accrued interest thereon; and (ii) that the
proceeds attributable to the underwriters’ discount and non-accountable expense
allowance will be distributed on a pro-rata basis among the public shareholders
along with any accrued interest thereon.
Determinate
Factors for Acquisition Opportunities
We
have
focused on finding acquisition opportunities with operations in India. We
believe that India presents fairly unique opportunities to acquire target
businesses because it has become one of the world’s largest democracies, and in
recent years, has undergone significant deregulation of certain sectors of
its
economy. According to the 2007 World Factbook published by the U.S. Central
Intelligence Agency and the 2007 online version of the same, India’s economy is
the fourth largest in the world just behind Japan and ahead of Germany, in
terms
of gross domestic product (GDP), the total value of goods and services produced
in India, as measured by purchasing power parity (PPP). PPP is the
relative value of a nation’s currency based on what the currency can buy in the
country of origin. The Indian economy is also currently transitioning from
traditional farming and handicrafts to modern agriculture, modernized industries
and services. Some basic facts relating to India as set forth in the World
Factbook are:
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India
is the world’s third most populous country (2006 estimate). India’s
population is approximately 1.1 billion (July 2007, estimate), with a
total labor force of approximately 509.3 million (2006
estimate).
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Inflation
is approximately 5.3% (2006 estimate).
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India’s
exports are approximately $112 billion on a free on board basis (2006
estimate).
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India’s
top six export partners as of 2005 are the following:
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1)
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United
States (approximately 16.7%);
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2)
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United
Arab Emirates (approximately 8.5%);
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3)
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China
(approximately 6.6%);
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4)
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Singapore
(approximately 5.3%); and
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5)
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United
Kingdom (approximately 4.9%).
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India’s
reserves of foreign exchange and gold are approximately $165 billion
(2006 estimate).
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The
Indian currency is the rupee. Over the past three years on average
US
$1.00 was equivalent to
approximately:
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1)
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45.3
Indian rupees in 2006;
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2)
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44.101
Indian rupees in 2005; and
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3)
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45.317
Indian rupees in 2004.
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We
believe that there is an opportunity to buy a business in India at an attractive
value, which may lead to exceptional potential growth opportunity. There are
two
significant macroeconomic factors that we believe drive this
opportunity:
Rapidly
Growing Economy: India has posted a growth rate of more than 7% since 1994
and, according to the World Factbook, has become the fourth largest economy
in
the world behind Japan in terms of PPP. However, the Japanese economy with
a GDP
of approximately $4.22 trillion is growing at a rate of approximately 2.8%
compared to the Indian economy which is growing at a rate of approximately
8.5%
and has a GDP of approximately $4.04 trillion (2006). Below is a
table illustrating GDP, as measured in terms of PPP, and the percentage growth
rates of the top eight economies.
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GDP
as measured in
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terms
of PPP
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Percentage
growth rate
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Nation
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(2006
estimate)
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(2006
estimate)
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United
States
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$12.98
trillion
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3.4
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China
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$10.0
trillion
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10.5
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Japan
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$4.22
trillion
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2.8
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India
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$4.04
trillion
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8.5
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Germany
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$2.58
trillion
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2.2
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United
Kingdom
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$1.903
trillion
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2.7
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France
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$1.871
trillion
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2.0
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Italy
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$1.727
trillion
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1.6
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Source:
World Factbook published by the United States Central Intelligence Agency in
2007.
A
Commitment
to Stability and Economic Reforms: According to Mega Ace Consultancy, an
India-based think tank studying the Indian economy, 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 fisal deficit, controlling inflation, promoting a sound monetary
policy, reforming the financial sector, and placing greater reliance on market
mechanisms to direct economic activity. Mega Ace’s principals include a former
economic advisor to the Central Bank — Reserve Bank of India and a former CEO of
the Bombay Stock Exchange. Mega Ace’s projects include serving as chief
consultant to an agency looking to promote investment in France among Indian
investors and serving as a south-Asian consultant to a project devoted to
forming links between small and medium sized enterprises in the United Kingdom
and Europe with companies based in South Asia. According to Mega Ace
Consultancy, 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. As a result, we believe
the
regulatory environment has become more favorable. We further believe that India
has seen, and will continue to see, the benefits from the deregulation of its
economy. There are a number of industry sectors that have been deregulated,
whereby foreign investors may own and control Indian companies and profits
may
be reinvested in India or repatriated to the U.S. or to other foreign countries.
However, there are industry sectors that have not been deregulated which could
impact our ability to engage in a business combination.
Identification
of Industry Sectors
While
we are
not limited to the sectors outlined below, we believe that there are two broad
areas: infrastructure and business process outsourcing and
information technology, which are illustrative of the opportunities that we
may
consider. We believe that some industry sectors are fragmented and present
a
greater opportunity for a capitalized entity to consolidate a number of the
best
middle-tier companies in India. Our strategy in each of these sectors (as well
as others we may consider) is to identify potential “market sector leaders”
which we think will grow at a substantially faster rate than the overall
economy.
The
two
broad illustrative areas are as follows:
Infrastructure:
We believe that because of India’s rapid economic growth there is a
substantial demand for ongoing infrastructure improvements like roads and power
to foster continued growth. We also believe that the rapid economic growth
has
created a growing middle class that has developed increasing buying power.
As a
result of these factors, we believe there has been an increased growth
opportunity for companies that develop and build infrastructure. Some
middle-tier infrastructure acquisition opportunities would include, among
others, companies that build business complexes, residential housing and
shopping complexes. We would also consider transportation companies, logistics
companies or financial services companies operating within India as prospective
middle-tier infrastructure acquisition target businesses. As set out in our
8K
filings we have entered into definitive agreements with MBL, a road maintenance
and road building company and with CWEL for the purchase of a wind energy
farm. We are in the process of conducting due diligence and upon the
satisfactory completion of the due diligence we expect to file a Schedule 14
A
proxy statement with the SEC.
Business
Process Outsourcing and Information Technology: Business process
outsourcing (“BPO”) typically refers to the act of transferring business
processes to an outside provider in order to achieve cost savings while
improving service quality. BPO extends beyond typical information technology
outsourcing. A BPO service provider may take on a specific corporate function
such as customer service, or more complex and knowledge-based functions, such
as
human resources, accounting and finance, research and development, and
monitoring of networks. A BPO service provider may also assume the
responsibility for re-engineering and introducing best practices into processes
that are outsourced. In this way, BPO is fast emerging as not just a cost-saving
mechanism, but a powerful strategic management tool in achieving business
objectives. We believe that India has a well-educated, English-speaking middle
class and a low wage base that will allow the BPO and information technology
businesses to continue to grow. Within the BPO and information technology
sector, we believe there are several compelling industries to explore,
including, but not limited to:
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Knowledge-based
and Other Back Office Outsourcing: As labor costs for information
technology and similar professionals soar in the U.S. and technology
facilitates communication between persons in disparate parts of the
world,
we believe that the benefits of outsourcing knowledge-based and back
office functions to countries such as India will be increasingly
utilized
by businesses all over the world. We may consider sectors, such as
software development, research and development, information technology,
telecommunications outsourcing, financial services, and customer
care.
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Pharmaceutical
and Health Services: As healthcare costs soar in the U.S., we believe
that
the benefits of outsourcing medical services, drug manufacturing
or
medical transcription to countries such as India, will be increasingly
utilized in the healthcare industry and by consumers all over the
world.
For example, medical transcription (where medical dictation is converted
by workers in India into print) is an area that has taken advantage
of the
lower labor rates in India and other countries. Other areas that
are
expected to benefit from outsourcing are generic drug manufacturing,
drug
trial testing, and telemedicine. For example, we may consider buying
a
middle-tier generic drug manufacturer with a U.S. Federal Drug
Administration approved manufacturing plant and combining it with
a
distributor in the U.S. to create a vertical generic drug manufacturing
and distribution company.
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While
we may,
and, as described below, intend to seek to consummate a business combination
with more than one target business, our underwriting agreement with Ferris,
Baker Watts, Inc. in our initial public offering requires our initial business
acquisition to be with one or more operating businesses whose fair market value,
collectively, is at least equal to 80% of our net assets at the time of such
acquisition. Consequently, if we cannot identify and acquire multiple operating
businesses at the same time, we will need to identify and acquire a larger
single operating business or a small number of similarly focused operating
businesses.
Engaging
in a Business Combination
General
To
date, we
have entered into two agreements as outlined in 8Ks filed on February 12, 2007
and on May 2, 2007. As set out in the referenced 8Ks we have
identified the road building sector and the alternative energy sector as areas
offering our investors arbitrage to public markets, high growth and potential
IPOs in the Indian market. Currently, we are conducting due diligence
and US GAAP audits on our target. We expect to file a proxy statement
to solicit stockholder consent to the proposed acquisitions as soon as the
audits are completed.
We
intend to
use cash derived from the proceeds of our public offering, our capital stock,
debt or a combination of these to consummate a business combination involving
one or more operating businesses in India, in an unspecified industry. Although
substantially all of the net proceeds of the public offering are intended to
be
applied toward effecting a business combination as described in the initial
public offering prospectus, the proceeds are not otherwise designated for any
more specific purposes.
Sources
of target businesses
We
have
relied on and continue to rely on finding candidates through three possible
sources: (1) the professional community, including, without limitation,
investment bankers, attorneys and accountants; (2) quasi-governmental
associations such as the International Finance Corporation, which is a member
of
the World Bank; and (3) the industries subject to deregulation by the
Indian government. In addition, we have located acquisition
candidates through other unaffiliated sources, including private equity and
venture capital funds and public and private companies. Our officers,
directors and special advisors and their affiliates have also brought
acquisition candidates to our attention. In addition to contacting
the sources described above for potential acquisition candidates, we have been
contacted by unsolicited parties who become aware of our interest in prospective
targets through press releases, word of mouth, media coverage and our
website. We have offered to pay a one-time finder’s fee of .25%, of
the value of our investment to any unaffiliated party that makes an
introduction, or provides information about prospective targets to
us. All such fees have been conditioned on our consummating a
business combination with the identified target. In this regard, in
connection with our proposed acquisition of a majority interest in MBL
Infrastructures Limited, an unaffiliated third party has claimed that it is
entitled to a finder's fee of approximately five percent of the purchase price
(or, $1.75 million) for the acquisition if the acquisition is consummated.
While
we do not admit that the unaffiliated third party is a finder that is entitled
to payment, we have expressed a willingness to pay our customary finder's fee
of
0.25%. The parties are attempting to reach agreement on the amount of the fee
to
be paid if the acquisition is consummated.
We
have
entered into a financial advisory agreement with Ferris, Baker Watts, Inc.,
the
representative of the underwriters in our public offering, and SG Americas
Securities, LLC, one of the participating underwriters in the public offering,
whereby Ferris, Baker Watts, Inc. and SG Americas Securities, LLC will serve
as
our financial advisors in connection with a business combination for a period
of
two years from the effective date of the public offering, March 2, 2006.
Ferris, Baker Watts, Inc. and SG Americas Securities, LLC will perform certain
advisory services for us, including without limitation, assisting us in
determining an appropriate acquisition strategy and tactics, evaluating the
consideration that may be offered to a target business, assisting us in the
negotiation of the financial terms and conditions of a business combination
and
preparing a due diligence package regarding a business combination for our
board
of directors. The due diligence services that have been provided, and continue
to be provided, by Ferris, Baker Watts, Inc. and SG Americas Securities, LLC
consist of gathering, preparing and organizing information to be considered
by
our board of directors, among other things. Pursuant to the terms of
this agreement, Ferris, Baker Watts, Inc., will be entitled to receive two
percent of the consideration associated with any business combination by us,
a
portion of which shall be allocated to SG Americas Securities, LLC pursuant
to a
separate agreement between the parties. The fee will be capped at $1,500,000
and
will be paid out of the trust proceeds only upon consummation of a suitable
business combination. In addition to the foregoing fee, we have agreed to
reimburse Ferris, Baker Watts, Inc. and SG Americas Securities, LLC, for all
of
the reasonable out-of-pocket expenses incurred by it, whether or not a business
combination is consummated; provided, however, that such expenses in the
aggregate will not exceed $25,000 without our prior consent.
Other
than
our advisory agreement with Ferris, Baker Watts, Inc. and SG Americas
Securities, LLC, we have also engaged the services of several professional
firms
that specialize in due diligence, USGAAP audits, legal audits, and other
services that could help us in determining valuation and other
criteria. In addition on or around November 27, 2006, we engaged the
firm of SJS Associates, which provides the services of Mr. John Selvaraj
an
individual with extensive experience in US GAAP, Indian GAAP and SEC
reporting. Mr. Selvaraj was also appointed as our Treasurer on
November 27, 2006, following the resignation of Mr. Cherin. SJS Associates
is a
company held by Mr. Selvaraj. Following a search for legal
firms in India that had U.S. and Indian trained attorneys that could represent
us, the Board appointed Economic Laws Practice (ELP), a legal firm located
in
India, with six partners and over fifty professionals. Mr. Suhail
Nathani, one of our board directors, is a Partner with ELP.
We
have
not and do not anticipate paying any of our existing officers, directors,
founding stockholders or any entity with which they are affiliated, any finder’s
fee or similar compensation for services rendered to us prior to or
in connection with the consummation of a business combination.
We
have
agreed to pay Integrated Global Networks, LLC, an affiliate of Mr. Mukunda,
a monthly fee of $4,000 for general and administrative services including
office
space, utilities and secretarial support. Mr. Mukunda is the Chief
Executive Officer of Integrated Global Networks, LLC and is our Chief Executive
Officer and President. We have agreed to pay SJS Associates $5,000 a
month for Mr. Selvaraj’s services and we have agreed to pay ELP for their
services with respect to legal work done in connection with potential
targets.
Selection of target businesses and structuring of a business
combination
Mr. Mukunda,
as
our Chief Executive Officer and President, has and will continue to supervise
the process of evaluating prospective target businesses, and he now devotes
substantially all of his time to our business now that we have signed a term
sheet with a target business. Mr. Mukunda is being
assisted in his efforts by officers and advisors of the Company, together with
the Company’s outside attorneys and other representatives. As described above,
under their advisory agreement with us, Ferris, Baker Watts, Inc. and SG
Americas Securities, LLC are also assisting in this process.
In
evaluating prospective target businesses, our management is considering, among
other factors, the following:
|
•
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|
financial
condition, results of operation and repatriation
regulations;
|
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•
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|
growth
potential both in India and growth potential outside of
India;
|
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•
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|
capital
requirements;
|
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•
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|
experience
and skill of management and availability of additional
personnel;
|
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•
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|
competitive
position;
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•
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|
barriers
to entry into the businesses’ industries;
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•
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|
potential
for compliance with generally accepted accounting principles (GAAP),
SEC
regulations, Sarbanes-Oxley requirements and capital
requirements;
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•
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|
domestic
and global competitive position and potential to compete in the U.S.
and
other markets;
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|
•
|
|
position
within a sector and barriers to entry;
|
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|
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|
•
|
|
stage
of development of the products, processes or services;
|
|
|
|
|
|
•
|
|
degree
of current or potential market acceptance of the products, processes
or
services;
|
|
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|
|
|
•
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|
proprietary
features and degree of intellectual property or other protection
of the
products, processes or services;
|
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•
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|
regulatory
environment of the industry and the Indian government’s policy towards the
sector; and
|
|
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|
|
•
|
|
costs
associated with effecting the business
combination.
|
The
above
criteria are not intended to be exhaustive. Any evaluation relating to the
merits of a particular business combination with one or more operating
businesses will be based, to the extent relevant, on the above factors as well
as other considerations deemed relevant by our management in carrying out a
business combination consistent with our business objective. In evaluating
prospective target businesses, we are conducting extensive due diligence review
that encompasses, among other things, meetings with incumbent management and
inspection of facilities, as well as review of financial and other information
that are being made available to us.
We
will
attempt to structure a business combination to achieve the most favorable tax
treatment to the target businesses, their stockholders, as well as our own
stockholders and us. However, the Internal Revenue Service or appropriate state
tax or foreign tax authority may not agree with our tax treatment of the
business combination.
Fair
market value of target businesses
Pursuant
to
the underwriting agreement in our initial public offering with Ferris,
Baker
Watts, Inc., the initial target businesses that we acquire must have a
fair
market value equal to at least 80% of our net assets (excluding any fees
and
expenses held in the trust account for the benefit of Ferris, Baker Watts,
Inc.)
at the time of such acquisition. To the extent that we propose to acquire
less than all of a business, as is the case with our two proposed acquisitions,
the portions of the business that we acquire must satisfy the test described
in
the preceding sentence. The fair market value of such businesses will be
determined by our board of directors based upon standards generally accepted
by
the financial community, such as actual and potential sales, earnings and
cash
flow and book value, and the value of the portion of the business we acquire
will be determined by multiplying the fair market value of the target business
as determined by our board of directors by the percentage of the company
we will
own upon consummation of the acquisition. If our board is not able to
independently determine that the target businesses have a sufficient fair
market
value or if a conflict of interest exists with respect to such determination,
including, but not limited to the fact that the target is affiliated with
one or
more of our officers or directors or with Ferris, Baker Watts Incorporated
or SG
Americas Securities, LLC and their respective affiliates, we will obtain
an
opinion from an unaffiliated, independent investment banking firm which
is a
member of the NASD with respect to the satisfaction of such criteria. However,
we will not be required to obtain an opinion from an investment banking
firm as
to the fair market value if our board of directors independently determines
that
the target businesses have sufficient fair market value or if no such conflict
exists.
Audited
Financial Statements
We
do not
anticipate acquiring a target business if audited financial statements based
on
United States generally accepted accounting principles cannot be obtained for
the target business. Additionally, our management expects to provide
stockholders with audited financial statements, prepared in accordance with
generally accepted accounting principles, of the prospective businesses as
part
of the proxy solicitation materials sent to stockholders to assist them in
assessing a business combination.
Possible
lack of business diversification
The
net
proceeds from the public offering and the private placement provided us with
approximately $62,815,000 (subject to reduction resulting from shareholders
electing to convert their shares into cash), which we may use to complete a
business combination. While we are seeking to engage in a business combination
with more than one target business, our initial business acquisition must be
with one or more operating businesses whose fair market value, collectively,
is
at least equal to 80% of our net assets (excluding any fees and expenses held
in
the trust account for the benefit of Ferris, Baker Watts, Inc.) at the time
of
such acquisition. While investing in two target businesses will provide us
with
exposure to different industries, it will still result in only limited
diversification of our investments. The resulting lack of diversification
may:
• result
in our dependency upon the performance of a small number of operating
businesses;
• result
in our dependency upon the development or market acceptance of a limited number
of products, processes or services; and
• subject
us to numerous economic, competitive and regulatory developments, any or all
of
which may have a substantial adverse impact upon the particular industry or
industries in which we may operate subsequent to a business
combination.
In
such case,
we may not be able to diversify our operations or benefit from the spreading
of
risks or offsetting of losses, unlike other entities that may have the resources
to complete several business combinations in different industries or different
areas of a single industry so as to diversify risks and offset
losses. Further, the prospects for our success may be entirely
dependent upon the future performance of the initial target business or
businesses we acquire.
In
addition,
because our business combination is expected to entail the acquisition of two
businesses at the same time and are with different sellers, we may need to
convince such sellers to agree that the purchase of their businesses is
contingent upon the simultaneous closings of the other
acquisitions.
Limited ability to evaluate the target business’
management
We
expect to
closely scrutinize the management of prospective target businesses when
evaluating the desirability of effecting a business combination. However,
our
assessment of the target business’ management may not be correct. In addition,
future management may not have the necessary skills, qualifications or abilities
to manage a public company intending to embark on a program of business
development. It is possible that one or more of our officers, directors and
special advisors will remain associated with us in some capacity following
a
business combination; it is also likely that some of them will devote their
full
efforts to our affairs subsequent to a business combination. Prior to or
following a business combination, we may seek to recruit additional managers
to
supplement the incumbent management of the target
businesses.
Opportunity for stockholder approval of business
combination
Prior
to the
completion of a business combination, we expect to submit the transaction to
our
stockholders for approval as required by our amended and restated articles
of
incorporation, even if the nature of the acquisition is such as would not
ordinarily require stockholder approval under applicable state law. In
connection with seeking stockholder approval of a business combination, we
will
furnish our stockholders with proxy solicitation materials prepared in
accordance with the Securities Exchange Act of 1934, which will, among other
matters, include a description of the operations of the target business and
certain required financial information regarding the business. We may consummate
our initial business combination if (i) it is approved by a majority of the
shares of common stock voted by the public stockholders, and (ii) public
stockholders owning less than 20% of the shares purchased by the public
stockholders in the initial public offering exercise their conversion
rights.
In
connection
with the vote required for our initial business combination, all of our existing
stockholders, including all of our officers, directors, and our special
advisors, have agreed to vote the shares of common stock owned by them in
accordance with the majority of the shares of common stock voted by the public
stockholders.
Conversion rights
At
the time
we seek stockholder approval of any business combination, we will offer each
public stockholder the right to have their shares of common stock converted
to
cash if the stockholder votes against the business combination and the business
combination is approved and completed. The actual per-share conversion price
will be equal to the amount in the trust account, inclusive of any interest
earned, net of taxes payable on the interest earned, in excess of an
aggregate of $2,150,000 allocated for working capital purposes (interest
calculated as of the record date for determination of stockholders entitled
to
vote on a proposed business combination), divided by the number of shares sold
in the initial public offering (11,304,500 shares). Without taking into account
any interest earned on the trust account, the initial per-share conversion
price
would be approximately $5.80 (or approximately $0.20 less than the per-unit
offering price of $6.00). We will take steps to try to protect the assets held
in trust from third party claims. However, to the extent that such claims are
successfully made against the trust assets, they may reduce the per-share
conversion price below approximately $5.80. An eligible stockholder may request
conversion at any time after the mailing to our stockholders of the proxy
statement and prior to the vote taken with respect to a proposed business
combination at a meeting held for that purpose, but the request will not be
granted unless the stockholder votes against the business combination and the
business combination is approved and completed. Any request for conversion,
once
made, may be withdrawn at any time up to the date of the meeting. It is
anticipated that the funds to be distributed to stockholders entitled to convert
their shares who elect conversion will be distributed promptly after completion
of a business combination. Public stockholders who convert their stock into
their share of the trust account still have the right to exercise the warrants
that they received as part of the units. We will not complete any business
combination if public stockholders of 50% or more of the shares issued in the
public offering vote against a proposed business combination or public
stockholders owning an aggregate of 20% or more of the shares sold in the public
offering exercise their conversion rights.
Liquidation if no business combination
Pursuant
to
the terms of our initial public offering, we must complete a business
combination on or prior to September 8, 2007, or on or prior to March 8, 2008
if
the extension criteria described below have been satisfied. If we do not
complete the business combination, then we will dissolve the company and
distribute to all of our public stockholders, in proportion to their respective
equity interests, an aggregate sum equal to the amount in the trust account,
inclusive of any interest, plus any remaining net assets. Our founding
stockholders have agreed to waive their respective rights to participate in
any
liquidation distribution occurring upon our failure to consummate a business
combination, but only with respect to those shares of common stock acquired
by
them prior to the public offering and the 170,000 shares included in the units
they have purchased in the private placement; they will participate in any
liquidation distribution with respect to any shares of common stock acquired
in
connection with or following the public offering. Additionally, the underwriters
have agreed to forfeit any rights to or claims against the proceeds held in
the
trust account which include their non-accountable expense allowance. There
will
be no distribution from the trust account with respect to our
warrants.
If
we were to
spend none of the net proceeds of the initial public offering, other than the
proceeds deposited in the trust account, and without taking into account
interest, if any, earned on the trust account, the initial per-share liquidation
price would be approximately $5.80 or approximately $0.20 less than the per-unit
offering price of $6.00. The proceeds deposited in the trust account could,
however, become subject to the claims of our creditors that could be prior
to
the claims of our public stockholders. Our officers and directors have agreed
pursuant to an agreement with Ferris, Baker Watts, Inc. that, if we liquidate
prior to the consummation of a business combination, they will be personally
liable under certain circumstances to ensure that the proceeds of the trust
account are not reduced by the claims of vendors or other entities that are
owed
money by us for services rendered or products sold to us in excess of the net
proceeds of the public offering not held in the trust account. However, the
officers and directors of the company may not be able to satisfy those
obligations.
If
we enter into a
letter of intent, an agreement in principle or a definitive agreement to
complete a business combination on or prior to September 8, 2007, as we have,
but are unable to complete the business combination on or prior to September
8,
2007, then we will have an extension period of six months in which to complete
the business combination contemplated by the letter of intent, agreement in
principle or definitive agreement. If we are unable to do so or on or prior
to
March 8, 2008, we will then begin the dissolution and liquidation procedures
described above. The trustee of the trust account will immediately commence
liquidating the investments constituting the trust account and will turn over
the proceeds to our public stockholders.
Our
amended
and restated articles of incorporation prohibit the amendment of the
above-described provisions. However, the validity of provisions prohibiting
amendment of the articles of incorporation under Maryland law has not been
settled. A court could conclude that the prohibition on amendment violates
the
stockholders’ implicit rights to amend the corporate charter. In that case, the
above-described provisions could be subject to amendment and any such amendment
could reduce or eliminate the protection afforded to our stockholders. However,
we view the foregoing provisions as obligations to our stockholders, and we
will
not take any actions to waive or amend any of these provisions.
Employees
On
November 27, 2006 John Cherin resigned as Treasurer, Chief Financial
Officer and Director for personal reasons. The Board subsequently appointed
Mr. John B. Selvaraj as the Treasurer of the Company. For his
services, Mr. Selvaraj’s company SJS Associates receives a fee of $5,000 per
month until the consummation of a transaction.
On
May 15,
2007 Mr. Richard Prins, accepted the appointment as a Director on our
Board. Mr. Prins is currently the Director of Investment Banking at Ferris,
Baker Watts. Inc.
We
currently
have two executive officers, one of whom is a member of our board of directors,
five board directors as well as five founding special advisors. We
also utilize the services of advisors, consultants and legal and tax
professionals, among others, to assist in evaluating potential target industries
and companies, among other tasks. We expect to add employees to handle the
additional workload brought on by the MBL and CWEL transactions.
Our
executive
officers and part-time employees are not obligated to devote their full time
to
our matters and intend to devote only as much time as they deem necessary to
our
affairs; however, Ram Mukunda, our President and Chief Executive Officer, is
engaged in our matters on a full time basis. John B. Selvaraj, our
Treasurer, devotes between 10 and 15 hours a week. Dr. Ranga Krishna, the
Chairman of our Board of Directors, devotes an average of
approximately ten hours per week to our business.
Other
than
the $4,000 monthly fee paid to Integrated Global Network, LLC for general and
administrative services, and $5,000 monthly fee paid to SJS Associates for
the
services of Mr. Selvaraj, no compensation, including finder's or consulting
fees, has been or will be paid to any of our officer,
director, founding special advisors, or any of their affiliates, for
services rendered prior to or in connection with a business combination. We
have
made health insurance that covers international travel available to our
employees and officers. Mr. Mukunda, our Chief Executive Officer and
President, is the Chief Executive Officer of Integrated Global Network,
LLC.
We
do not
own any real estate or other physical properties materially important to our
operation. Our headquarters are located at 4336 Montgomery Avenue, Bethesda,
Maryland, 20814. The cost of this space is included in the $4,000 per month
fee
Integrated Global Networks, LLC charges us for general and administrative
services pursuant to our letter agreement with Integrated Global Networks,
LLC.
We believe that our office facilities are suitable and adequate for our business
as it is presently conducted. Ram Mukunda is a stockholder of Integrated Global
Networks, LLC and serves as our Chairman, Chief Executive Officer and
President.
None.
|
Submission
of Matters to a Vote of Security
Holders
|
None.
PART
II
Item 5.
Market for Common Equity and Related Stockholder
Matters
The
Company
commenced its initial public offering on March 8, 2006. From that time
until the end of its fiscal year, March 31, 2007, the Company offered
ownership units for purchase. An ownership unit in the Company represents an
ownership of both common stock and warrants to purchase common stock. On
April 13, 2006, there was a voluntary separation of the Company’s units
into shares of common stock and warrants to purchase common stock. The common
stock, units and warrants trade on the American Stock Exchange under the symbols
“IGC,” “IGC.U,” and “IGC.WS,” respectively. The following table sets forth the
high and low sales prices of the units for the fiscal year, as reported on
the
American Stock Exchange.
Fiscal
Year Ended March 31, 2007
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|
High
|
|
Low
|
First
Quarter
|
|
$
|
6.50
|
|
$
|
6.35
|
Second
Quarter
|
|
|
6.60
|
|
|
6.00
|
Third
Quarter
|
|
|
7.74
|
|
|
6.22
|
Fourth
Quarter
|
|
|
7.70
|
|
|
6.85
|
|
|
|
|
|
|
|
Fiscal
Year Ended March 31, 2006
|
|
|
|
|
March 31,
2006
|
|
$
|
6.75
|
|
$
|
6.31
|
As
of March
30, 2007, there were approximately 67,000 unit holders of record, 600
stockholders and 600
holders of warrants. The last sale price as reported by the American Stock
Exchange on March 30, 2007, was $6.85 for units, $ 5.84 for shares and $
0.69
for warrants. The Company has never paid a cash dividend on its common stock
and
does not anticipate the payment of cash dividends in the foreseeable
future.
Unregistered
Sales of Equity Securities
Immediately
prior to the public offering, the Company completed a private placement to
management of 170,000 units. Each unit issued in the private placement consisted
of one share of common stock, $.0001 par value per share, and two warrants,
each
to purchase one share of common stock. The units were sold at an offering price
of $6.00 per unit, generating aggregate gross proceeds from private placement
of
$1,020,000.
On
February 5, 2007 IGC entered into a Note and Warrant Purchase Agreement
(the “Warrant Agreement”) with Oliveira Capital, LLC (“Oliveira”) pursuant to
which the Company sold Oliveira a Promissory Note (“Note”) in the principal
amount of $3,000,000 and a warrant (the “Warrant”) to purchase up to 425,000
shares of common stock of the Company (the “Warrant Shares”) at an initial
exercise price of $5.00 per share in a private placement.
The
Note
bears interest at a rate of 8% per annum and is due and payable in full upon
the
earlier of February 5, 2008 and the date on which the Company consummates a
business combination. The Note is secured by the debentures pursuant to a Pledge
Agreement. The Warrant is exercisable during the period commencing on the
consummation by the Company of a business combination and ending on
March 8, 2012.
In
connection
with the above-described transaction, the Company agreed to allow Oliveira
to
register the resale of the Warrant Shares as part of a subsequent registration
statement relating to securities of the Company, subject to certain specified
exceptions.
Use
of Proceeds from the Public
Offering
On
May 13, 2005, we filed a registration statement on Form S-1 (Commission
File 333-124942) with the Securities and Exchange Commission, which was declared
effective on March 8, 2006. On March 8, 2006, the public offering of
11,304,500 units (including exercise in full of underwriters’ over-allotment
option) of the Company was consummated. Each unit issued in the public offering
consisted of one share of common stock, $.0001 par value per share, and two
warrants, each to purchase one share of common stock. The units were sold at
an
offering price of $6.00 per unit, generating aggregate gross proceeds from
the
public offering and private placement of $67,827,000.
The
following is a breakdown of units registered and the units sold in that
offering:
|
|
Aggregate
price of the
|
|
|
|
|
|
Aggregate
price of the
|
Amount
Registered
|
|
amount
registered
|
|
Amount
Sold
|
|
amount
sold to date
|
11,304,500
units
|
|
$
|
67,827,000
|
|
|
11,304,500
units
|
|
$
|
67,827,000
|
|
After
deducting offering expenses of approximately $871,800 and underwriting discounts
of approximately $5,160,750, approximately $61,794,450 of the aggregate proceeds
from the public offering were deposited into a trust account at SunTrust Bank
maintained by Continental Stock Transfer & Trust Company acting as trustee.
However, of the $871,800 of offering expenses, a portion of these expenses
were
not paid prior to the close of fiscal year end and were subsequently placed
in
the trust account. These expenses were paid subsequent to the fiscal year end
from interest on the trust account. Additionally, $1,769,400 of the proceeds
attributable to the underwriters’ non-accountable expense allowance has been
deposited in the trust account. The net proceeds from the 170,000 units which
were purchased in a private placement immediately prior to the public offering
by our officers and directors were placed in the trust account, and they have
agreed to forfeit those funds if a business combination is not consummated.
In
addition, the proceeds from the loans from our founders in the aggregate amount
of $870,000 were placed in the trust account. The loans will be repaid from
the
interest accrued on the amount in escrow, but will not be repaid from the
principal in escrow. The amount placed in trust excluding the underwriter’s
deferral was $63,845,850.
Item 6. Management's
Discussion and Analysis
Forward-Looking
Statements
This
report
contains forward-looking statements, including, among others, (a) our
expectations about possible business combinations, (b) our growth
strategies, (c) our future financing plans, and (d) our anticipated
needs for working capital. Forward-looking statements, which involve assumptions
and describe our future plans, strategies, and expectations, are generally
identifiable by use of the words “may,” “should,” “expect,” “anticipate,”
“approximate,” “estimate,” “believe,” “intend,” “plan,” or “project,” or the
negative of these words or other variations on these words or comparable
terminology. This information may involve known and unknown risks,
uncertainties, and other factors that may cause our actual results, performance,
or achievements to be materially different from the future results, performance,
or achievements expressed or implied by any forward-looking statements. These
statements may be found in this report. Actual events or results may differ
materially from those discussed in forward-looking statements as a result of
various factors, including, without limitation, the risks outlined under our
“Description of Business” and matters described in this report generally. In
light of these risks and uncertainties, the events anticipated in the
forward-looking statements may or may not occur. These statements are based
on
current expectations and speak only as of the date of such statements. We
undertake no obligation to publicly update or revise any forward-looking
statement, whether as a result of future events, new information or
otherwise.
The
information contained in this report identifies important factors that could
adversely affect actual results and performance. All forward-looking statements
attributable to us are expressly qualified in their entirety by the foregoing
cautionary statements.
Plan
of Operation
We
were
formed on April 29, 2005, as a blank check company for the purpose of
acquiring, through a merger, capital stock exchange, asset acquisition or other
similar business combination, one or more businesses in an unspecified industry,
with operations primarily in India. We intend to use cash derived from the
proceeds of the public offering, our capital stock, debt or a combination of
cash, capital stock and debt, to effect a business combination. We are currently
a shell company, and we will remain a shell company until we consummate a
business combination.
The
issuance
of additional capital stock, including upon conversion of any convertible debt
securities we may issue, or the incurrence of debt could have material
consequences on our business and financial condition. The issuance of additional
shares of our capital stock (including upon conversion of convertible debt
securities):
|
•
|
May
significantly reduce the equity interest of our
stockholders;
|
|
|
|
|
•
|
will
likely cause a change in control if a substantial number of our shares
of
common stock or voting preferred stock are issued, which may affect,
among
other things, our ability to use our net operating loss carry forwards,
if
any, and may also result in the resignation or removal of one or
more of
our present officers and directors;
|
|
|
|
|
•
|
may
adversely affect the voting power or other rights of holders of our
common
stock if we issue preferred stock with dividend, liquidation, conversion
or other rights superior to the common stock; and
|
|
|
|
|
•
|
May
adversely affect prevailing market prices for our common stock, warrants
or units.
|
Similarly,
the incurrence of debt:
|
•
|
may
lead to default and foreclosure on our assets if our operating revenues
after a business combination are insufficient to pay our debt
obligations;
|
|
|
•
|
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, such as covenants that
require the maintenance of certain financial ratios or reserves,
without a
waiver or renegotiation of such covenants;
|
|
|
|
|
•
|
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
|
|
|
|
|
•
|
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.
|
The
net
proceeds from the sale of the units in the public offering and the private
placement and the loans from founders and the deferred costs were $62,815,000,
after deducting offering expenses of approximately $871,800 and underwriting
discounts of approximately $5,160,750, including $1,769,400 evidencing the
underwriters’ non-accountable expense allowance of 3% of the gross proceeds.
However, of the $871,800 of offering expenses, a portion of these expenses
were
not paid prior to the close of fiscal year end and were subsequently placed
in
the trust account. These expenses were paid subsequent to the fiscal year end
from interest on the trust account. This entire amount ($63,845,850) was placed
in trust. Additionally, $1,769,400 of the proceeds attributable to the
underwriters’ non-accountable expense allowance has been deposited in the trust
account, as well as $870,000 of loan proceeds from notes issued to our founding
stockholders. We will use substantially all of the net proceeds of the public
offering to acquire one or more operating businesses, including identifying
and
evaluating prospective acquisition candidates, selecting one or more operating
businesses, and structuring, negotiating and consummating the business
combination.
However,
we may not use all of the proceeds in the trust in connection with a business
combination, either because the consideration for the business combination
is
less than the proceeds in trust, because we finance a portion of the
consideration with our capital stock or debt securities or because certain
fees
and expenses held in the trust account are due to Ferris, Baker Watts, Inc.
In
that event, other than the fees and expenses due to Ferris, Baker Watts, the
proceeds held in the trust account as well as any other net proceeds not
expended will be used to finance the operations of the target business or
businesses.
In
the
event that we consummate a business combination, the proceeds held in the trust
account will be used for the following purposes:
|
•
|
Payment
of the purchase price for the business combination;
|
|
|
|
|
•
|
Payment
of the fees and costs due to Ferris, Baker Watts, Inc. as representative
of the underwriters and financial advisor to the
company;
|
|
|
|
|
•
|
Payment
of any finder’s fees or professional fees and costs;
and
|
|
|
|
|
•
|
Payment
of any fees and costs the Company may incur in connection with any
equity
or debt financing relating to the business combination.
|
|
|
|
|
•
|
In
addition, the Company will repay the outstanding balance of the aggregate
$870,000 in loans made by Mr. Mukunda and Dr. Krishna to the
Company and any deferred expenses.
|
We
believe
that the funds available to us outside of the trust account will be sufficient
to allow us to operate at least through March 8, 2008, assuming that a business
combination is not consummated during that time. For the period commencing
March
8, 2006 and ending on the earlier of March 8, 2008 or the consummation of a
business combination, we anticipate making the following
expenditures:
|
•
|
Approximately
$300,000 of expenses for legal, accounting and other expenses attendant
to
the due diligence investigations, structuring and negotiating of
a
business combination; as of March 31, 2007 we have incurred approximately
$330,000 of expenses.
|
|
|
|
|
•
|
Approximately
$185,000 of expenses for the due diligence and investigation of a
target
business; as of March 31, 2007 we have incurred approximately $153,000
of
expenses.
|
|
|
|
|
•
|
Approximately
$115,000 of expenses in legal and accounting fees relating to our
SEC
reporting obligations; as of March 31, 2007 we have incurred approximately
$200,000 of expenses.
|
|
|
•
|
As
of March 30, 2007, there were approximately 67,000 unit holders of
record,
600 stockholders and 600 holders of warrants. The last sale price as
reported by the American Stock Exchange on March 30, 2007, was $6.85
for
units, $ 5.84 for shares and $ 0.69 for warrants. The Company has
never
paid a cash dividend on its common stock and does not anticipate
the
payment of cash dividends in the foreseeable future.
|
|
|
|
|
•
|
Approximately
$184,000 for travel, general working capital that will be used for
miscellaneous expenses and reserves, including for director and officer
liability insurance premiums, deposits, down payments and/or funding
of a
“no shop” provision in connection with a prospective business transaction
and for international travel with respect to negotiating and finalizing
a
business combination. As of March 31, 2007 we have incurred approximately
$150,000 for travel and general working capital. We have made a $3,000,000
payment to MBL to serve as a “no shop” fee. Subsequent to March
31, 2007, we have also made approximately a $250,000 payment to CWEL
as a
no shop fee.
|
We
do not
believe we will need additional financing following the public offering in
order
to meet the expenditures required for operating our business. However, we may
need to obtain additional financing to the extent such financing is required
to
consummate a business combination, in which case we may issue additional
securities or incur debt in connection with such business
combination.
On
May 2, 2005, Mr. Mukunda loaned a total of $100,000 to us for payment
of offering expenses, and on September 15, 2005, Dr. Krishna loaned a
total of $50,000 to us for payment of offering expenses. Pursuant to the terms
of these promissory notes, the loans from Mr. Mukunda and Dr. Krishna are
payable upon the earlier of (i) the first anniversary of the consummation
of the public offering or (ii) the date of the consummation of a business
combination. Upon the consummation of the public offering, the founders loaned
an additional $720,000 to us which has been deposited in the trust account.
Pursuant to the terms of these promissory notes, the $720,000 of additional
loans from the founders were payable upon the earlier of (i) March 3,
2007 or (ii) the date of the consummation of a business combination. All of
the foregoing loans bore interest at a rate of 4% per year.
As
of March
31, 2007 we drew a total of $2,150,000 from the interest on amounts in
escrow. On April 06, 2007 Mr. Mukunda’s loan of $100,000
plus accrued interest was repaid. Mr. Mukunda made available to us a line
of credit of $100,000, by personally guaranteeing the line with Sun Trust
Bank.
On
April 06,
2007 we cancelled the note for $720,000 issued to Dr. Krishna and we repaid
$500,000 plus some accrued interest to Dr. Krishna. We issued a new
note for $220,000. On May 8, 2007 Dr. Krishna loaned us an additional
$275,000. We issued a note to him for $275,000. Dr. Krishna’s rights
under the promissory notes are similar to those set out for the original
founder’s loans, but with an expiration extended to March 31, 2008, or the date
of the consummation of a business combination. The new loans bear interest
at a
rate of 8% per year,
Part
of
the proceeds of the loans have been used to fund a down payment with one of
our
acquisitions, CWEL as described in our 8K filed with the SEC on May 2nd,
2007.
We
have
agreed to pay Integrated Global Networks, LLC, an affiliate of Mr. Mukunda,
a monthly fee of $4,000 for general and administrative services including office
space, utilities and secretarial support. This arrangement is for our benefit
and is not intended to provide Mr. Mukunda, our Chairman, Chief Executive
Officer and President, with compensation in lieu of salary. We believe, based
on
rents and fees for similar services in the Washington, DC metropolitan area,
that the fee charged by Integrated Global Networks, LLC is at least as favorable
as we could have obtained from an unaffiliated third party. However, because
our
directors may not be deemed “independent,” we did not have the benefit of
disinterested directors approving the transaction.
Competition
In
identifying, evaluating and selecting target businesses, we may encounter
intense competition from other entities having a business objective similar
to
ours. Many of these entities are well established and have extensive experience
identifying and effecting business combinations directly or through affiliates.
Many of these competitors possess greater technical, human and other resources
than us and our financial resources will be relatively limited as compared
to
many of these competitors. While we believe there are numerous potential target
businesses that we could acquire with the net proceeds of the public offering,
our ability to compete in acquiring certain sizable target businesses will
be
limited by our available financial resources. This limitation gives others
an
advantage in pursuing the acquisition of target businesses.
Further:
|
•
|
our
obligation to seek stockholder approval of a business combination
or
obtain the necessary financial statements to be included in the proxy
materials to be sent to stockholders in connection with a proposed
business combination may delay the completion of a
transaction;
|
|
|
|
|
•
|
our
obligation to convert into cash shares of common stock held by our
public
stockholders in certain instances may reduce the resources available
to us
for a business combination; and
|
|
|
|
|
•
|
our
outstanding warrants and the purchase option granted to Ferris, Baker
Watts, Inc., and the future dilution they potentially represent,
may not
be viewed favorably by certain target businesses.
|
|
Any
of these
factors may place us at a competitive disadvantage in successfully negotiating
a
business combination. Our management believes, however, that our status as
a
public entity and potential access to the United States public equity markets
may give us a competitive advantage over privately-held entities having a
similar business objective as ours in acquiring a target business on favorable
terms.
If
we succeed
in effecting a business combination, there will be, in all likelihood, intense
competition from competitors of the target businesses. In particular, certain
industries that experience rapid growth frequently attract an increasingly
larger number of competitors, including competitors with increasingly greater
financial, marketing, technical and other resources than the initial competitors
in the industry. The degree of competition characterizing the industry of any
prospective target business cannot presently be ascertained. Subsequent to
a
business combination, however, we may not have the resources to compete
effectively, especially to the extent that the target businesses are in
high-growth industries.
Off
Balance Sheet Arrangements
Options
and warrants issued by the Company are equity linked derivatives and
accordingly represent off balance sheet arrangements. The options and warrants
meet the scope exception in paragraph 11(a) of FAS 133 and are accordingly
not
accounted for as derivatives for purposes of FAS 133, but instead are accounted
for as equity. See the notes to the March 31, 2007 financial statements for
a discussion of outstanding options and warrants.
Item
7.
Financial Statements and Supplementary Data
This
information appears following Item 14 of this Report and is incorporated herein
by reference.
Item
8. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
None.
Item
8A. Controls and Procedures
Disclosure
controls and procedures are controls and other procedures that are designed
to
ensure that information required to be disclosed in company reports filed or
submitted under the Securities Exchange Act of 1934 (the “Exchange Act”) is
recorded, processed, summarized and reported, within the time periods specified
in the Securities and Exchange Commission’s rules and forms. Disclosure controls
and procedures include without limitation, controls and procedures designed
to
ensure that information required to be disclosed in company reports filed or
submitted under the Exchange Act is accumulated and communicated to management,
including our chief executive officer and treasurer, as appropriate to allow
timely decisions regarding disclosure.
As
required by Rules 13a-15 and 15d-15 under the Exchange Act, our chief executive
officer and chief financial officer carried out an evaluation of the
effectiveness of the design and operation of our disclosure controls and
procedures as of March 31, 2007. Based on their evaluation, they concluded
that
our disclosure controls and procedures were effective.
Our
internal control over financial reporting is a process designed by, or under
the
supervision of, our chief executive officer and chief financial officer and
effected by our board of directors, management and other personnel, to provide
reasonable assurance regarding the reliability of our financial reporting and
the preparation of our financial statements for external purposes in accordance
with generally accepted accounting principles. Internal control over financial
reporting includes policies and procedures that pertain to the maintenance
of
records that in reasonable detail accurately reflect the transactions and
dispositions of our assets; provide reasonable assurance that transactions
are
recorded as necessary to permit preparation of our financial statements in
accordance with generally accepted accounting principles, and that our receipts
and expenditures are being made only in accordance with the authorization of
our
board of directors and management; and provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition , use or disposition
of our assets that could have a material effect on our financial
statements.
During
the most recently completed fiscal quarter, there has been no change in our
internal control over financial reporting that has materially affected or is
reasonably likely to materially affect, our internal control over financial
reporting.
Compliance
with Section 404 of the Sarbanes-Oxley Act of 2002
Pursuant
to Section 404 of the Sarbanes-Oxley Act of 2002 (the Act), beginning with
our
Annual Report on Form 10-KSB for the fiscal year ending March 31, 2008, we
will
be required to furnish a report by our management on our internal control over
financial reporting. This report will contain, among other matters, an
assessment of the effectiveness of our internal control over financial reporting
as of the end of our fiscal year, including a statement as to whether or not
our
internal control over financial reporting is effective.
Management
acknowledges its responsibility for internal controls over financial reporting
and seeks to continually improve those controls. We believe our process,
which will begin in 2007 and continue in 2008 for documenting, evaluating and
monitoring our internal control over financial reporting is consistent with
the
objectives of Section 404 of the Act.
None.
PART
III
Item
9.
Directors and Executive Officers of the Company
The
information appearing in the definitive Proxy Statement to be filed with the
Securities and Exchange Commission on or about July 27, 2007, pursuant to
Regulation 14A in connection with the Company’s 2007 Annual Meeting of
Stockholders, and “Section 16(a) Beneficial Ownership Reporting
Compliance” is incorporated herein by reference.
Item
10. Executive Compensation
SJS
Associates receives a monthly fee of $5,000 for providing the services of
Mr.
John Selvaraj who was appointed as our Treasurer. No executive officer
(other than John Selvaraj) received any cash compensation for services rendered
during the year ended March 31, 2007.
Until
the
acquisition of a target business, we will pay Integrated Global Networks, LLC,
an affiliate of Mr. Mukunda, a monthly fee of $4,000 for general and
administrative services including office space, utilities and secretarial
support. Other than this $4,000 per-month fee, no compensation
of any kind, including finder’s and consulting fees, will be paid to any of our
officers or directors, or any of their respective affiliates, for services
rendered prior to or in connection with a business combination.
However,
our officers and directors will be reimbursed for any out-of-pocket expenses
incurred in connection with activities on our behalf such as identifying
potential target businesses and performing due diligence on suitable business
combinations. There is no limit on the amount of these out-of-pocket expenses
and there will be no review of the reasonableness of the expenses by anyone
other than our board of directors, which includes persons who may seek
reimbursement, or a court of competent jurisdiction if such reimbursement is
challenged.
Since
our
formation, we have not granted any stock options or stock appreciation rights
or
any awards under long-term incentive plans.
Item
11.
Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
The
information relating to security ownership of certain beneficial owners and
management is incorporated herein by reference to the information under the
headings “Security Ownership of Certain Beneficial Owners and Management” and
“Security Ownership of Management” in our definitive Proxy Statement to be filed
with the Securities and Exchange Commission on or about July 27, 2007 for
the 2007 Annual Meeting of Stockholders.
Securities
Authorized for Issuance Under Equity Compensation Plans
None.
Item
12.
Certain Relationships and Related Transactions, and
Director Independence
The
information relating to certain relationships and related transactions is
incorporated herein by reference to the information under the heading
“Transactions with Certain Related Persons”, in our definitive Proxy Statement
to be filed with the Securities and Exchange Commission on or about
July 27, 2007 for the 2007 Annual Meeting of Stockholders.
The
following exhibits are filed as part of, or are incorporated by reference into,
this report:
Exhibit
No.
|
|
Exhibit
|
3.1
|
|
Amended
and Restated Articles of Incorporation.(1)
|
3.2
|
|
By-laws.(2)
|
4.1
|
|
Specimen
Unit Certificate.(3)
|
4.2
|
|
Specimen
Common Stock Certificate.(3)
|
4.3
|
|
Specimen
Warrant Certificate.(3)
|
4.4
|
|
Form
of Warrant Agreement between Continental Stock Transfer & Trust
Company and the Registrant.(1)
|
4.5
|
|
Form
of Purchase Option to be granted to the
Representative.(1)
|
10.1
|
|
Amended
and Restated Letter Agreement between the Registrant, Ferris, Baker
Watts,
Inc. and Ram Mukunda.(4)
|
10.2
|
|
Amended
and Restated Letter Agreement between the Registrant, Ferris, Baker
Watts,
Inc. and John Cherin.(4)
|
10.3
|
|
Amended
and Restated Letter Agreement between the Registrant, Ferris, Baker
Watts,
Inc. and Ranga Krishna.(4)
|
10.4
|
|
Form
of Investment Management Trust Agreement between Continental Stock
Transfer & Trust Company and the Registrant.(5)
|
10.5
|
|
Promissory
Note issued by the Registrant to Ram Mukunda.(2)
|
10.5.1
|
|
Extension
of Due Date of Promissory Note issued to Ram
Mukunda.(2)
|
10.6
|
|
Form
of Stock and Unit Escrow Agreement among the Registrant, Ram Mukunda,
John
Cherin and Continental Stock Transfer & Trust
Company.(2)
|
10.7
|
|
Form
of Registration Rights Agreement among the Registrant and each of
the
existing stockholders.(3)
|
10.8
|
|
Form
of Unit Purchase Agreement among Ferris, Baker Watts, Inc. and one
or more
of the Initial Stockholders.(5)
|
10.9
|
|
Form
of Office Service Agreement between the Registrant and Integrated
Global
Networks, LLC.(5)
|
10.10
|
|
Amended
and Restated Letter Advisory Agreement between the Registrant, Ferris,
Baker Watts, Inc. and SG Americas Securities, LLC.(5)
|
10.11
|
|
Form
of Letter Agreement between Ferris, Baker Watts, Inc. and certain
officers
and directors of the Registrant.(4)
|
10.12
|
|
Form
of Letter Agreement between Ferris, Baker Watts, Inc. and each of
the
Special Advisors of the Registrant.(4)
|
10.13
|
|
Form
of Letter Agreement between the Registrant and certain officers and
directors of the Registrant.(4)
|
10.14
|
|
Form
of Letter Agreement between the Registrant and each of the Special
Advisors of the Registrant.(4)
|
10.15
|
|
Promissory
Note issued by the Registrant to Ranga Krishna.(2)
|
10.15.1
|
|
Extension
of Due Date of Promissory Note issued to Ranga
Krishna.(2)
|
10.16
|
|
Form
of Promissory Note to be issued by the Registrant to Ranga
Krishna.(2)
|
10.17
|
|
Share
Subscription Cum Purchase Agreement dated February 2, 2007 by and
among India Globalization Capital, Inc., MBL Infrastructures Limited
and
the persons “named as Promoters therein”.(6)
|
10.18
|
|
Debenture
Subscription Agreement dated February 2, 2007 by and among India
Globalization Capital, Inc., MBL Infrastructures Limited and the
persons
named as Promoters therein. (6)
|
10.19
|
|
Note
and Warrant Purchase Agreement dated February 5, 2007 by and among
India Globalization Capital, Inc. and Oliviera Capital,
LLC.(6)
|
10.20
|
|
Promissory
Note dated February 5, 2007 in the initial principal amount for
$3,000,000 issued by India Globalization Capital, Inc. to Oliviera
Capital, LLC.(6)
|
10.21
|
|
Warrant
to Purchase Shares of Common Stock of India Globalization Capital,
Inc.
issued by India Globalization Capital, Inc. to Oliviera Capital,
LLC.(6)
|
10.22
|
|
First
Amendment to Share Subscription Cum Purchase Agreement dated February
2,
2007 by and among India Globalization Capital, Inc., MBL Infrastructures
Limited and the persons named as Promoters therein.(7)
|
10.23
|
|
First
Amendment to the Debenture Subscription Agreement dated February
2, 2007
by and among India Globalization Capital, Inc., MBL Infrastructures
Limited and the persons named as Promoters therein.(7)
|
10.24
|
|
Contract
Agreement dated April 29, 2007 between IGC, CWEL, AMTL and
MAIL.(7)
|
31.1
|
|
Certificate
pursuant to 17 CFR 240.13a-14(a).
|
31.2
|
|
Certificate
pursuant to 17 CFR 240.13a-14(a).
|
32.1
|
|
Certificate
pursuant to 18 U.S.C. § 1350.
|
32.2
|
|
Certificate
pursuant to 18 U.S.C. § 1350.
|
(1)
|
Incorporated
by reference to the Registrant’s Registration Statement on Form S-1 (SEC
File No. 333-124942), as amended and filed on September 22,
2006.
|
(2)
|
Incorporated
by reference to the Registrant’s Registration Statement on Form S-1 (SEC
File No. 333-124942), as amended and filed on February 14,
2006.
|
(3)
|
Incorporated
by reference to the Registrant’s Registration Statement on Form S-1 (SEC
File No. 333-124942), as originally filed on May 13,
2005.
|
(4)
|
Incorporated
by reference to the Registrant’s Registration Statement on Form S-1 (SEC
File No. 333-124942), as amended and filed on July 11,
2005.
|
(5)
|
Incorporated
by reference to the Registrant’s Registration Statement on Form S-1 (SEC
File No. 333-124942), as amended and filed on March 2,
2006.
|
(6)
|
Incorporated
by reference to the Registrant’s Current Report on Form 8-K (SEC File No.
333-124942), as originally filed on February 12,
2007.
|
(7)
|
Incorporated
by reference to the Registrant’s Current Report on Form 8-K (SEC File No.
333-124942), as originally filed on May 2,
2007.
|
Item
14. Principal Accountant Fees and Services
Information
regarding principal accountant fees and services is incorporated herein by
reference to the information in our definitive Proxy Statement for the 2007
Annual Meeting of Stockholders to be filed with the Securities and Exchange
Commission on or about July 27, 2007 for the 2007 Annual Meeting of
Stockholders.
INDEX
TO FINANCIAL STATEMENTS
|
|
|
Page
|
|
F-1
|
|
F-2
|
|
F-3
|
|
F-4
|
|
F-5
|
|
F-6
|
REPORT
OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To
the
Board of Directors and Stockholders
India
Globalization Capital, Inc.
We
have
audited the accompanying balance sheets of India Globalization Capital, Inc.
(a
development stage company) as of March 31, 2007 and 2006 and the related
statements of operations, stockholders' equity and cash flows for the year
ended
March 31, 2007, the period from April 29, 2005 (inception) to March 31, 2006
and
the cumulative period from April 29, 2005 (inception) through March 31, 2007.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management,
as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of India Globalization Capital,
Inc.
as of March 31, 2007 and 2006 and the results of its operations and its cash
flows for the year ended March 31, 2007, the period from April 29, 2005
(inception) through March 31, 2006 and the cumulative period from April 29,
2005
(inception) to March 31, 2007 in conformity with United States generally
accepted accounting principles.
The
accompanying financial statements have been prepared assuming that India
Globalization Capital, Inc. will continue as a going concern. As discussed
in
Note A to the financial statements, the Company may face a mandatory liquidation
by March 8, 2008 if a business combination is not consummated, unless certain
extension criteria are met, which raises substantial doubt about its ability
to
continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
GOLDSTEIN
GOLUB KESSLER LLP
New
York,
New York
July
10,
2007
(a
development stage company)
BALANCE
SHEETS
|
|
March
31,
|
|
|
|
2007
|
|
|
2006
|
|
ASSETS
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
1,169,422
|
|
|
$ |
2,210
|
|
Investments
held in Trust Fund
|
|
|
66,104,275
|
|
|
|
65,825,016
|
|
Interest
Receivable—Convertible Debenture |
|
|
37,479 |
|
|
|
- |
|
Convertible
debenture in MBL
|
|
|
3,000,000
|
|
|
|
-
|
|
Prepaid
expenses and other current assets
|
|
|
74,197
|
|
|
|
76,766
|
|
|
|
|
|
|
|
|
|
|
Total
Current Assets
|
|
|
70,385,373
|
|
|
|
65,903,992
|
|
|
|
|
|
|
|
|
|
|
Deferred
acquisition costs
|
|
|
158,739
|
|
|
|
- |
|
Deferred
tax assets—Federal and State, net of valuation allowance
|
|
|
142,652
|
|
|
|
25,000
|
|
Total
Assets
|
|
$ |
70,686,764
|
|
|
$ |
65,928,992
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
Accrued
expenses
|
|
$ |
237,286
|
|
|
$ |
286,105
|
|
Notes
payable to stockholders
|
|
|
870,000
|
|
|
|
870,000
|
|
Taxes
payable
|
|
|
296,842
|
|
|
|
70,000
|
|
Deferred
trust interest
|
|
|
32,526
|
|
|
|
-
|
|
Note
Payable to Oliveira Capital, LLC
|
|
|
1,794,226
|
|
|
|
-
|
|
Due
to underwriter
|
|
|
1,769,400
|
|
|
|
1,769,400
|
|
Total
current liabilities
|
|
$ |
5,000,280
|
|
|
$ |
2,995,505
|
|
|
|
|
|
|
|
|
|
|
Common
stock subject to possible conversion, 2,259,770 at conversion value
(Note
A)
|
|
|
12,762,785
|
|
|
|
12,762,785
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS
AND CONTINGENCY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
|
Preferred
stock $.0001 par value; 1,000,000 shares authorized; none issued
and
outstanding
|
|
|
—
|
|
|
|
—
|
|
Common
stock — $.0001 par value; 75,000,000 shares authorized; issued and
outstanding 13,974,500
|
|
|
1,397
|
|
|
|
1,397
|
|
Additional
paid-in capital
|
|
|
51,848,145
|
|
|
|
50,613,145
|
|
Income
(Deficit) accumulated during the development stage
|
|
|
1,074,157
|
|
|
|
(443,840 |
) |
Total
stockholders’ equity
|
|
$ |
52,923,699
|
|
|
$ |
50,170,702
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$ |
70,686,764
|
|
|
$ |
65,928,992
|
|
The
accompanying notes should be read in connection with the financial
statements.
(a
development stage company)
STATEMENTS
OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended
|
|
|
through
|
|
Through
|
|
|
March
31, 2007
|
|
|
March
31, 2006
|
|
March
31, 2007
|
|
Legal
and formation, travel and other start up costs
|
$
|
(765,047
|
)
|
|
$
|
(68,183
|
)
|
$
|
(833,230
|
)
|
Compensation
expense
|
|
—
|
|
|
|
(535,741
|
)
|
|
(535,741
|
)
|
Interest
expense
|
|
(103,916
|
)
|
|
|
(5,500
|
)
|
|
(106,416
|
)
|
Interest
income
|
|
3,171,818
|
|
|
|
210,584
|
|
|
3,382,402
|
|
|
|
|
|
|
|
|
|
Income
(loss) before income taxes
|
|
2,302,855
|
|
|
|
(398,840
|
)
|
|
1,904,015
|
|
Provision
for income taxes, net
|
|
784,858
|
|
|
|
45,000
|
|
|
829,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
$
|
1,517,997
|
|
|
$
|
(443,840
|
)
|
$
|
1,074,157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per share: basic and diluted
|
$
|
0.11
|
|
|
$
|
(0.14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares
|
|
|
|
|
|
|
|
|
|
|
outstanding-basic
and diluted
|
|
13,974,500
|
|
|
|
3,191,000
|
|
|
|
|
The
accompanying notes should be read in connection with the financial
statements.
(a
development stage company)
STATEMENTS
OF STOCKHOLDERS’ EQUITY
|
Common
Stock
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Additional
Paid-in Capital
|
|
|
Income
(Deficit) Accumulated
During
the Development Stage
|
|
|
Total
Stockholders’
Equity
|
|
Issuance
of common stock to founders at $.01 per share (1,750,000 shares on
May 5, 2005 and 750,000 shares on June 20, 2005)
|
2,500,000
|
|
$ |
250
|
|
$ |
24,750
|
|
|
—
|
|
$ |
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Surrendered
shares (on September 7, 2005 and February 5, 2006 of 62,500 and
137,500 respectively)
|
(200,000 |
) |
|
(20 |
) |
|
20
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock to founders at $.01 per share on February 5,
2006
|
200,000
|
|
|
20
|
|
|
537,721
|
|
|
—
|
|
|
537,741
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issue
of 170,000 units in a private placement
|
170,000
|
|
|
17
|
|
|
1,019,983
|
|
|
—
|
|
|
1,020,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issue
of 11,304,500 units, net of underwriters’ discount and offering expenses
(including 2,259,770 shares subject to possible conversion) and $100
from
underwriters option
|
11,304,500
|
|
|
1,130
|
|
|
61,793,456
|
|
|
—
|
|
|
61,794,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
subject to possible conversion of shares
|
|
|
|
|
|
|
(12,762,785 |
) |
|
—
|
|
|
(12,762,785
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the period
|
—
|
|
|
—
|
|
|
—
|
|
$ |
(443,840 |
) |
|
(443,840
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at March 31, 2006
|
13,974,500
|
|
$ |
1,397
|
|
$ |
50,613,145
|
|
$ |
(443,840 |
) |
$ |
50,170,702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of 425,000 warrants issued to Oliveira Capital, LLC
|
—
|
|
|
—
|
|
|
1,235,000
|
|
|
—
|
|
|
1,235,000
|
|
Net
income
|
—
|
|
|
—
|
|
|
—
|
|
$ |
1,517,997
|
|
|
1,517,997
|
|
Balance
at March 31, 2007
|
13,974,500
|
|
$ |
1,397
|
|
$ |
51,848,145
|
|
$ |
1,074,157
|
|
$ |
52,923,699
|
|
The
accompanying notes should be read in connection with the financial
statements.
(a
development stage company)
STATEMENTS
OF CASH FLOWS
|
Year ended
March 31, 2007
|
|
April
29, 2005 (Date
of Inception)Through March
31, 2006
|
|
April
29, 2005
(Date
of Inception)
Through
March
31, 2007
|
|
Cash
flows from operating activities: |
|
|
|
|
|
|
Net
income (loss) |
$ |
1,517,997
|
|
$ |
(443,840 |
) |
$ |
1,074,157
|
|
Adjustment
to reconcile net income (loss) to net cash used in operating
activities: |
|
|
|
|
|
|
|
|
|
Interest
earned on Treasury Bills |
|
(3,098,769 |
) |
|
(203,022 |
) |
|
(3,301,791 |
) |
Non-cash
compensation expense |
|
- |
|
|
535,741
|
|
|
535,741
|
|
Deferred
taxes |
|
(117,652 |
) |
|
(25,000 |
) |
|
(142,652 |
) |
Amortization
of debt discount on Oliveira debt |
|
29,226
|
|
|
- |
|
|
29,226
|
|
Changes
in: |
|
|
|
|
|
|
|
|
|
Prepaid
expenses and other current assets
|
|
2,569
|
|
|
(76,766 |
) |
|
(74,197 |
) |
Interest
receivable - convertible debenture
|
|
(37,479 |
) |
|
- |
|
|
(37,479 |
) |
Deferred
interest liability
|
|
32,526
|
|
|
- |
|
|
32,526
|
|
Accrued
expenses
|
|
(113,819 |
) |
|
47,679
|
|
|
(66,140 |
) |
Taxes
payable
|
|
226,842
|
|
|
70,000
|
|
|
296,842
|
|
Net
cash used in operating activities |
|
(1,558,559 |
) |
|
(95,208 |
) |
|
(1,653,767 |
) |
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities: |
|
|
|
|
|
|
|
|
|
Purchase
of treasury bills |
|
(722,540,587 |
) |
|
(131,229,427 |
) |
|
(853,770,014 |
) |
Maturity
of treasury bills |
|
725,189,331
|
|
|
65,780,000
|
|
|
790,969,331
|
|
Decrease
(increase) in cash held in trust |
|
170,766
|
|
|
(172,567 |
) |
|
(1,801 |
) |
Purchase
of convertible debenture |
|
(3,000,000 |
) |
|
- |
|
|
(3,000,000 |
) |
Payment
of deferred acquisition costs |
|
(93,739 |
) |
|
- |
|
|
(93,739 |
) |
Net
cash used in investing activities |
|
(274,229 |
) |
|
(65,621,994 |
) |
|
(65,896,223 |
) |
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities: |
|
|
|
|
|
|
|
|
|
Issuance
of common stock to founders |
|
|
|
|
27,000
|
|
|
27,000
|
|
Payments
of offering costs |
|
|
|
|
(4,024,688 |
) |
|
(4,024,688 |
) |
Proceeds
from notes payable to stockholders |
|
|
|
|
870,000
|
|
|
870,000
|
|
Proceeds
from issuance of underwriters option |
|
|
|
|
100
|
|
|
100
|
|
Proceeds
from initial public offering |
|
|
|
|
67,827,000
|
|
|
67,827,000
|
|
Proceeds
from private placement
|
|
|
|
|
1,020,000
|
|
|
1,020,000
|
|
Proceeds
from note payable to Oliveira Capital, LLC
|
|
3,000,000
|
|
|
- |
|
|
3,000,000
|
|
Net
cash provided by financing activities
|
|
3,000,000
|
|
|
65,719,412
|
|
|
68,719,412
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase in cash and cash equivalent
|
|
1,167,212
|
|
|
2,210
|
|
|
1,169,422
|
|
Cash
and cash equivalent at the beginning of the
period
|
|
2,210
|
|
|
- |
|
|
- |
|
Cash
and cash equivalent at the end of the period
|
$ |
1,169,422
|
|
$ |
2,210
|
|
$ |
1,169,422
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
schedule of non cash financing activities:
|
|
|
|
|
|
|
|
|
|
Accrual
of offering costs |
$ |
-
|
|
$ |
238,426
|
|
$ |
238,426
|
|
Accrual
of deferred underwriters’ fees
|
$ |
-
|
|
$ |
1,769,400
|
|
$ |
1,769,400
|
|
Accrual
of deferred acquisition costs
|
$ |
65,000
|
|
$ |
- |
|
$ |
65,000 |
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
Interest
paid
|
$ |
-
|
|
$ |
- |
|
$ |
- |
|
Income
taxes paid |
$ |
675,668
|
|
$ |
- |
|
$ |
675,668
|
|
Fair
value of warrants included in additional paid in
capital
|
$ |
1,235,000
|
|
$ |
- |
|
$ |
1,235,000
|
|
The
accompanying notes should be read in connection with the financial
statements.
(a
development stage company)
NOTES
TO FINANCIAL STATEMENTS
NOTE
A — ORGANIZATION AND BUSINESS OPERATIONS
India
Globalization Capital, Inc. (the “Company”) was incorporated in Maryland on
April 29, 2005. The Company was formed to serve as a vehicle for the
acquisition of an operating business in an unspecified industry located in
India
through a merger, capital stock exchange, asset acquisition or other similar
business combination. The Company has neither engaged in any operations nor
generated significant revenue to date. The Company is considered to be in the
development stage and is subject to the risks associated with activities of
development stage companies.
The
registration statement for the Company’s initial public offering (the “Public
Offering”) (as described in Note C) was declared effective March 2, 2006.
The Company consummated the Public Offering including the over allotment option
on March 8, 2006, and preceding the consummation of the Public Offering on
March 2, 2006 certain of the officers and directors of the Company
purchased an aggregate of 170,000 units from the Company in a private placement
(the “Private Placement”). The units sold in the Private Placement were
identical to the units sold in the offering, but the purchasers in the Private
Placement have waived their rights to conversion and receipt of the distribution
on liquidation in the event the Company does not complete a business combination
(as described below). The Company received net proceeds from the Private
Placement and the Offering of approximately $62,815,000 (Note C).
The
Company’s management has broad discretion with respect to the specific
application of the net proceeds of the Private Placement and the Public Offering
(together, the “Offering”) although substantially all of the net proceeds of the
Offering are intended to be generally applied toward acquiring one or more
operating businesses in an unspecified industry located in India (“Business
Combination”), which may not constitute a business combination for accounting
purposes. Furthermore, there is no assurance that the Company will be able
to
successfully effect a Business Combination. Upon the closing of the Offering,
approximately ninety-seven percent (97%) of the gross proceeds of the Public
Offering are being held in a trust account (“Trust Fund”) and invested in
government securities until the earlier of (i) the consummation of its
first Business Combination or (ii) the distribution of the Trust Fund as
described below. The remaining proceeds, along with interest earned on the
Trust
Fund, may be used to pay for business, legal and accounting due diligence on
prospective acquisitions and continuing general and administrative expenses.
The
Company, after signing a definitive agreement for the acquisition of a target
business, will submit such transaction for stockholder approval. In the event
that holders of 50% or more of the shares issued in the Offering vote against
the Business Combination or the holders of 20% or more of the shares issued
in
the Public Offering elect to exercise their conversion rights, the Business
Combination will not be consummated. However, the persons who were stockholders
prior to the Public Offering (the “Founding Stockholders”) will not participate
in any liquidation distribution with respect to any shares of the common stock
acquired in connection with or following the Public Offering. (Note
I)
In
the
event that the Company does not consummate a Business Combination within
18 months from the date of the consummation of the Public Offering, or
24 months from the consummation of the Public Offering if certain extension
criteria have been satisfied (the “Acquisition Period”), the proceeds held in
the Trust Fund will be distributed to the Company’s public stockholders,
excluding the Founding Stockholders to the extent of their initial stock
holdings. There is no assurance that the Company will be able to successfully
affect a Business Combination during the period. This factor raises substantial
doubt about the Company's ability to continue as a going concern. The
accompanying financial statements are prepared assuming the Company will
continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of this
uncertainty.
In
the
event of such distribution, it is likely that the per share value of the
residual assets remaining available for distribution (including Trust Fund
assets) will be less than the initial public offering price per share in the
Public Offering (assuming no value is attributed to the warrants contained
in
the Units offered in the Public Offering discussed in Note C).
NOTE
B — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
[1]
Income per common share:
Basic
earnings per share is computed by dividing net income (loss) applicable to
common stockholders by the weighted average number of common shares outstanding
for the period. Diluted earnings per share reflect the additional dilution
for
all potentially dilutive securities such as stock warrants and options. The
effect of the 22,949,000 outstanding warrants, issued in connection with
the
Public Offering and the Private Placement described in Note C, the
500,000 outstanding units issued to the underwriters in connection with the
Public Offering and the 425,000 warrants to purchase shares of common stock
issued to Oliveira Capital, LLC in connection with the promissory note has
not
been included in the diluted weighted average shares since the warrants are
contingently exercisable.
[2]
Use
of estimates:
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those
estimates.
[3]
Income taxes:
Deferred
income taxes are provided for the differences between the bases of assets and
liabilities for financial reporting and income tax purposes. A valuation
allowance is established when necessary to reduce deferred tax assets to the
amount expected to be realized.
[4]
Cash
and Cash Equivalents:
For
financial statement purposes, the Company considers all highly liquid debt
instruments with a maturity of three months or less when purchased to be cash
equivalents. The company maintains its cash in bank deposits accounts in the
United States of America which, at times, may exceed applicable insurance
limits. The Company has not experienced any losses in such accounts. The Company
believes it is not exposed to any significant credit risk on cash and cash
equivalents.
[5]
Recent Accounting Pronouncements:
In
July 2006, the Financial Accounting Standards Board (“FASB”) issued FASB
Interpretation No. 48, “Accounting for Uncertainty in Income Taxes”, an
interpretation of FASB Statement No. 109 (“FIN 48”), which provides
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. 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 is effective with the
initial adoption of FIN 48. The provisions of FIN 48 are effective for
fiscal years beginning after December 15, 2006. We do not expect the
adoption of FIN 48 or FSP FIN 48-1 will have a material effect on our financial
condition or results of operations.
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.
NOTE
C — INITIAL PUBLIC OFFERING
On
March 8, 2006, the Company sold 11,304,500 units (“Units”) in the Public
Offering. Each Unit consists of one share of the Company’s common stock, $.0001
par value, and two redeemable common stock purchase warrants (“Warrants”). Each
Warrant entitles the holder to purchase from the Company one share of common
stock at an exercise price of $5.00 commencing the later of the completion
of a
Business Combination or one year from the effective date of the Public Offering
and expiring five years from the effective date of the Public Offering. The
Warrants become callable for $0.01 per Warrant only in the event that the last
sale price of the common stock is at least $8.50 per share for any 20 trading
days within a 30 trading day period ending on the third day prior to the date
on
which notice of redemption is given.
In
connection with the Offering, the Company paid the underwriters of the Public
Offering (collectively, the “Underwriter”) an underwriting discount of
approximately 5% of the gross proceeds of the Public Offering ($3,391,350).
In
addition, a non-accountable expense allowance of 3% of the gross proceeds of
the
Public Offering, excluding the over-allotment option, is due to the Underwriter,
who has agreed to deposit the non-accountable expense allowance ($1,769,400)
into the Trust Fund until the earlier of the completion of a business
combination or the liquidation of the Trust Fund. The Underwriter has further
agreed to forfeit any rights to or claims against such proceeds unless the
Company successfully completes a business combination.
The
warrants separated from the Units and began to trade on April 13, 2006.
After separation, each Warrant entitles the holder to purchase from the Company
one share of common stock at an exercise price of $5.00 commencing on the later
of (a) one year from the effective date of the Public Offering or
(b) the earlier of the completion of a Business Combination with a target
business or the distribution of the Trust Fund and expiring five years from
the
date of the Public Offering. The Company has 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 the
Company calls the Warrants, the holder will either have to redeem the Warrants
by purchasing the common stock from the Company for $5.00 or the Warrants will
be repurchased for $0.01 per Warrant.
The
Underwriter’s over-allotment option of 1,474,500 Units was exercised and the
11,304,500 units sold at the closing of the Public Offering include the
over-allotment.
In
connection with this Offering, the Company issued an option, for $100, to the
Underwriter to purchase 500,000 Units at an exercise price of $7.50 per Unit,
exercisable the later of March 2, 2007 or the consummation of a Business
Combination. The Company has accounted for the fair value of the option,
inclusive of the receipt of the $100 cash payment, as an expense of the Public
Offering resulting in a charge directly to stockholders’ equity. The Company
estimated, using the Black-Scholes method, the fair value of the option granted
to the underwriters as of the date of grant was approximately $756,200 using
the
following assumptions: (1) expected volatility of 30.1 %,
(2) risk-free interest rate of 3.9% and (3) expected life of five
years. The estimated volatility was based on a basket of Indian companies that
trade in the U.S. or the U.K. The option may be exercised for cash or on a
“cashless” basis, at the holder’s option, such that the holder may use the
appreciated value of the option (the difference between the exercise prices
of
the option and the underlying warrants and the market price of the units and
underlying securities) to exercise the option without the payment of any cash.
The warrants underlying such Units are exercisable at $6.25 per
share.
NOTE
D — INVESTMENTS HELD IN TRUST FUND
Investments
held in trust consist of Treasury Bills and money market funds. The Treasury
Bills have been accounted for as trading securities and recorded at their fair
market value. The excess of market value over cost is included in interest
income in the accompanying statement of operations. Investments held in trust
as
of March 31, 2007 and 2006 include the following:
|
March
31,
|
|
2007
|
|
2006
|
Investment
held for the benefit of the Company
|
$ |
|
63,845,850
|
|
$ |
|
63,845,850
|
Investment
held for the benefit of the Underwriter
|
|
|
1,769,400
|
|
|
|
1,769,400
|
Investment
earnings (available to fund Company expenses up to a maximum of
$2,150,000, net of taxes)(1)
|
|
|
489,025
|
|
|
|
209,766
|
|
|
|
|
|
$ |
|
66,104,275
|
|
$ |
|
65,825,016
|
(1)
Through March 31, 2007, the Company has transferred approximately
$2,150,000 of Investment Earnings from the Trust Account into its
operating account.
|
|
|
|
NOTE
E — NOTES PAYABLE TO STOCKHOLDERS
Three
unsecured notes were issued to two of the Founding Stockholders of the
Company.
One note of $100,000 and another for $50,000 were issued on May 2, 2005 and
on September 26, 2005, respectively, and were payable the earlier of
April 30, 2006 or upon the consummation of the Public Offering. On
December 15, 2005, the unsecured notes referred to above were amended to
provide that they become payable upon the earlier of the consummation of
a
Business Combination or the first anniversary of the consummation of the
Public
Offering. Another note of $720,000 was issued on March 3, 2006 and was
payable on the earlier of March 31, 2007 or the consummation of a Business
Combination. The notes all bore interest at 4% per annum. Due to the short-term
nature of the notes, the fair value of the notes approximate their carrying
amount. Interest expense of approximately $ 41,200 and $5,500 has
been included in the statement of operations for the year ended March 31,
2007
and the period ended March 31, 2006 relating to these notes,
respectively.
On
April
6, 2007, the $100,000 note was repaid and cancelled. One of the founding
stockholders made available a line of credit for $100,000 by personally
guaranteeing the line.
Also
on
April 6, 2007 the loan of $720,000 made by one of the founding stockholders
was partially repaid. The Company paid the founding stockholder $500,000
plus some accrued interest, cancelled the note for $720,000 and issued the
founding stockholder a new note for $220,000.
On
May 8,
2007 the same founding stockholder loaned the company an additional
$275,000. We issued him a new note for $275,000.
The
rights under the two new notes are similar to those set out for the original
Founder’s notes. The new notes are payable on the earlier of March 31, 2008
or the consummation of a Business Combination. The notes bear interest at
8% per annum.
NOTE
F — RELATED PARTY TRANSACTION
The
Company has agreed to pay SJS Associates $5,000 a month till the consummation
of
a business combination. SJS Associates is a related party and a privately
held company by Mr. John Selvaraj our Treasurer. The monthly fees are paid
for services rendered by John Selvaraj to the Company. From inception to
March 31, 2007 a total of $15,000 have been paid to Mr. Selvaraj for his
services.
The
Company has agreed to pay Integrated Global Network, LLC (IGN, LLC), a related
party and privately-held company where one of the Founding Stockholders serves
in an executive capacity, an administrative fee of $4,000 per month for office
space and general and administrative services from the effective date of
the
Proposed Offering through the date of a Business Combination. From
inception to March 31, 2006 and for the year ending March 31, 2007 approximately
$3,000 and $45,000 respectively was paid to IGN, LLC.
The
Company uses the services of Economic Law Practice (ELP), a law firm in
India. A member of our Board Directors is a Partner with
ELP. Since inception to March 31, 2007 approximately $ 53,810 has been paid
to ELP for legal services. No payments were made in the financial
year ending March 31, 2006.
In
February 2006, the Company issued an aggregate of 200,000 shares of common
stock to its founders and advisors. The shares were issued for an aggregate
price of $2,000. The fair value of these shares was estimated to be $537,741;
the difference of $535,741 was recorded as compensation expense on the
accompanying statement of operations. The fair value was determined by
allocating the $6.00 Unit price in the Offering between the estimated fair
value
of the shares and warrants to be included therein. The per share fair value
was
estimated to be $2.69.
NOTE
G — COMMON STOCK
On
August 24, 2005, the Company’s Board of Directors authorized a reverse
stock split of one share of common stock for each two outstanding shares of
common stock and approved an amendment to the Company’s Certificate of
Incorporation to decrease the number of authorized shares of common stock to
75,000,000. All references in the accompanying financial statements to the
number of shares of stock have been retroactively restated to reflect these
transactions.
At
March 31, 2007 and 2006, 24,874,000 and 24,449,000 shares of common stock,
respectively were reserved for issuance upon exercise of redeemable warrants,
underwriters’ purchase option and warrants issued to Oliveira Capital,
LLC.
NOTE
H — INCOME TAXES
The
provision for income taxes for the year ended March 31, 2007 and the period
ended March 31, 2006 consists of the following:
|
March
31,
|
|
|
2007
|
|
|
2006
|
|
Current:
|
|
|
|
|
|
Federal
|
$ |
902,510
|
|
|
$ |
70,000
|
|
Deferred:
|
|
|
|
|
|
|
|
Federal
|
|
(117,652
|
) |
|
|
(25,000 |
) |
|
|
|
|
|
|
|
|
Total
tax provision
|
$ |
784,858
|
|
|
$ |
45,000
|
|
The
total
tax provision for income taxes for year ended March 31, 2007 and the period
ended March 31, 2006 differs from that amount which would be computed by
applying the U.S. Federal income tax rate to income before provision for income
taxes as follows:
|
March
31,
|
|
|
2007
|
|
|
2006
|
|
Statutory
Federal income tax rate
|
|
34 |
% |
|
|
34 |
% |
Non-cash
compensation expense |
|
|
|
|
|
(45.7 |
)% |
State
tax benefit net of federal tax
|
|
(1.3 |
)% |
|
|
(1.3 |
)% |
Increase
in state valuation allowance
|
|
1.3 |
% |
|
|
1.3 |
% |
Other
|
|
-
|
|
|
|
.4 |
% |
|
|
|
|
|
|
|
|
Effective
income tax rate
|
|
34 |
% |
|
|
(11.3 |
)% |
The
tax
effect of temporary differences that give rise to the net deferred tax asset
is
as follows:
|
March
31,
|
|
|
2007
|
|
|
2006
|
|
Operating
costs deferred for income tax purposes |
$ |
242,015
|
|
|
$ |
30,000
|
|
Interest
income deferred for reporting purposes
|
|
11,059
|
|
|
|
- |
|
Difference
between accrual accounting for reporting purposes and cash accounting
for
tax purposes |
|
(75,514 |
) |
|
|
- |
|
Less:
Valuation Allowance |
|
(34,908 |
) |
|
|
(5,000 |
) |
Net
deferred tax asset |
$ |
142,652
|
|
|
$ |
25,000
|
|
The
Company has recorded a valuation allowance against the state deferred tax asset
since they cannot determine realizability for tax purposes and therefore can
not
conclude that the deferred tax asset is more likely than not recoverable at
this
time.
NOTE
I — COMMITMENTS AND CONTINGENCY
In
connection with the Offering and pursuant to an advisory agreement, the Company
has engaged its underwriters as its investment bankers to provide the Company
with assistance in structuring the Business Combination. As compensation
for the
foregoing services, the Company will pay the Underwriters a cash fee at the
closing of a Business Combination equal to 2% of the aggregate consideration
paid in such Business Combination up to a maximum of $1,500,000 and pay up
to
$25,000 of expenses. In addition, a broker fee of $ 90,000 will be paid to
Ferris, Baker Watts in conjunction with the loan to the Company by Oliveira
Capital, LLC, if the Business Combination is successful.
Pursuant
to letter agreements with the Company and the underwriters, the Founding
Stockholders have waived their rights to participate in any liquidation
distribution occurring upon our failure to complete a business combination,
with
respect to those shares of common stock acquired by them prior to the Offering
and with respect to the shares included in the 170,000 Units they purchased
in
the Private Placement.
The
Founding Stockholders will be entitled to registration rights with respect
to
their founding shares and the shares they purchased in the private placement
pursuant to an agreement executed on March 3, 2006. The holders of the
majority of these shares are entitled to make up to two demands that the Company
register these shares at any time after the date on which the lock-up period
expires. In addition, the Founding Stockholders have certain “piggy-back”
registration rights on registration statements filed subsequent to the
anniversary of the effective date of the Offering.
The
Company, from time to time, may enter into oral and or written understandings
with entities (and supporting professionals for conducting due diligence) who
potentially could refer or make introductions to potential target entities
in
various industry sectors in India and to conduct industry analysis or due
diligence on potential target companies. Such arrangements typically may require
nominal amounts of retainer fees and expenses for services and success fees
based upon successful completion of acquisitions resulting from such referrals.
Fees for services and expenses incurred to date with such entities have been
expensed in the accompanying financial statements.
In
connection with our proposed acquisition of a majority interest in MBL
Infrastructures Limited (“MBL”), an unaffiliated third party has claimed that it
is entitled to a finder's fee of approximately five percent of the purchase
price (or, $1.75 million) for the acquisition if the acquisition is consummated.
While we do not admit that the unaffiliated third party is a finder that is
entitled to payment, we have expressed a willingness to pay our customary
finder's fee of 0.25%. The parties are attempting to reach agreement on the
amount of the fee to be paid if the acquisition is consummated.
NOTE
J — PREFERRED STOCK
The
Company is authorized to issue 1,000,000 shares of preferred stock with such
designations, voting and other rights and preferences as may be determined
from
time to time by the Board of Directors.
NOTE
K – INVESTMENT ACTIVITIES
MBL
Infrastructure Limited Purchase Agreement
On
February 2, 2007, the Company entered into a Share Subscription Cum
Purchase Agreement (the “Purchase Agreement”) with MBL and R G Maheshwari , A K
Lakhotia, Maruti Maheshwari, Aditya Maheshwari, Uma Devi Lakhotia, Shweta
Maheshwari, Gokul Sales P Ltd and Jai Art N Image P Ltd (collectively, the
“Promoters”), pursuant to which the Company will acquire 2,212,745 equity shares
of MBL (the “Promoter Shares”) from the Promoters and an additional 9,519,949
newly-issued equity shares directly from MBL (the “New Shares”) so that at the
conclusion of the transactions contemplated by the Purchase Agreement, the
company will own 57% of the outstanding equity shares of MBL. MBL engages
in road-building and maintenance projects in India, as well as managing
road-building projects on a contract basis for national, state and local
agencies..
The
Acquisition is expected to be consummated during the fall of 2007, after
the
required approval by the Company’s stockholders and the fulfillment of certain
other conditions.
On
February 5, 2007 the Company entered into an agreement to sell 425,000
warrants, described in Note L, and a note for $3,000,000 to Oliveira Capital,
LLC for $3,000,000. The note carries an interest of 8% and is due upon the
earlier of February 5, 2008, or the consummation of a Business Combination.
Pursuant to the receipt of the $3,000,000 from Oliveira Capital, the Company
on
February 6, 2007 purchased $3,000,000 of convertible debentures from MBL.
The debentures carry an interest of 8% and is secured by 1,131,356 shares
of MBL common stock. The note from Oliveira Capital, LLC is secured by the
convertible debentures issued to MBL.
On
February 6, 2007 the Company entered into a non-binding agreement in
principle with Chiranjjeevi Wind Energy Limited (“CWEL”) for the acquisition of
24 MW in wind energy assets which includes the acquisition of land, all
licenses, environmental clearances, and equipment (the “CWEL Acquisition”).
The
Company has formed a wholly owned subsidiary based in Mauritius. The name
of the
subsidiary is India Globalization Capital, Mauritius, Limited (IGC-M
Ltd.).
On
April
25, 2007, the Company entered into the First Amendment to the Share Subscription
Cum Purchase Agreement (the “First Amendment to Purchase Agreement” or “SSPA”)
with MBL and the Promoters.
Pursuant
to the First Amendment to Purchase Agreement, the conditions precedent to
the
Company’s consummation of the transactions contemplated by the SSPA were amended
to provide that: (i) MBL’s audited financial statements converted to US GAAP for
the periods ended March 31, 2006, March 31, 2005 and March 31, 2004 and
unaudited financial statements converted to US GAAP for the period commencing
April 1, 2006 and ending December 31, 2006 (collectively, the “Required
Financial Statements”) previously required to be delivered under the SSPA be
delivered to the Company by May 15, 2007 and (ii) MBL and the Promoters deliver
audited financial statements converted to US GAAP for the period ended March
31,
2007 by June 30, 2007. In addition, Clause 5.3 of the SSPA was amended to
extend
the deadline for the completion of the Company’s acquisition of MBL shares from
September 30, 2007 to November 30, 2007.
On
April
25, 2007, concurrently with the execution of the First Amendment to the Purchase
Agreement, the Company entered into the First Amendment to the Debenture
Subscription Agreement (the “First Amendment to Debenture Agreement”) with MBL
and the Promoters.
Pursuant
to the First Amendment to the Debenture Agreement, Clause 14 of the Debenture
Subscription Agreement dated February 2nd, 2007
was amended
to extend the deadline by which time IGC must either obtain the requisite
shareholder approvals for the acquisition of MBL shares under the SSPA or
purchase an additional USD $3,000,000 in MBL Convertible Debentures from
April
30, 2007 to 45 days after receiving the Required Financial
Statements.
Contract
Agreement Between IGC, CWEL, AMTL and MAIL
On
April
29, 2007, the Company entered into a Contract Agreement Dated April 29, 2007
(“CWEL Purchase Agreement”) with Chiranjjeevi Wind Energy Limited,
(CWEL), Arul Mariamman Textiles Limited (AMTL), and Marudhavel
Industries Limited (MAIL), collectively CWEL. Pursuant to the CWEL Purchase
Agreement, the Company will acquire 100% of a 24-mega watt wind energy farm,
consisting of 96 250-kilowatt wind turbines, located in Karnataka, India
to be
manufactured by CWEL.
CWEL
is a
manufacturer and supplier of wind operated electricity generators, towers
and
turnkey implementers of wind energy farms.
On
May
22, 2007, the Company made a down payment of approximately $250,000 to CWEL.
The
Acquisition is expected to be consummated during the fall of 2007, after
the
required approval by the Company’s stockholders and the fulfillment of certain
other conditions.
We
have
incurred $158,739 through March 31, 2007 in connection with our two acquisitions
which is included as deferred acquisition costs in the accompanying balance
sheet.
NOTE
L – VALUATION OF WARRANTS ISSUED TO OLIVEIRA CAPITAL, LLC
The
Company sold a promissory note and 425,000 warrants to Oliveira Capital,
LLC for
$3,000,000. Each warrant will entitle the holder to purchase from the
Company one share of common stock at an exercise price of $5.00 commencing
on
the earlier of the completion of a Business Combination with a target business
or the distribution of the Trust Fund and expiring five years from the date
of
issuance. The warrants have an exercise price of $5.00. The Company
has determined, based upon a Black-Scholes model, that the fair value of
the
warrants on the date of issuance would approximately be $ 1,235,000 using
an
expected life of five years, volatility of 46% and a risk-free interest rate
of
4.8%
We
computed volatility for a period of five years. For approximately the first
four years we used the trading history of two representative companies that
are
listed on the Indian Stock exchange. For approximately one year the trading
history of the Company’s common stock was used. The average volatility of the
combined data extending over five years was calculated as 46%. Management
believes that this volatility is a reasonable benchmark to use in estimating
the
value of the warrants.
In
accordance
with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
INDIA
GLOBALIZATION CAPITAL, INC. |
|
|
|
|
|
Date:
July 16, 2007
|
By:
|
/s/ Ram
Mukunda |
|
|
|
Ram
Mukunda |
|
|
|
Chief
Executive Officer and President (Principal Executive Officer) |
|
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
/s/ John
B. Selvaraj |
|
|
|
John
B. Selvaraj |
|
|
|
Treasurer,
Principal Financial and Accounting Officer |
|
|
|
|
|
In
accordance with the Exchange Act, this report has been signed below by
the
following persons on behalf of the registrant and in the capacities and
on
the dates indicated.
|
|
|
|
|
|
|
|
By:
|
/s/ Dr.
Ranga Krishna |
|
|
|
Dr.
Ranga
Krishna |
|
|
|
Director |
|
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
/s/ Sudhakar
Shenoy |
|
|
|
Sudhakar
Shenoy |
|
|
|
Director |
|
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
/s/ Ram
Mukunda, |
|
|
|
Ram
Mukunda |
|
|
|
Director |
|
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
/s/ Richard
Prince |
|
|
|
Richard
Prince |
|
|
|
Director |
|
|
|
|
|