Business context and reporting period
India Globalization Capital, Inc. (NYSE American: IGC) filed this Form 10-K for the fiscal year ended March 31, 2020—not a standalone 2019 fourth-quarter report. The company operates Infrastructure and Life Sciences segments. Infrastructure remained the main revenue source; Life Sciences combines cannabinoid and hemp wellness products with drug research and development. Amounts below are in U.S. dollars unless stated otherwise.
Financial performance and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $4.072 million | $5.116 million |
| Gross profit / margin | $115,000 / 2.8% | $132,000 / 2.6% |
| Operating loss | $6.864 million | $4.643 million |
| Net loss | $7.315 million | $4.097 million |
| Basic and diluted loss per share | $0.19 | $0.13 |
| Cash used in operating activities | $8.677 million | $3.330 million |
| Cash used in investing activities | $9.547 million | $260,000 |
- Revenue fell 20%. Infrastructure generated $3.661 million (90% of revenue), while Life Sciences generated $411,000 (10%). Hong Kong customers accounted for $3.553 million, or 87% of total revenue.
- Gross profit was slight relative to revenue. General and administrative expense rose 70% to $5.968 million, including approximately $800,000 in legal and professional fees and $900,000 in higher compensation expense. R&D expense declined 20% to $1.011 million.
- The company recorded a $782,000 investment impairment, relating to its 24.9% investment in Midtown Partners after that firm became noncompliant with FINRA. Other income fell to $331,000, partly because FY2019 included a one-time $300,000 gain on settlement of a note payable.
- Cash and cash equivalents were $7.258 million at year-end, down 72%; an additional $5.081 million was held in marketable securities. Reported working capital was $15.811 million, down 39%. Inventory increased to $4.245 million from $248,000.
- Total liabilities were $2.447 million and stockholders’ equity was $26.537 million. Debt included a $50,000 secured short-term loan at 15%; the balance sheet also included $574,000 of operating lease liabilities. The filing reports no material long-term debt.
- Investing cash outflows included $4.389 million of property, plant and equipment purchases and $5.081 million invested in marketable securities. Financing cash flow was negative $59,000, compared with $27.598 million provided in FY2019, largely from equity offerings.
Material changes versus FY2019
- Revenue declined as infrastructure trading slowed, particularly in Hong Kong; the company attributed the downturn to protests and COVID-19 disruption. Revenue from physical infrastructure commodities fell to $3.553 million from $5.061 million.
- Life Sciences revenue increased to $411,000 from $25,000, but remained a small share of total sales. The company invested substantially in U.S. facilities and inventory while building this business.
- Operating and net losses widened, cash burn increased, and cash balances fell. The company also shifted inventory valuation from FIFO to weighted-average cost effective April 1, 2019; it said this change did not affect prior-year statements.
Outlook, risks, contingencies and unusual items
- Management said it expected existing cash, marketable securities and short-term liquidity arrangements to cover working-capital and other needs for the next 12 months. It also warned that infrastructure revenue could remain significantly reduced until operations resume and said it had limited visibility on normalization.
- The Kerala road contract increased from approximately $0.6 million to $1.1 million; $101,000 of revenue was recognized in FY2020. Work was suspended due to COVID-19, with restart expected in FY2021’s second quarter. The contract’s completion estimate was 12–15 months.
- COVID-19 delayed some Life Sciences product launches, hemp harvesting due to worker availability, and commissioning and certification of processing equipment sourced from China. Management anticipated reduced Infrastructure revenue and expected Life Sciences growth, but provided no quantified forecast.
- The company filed an Investigational New Drug Application for a proposed 100-person Alzheimer’s-related trial of its patent-pending Hyalolex formulation. Filing the application is not FDA approval of the drug or confirmation that the trial will proceed. Hyalolex Drops of Clarity was not an FDA-approved pharmaceutical product. FDA rules for CBD in food and beverages remained unsettled.
- The company reported a new patent for a cannabinoid formulation addressing cachexia and eating disorders. Its Washington processing facility was intended to qualify for GMP certification, which had not been assured; equipment commissioning was delayed.
- After year-end, the company received a roughly $430,000 Paycheck Protection Program loan, a $10,000 EIDL advance and a roughly $150,000 EIDL loan. These later events should be distinguished from FY2020 year-end liquidity.
- Derivative shareholder lawsuits were settled and the court approved the settlement on July 6, 2020; the company recorded a $200,000 provision, with settlement payments described as covered by insurance. A separate consolidated shareholder class action remained pending on a motion to dismiss as described in the filing.
- Key risks include continued losses and financing needs, COVID-19 impacts, hemp crop and market risks, regulatory uncertainty, clinical-trial and approval risk, dependence on a small number of customers and suppliers, foreign-currency exposure, possible equity dilution, and NYSE American listing requirements. The filing also discloses outstanding warrants exercisable for common shares.
Important facts for investors to verify
- Whether post-year-end loans and available securities provide adequate runway given operating cash use of $8.677 million in FY2020 and management’s expectation of reduced Infrastructure revenue.
- How much of the $4.245 million inventory is saleable, when it can be processed, and whether it requires impairment or additional spending.
- Progress and costs for the Alzheimer’s trial, FDA requirements, facility certification, equipment commissioning, and planned Life Sciences launches.
- Collection prospects for the $374,000 Cochin International Airport receivable, which was over one year old, and recoverability of other advances.
- Status and potential cost of the pending class action, the insurance coverage for the derivative settlement, and any continuing litigation exposure.
- Potential dilution from warrants, equity awards, and any future fundraising; confirm the current share count and warrant terms.
The independent auditor issued an unmodified opinion on the FY2020 and FY2019 consolidated financial statements. Management concluded disclosure controls were effective; the filing does not report an auditor attestation on internal control over financial reporting.