IGC Pharma, Inc. (India Globalization Capital, Inc.) — Form 10-Q Summary
Reporting period: First quarter of fiscal 2017, the three months ended June 30, 2016. Balance-sheet comparisons are with March 31, 2016; operating results and cash flows are compared with the three months ended June 30, 2015. The filing identifies the registrant as a smaller reporting company.
Business context
IGC operates across the United States, Hong Kong, India, China and Malaysia. Its activities include electronics and commodity trading, heavy-equipment leasing, Malaysian real-estate and project management, and development of phytocannabinoid-based intellectual property. Hong Kong trading generated nearly all quarterly revenue. Management says it is curtailing that lower-margin business and shifting toward higher-margin niches and cannabinoid-related opportunities.
Financial performance
| Metric | Q1 FY2017 | Q1 FY2016 |
|---|---|---|
| Revenue | $288,493 | $1,858,809 |
| Cost of revenue, excluding depreciation | $201,854 | $1,654,769 |
| Gross profit, calculated | $86,639 | $204,040 |
| Gross margin, calculated | 30.0% | 11.0% |
| SG&A | $307,772 | $305,403 |
| Depreciation | $97,672 | $155,974 |
| Operating loss | $318,805 | $257,337 |
| Net loss attributable to common stockholders | $383,566 | $382,699 |
| Loss per share, basic and diluted | $0.02 | $0.03 |
Interest expense was $43,278, versus $61,914 a year earlier; the company says most interest is paid in shares and is non-cash. Other income was $1,755, compared with an other loss of $35,057. Weighted-average shares increased to 23.31 million from 14.83 million.
Cash flow, liquidity and debt
- Operating cash flow was positive $202,908, compared with cash use of $548,446 in Q1 FY2016. The filing attributes cash-flow movements in part to working-capital changes, including collections of receivables and customer advances.
- Investing activities used $117,812; financing activities used $250,804. Cash declined $165,143 to $1,325,550.
- Management reports working capital of $107,596 and says available cash is sufficient for operations with limited expansion. The balance sheet shows current assets of $3.51 million and current liabilities of $3.40 million.
- Debt and borrowing items included $1.8 million of unsecured notes payable, $12,591 of short-term borrowings, $133,333 of loans from others and $596,273 of long-term borrowings. The $1.8 million note was due July 31, 2016; the company said it was negotiating an extension.
- The company reported $254,654 of “non-GAAP cash burn” after adjustments for depreciation and non-cash interest. This measure is not reconciled clearly in the supplied filing text.
Material changes and management outlook
- Revenue fell 84.5% year over year, primarily because of lower electronics-trading volume as the company curtails that activity. Trading represented $213,093, or 97.2%, of quarterly revenue; rental, leasing and real estate represented $75,400.
- The company reported a larger operating loss, while the loss attributable to common stockholders was broadly similar to the prior-year quarter. Lower depreciation, interest expense and other losses partly offset the reduced revenue.
- Management’s stated plans include developing and seeking patents for phytocannabinoid therapies, developing facilities for medicinal-plant production and extraction, advancing a Malaysian hotel project, and exiting the trading business. It gave no quantified financial guidance.
- On August 1, 2016, after quarter-end, IGC acquired a 10% stake in a planned 1,000-room Malaysian hotel development for 4 million shares valued at approximately $1.88 million, subject to stated approvals. The project is estimated at $262 million, and IGC’s subsidiary is expected to manage it.
- IGC has filed five provisional patent applications; the filing cautions that applications may not result in granted patents and that regulatory conditions may limit facility development and commercialization.
Risks, contingencies and unusual items
- A lawsuit concerning the 2011 Ironman acquisition seeks rescission of the acquisition agreement and cancellation of related share transfers. Trial was anticipated in mid-2017; a ruling for IGC could remove Ironman assets from the balance sheet and return acquisition shares to treasury.
- The company carries $413,719 of receivables from Cochin International Airport that have been outstanding for more than one year. It reports a favorable arbitration ruling and carries the receivable without impairment or interest, based on management’s view of collectability.
- The company had $1.8 million of notes payable approaching maturity and was negotiating an extension. It also entered an at-the-market agreement permitting up to $10 million of share sales; 69,000 shares valued at $25,668 were issued under it during the quarter.
- Management reported effective disclosure controls and no material changes in internal control over financial reporting. The filing states there were no material changes to previously disclosed risk factors and no significant contingencies or commitments during the quarter.
Key facts for investors to verify
- Whether the $1.8 million note was extended or repaid after its July 31, 2016 maturity, and the company’s subsequent liquidity and cash runway.
- Whether revenue can be replaced as the company exits trading, and the timing and economics of its leasing, real-estate and cannabinoid initiatives.
- The collection status of the $413,719 airport receivable and the outcome and balance-sheet effects of the Ironman litigation.
- Required approvals, share issuance terms and funding obligations for the Malaysian hotel project, including any dilution and project exposure.
- Progress and costs associated with patent applications, regulatory requirements and commercialization; provisional filings do not guarantee patent protection.
- The reported “non-GAAP cash burn” calculation and the distinction between cash and restricted cash, which is not clearly detailed in the supplied filing text.