IGC Pharma, Inc. (formerly India Globalization Capital, Inc.) — Form 10-Q
Reporting period: Fiscal third quarter and nine months ended December 31, 2015. Financial statements are unaudited. The company was a smaller reporting company.
Business context
IGC was shifting toward developing phytocannabinoid-based therapies and facilities for producing pharmaceutical-grade cannabinoid ingredients. Its reported revenue still came primarily from legacy electronics trading in Hong Kong, alongside equipment leasing in India. The company said it intended to reduce or exit legacy businesses, including iron-ore assets it was considering selling.
Financial performance and liquidity
| Metric | Three months ended Dec. 31, 2015 | Prior-year quarter | Nine months ended Dec. 31, 2015 | Prior-year nine months |
|---|---|---|---|---|
| Revenue | $1.085 million | $2.542 million | $4.999 million | $5.424 million |
| Gross profit / margin | $206,000 / 19.0% | $199,000 / 7.8% | $576,000 / 11.5% | $457,000 / 8.4% |
| Operating loss | $375,000 | $499,000 | $1.140 million | $2.414 million |
| Net loss attributable to common stockholders | $403,000 | $590,000 | $1.385 million | $2.696 million |
| Loss per share, basic and diluted | $0.02 | $0.05 | $0.09 | $0.22 |
The consolidated net losses before attribution to non-controlling interests were $445,000 for the quarter and $1.439 million for the nine-month period. Income tax expense or benefit was zero. The nine-month revenue decline was about 8%; quarterly revenue fell about 57%, which management attributed to cutting back on low-margin trading. Nine-month SG&A fell about 48%, primarily due to reduced mining-related costs. The company reported approximately $122,600 of research and development expense for the nine-month period.
- Cash flow, nine months: Operating activities provided $3,000, versus $2.128 million used in the prior-year period; investing activities provided $35,000, versus $717,000 used; financing activities used $267,000, versus $2.822 million provided.
- Cash and liquidity: Cash and cash equivalents were $608,000 at December 31, down from $824,000 at March 31, 2015. Working capital was $2.161 million, compared with $2.030 million at March 31. MD&A describes the $608,000 figure as cash plus restricted cash.
- Debt and liabilities: Short- and long-term borrowings totaled approximately $1.187 million; notes payable were $1.800 million, for approximately $2.987 million of these borrowings and notes combined. Total liabilities were $4.744 million. The $1.8 million unsecured note was due July 31, 2016; interest was paid in shares. Some other loans carried interest rates of 4%–24%.
- Equity: 17.120 million shares were outstanding at December 31, versus 14.766 million at March 31. The filing reports approximately 17.967 million outstanding as of February 9, 2016.
Material changes and management commentary
Management cited slowing demand, lower trading margins, longer payment cycles, and declining order flow in China and the broader market. It said it was prioritizing balance-sheet risk reduction, even if this meant further revenue declines or exiting trading. Trading represented 98.9% of nine-month revenue. Management reported approximately $107,800 of non-GAAP cash burn for the quarter and said cash was sufficient for continued operations with limited expansion, but it expected to raise capital in coming quarters to accelerate cannabinoid development and infrastructure. No quantified revenue or earnings guidance was provided.
IGC reported that its pain-treatment cannabinoid provisional patent application had been converted to a PCT application and that it was developing a topical formulation and brand. The company’s longer-term strategy depends in part on regulation, patent protection, facility development, and successful commercialization; the filing cautions that patent applications may not result in granted patents.
Risks, contingencies, and unusual items
- Approximately $500,000 of receivables from Cochin International Airport had been outstanding for over a year. Following an arbitration ruling in IGC’s favor, the company classified them as current and carried them without impairment or interest.
- IGC was negotiating the return of a $150,000 advance to TerraSphere Systems. Registration of land received in settlement of its former Sricon interest was expected in fiscal 2016.
- IGC’s dispute seeking cancellation of shares issued to HK Ironman shareholders remained in preliminary stages; the company expected settlement by fiscal 2017. The Midtown Partners transaction also remained unresolved after FINRA approvals were not obtained; the filing describes potential cancellation of 700,000 shares and a $125,000 penalty payable by Apogee, with settlement negotiations ongoing.
- Foreign-exchange losses were $140,000 for the nine months, compared with $121,000 in the prior-year period. The company also reported foreign-currency translation losses in other comprehensive income.
- After quarter-end, the company disclosed acquiring an international infrastructure project-management company, as reported in a February 16, 2016 Form 8-K.
- Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether trading revenue and customer collections continue to weaken, particularly given the concentration of revenue in electronics trading.
- Cash availability, any restricted-cash balance, near-term capital requirements, and the terms and dilution effects of future financing.
- Collection prospects and impairment assumptions for the aged $500,000 airport receivable and other advances.
- Repayment or refinancing plans for the $1.8 million note due July 2016 and the cost and terms of other borrowing.
- Status and potential financial or share-count effects of the Midtown and HK Ironman disputes, TerraSphere advance recovery, land registration, and the post-quarter acquisition.
- Progress on cannabinoid patents, regulatory requirements, facility plans, and commercialization; the filing provides no quantified forecast for these initiatives.