Business context and reporting period
India Globalization Capital, Inc. (IGC; identified in the request as IGC Pharma) filed this Form 10-Q for the quarter ended December 31, 2014, within its fiscal year ending March 31, 2015. The filing describes a diversified business: commodity and electronics trading, construction-equipment leasing and engineering in India, and a strategy to enter legal cannabis-related businesses. The filing does not describe the company as IGC Pharma.
IGC acquired 51% of Hong Kong-based IGC International in May 2014, adding commodity and electronics e-commerce trading. In December 2014, it acquired an initial 24.9% interest in broker-dealer Midtown Partners, with a further acquisition subject to regulatory approvals.
Financial performance and position
| Metric | Three months ended Dec. 31 | Nine months ended Dec. 31 |
|---|---|---|
| Revenue, 2014 | $2.542 million | $5.424 million |
| Revenue, 2013 | $17,529 | $2.275 million |
| Operating loss, 2014 | $499,146 | $2.414 million |
| Net loss attributable to IGC common stockholders, 2014 | $590,114; $0.05 per share | $2.696 million; $0.22 per share |
| Operating cash flow, 2014 | Not provided for the quarter | $(2.128) million |
For the nine months, cost of revenue was $4.967 million, or about 92% of revenue; SG&A was $2.414 million. Revenue was heavily concentrated in trading: $5.362 million, or 98.9%, with the remainder from rental/leasing. Hong Kong accounted for 98.9% of revenue.
At December 31, cash and cash equivalents were $1.118 million, total current assets $4.932 million, and current liabilities $2.155 million. Total assets were $21.255 million and total liabilities $4.963 million. Debt included a $1.8 million unsecured note due July 2016 and Hong Kong bank facilities; the filing reports $1.543 million outstanding across short-term borrowings and other loans for IGC-INT. The company’s balance sheet also reports total loans and borrowings of approximately $3.372 million, including the note payable.
Nine-month investing cash use was $717,000, while financing provided $2.822 million, including $2.999 million from equity issuance. Cash increased by $91,450 from the fiscal-year opening balance. Management reported approximately $263,000 of non-GAAP cash burn for the December quarter after specified adjustments and said available cash could support operations with limited expansion.
Material changes versus comparable periods
- Nine-month revenue rose about 138% year over year, while quarterly revenue increased sharply from a very small prior-year base. Management attributed growth to higher trading volume and the IGC-INT acquisition; iron-ore price weakness led it to shift toward other commodities and electronics.
- Despite higher revenue, nine-month net loss attributable to IGC shareholders widened to $2.696 million from $1.559 million. Quarterly loss attributable to shareholders widened to $590,114 from $310,476.
- Nine-month SG&A increased to $2.414 million from $930,124, which the filing attributes in part to the new business and shares issued to employees and investor-relations firms. Operating cash use increased to $2.128 million from $867,000.
- Current liabilities increased to $2.155 million from $1.031 million at March 31, 2014. Goodwill of $983,000 was recorded in the IGC-INT acquisition; its purchase-price allocation remained provisional.
Outlook, risks and unusual items
No quantified earnings or revenue guidance is provided. Management expects revenue to grow through expanded trading, equipment leasing and vertical-farming activities. Its longer-term plans include cannabis-related facilities, products and research, as well as potential cannabinoid pharmaceutical development; these remain strategic plans, not reported operating results.
- IGC was evaluating strategic options for its China iron-ore business, including a sale of assets back to former owners, but had made no final decision.
- The Midtown transaction required SEC, FINRA and other approvals; the planned share consideration was subject to adjustments. The IGC-INT acquisition accounting and estimated earn-out liability were also provisional.
- Approximately $500,000 of receivables had been outstanding for over one year. IGC carried them as current and without impairment, citing its favorable arbitration outcome and belief that collection risk was minimal.
- IGC received approximately five acres of land in India, valued at about $4 million, in exchange for its Sricon minority interest; registration was expected in calendar 2015.
- Management cited commodity demand and pricing, competition, regulation across several countries, logistics, currency movements, cash requirements and retention of key personnel as risks. It reported no significant new commitments or contingencies, no material legal proceedings and no new risk factors in this quarter.
- Management concluded that disclosure controls were effective and reported no material change in internal control over financial reporting. A subsequent event extended the company’s listed warrants’ expiration from March 2015 to March 2017.
Investor verification points
- Reconcile the dramatic revenue increase with acquisition timing, trading volumes, customer collections and the very low prior-year quarterly base.
- Assess whether gross margins, operating losses and operating cash outflows can improve as trading and new businesses expand.
- Verify recoverability of aged receivables and advances, including the approximately $500,000 aged balance and substantial employee/supplier advances.
- Confirm IGC-INT acquisition liabilities, provisional goodwill and earn-out/share obligations, and whether Midtown approvals and closings were completed.
- Review cash runway, use of equity financing, borrowing terms and dilution. The filing reports 13,519,355 shares outstanding at December 31, 2014 and approximately 15,042,844 at February 1, 2015.
- Track the Sricon land registration and the strategic resolution of the China iron-ore business.