IGC Pharma, Inc. (India Globalization Capital, Inc.) — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended December 31, 2020. Unless stated otherwise, financial figures are in thousands of U.S. dollars. The filing is by India Globalization Capital, Inc., the parent of IGC Pharma, LLC.
Business context
The company operates Infrastructure and Life Sciences segments. Life Sciences includes cannabinoid-related research and wellness products; Infrastructure includes construction projects, equipment rental, and commodity trading. For the nine-month period, Life Sciences generated most revenue, while Infrastructure revenue fell sharply. The company said COVID-19 disrupted operations, sales, equipment commissioning, and workforce deployment.
Financial performance
| Metric | Three months ended Dec. 31, 2020 | Three months ended Dec. 31, 2019 | Nine months ended Dec. 31, 2020 | Nine months ended Dec. 31, 2019 |
|---|---|---|---|---|
| Revenue | $108 | $573 | $817 | $4,043 |
| Gross profit | $14 | $30 | $86 | $99 |
| Operating loss | $(2,326) | $(1,678) | $(5,933) | $(4,421) |
| Net loss | $(2,323) | $(1,603) | $(5,862) | $(4,161) |
| Basic and diluted loss per share | $(0.06) | $(0.04) | $(0.14) | $(0.11) |
- Gross margin was approximately 13% for the quarter and 11% for the nine months, versus approximately 5% and 2%, respectively, in the comparable periods.
- Nine-month revenue declined 80%. Infrastructure revenue was $119 versus $3,659; Life Sciences revenue increased to $698 from $384. For the quarter, revenue was $52 from Infrastructure and $56 from Life Sciences.
- Nine-month SG&A increased 44% to $5,424. The company attributed increases to settlement costs, inventory adjustments, personnel, marketing, professional fees, and depreciation. R&D declined 22% to $595; management expects it to increase with IGC-AD1 trials.
- Cash used in operating activities was $8,295, compared with $6,684. Investing activities provided $1,459, principally reflecting $3,081 in proceeds from marketable securities, partly offset by $1,381 of property and equipment purchases. Financing provided $530 from borrowings.
Balance sheet and liquidity
- At December 31, 2020, cash was $968 and marketable securities were $2,000, down from $7,258 and $5,081, respectively, at March 31, 2020. Working capital was $9,503, down from $15,811.
- Total assets were $24,163; total liabilities were $2,691; and stockholders’ equity was $21,472. Current assets were $11,421 against current liabilities of $1,918.
- Reported short- and long-term loans totaled $580: approximately $430 of PPP borrowing and $150 of EIDL borrowing. PPP forgiveness remained uncertain; the company said it believed the proceeds were used for eligible expenses but gave no assurance of forgiveness.
- Management said existing cash, securities, and other short-term liquidity arrangements should meet needs for the next 12 months, while also saying it would raise money when able. On January 13, 2021, the company entered an at-the-market sales agreement for up to $75 million of common stock.
Material changes, outlook, and risks
- COVID-19, including facility and office outbreaks, store closures, and abandoned hemp harvests, adversely affected revenue and increased costs. Delayed commissioning and certification of processing equipment also affected operations.
- During the nine months, the company recorded a $342 inventory write-off for abnormal costs and spoilage. A vendor reported theft at its facility involving inventory valued at approximately $1.74 million; the company reclassified the amount to deposits and advances.
- The company paid SEC civil penalties of $175 for itself and $35 for its CEO in a December 2020 settlement over 2018 disclosures about the expected availability of Hyalolex. It also retained an independent compliance consultant.
- The FDA had permitted the company to proceed with a proposed 12-subject Phase 1 study of IGC-AD1. The company was preparing to enroll participants. It cautioned that trials may be delayed or unsuccessful and that approval and commercialization are uncertain.
- No quantified financial guidance was provided. Management anticipated volatile and unpredictable revenue in both segments, reduced Infrastructure revenue, and increased R&D spending as the IGC-AD1 trial proceeds. The company also cited regulatory, intellectual-property, financing, COVID-19, and currency risks.
- A consolidated shareholder class action remained pending. The court denied the company’s motion to dismiss on January 29, 2021; the company denied liability and said it would defend the case. Potential damages were not specified.
Investor verification points
- Verify cash burn and funding needs against the substantial decline in cash and securities and the proposed $75 million ATM offering, including potential dilution.
- Assess the recoverability and status of the $1.74 million inventory-related advance and the company’s response to the reported vendor theft.
- Track IGC-AD1 trial enrollment, timing, costs, results, and any FDA or other regulatory developments.
- Review the pending shareholder litigation, possible exposure, and compliance consultant’s recommendations following the SEC settlement.
- Monitor whether Infrastructure activity recovers and whether Life Sciences product sales can grow sustainably; reported revenue was sharply lower overall.