IGC Pharma, Inc. (formerly India Globalization Capital, Inc.) — Form 10-Q
Reporting period: Fiscal third quarter and nine months ended December 31, 2019. Unaudited; amounts below are U.S. dollars. Financial statement amounts are in millions unless noted.
Business context
IGC reported two segments: Infrastructure and Plant and Cannabinoid. Infrastructure remained the principal revenue source, led by Hong Kong commodity trading; the newer U.S.-focused cannabinoid business generated early product revenue while the company invested in hemp cultivation, processing, product development, and an Alzheimer’s-related drug trial.
Key financial results
| Metric | Three months ended Dec. 31, 2019 | Three months ended Dec. 31, 2018 | Nine months ended Dec. 31, 2019 | Nine months ended Dec. 31, 2018 |
|---|---|---|---|---|
| Revenue | $0.573 | $1.285 | $4.043 | $3.574 |
| Gross profit | $0.030 | $0.045 | $0.099 | $0.105 |
| Operating loss | $(1.678) | $(1.578) | $(4.421) | $(2.945) |
| Net loss | $(1.603) | $(1.148) | $(4.161) | $(2.519) |
| Basic and diluted loss per share | $(0.04) | $(0.03) | $(0.11) | $(0.07) |
Gross margin was approximately 5.2% for the quarter and 2.4% for the nine-month period. For the quarter, revenue fell 55% year over year as IGC reduced Hong Kong commodity trading; cannabinoid revenue was $5,000. Nine-month revenue rose 13%, including $384,000 from cannabinoid products and therapies, but gross profit declined slightly.
- Expenses: Quarterly general and administrative expense rose 75% to $1.413 million, including approximately $349,000 in legal and professional fees and roughly $250,000 in employee costs. Nine-month G&A rose 92% to $3.756 million, including approximately $1.147 million of one-time legal and professional charges and about $650,000 of added employee costs. Nine-month R&D increased 72% to $764,000.
- Cash flow: Nine-month operating cash use was $6.684 million, investing cash use was $8.806 million, and financing provided $18,000. Cash and cash equivalents declined $15.481 million to $10.129 million. Investing included $3.675 million of property and equipment and a $5.063 million mutual-fund investment.
- Liquidity and balance sheet: At December 31, cash and cash equivalents were $10.129 million, short-term investments were $5.063 million, working capital was $19.205 million, and total assets were $31.102 million. Inventory, all reported as work-in-progress, increased to $3.585 million from $248,000 at March 31. Total liabilities were $1.316 million; the company reported a $50,000 short-term related-party loan bearing 15% interest.
- Margins and capital: Gross profit remained low relative to revenue, while operating losses widened. Share-based compensation was $524,000 for the nine-month period. The company had 39.57 million common shares outstanding at December 31; potentially dilutive securities were excluded from diluted loss per share as anti-dilutive.
Developments, outlook, and risks
- Management attributed the quarterly infrastructure revenue decline to reduced Hong Kong commodity purchases amid what it described as a potentially temporary economic slowdown associated in part with protests. Hong Kong accounted for 88% of nine-month revenue.
- The Kerala road contract was valued at approximately $650,000 during the quarter; its value increased to approximately $1.2 million effective January 24, 2020. Management estimated 12–15 months to complete the work.
- IGC filed an Investigational New Drug Application for a proposed 100-person IGC-AD1 trial. Puerto Rico granted the research and development license in February 2020, after the reporting date. The filing cautions that product and treatment claims are not FDA-approved.
- The company was building out a leased Washington processing facility and reported a roughly $500,000 Puerto Rico trial facility. It warned that China-related shipping and travel restrictions could delay equipment delivery and commissioning, affecting production and revenue. Hemp crop risks include crop failure, excessive THC levels, theft, weather, and drying or processing constraints; the company’s first Arizona test harvest passed inspection.
- After quarter-end, IGC signed a non-binding term sheet to acquire Evolve1, Inc. for approximately $6 million in cash and stock, with about $5 million described as a three-year earn-out and the balance tied to first-year deliverables. Evolve had minimal 2019 revenue; the proposed transaction was not presented as completed.
- Shareholder class-action litigation remained pending, including a motion to dismiss. The company reached a settlement agreement in derivative lawsuits in January 2020, subject to court approval. No provision was recorded for the lawsuits because any liability could not then be determined.
Important facts for investors to verify
- Whether the proposed Evolve acquisition closed, its final consideration and earn-out terms, and its funding or dilution effects.
- Progress, regulatory status, costs, and trial enrollment for IGC-AD1; distinguish investigational plans from approved medical claims.
- Whether the Washington facility was completed, commissioned, and qualified as intended, and whether equipment delays affected operations.
- Cash burn, inventory realization, and the company’s liquidity runway as it funds facilities, cultivation, R&D, and legal costs.
- Execution and collections under the Kerala contract, continued exposure to Hong Kong trading, and the status and potential cost of pending litigation.