IGC Pharma, Inc. (formerly India Globalization Capital, Inc.) — Form 10-Q Summary
Reporting period: Three months ended June 30, 2019 (the company’s fiscal first quarter); comparative period is the three months ended June 30, 2018. Financial figures below are in U.S. dollars, in thousands, unless otherwise noted.
Business context
The company operated two reportable businesses: Infrastructure, including equipment rental, construction contracting and commodity resale; and Plant and Cannabinoid, including hemp-derived products and cannabinoid therapies. Infrastructure remained the primary source of revenue. During the quarter, the company began a Kerala highway contract, Holi Hemp received an Arizona hemp-growing and processing license, and Hyalolex was sold through about 34 Puerto Rico dispensaries. A planned IGC-AD1 clinical trial in 60 Alzheimer’s patients was awaiting Institutional Review Board approval.
Key financial metrics
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Revenue | $1,649 | $1,478 |
| Cost of revenue | $1,608 | $1,436 |
| Gross profit / gross margin | $41 / 2.5% | $42 / 2.8% |
| General and administrative expense | $1,249 | $517 |
| Research and development expense | $247 | $36 |
| Operating loss | $(1,455) | $(511) |
| Net loss | $(1,379) | $(512) |
| Basic and diluted loss per share | $(0.03) | $(0.02) |
| Cash used in operating activities | $(2,872) | $(535) |
| Cash used in investing activities | $(6,186) | $(8) |
At June 30, cash and cash equivalents were $16,554, versus $25,610 at March 31; the company also held a $5,009 short-term mutual-fund investment. Working capital was $23,504. Total assets were $33,505, total liabilities $1,085, and stockholders’ equity $32,420. Debt consisted mainly of a $50 short-term related-party loan; the filing reports no financing cash flows in the quarter.
Changes versus the prior comparable period
- Revenue grew 12% to $1,649, largely from higher infrastructure commodity sales; $104 came from Plant and Cannabinoid products and therapies, versus none in the prior-year quarter.
- Cost of revenue rose 12%, broadly keeping pace with sales; gross profit was nearly flat at $41, and gross margin edged down.
- G&A increased $732, or 142%; management attributed about $400 of the increase to legal and professional fees, including shareholder litigation. R&D increased to $247 from $36.
- Net loss widened to $1,379 from $512. Operating cash use increased to $2,872, with working-capital changes reducing cash by about $1,718.
- Investing cash use rose to $6,186, including $5,009 invested in a mutual fund and $1,173 spent on property, plant and equipment. Cash declined by $9,056 overall.
Outlook, risks and unusual items
- The filing provides no quantified revenue, earnings or cash-flow guidance. Management described plans to expand hemp sourcing, processing and sales, develop cannabinoid products, and pursue the IGC-AD1 trial, subject to required approvals.
- Management cautioned that forward-looking statements are subject to risks and actual results may differ. The company stated that product and disease-related claims are not FDA-approved and that it operates in the Plant and Cannabinoid business only where permitted by law.
- Shareholder class-action litigation alleges misleading statements concerning the company’s business and product announcements. The company said it intended to defend those actions. For three derivative suits, the company and directors and officers signed a preliminary settlement memorandum on July 31, 2019; final terms and court approval remained outstanding. No liability provision was recorded, and any potential exposure was not clear.
- A $405 receivable from Cochin International Airport had been outstanding for more than a year; the company had begun legal collection proceedings and said recovery within 12 months would be difficult, but recorded no impairment.
- Revenue was concentrated: Hong Kong accounted for 94% of quarterly revenue, primarily infrastructure commodity resale. Inventory increased to $1,970 from $248, including $1,142 of work in progress; management’s valuation assumptions may result in future write-downs.
- Subsequent to quarter-end, the company formed U.S. real-estate subsidiary SAN Holdings and Colombia-based Hamsa BioChem for planned Latin American and European cannabis operations, subject to applicable law.
Important facts for investors to verify
- Whether the derivative-litigation settlement received final terms and court approval, and the status or potential exposure of the consolidated class action.
- Progress and required approvals for the IGC-AD1 clinical trial and any subsequent FDA submission; separately assess the regulatory status of marketed products and claims.
- Whether the new cannabinoid business can grow beyond $104 in quarterly revenue while achieving sustainable margins, and whether the company’s sales remain highly concentrated in Hong Kong commodity trading.
- Use of cash, including the liquidity and risk profile of the $5,009 mutual-fund investment, inventory buildup, and capital spending.
- Recoverability and timing of the overdue $405 airport receivable, and the realizable value of inventory and other advances.