IGC Pharma, Inc. (India Globalization Capital, Inc.) — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended December 31, 2018. Amounts below are in thousands of U.S. dollars except per-share data and where noted. The filing identifies the registrant as India Globalization Capital, Inc.
Business context
The company operates infrastructure businesses involving equipment rental and materials trading, and is developing cannabinoid-based complementary and alternative medicine products. All revenue for the quarter and nine-month period came from infrastructure; cannabinoid products generated no revenue. The company states its cannabinoid formulations are not FDA-approved pharmaceuticals.
Financial results
| Metric | Quarter ended Dec. 31, 2018 | Quarter ended Dec. 31, 2017 | Nine months ended Dec. 31, 2018 | Nine months ended Dec. 31, 2017 |
|---|---|---|---|---|
| Revenue | $1,285 | $762 | $3,574 | $1,051 |
| Gross profit | $45 | $39 | $105 | $158 |
| Gross margin | 3.5% | 5.1% | 2.9% | 15.0% |
| SG&A | $807 | $512 | $1,955 | $1,175 |
| Research and development | $166 | $0 | $445 | $58 |
| Inventory write-off | $650 | $0 | $650 | $0 |
| Operating loss | ($1,578) | ($473) | ($2,945) | ($1,075) |
| Net loss | ($1,148) | ($533) | ($2,519) | ($1,211) |
| Loss per share, basic and diluted | ($0.03) | ($0.02) | ($0.07) | ($0.04) |
Quarterly revenue rose 69%, while nine-month revenue rose 240%, primarily from more infrastructure transactions. Gross profit remained low and gross margin declined in both the quarter and nine-month comparison. Higher SG&A, R&D, and the inventory write-off contributed to larger operating losses. Other income included a $300 gain from settling a $1,800 note for $1,500.
Cash flow, liquidity and debt
- At December 31, 2018, cash and cash equivalents were $27,033, compared with $1,658 at March 31, 2018. The increase primarily reflects equity financing.
- For the nine months, operating cash use was $2,182, investing cash use was $49, and financing provided $27,605, including $29,482 from equity issuance and $1,877 of note and loan repayments.
- Working capital was $27,626. Current assets were $28,160 and current liabilities were $534.
- Total liabilities were $598, including $534 of current liabilities and $64 of loans and reserves. The company reported a remaining secured loan of $50 at 15% annual interest, due in 2022; notes payable were zero after settlement.
Material developments, outlook and risks
- Capital and share count: The company raised equity through at-the-market offerings. It reported issuing 3,854,375 shares through the ATM during the quarter; shares outstanding at December 31 were 39,586,822. The filing also describes 797,000 shares allocated but not issued under a distributor agreement.
- Exchange listing: NYSE American began delisting proceedings in October 2018 and suspended trading. The stock moved to OTC Pink as IGCC while the company appealed; the appeal outcome was pending when the filing was signed.
- Product and business plans: Following enactment of the 2018 Farm Bill, the company planned to reformulate products using hemp-derived cannabinoids and pursue sales where lawful. It cautioned that hemp-product revenue could be delayed until the quarter ending June 30, 2019. Management also described plans to invest in infrastructure, develop cannabinoid products, and pursue small clinical trials and FDA-related filings. No quantified financial guidance was provided.
- Unusual expense and agreement: The $650 inventory write-off followed the decision to discard work-in-progress cannabinoid inventory and reformulate products using hemp-derived ingredients. A September 2018 strategic distributor agreement involving 797,000 restricted shares and the Nitro G energy drink was under review by the parties as of January 31, 2019.
- Legal and operating risks: The filing describes three active shareholder lawsuits and one dismissed lawsuit, including a derivative action. The company intends to defend the cases; potential liability was not estimable and no provision was recorded. Management warned that press coverage and the exchange delisting proceedings could hinder access to vendors, partners, employees, advisers, and financing, delay product revenue, and increase legal costs.
- Controls: Management concluded disclosure controls were effective at a reasonable-assurance level and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Current status and outcome of the NYSE American appeal, trading venue, and related shareholder litigation.
- Whether infrastructure revenue can produce improved margins, given the low reported gross margins and increased transaction volume.
- Timing, legal market access, regulatory status, and commercial viability of hemp-based products; the filing reports no CAM revenue and no FDA-approved products.
- Use of ATM proceeds, cash burn, and funding needs relative to the company’s stated investment and development plans.
- Recoverability of the $401 long-overdue Cochin International Airport receivable, carried without impairment, and the status of the Nitro G distribution agreement.