IGC, Inc. (India Globalization Capital, Inc.) — Form 10-Q
Reporting period: Fiscal third quarter and nine months ended December 31, 2017; comparisons are with the corresponding 2016 periods. The filing describes two businesses: legacy infrastructure-related operations and development of cannabis-based therapies. The pharmaceutical segment had no revenue.
Financial results
| Metric | Three months ended Dec. 31, 2017 | Three months ended Dec. 31, 2016 | Nine months ended Dec. 31, 2017 | Nine months ended Dec. 31, 2016 |
|---|---|---|---|---|
| Revenue | $762,009 | $249,801 | $1,050,582 | $487,364 |
| Gross profit (revenue less cost of revenue) | $38,947 | $127,972 | $157,469 | $210,946 |
| Gross margin | 5.1% | 51.2% | 15.0% | 43.3% |
| Operating loss | $473,374 | $386,112 | $1,075,121 | $1,319,289 |
| Net loss attributable to common stockholders | $532,581 | $111,561 | $1,210,991 | $1,109,601 |
| Loss per share, basic and diluted | $0.02 | $0.00 | $0.04 | $0.04 |
- Revenue and margins: Quarterly revenue more than tripled, which management attributed to higher trading volume and a shift in commodities traded. Costs rose faster than revenue, substantially reducing gross margin. Nine-month revenue also increased, while gross profit declined.
- Cash flow: Nine-month operating cash use was $973,336, versus $483,068 in 2016; investing cash use was $301,497, versus $270,694. Financing provided $2,418,016, principally reflecting share issuance, and cash increased by $1,152,763 to $1,690,792. Management reported quarterly non-GAAP cash burn of approximately $360,279, with adjustments for depreciation, non-cash interest, and ESOP expenses.
- Liquidity: Current assets were $3,225,806 and current liabilities $1,324,183, yielding reported working capital of $1,901,623. Cash was $1,690,792; the filing also describes this amount as including restricted cash, without separately stating restricted cash.
- Debt and liabilities: Total liabilities were $3,861,280. Non-current liabilities included a $1,800,000 unsecured note, $737,097 in other loans, and no remaining long-term borrowings. The note is serviced with monthly stock payments; the company issued 90,000 shares valued at $48,000 during the quarter. Some other loans carry interest rates as high as 24% and are secured by company assets.
- Equity and dilution: The company reported 29,499,790 shares outstanding at December 31, 2017 and approximately 30,282,053 at January 31, 2018. It sold 1,381,317 shares for $1,610,190 under a new at-the-market agreement during the quarter and granted 1,455,000 shares to directors and employees, subject to at least one year of vesting. Stock-based compensation was $426,111 for the nine months.
Material changes, outlook, and risks
- Quarterly and nine-month losses attributable to common stockholders widened versus 2016, notwithstanding higher revenue. Quarterly other income fell sharply, from $359,104 to $1,090; nine-month interest and other income fell from $372,957 to $9,401. Depreciation was also much lower, which management linked to curtailment of the China iron-ore mining business.
- The legacy business generated all reported revenue. Nine-month sales were principally trading ($874,099, or 83%), with real estate ($82,118, or 8%) and rental ($94,365, or 9%) making up the balance. The pharmaceutical segment reported a nine-month net loss of $1,103,372.
- Management said cash was sufficient to advance its patent portfolio, testing, and marketing and licensing of its Alzheimer’s product. It expected to launch Hyalolex in select U.S. medical dispensaries in early 2018 and described plans for human and veterinary trials and partnerships. The filing provides no quantified revenue or earnings guidance; product development and launch plans are forward-looking.
- The company stated that its cannabis products were non-FDA-approved and asserted that they did not require FDA approval for sale in dispensaries. Investors should assess the regulatory basis, trial status, and commercial readiness of these products independently.
- Accounts receivable included $437,571 due from Cochin International Airport, outstanding for more than a year. After a favorable arbitration ruling, the company continued to carry the full amount as current, without interest or impairment, based on its view of low collection risk.
- A $383,832 advance relating to a 2012 land purchase remained subject to settlement negotiations. The company also continued to pursue claims tied to its Midtown Partners investment. It reported no material legal proceedings against the company and no significant contingencies or commitments for the quarter.
- The filing noted foreign-currency exposure from operations and sales denominated in U.S. dollars, Indian rupees, and Malaysian ringgit. Management reported effective disclosure controls and no material changes to internal control over financial reporting.
Investor verification priorities
- Confirm collection progress and subsequent receipts for the aged $437,571 airport receivable, and review the basis for carrying it at full value.
- Review cash runway and recurring operating cash use, alongside the terms, collateral, and repayment obligations of the company’s loans and $1.8 million note.
- Verify proceeds and share counts from ATM sales, stock-based compensation, grants, and note-related share payments, including subsequent dilution.
- Check whether Hyalolex launched as planned, its regulatory status, and the actual progress and costs of clinical or other product testing.
- Track the proposed land-advance settlement and the Midtown Partners claims, including potential recoveries or write-downs.