IGC Pharma, Inc. (formerly India Globalization Capital, Inc.) — Form 10-Q
Reporting period: Quarter and nine months ended December 31, 2016 (fiscal Q3 2017). Unless noted, amounts are in thousands of dollars. The filing describes a company shifting away from electronics trading toward phytocannabinoid research and real estate/project management.
Financial performance and position
| Metric | Three months ended Dec. 31, 2016 | Three months ended Dec. 31, 2015 | Nine months ended Dec. 31, 2016 | Nine months ended Dec. 31, 2015 |
|---|---|---|---|---|
| Revenue | $250 | $1,085 | $487 | $4,999 |
| Gross profit / margin | $128 / 51% | $206 / 19% | $211 / 43% | $576 / 12% |
| Operating loss | $(386) | $(375) | $(1,320) | $(1,140) |
| Net loss attributable to common shareholders | $(111) | $(403) | $(1,110) | $(1,385) |
| Basic and diluted loss per share | $(0.00) | $(0.02) | $(0.04) | $(0.09) |
Gross margins above are approximate calculations from reported revenue and cost of revenue. Q3 other income was $359, including income associated with the Ironman disposal; nine-month other income was $373. Interest expense was $46 for Q3 and $136 for nine months.
- Cash and liquidity: Cash and cash equivalents were $744 at December 31, 2016, down from $1,491 at March 31, 2016. Current assets were $1,837 and current liabilities $761, yielding reported working capital of $1,076.
- Cash flow: The cash flow statement reports operating cash used of $483 for the nine months, investing cash used of $271, and financing cash used of $121. Cash declined by $747. MD&A separately reports operating cash use of $807 and investing cash use of $297 from continuing operations; the filing does not clearly reconcile these differences.
- Debt: Total liabilities were $3,630, including $1,800 of long-term notes payable, $623 of other loans, and $446 of long-term borrowings. The $1,800 unsecured note had initially been due July 31, 2016; the company was negotiating an extension and did not expect repayment within 12 months. Interest included noncash share payments.
- Other balance-sheet movements: Total assets declined to $11,170 from $18,859 at March 31. Net property, plant and equipment fell to $942 from $7,074; investments in affiliates increased to $2,453 from $610. Stockholders’ equity was $7,540.
Material changes and management commentary
- Revenue fell about 77% in Q3 and 90% for the nine-month period versus the comparable periods. Management attributed the decline primarily to curtailing the Hong Kong electronics trading business; there was no IGC International revenue in Q3 and none since the quarter ended June 30, 2016.
- Management is redirecting resources toward phytocannabinoid therapies and Malaysian real estate/project management. The company reports five provisional patent filings covering pain, seizures/epilepsy, and eating disorders/cachexia; it cautions that patent filings may not result in granted patents. No pharmaceutical product revenue is reported.
- IGC reported a planned Genting, Malaysia hotel project with an estimated total project value of $262 million. IGC said it holds a 10% interest through an investment and expects project-management revenue during development; the filing provides no firm timing or financial forecast.
- Effective December 30, 2016, IGC redeemed and retired approximately 2.2 million shares issued in connection with the Ironman acquisition in exchange for Ironman’s tangible operating assets. IGC stated its investment in Ironman was reduced to zero while it continued seeking legal recovery of previously issued shares. Ironman’s reported losses were $124 for Q3 and $324 for nine months; it will no longer be consolidated in subsequent periods.
- Management said available cash was sufficient to continue operations with limited expansion. The filing provides no quantified revenue, earnings, or cash-flow guidance.
Risks, contingencies, and unusual items
- A $411 aged receivable from Cochin International Airport had been outstanding for more than a year. Arbitration concluded in IGC’s favor, but the receivable remained fully recorded without impairment or interest; collection remains an execution risk.
- The overdue $1,800 note remained under negotiation. The company also had related-party obligations, including $93 payable to the CEO and a $446 long-term loan due to a Cabaran director.
- The filing references litigation related to the Ironman acquisition and ongoing negotiations regarding recovery of shares. It also describes a settlement negotiation with Apogee concerning the Midtown Partners investment and held-back shares. These matters may affect recoveries and reported asset values.
- IGC International goodwill was impaired, and its acquisition-related contingent shares were not delivered because revenue and profit targets were not met. IGC was negotiating return of some or all of the initially delivered shares.
- Revenue was concentrated: the company reported one main customer in Malaysia, which generated most revenue, and five customers in India. Foreign-currency movements may also affect reported results.
Important facts for investors to verify
- Reconcile the cash-flow figures in the financial statements with the different operating and investing cash-use amounts in MD&A.
- Confirm the note-extension terms, maturity, and any stock-based interest or repayment provisions for the $1,800 note.
- Assess collectability and timing for the $411 aged airport receivable and other customer balances.
- Review the legal status and potential financial outcomes of the Ironman and Apogee matters, and the accounting for the Ironman asset/share transaction.
- Reconcile the balance-sheet share count of 29,842,287 at December 31 with the cover-page count of approximately 27,606,447 at January 30, 2017, including the reported share retirement and subsequent issuances.
- Evaluate execution, funding, ownership rights, and expected economics of the Genting project and the company’s early-stage phytocannabinoid strategy.