IGC Pharma, Inc. (formerly India Globalization Capital, Inc.) — Form 10-Q Summary
Reporting period: Three months ended June 30, 2014 (the first quarter of the company’s fiscal 2015). Financial statements are unaudited; balance-sheet comparisons are against March 31, 2014.
Business context and significant developments
IGC operates across India, China, Hong Kong and the United States, with activities including iron-ore trading and beneficiation, construction-equipment leasing, construction services, and commodities and electronics trading. Management described a strategy to diversify beyond iron ore, including indoor farming and potential future legal-cannabis, solar-energy and clean-technology opportunities.
- On May 31, 2014, IGC acquired 51% of Golden Gate Electronics, renamed IGC International (IGC-INT), which operates an e-commerce platform for commodities and electronic components. Its results are included for June only; the purchase-price allocation and goodwill are provisional.
- On June 27, IGC agreed to develop indoor farming facilities with TerraSphere and Greenlife Ventures. IGC expects to own 51% of each venture once production is operational, committed to invest $350,000, and received a seven-year option to purchase TerraSphere in exchange for 50,000 shares.
Financial performance and position
| Metric | Three months ended June 30, 2014 | Prior-year comparable |
|---|---|---|
| Revenue | $763,864 | $1,123,904 |
| Gross profit / gross margin | $76,576 / 10.0% | $187,665 / 16.7% |
| Operating loss | $(1,149,999) | $(260,754) |
| Net loss attributable to common stockholders | $(1,201,429) | $(633,487) |
| Basic and diluted loss per share | $(0.12) | $(0.09) |
| Net cash used in operating activities | $(567,355) | $(243,564) |
- SG&A was $1.078 million, versus approximately $299,000 a year earlier. The company attributed the increase mainly to about $644,000 in employee, vendor and investor-relations stock issuances and acquisition-related expenses.
- Cash and cash equivalents were $2.953 million at June 30, up from $1.027 million at March 31. Current assets were $6.425 million and current liabilities $1.957 million, a current ratio of approximately 3.3. Management said cash was sufficient for operations with limited expansion.
- Total liabilities were $4.788 million. Debt included $1.8 million of notes payable due July 2016, plus approximately $1.429 million of IGC-INT bank facilities and other loans; the filing reports an average 5% rate on IGC-INT’s facilities. The $1.8 million note’s interest was payable in shares.
- Financing activities provided $2.598 million, primarily from common-stock issuance. Shares outstanding rose from 9,373,569 at March 31 to 12,491,010 at June 30. The company also reported 12,590,399 shares outstanding as of August 8.
- The filing’s pro forma acquisition presentation estimates revenue of $2.001 million and a net loss attributable to IGC stockholders of $1.216 million for the June 2014 quarter, assuming IGC-INT had been acquired at the start of the period. This is not the reported actual revenue.
Changes, outlook, risks and unusual items
- Reported revenue fell about 32% year over year; cost of revenue also declined, but gross margin contracted. The company said the revenue mix shifted from primarily iron ore in the prior-year quarter to commodities and electronics in fiscal 2015, and attributed lower revenue to reduced trading volume.
- Management expected fiscal 2015 revenue to be substantially stronger than fiscal 2014, with higher revenue in coming quarters and improved earnings by year-end. These are forward-looking expectations, not guarantees.
- IGC is evaluating strategic alternatives for its Ironman operations in China, including licensing, an alliance, dividing plants or terminating the arrangement; no final decision was reported. A settlement exchanging the Sricon interest for land was expected to close in calendar 2014.
- Approximately $500,000 of aged receivables had been outstanding for more than a year. The company retained them at full value without impairment, citing its belief that collection risk was minimal. Accounts receivable also included $535,144 from IGC-INT and $500,684 from TBL.
- Key disclosed risks include foreign-exchange volatility, demand and competition in iron ore and electronics, regulation across operating jurisdictions, logistics and labor issues, and unanticipated funding needs. The filing reported no material legal proceedings and no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Confirm the provisional IGC-INT purchase-price allocation, including $982,782 of goodwill, earn-out conditions, acquired liabilities and the contribution of the acquired business to future results.
- Assess whether cash generation can improve: operating cash use was $567,355, while management described liquidity as sufficient only for operations with limited expansion; the company also committed $350,000 to TerraSphere.
- Evaluate the collectability and timing of the approximately $500,000 aged receivable and the larger customer balances disclosed for TBL and IGC-INT.
- Review dilution from ATM and other stock issuances, share-based compensation, acquisition consideration and monthly stock interest on the Bricoleur note.
- Reconcile apparent disclosure inconsistencies: the financial statements and Note 18 report a quarter foreign-exchange loss of $3,150, while MD&A states $3,150,000; MD&A also describes cash “along with restricted cash” as $2,952,739, the same amount shown as cash and cash equivalents. Some cash-flow line-item signs and descriptions are also unclear in the supplied filing text.