IGC Pharma, Inc. (India Globalization Capital, Inc.) — Form 10-Q
Business context and reporting period. This filing covers the fiscal second quarter and six months ended September 30, 2019; dollar amounts below are in millions unless stated otherwise. IGC operates an Infrastructure Business and a Plant and Cannabinoid Business. The interim financial statements are unaudited.
Financial performance
| Metric | Three months ended Sept. 30, 2019 | Three months ended Sept. 30, 2018 | Six months ended Sept. 30, 2019 | Six months ended Sept. 30, 2018 |
|---|---|---|---|---|
| Revenue | $1.821 | $0.811 | $3.470 | $2.289 |
| Gross profit | $0.028 | $0.018 | $0.069 | $0.060 |
| Operating loss | $(1.288) | $(0.855) | $(2.743) | $(1.367) |
| Net loss | $(1.179) | $(0.859) | $(2.558) | $(1.371) |
| Basic and diluted loss per share | $(0.03) | $(0.03) | $(0.06) | $(0.04) |
- Gross margins remained very low: approximately 1.5% for the quarter and 2.0% for the six-month period. Management attributed higher revenue and cost of revenue mainly to increased infrastructure commodity sales, with margins described as stable.
- For the six months, Infrastructure generated $3.091 million, or 89% of revenue; Plant and Cannabinoid generated $0.379 million, or 11%. Cannabinoid revenue included products such as Hyalolex and hemp extracts. No construction-contract revenue was reported.
- General and administrative expense was $1.094 million for the quarter and $2.343 million for six months. Management said shareholder-litigation-related legal and professional fees accounted for about $0.291 million and $0.574 million of the respective year-over-year increases. Six-month R&D expense rose to $0.469 million from $0.278 million.
Liquidity, cash flow and balance sheet
- At September 30, cash and cash equivalents were $14.063 million, with a separate $5.039 million short-term mutual-fund investment. Working capital was $22.270 million, down from $25.845 million at March 31, 2019.
- Six-month operating cash use was $4.444 million, including a $2.860 million inventory build and other working-capital effects. Investing cash use was $7.111 million, primarily $5.039 million invested in mutual funds and $2.049 million for property, plant and equipment. Financing provided $0.018 million. Cash declined by $11.547 million from the fiscal year-end balance.
- Total assets were $32.887 million; total liabilities were $1.645 million, including a $0.050 million short-term loan and $0.015 million of other liabilities. Stockholders’ equity was $31.242 million. The filing reports no material effect on cash flows from adopting the new lease standard.
- Weighted-average shares for the six-month period increased to 39.529 million from 31.345 million in the prior-year period. The company reported 39,571,407 common shares outstanding on October 15, 2019.
Material changes, outlook and risks
- Revenue increased 125% year over year for the quarter and 52% for six months, while net loss widened 37% and 87%, respectively. Operating expenses grew faster than gross profit; management cited litigation costs, and six-month R&D spending also increased.
- IGC obtained Puerto Rico IRB approval for a planned 100-person, double-blind, placebo-controlled IGC-AD1 trial. It expanded Hyalolex dispensary distribution and marketing, opened a Colombia marketing and research hub, began growing hemp on 100 acres in Arizona, and expected the first harvest in early 2020. The company also said it planned to test-market a pain-relief brand online in early 2020.
- No quantified financial guidance was provided. Plans and expectations are subject to execution and regulatory risks. The filing cautions that certain hemp and cannabinoid product statements are not FDA-approved claims.
- Shareholder class-action and derivative litigation remained a material uncertainty. A preliminary agreement to resolve derivative suits awaited final terms and court approval; no liability provision was recorded. In October 2019, the company moved to dismiss the consolidated class action, and the court’s timing was uncertain. Management noted that legal expenses could be significant.
- Other stated risks include NYSE American listing requirements, evolving hemp and cannabis regulation and licensing, crop and weather exposure, commodity-price volatility, consumer perception, and possible difficulty maintaining banking or other business relationships.
Important facts for investors to verify
- Whether the derivative-litigation settlement receives final terms and court approval, and the outcome of the class-action dismissal motion and related legal costs.
- Whether the Arizona hemp crop, planned clinical trial, product launches and distribution expansion proceed on schedule and within applicable regulatory requirements.
- The sustainability and economics of revenue growth: commodity trading drove most sales, while reported gross profit remained very small.
- Cash consumption and deployment, including the $5.039 million mutual-fund investment, inventory growth and capital expenditures; the filing’s MD&A liquidity table lists cash and cash equivalents of $14.063 million but does not clearly include the separately reported short-term investment.
- Potential dilution and share-count changes, including outstanding warrants, units and unissued restricted shares/options described in the filing.