IGC Pharma, Inc. (formerly India Globalization Capital, Inc.) — Form 10-Q
Period: Quarter and six months ended September 30, 2018 (the company’s second quarter of fiscal 2019, which ends March 31, 2019). The filing is not for calendar-year 2018 Q2.
Business context
The company was developing cannabinoid-based alternative therapies, including Hyalolex, and a planned CBD-infused energy drink, while also operating a legacy business in infrastructure commodity trading and heavy-equipment rental. All revenue reported for the quarter and six-month period came from the legacy business; alternative therapies generated no revenue. The company stated that its products were not FDA-approved pharmaceuticals.
Financial results
| Metric | Three months ended Sep. 30, 2018 | Three months ended Sep. 30, 2017 | Six months ended Sep. 30, 2018 | Six months ended Sep. 30, 2017 |
|---|---|---|---|---|
| Revenue | $811,000 | $235,000 | $2.289 million | $289,000 |
| Direct costs | $793,000 | $163,000 | $2.229 million | $170,000 |
| Gross profit before depreciation | $18,000 | $72,000 | $60,000 | $119,000 |
| SG&A | $873,000 | $335,000 | $1.427 million | $721,000 |
| Operating loss | $855,000 | $263,000 | $1.367 million | $602,000 |
| Net loss | $858,000 | $304,000 | $1.371 million | $679,000 |
| Loss per share, basic and diluted | $0.03 | $0.01 | $0.04 | $0.02 |
Revenue increased substantially year over year, reflecting greater commodity-trading volume and the prior-year reorganization of the trading business. However, direct costs grew faster than revenue: gross profit before depreciation fell to about 2.2% of quarterly revenue and 2.6% for the six-month period, versus about 30.6% and 41.2%, respectively, in the prior-year periods. SG&A increases included non-cash stock and option compensation, research and development, and corporate costs.
- Cash flow: Six-month operating cash outflow was $851,000, investing outflow $16,000, and financing inflow $5.683 million, primarily from equity sales. Cash increased to $6.408 million from $1.658 million at March 31, 2018. Management cited quarterly cash burn of about $506,000 after adjusting for non-cash items.
- Liquidity: Current assets were $7.741 million and current liabilities $2.504 million at September 30, 2018; reported working capital was $5.237 million. The company said it believed resources were adequate for short-term goals.
- Debt: The balance sheet included $1.8 million of current notes payable, plus $225,000 of other loans and $107,500 of related-party working-capital borrowing. The $1.8 million note is the subject of a dispute with Bricoleur Partners.
- Other balance-sheet items: Total assets were $16.550 million and stockholders’ equity $13.807 million. Intangible assets rose to $1.521 million, including $1.347 million recorded for distribution and technology rights received in exchange for restricted shares.
Material changes, outlook and risks
- During the six months, the company raised $5.885 million from equity issuance. A subsequent event is especially material: on October 2, 2018, it completed an at-the-market offering, selling 3,854,375 shares for approximately $23.6 million gross proceeds at a weighted-average price of about $6.12. The company said the offering was complete.
- At September 30, 2018, the company reported 34.248 million common shares issued and outstanding; it also disclosed shares allocated but not yet issued under agreements. The ATM and other share-based arrangements may result in dilution.
- Management expected fiscal 2019 revenue from Hyalolex commercialization, but provided no quantified forecast and cautioned that revenue was uncertain. It targeted $3 million to $5 million in annual legacy-business revenue and sought to improve margins through cost reduction, higher-margin commodities, and longer-term supplier contracts.
- The company was developing a sugar-free CBD energy drink and filed a related provisional patent application on October 4, 2018. Its products and therapies were not FDA-approved pharmaceuticals, and product commercialization, regulatory treatment, patent outcomes, and customer demand remain uncertain.
- Management identified U.S. cannabis-law uncertainty as a significant risk, including possible federal enforcement, exchange delisting, and restrictions on market access. The filing also highlighted uncertainty around the pending 2018 Farm Bill and hemp-derived CBD sales.
- The company filed suit in May 2018 seeking a declaratory judgment and damages concerning the Bricoleur note and shares previously issued in connection with it. The case was pending. Separately, $385,000 due from Cochin International Airport had been outstanding for more than a year and was carried without impairment.
- The company reported no material legal proceedings against it, no reportable commitments or contingencies, and effective disclosure controls; it reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether the legacy business can improve its very low current gross margins and generate sustainable operating cash flow.
- Actual Hyalolex and other alternative-therapy revenue, launch progress, regulatory status, and any quantified financial outlook.
- Final net proceeds and share-count impact of the completed ATM offering, along with shares allocated but not issued and other potential dilution.
- Status and potential financial consequences of the Bricoleur litigation and the $1.8 million note payable.
- Collectability of the overdue $385,000 airport receivable and the company’s exposure to U.S. cannabis and hemp regulatory changes.