IGC Pharma, Inc. (India Globalization Capital, Inc.) — Form 10-Q Summary
Reporting period: Quarter ended September 30, 2016, the second quarter of the company’s fiscal year ending March 31, 2017. The filing also reports six-month results. Financial statements are unaudited.
Business context
The company is shifting away from Hong Kong electronics trading toward phytocannabinoid-based therapies and Malaysian real estate/project management, while continuing equipment leasing and other activities in India. It reports five provisional patent filings related to pain, seizures/epilepsy, and cachexia; patent approval and commercialization are not assured.
Financial performance and liquidity
| Metric | Three months ended Sep. 30, 2016 | Six months ended Sep. 30, 2016 |
|---|---|---|
| Revenue | $162,163 | $237,563 |
| Gross profit (revenue less cost of revenue) | $71,629; 44.2% margin | $82,974; 34.9% margin |
| Operating loss | $549,633 | $933,177 |
| Net loss attributable to common stockholders | $583,871; $0.02 per share | $998,040; $0.04 per share |
| Operating cash flow | Used $676,728 during the six-month period |
For the six months, investing activities used $155,347 and financing activities provided $319,245. Cash fell by $551,408 to $939,285. At September 30, current assets were $2.92 million and current liabilities $2.86 million, leaving working capital of $60,236; the company said it had sufficient cash to continue operations with limited expansion. Total assets were $18.86 million and total liabilities $4.04 million.
Debt-related balances included $1.8 million of notes payable, $653,753 of long-term borrowings, and $366,669 of other loans. The $1.8 million note was due July 31, 2016; the company said it was negotiating an extension. Interest is partly paid in shares. Six-month interest expense was $89,956.
Changes versus the prior comparable period
- Revenue decreased 92% year over year in the quarter and 94% over the six-month period, principally because the company curtailed electronics trading. There was no IGC International revenue in the quarter.
- Quarterly SG&A declined to $339,585 from $525,353; six-month SG&A declined to $636,802 from $830,756. The six-month net loss attributable to common stockholders was nearly unchanged from the prior-year $1,006,072 loss.
- Goodwill associated with the Hong Kong business was impaired; goodwill fell from $1.18 million at March 31 to $198,170 at September 30. The company also reported a $183,835 loss on investments/associates/joint ventures for the six-month period.
- In August, the company issued 4 million shares, valued at $1.88 million, for a 10% interest in Brilliant Hallmark, tied to a proposed Malaysian hotel development. Shares outstanding at September 30 were 23,957,827.
Outlook, risks, and unusual items
- Management’s stated priorities are developing and patenting phytocannabinoid therapies, pursuing facilities for pharmaceutical-grade production when legally feasible, and advancing the Genting Highlands hotel project. No quantified financial guidance was provided.
- The hotel is described as an approximately $262 million project. The company owns 10% of the development vehicle; approvals, debt financing, construction selection, timing, and project execution remain uncertain.
- The company has stopped taking electronics orders, released most staff, closed Hong Kong and Shenzhen offices, repaid Hong Kong bank credit lines, and liquidated inventory. It is negotiating for the return of some or all of shares initially issued to the acquired business’s principals.
- A Maryland lawsuit concerning the 2011 Ironman acquisition seeks rescission and return of shares. A trial was anticipated in mid-2017; an adverse outcome could result in removal of Ironman assets from the balance sheet.
- A $419,498 receivable from Cochin International Airport has been outstanding for more than a year. After an arbitration ruling in the company’s favor, it remains classified as current and is carried without impairment or interest.
- Additional risks include foreign-currency movements, Malaysian foreign-ownership and repatriation rules, cannabis-related regulatory constraints, minority-investment exposure, and possible dilution from future share issuance. Management said disclosure controls were effective, while the risk-factor discussion also notes a technical U.S. GAAP/reporting personnel weakness related to China reporting.
- After quarter-end, the company appointed John Cherin CFO, Treasurer, and Principal Accounting Officer on November 15, 2016.
Most important facts for investors to verify
- Whether the overdue $1.8 million note was extended, and the company’s near-term funding needs given low working capital and operating cash use.
- Whether the Malaysian hotel project obtains approvals and financing, and what enforceable recourse supports the company’s investment.
- Collection status and recoverability of the $419,498 aged airport receivable and the recoverability of employee advances and other assets.
- Potential balance-sheet and share consequences of the Ironman litigation and negotiations to recover shares related to IGC International.
- The reported September 30 share count versus approximately 28,378,887 shares outstanding as of November 8, 2016, and the sources and terms of the intervening increase.