IGC Pharma, Inc. (then India Globalization Capital, Inc.) — Form 10-Q summary
Reporting period: Quarter ended September 30, 2015, the second quarter of IGC’s fiscal 2016 (fiscal year ending March 31, 2016). The filing compares the three- and six-month periods with the periods ended September 30, 2014. Figures are in U.S. dollars unless stated otherwise.
Business context
IGC reported a mix of electronics trading, legacy heavy-equipment leasing and early-stage phytocannabinoid drug-development activity. For the six months, electronics trading generated $3.88 million, or 99% of revenue; equipment leasing generated $36,644. Management’s strategy was to develop and patent cannabinoid-based therapies, expand electronics through partnerships, and build facilities for pharmaceutical-grade phytocannabinoids.
Financial results and liquidity
| Metric | Three months ended Sept. 30, 2015 | Three months ended Sept. 30, 2014 | Six months ended Sept. 30, 2015 | Six months ended Sept. 30, 2014 |
|---|---|---|---|---|
| Revenue | $2.056 million | $2.118 million | $3.914 million | $2.882 million |
| Operating loss | $508,221 | $765,279 | $765,558 | $1.915 million |
| Net loss attributable to common stockholders | $623,373 | $887,399 | $1.006 million | $2.105 million |
| Basic and diluted loss per share | $0.04 | $0.07 | $0.07 | $0.17 |
| Cash from operating activities | Not provided for the quarter | $7,336 | $(1.952) million |
Quarterly revenue decreased about 3% year over year; six-month revenue increased about 36%. Gross profit before depreciation was approximately $166,000 for the quarter (about 8.1% of revenue) and $370,000 for six months (about 9.5%). Management said quarterly margins were approximately unchanged. Six-month SG&A fell to $831,000 from $1.869 million, which management attributed primarily to reduced mining-related costs; the prior-year period also included acquisition costs. No income tax expense or benefit was recorded.
At September 30, cash and cash equivalents were $638,000, versus $824,000 at March 31. Working capital was $2.262 million. Management said cash was sufficient for operations with limited expansion. Six-month investing activities provided $46,582, while financing activities used $249,109. The filing reports quarterly non-GAAP cash burn of approximately $101,810; investors should review the company’s calculation and adjustments.
Total liabilities were $4.731 million, including $806,000 of short- and long-term bank borrowings, $2.135 million of notes payable, and $166,000 of other loans. Total liabilities declined from $5.582 million at March 31. Bank facilities carried an average interest rate of 5% and were secured primarily by IGC-INT receivables and inventory, with additional guarantees. Stockholders’ equity was $14.094 million. Shares issued and outstanding rose to 16.223 million from 14.766 million at March 31.
Material changes, outlook and risks
- Management attributed the lower quarterly loss mainly to reduced SG&A. It cited a slowdown in global economies and the electronics business as reasons for slightly lower quarterly revenue.
- IGC was developing its IGC501 topical cannabinoid pain formulation and reported conversion of a provisional application to a PCT application. It planned to file non-provisional applications within 12 months, but cautioned that patent registration is not assured. No financial guidance or quantified revenue outlook was provided.
- The company was negotiating settlement of the Midtown Partners transaction after FINRA approvals were not obtained. The agreement could result in cancellation of 700,000 shares and a $125,000 payment to IGC; settlement remained under negotiation.
- Approximately $500,000 of receivables from Cochin International Airport had been outstanding for more than a year. The company retained the full amount as current and unimpaired following a favorable arbitration ruling.
- IGC was negotiating recovery of a $150,000 TerraSphere advance. It also expected to finalize and register approximately five acres of land received in a settlement with Sricon during fiscal 2016. A lawsuit seeking cancellation of shares issued to HK Ironman shareholders was at a preliminary stage and expected by the company to settle by fiscal 2017.
- Foreign exchange losses were $116,124 for the six-month period, compared with $78,055 in the prior-year period; management cited depreciation of the Indian rupee against the U.S. dollar. Other key exposures include customer collection, foreign currency movements, business execution, and regulatory and patent outcomes.
- Subsequent to quarter-end, IGC reported that it repaid the $335,000 River North convertible note and accrued interest by October 22, 2015. The filing said disclosure controls were effective and there were no material changes in internal control over financial reporting.
Important facts for investors to verify
- Whether operating cash generation can improve and whether the stated cash runway supports more than limited expansion.
- Collection timing and recoverability of the aged $500,000 airport receivable and substantial employee advances.
- Final outcomes of the Midtown transaction and penalties, the TerraSphere advance recovery, Sricon land registration, and HK Ironman litigation.
- Patent prosecution, product development milestones, and the funding required to advance cannabinoid therapies.
- Further equity issuance and dilution, given the increase in shares outstanding and use of stock for financing, interest and services.
- The reconciliation of reported non-GAAP cash burn and the apparent presentation of “other income” alongside foreign-exchange losses in the filing.