IGC 10-Q Summary
Entity and period: The filing is for India Globalization Capital, Inc. (IGC), not a company identified in the filing as IGC Pharma. It covers the quarter and six months ended September 30, 2014, the second quarter of IGC’s fiscal year ending March 31, 2015. Amounts are U.S. dollars unless stated otherwise.
Business context and performance
IGC’s businesses included iron ore and other commodity trading, construction-equipment leasing and construction activity in India, iron ore beneficiation in China, and—following its May 2014 acquisition—Hong Kong-based commodity and electronics trading. The company also described planned expansion into indoor farming, legal cannabis, solar energy and clean technology. Trading represented 98.6% of six-month revenue; Hong Kong was the reported source of 98.6%.
| Metric | Three months ended Sep. 30, 2014 | Three months ended Sep. 30, 2013 | Six months ended Sep. 30, 2014 | Six months ended Sep. 30, 2013 |
|---|---|---|---|---|
| Revenue | $2.118 million | $1.134 million | $2.882 million | $2.257 million |
| Gross profit before depreciation | $181,303 | $190,092 | $257,879 | $377,757 |
| Gross margin before depreciation | 8.6% | 16.8% | 9.0% | 16.7% |
| Operating loss | $765,279 | $432,709 | $1.915 million | $693,463 |
| Net loss attributable to common stockholders | $887,399 | $615,187 | $2.105 million | $1.249 million |
| Loss per share, basic and diluted | $0.07 | $0.09 | $0.17 | $0.18 |
Revenue increased year over year, which management attributed to higher trading volumes and expansion into commodities and electronics as iron ore prices remained very low. Cost of revenue rose faster than revenue; management said lower commodity prices and business ramp-up costs weighed on margins. SG&A was $1.869 million for the six months, versus $774,076 a year earlier; it included $258,209 of acquisition-related expense for the 2014 period. The quarter’s interest expense was $79,749, including $63,616 paid through stock issuance, according to MD&A. Foreign-exchange losses on intercompany receivables contributed to other expense.
Cash flow, liquidity and capital
- Cash and cash equivalents were $1.346 million at September 30, 2014, up from $1.027 million at March 31. Current assets were $5.604 million and current liabilities $2.453 million.
- For the six months, operating activities used $1.952 million, investing activities used $704,087 and financing activities provided $2.861 million. Financing inflows included $2.999 million from equity issuance. Management said available cash supported operations with limited expansion.
- Management reported quarterly non-GAAP cash burn of approximately $313,765 after specified adjustments, including depreciation, non-cash FX loss and interest, stock-related expenses and one-time acquisition costs. This is a company-defined measure, not operating cash flow.
- Balance-sheet debt included $1.8 million of unsecured notes payable to Bricoleur Partners, due July 31, 2016, and current short-term borrowings and other loans. The notes bear interest paid in shares; the monthly stock-interest amount increased beginning August 2014. The filing’s breakdown of IGC-INT bank facilities does not fully match the balance-sheet loan figures; see investor checks below.
- Common shares outstanding rose from 9.374 million at March 31 to 12.249 million at September 30; the filing reported 13.796 million shares outstanding as of November 3, 2014.
Material developments, outlook and risks
- IGC acquired 51% of IGC International (formerly Golden Gate Electronics) on May 31, 2014. Preliminary purchase accounting included $982,782 of goodwill and an estimated $873,571 stock earn-out liability; the allocation remained subject to refinement. Only September 2014 operating results were included in reported consolidated results.
- After quarter-end, IGC received approximately five acres of land in Nagpur, India, valued at about $4 million, in exchange for its 22% interest in Sricon. Registration was expected by calendar year-end 2014. The September balance sheet still reported $5.109 million of investments in affiliates, identified in the notes as relating to Sricon.
- Management expected revenue to grow through expanded trading, equipment leasing and indoor farming, but gave no quantified guidance. The company was evaluating strategic options for its China Ironman operations, with no final decision disclosed.
- Plans involving cannabis were contingent on legality and regulatory developments. Newly disclosed indoor-farming risks included crop disease, potential harvest losses and the cost and difficulty of obtaining and retaining organic certification.
- Other notable exposures include approximately $500,000 of receivables more than one year overdue, which the company carried without impairment based on its expectation of collection; substantial advances and prepayments, including about $1.0 million in advances to employees; foreign-currency exposure; and acquisition-accounting estimates. The filing reported no significant commitments or contingencies for the quarter and no material legal proceedings.
Key facts for investors to verify
- Confirm the issuer and security: this 2014 filing identifies India Globalization Capital, Inc., rather than IGC Pharma.
- Reconcile bank-facility and loan balances: the note describes $1.569 million of IGC-INT facilities, including $351,173 of short-term borrowings and $1,217,893 of other loans; the balance sheet reports $351,173 and $1,256,552, respectively.
- Assess collectability of the aged $500,000 receivable and employee advances, and review any subsequent collections or impairment.
- Track the Sricon land transfer, registration and accounting treatment, as well as the final IGC-INT purchase-price allocation and earn-out.
- Evaluate cash runway and dilution in light of recurring operating cash use, expansion plans, equity issuance, stock-paid interest and outstanding warrants. The warrants had a $5.00 exercise price and were due to expire March 6, 2015.
- Note a presentation inconsistency: the statements report six-month net loss of $2.126 million before non-controlling interests and $2.105 million attributable to common stockholders, while MD&A describes $2.105 million as consolidated net loss.