IGC Pharma, Inc. (India Globalization Capital, Inc.) — Form 10-Q Summary
Reporting period: Three months ended June 30, 2015, the first quarter of fiscal 2016. Comparisons are with the three months ended June 30, 2014. The filing’s financial statements are unaudited.
Business context
IGC reported businesses spanning electronics trading for IoT and health-monitoring applications, heavy-equipment leasing and materials trading, while pursuing phytocannabinoid-based therapies and related cultivation and extraction facilities. Nearly all quarter revenue came from electronics trading through its Hong Kong subsidiary, IGC International.
Financial performance and position
| Metric | Quarter ended June 30, 2015 | Prior-year quarter |
|---|---|---|
| Revenue | $1.859 million | $0.764 million |
| Cost of revenue | $1.655 million | $0.687 million |
| Gross profit / margin | $204,040 / 11.0% | $76,576 / 10.0% |
| Operating loss | $257,337 | $1.150 million |
| Net loss attributable to common stockholders | $382,699; $0.03 per share | $1.201 million; $0.12 per share |
| Cash used in operating activities | $548,446 | $567,355 |
- Revenue increased approximately 143% year over year, which management attributed mainly to higher business volume. Electronics trading contributed $1.832 million (98.6% of revenue); heavy-equipment rental contributed $26,589.
- SG&A fell to $305,403 from $1.078 million. Management cited cost management and no employee, investor-relations or acquisition-related share or option issuances in the quarter. The lower SG&A was the main reason the net loss narrowed.
- Ending cash and cash equivalents were $659,597, down $164,895 from March 31. Investing activities used $26,396; financing activities provided $410,075, including $335,000 of note proceeds. Management reported working capital of $2.271 million and said available cash was sufficient for operations but allowed only limited expansion.
- At June 30, total assets were $20.580 million, total liabilities $6.058 million and stockholders’ equity $14.522 million. Current assets were $4.865 million and current liabilities $2.594 million. Short- and long-term borrowings totaled $1.586 million; notes payable were $2.135 million. The filing also lists $111,919 of other loans.
- Reported non-GAAP cash burn was approximately $112,583 after specified adjustments; the filing does not provide a reconciliation that clearly explains this figure.
Changes, outlook and risks
- Compared with the prior-year quarter, revenue and gross profit rose, while operating and net losses narrowed substantially. Revenue growth was accompanied by higher cost of revenue. The prior-year comparison includes IGC International for only part of the period following its acquisition.
- No formal numerical guidance was provided. Management’s stated plans include developing and patenting phytocannabinoid therapies, expanding electronics through partnerships and building facilities for pharmaceutical-grade phytocannabinoid production.
- IGC issued a $335,000 convertible promissory note in April 2015 at 4% interest, maturing in 12 months, with a conversion feature after six months. Its $1.8 million unsecured note is due July 31, 2016; interest is paid in shares.
- FINRA approvals for the Midtown Partners transaction remained outstanding. The agreement provides for potential cancellation of 700,000 IGC shares and a $125,000 penalty payable by Apogee; the parties were negotiating a settlement.
- Approximately $0.5 million of receivables from Cochin International Airport had been overdue for more than a year. The company reported a favorable arbitration ruling and carried the full amount without impairment. It also reported $979,219 in advances to employees, described as advances made before IGC acquired Ironman.
- Other unresolved matters include negotiating recovery of a $150,000 TerraSphere advance, completing registration of land received in the Sricon settlement, and a lawsuit seeking cancellation of shares issued to HK Ironman shareholders, which the company expected to settle by fiscal 2017.
- On July 16, 2015, after quarter-end, IGC issued 460,000 shares under agreements concerning accounting, investor relations and phytocannabinoid patent development. Management reported effective disclosure controls and no material change in internal control over financial reporting.
Important facts for investors to verify
- Confirm the revenue comparison: the financial statements show 2014 revenue of $763,864, while MD&A states $764,864.
- Assess cash runway and the basis for management’s “limited expansion” outlook, including the reported cash-burn measure and its reconciliation.
- Review collectability and timing of the aged airport receivable, employee advances and other material advances.
- Track the Midtown/FINRA settlement, potential share cancellation and penalty, as well as dilution from convertible debt and subsequent share issuance.
- Monitor progress and potential recoveries or liabilities related to TerraSphere, Sricon land registration and the HK Ironman litigation.