IGC 10-Q Summary — Quarter Ended December 31, 2012
Issuer and business: The filing is for India Globalization Capital, Inc. (IGC), not IGC Pharma, Inc. IGC operated mining, iron-ore trading and construction businesses in India and China. Its fiscal year ends March 31; this report covers fiscal Q3 and the nine months ended December 31, 2012.
Financial performance
| Metric | Three months ended Dec. 31, 2012 | Three months ended Dec. 31, 2011 | Nine months ended Dec. 31, 2012 | Nine months ended Dec. 31, 2011 |
|---|---|---|---|---|
| Revenue | $3.934 million | $0.987 million | $6.553 million | $2.959 million |
| Operating income (loss) | $455,382 | $(1.049) million | $(82,550) | $(2.467) million |
| Net income (loss) attributable to IGC common stockholders | $310,892 | $(1.901) million | $(360,134) | $(3.560) million |
| Basic and diluted EPS | $0.01 | $(0.09) | $(0.01) | $(0.17) |
Quarterly revenue rose about 299% year over year; nine-month revenue rose about 121%. Quarterly gross profit, calculated as revenue less cost of revenue excluding depreciation, was $744,000 (about 18.9% of revenue), versus a gross loss of $38,000 in the prior-year quarter. Nine-month gross profit was $1.317 million (about 20.1% of revenue). The statements also report consolidated net income of $497,970 for the quarter and consolidated net loss of $207,685 for nine months; the difference from the amounts attributable to common stockholders reflects non-controlling interests.
- Cash flow: Nine-month operating cash flow was positive $1.260 million, compared with cash used of $1.199 million a year earlier. Investing activities provided $373,000, versus $4.230 million in the prior-year period. Financing activities used $5,350. Cash and cash equivalents were $2.108 million at period-end; including restricted cash, cash was $2.111 million.
- Liquidity and balance sheet: Current assets were $5.607 million and current liabilities $3.866 million, a current ratio of about 1.45. Total assets were $21.439 million; total liabilities were $5.779 million; total stockholders’ equity was $15.660 million.
- Debt: Current liabilities included a $1.8 million Bricoleur note, $4,557 of short-term borrowings and $414,437 of other loans. The Bricoleur note was exchanged in October 2012 for a new $1.8 million note and 3 million shares; the filing says the shares were issued in January 2013. It also provides for 171,000 additional shares per month if the note remains unpaid beginning February 1, 2013.
- Margins and expenses: Quarterly SG&A fell to $153,789 from $968,890; nine-month SG&A fell to $936,348 from $2.354 million. Quarterly depreciation increased to $134,785 from $42,360; nine-month depreciation rose to $463,503 from $169,225. Interest expense fell substantially year over year in both reported periods.
Material changes and unusual items
- Management attributed higher revenue to increased iron-ore and materials trading; quarterly revenue also included $802,746 from closing a TBL construction contract. PRC Ironman accounted for 82% of revenue and TBL 13% in the revenue-contribution table.
- Other non-current liabilities fell by $3 million after Ironman failed to meet, and was not expected to meet, income targets tied to contingent acquisition payments. The liability reduction was reflected in expenses/provisions, with a corresponding reduction to intangible assets and goodwill. Intangible assets and goodwill declined from $4.804 million at March 31, 2012 to $1.472 million.
- The company recorded a $120,595 net other-income loss for the nine-month period; management said other income primarily reflected foreign-exchange remeasurement. Foreign-currency movements and restrictions on repatriating funds from India and China remain relevant risks.
- Total liabilities decreased from $9.444 million at March 31, 2012, principally reflecting the contingent-payment adjustment and reductions in other non-current liabilities. Shares outstanding were 60,061,737 at December 31, 2012, unchanged from March 31, 2012.
Outlook, risks and controls
Management said it was shifting emphasis from construction toward mining and trading, expanding iron-ore assets and developing beneficiation capacity. It expected costs as a share of revenue to decline as its mines became operational and projected profitability in the next fiscal year based on then-current iron-ore price trends. These are expectations, not quantified guidance, and the filing cautions that actual results may differ.
- Risks include iron-ore price and demand volatility, competition, mining permits and government action, logistics and labor constraints, currency movements, cash needs, and seasonal weather disruptions. The filing also describes limits on currency convertibility and delays in repatriating funds.
- Customer concentration is significant: four Ironman customers generated 95% of its quarterly revenue; six Indian customers represented about 95% of gross receivables at December 31. A separate note says three customers accounted for 90% of receivables, primarily aged under 60 days.
- Management said no significant commitments or contingencies arose during the quarter and reported no legal proceedings. It disclosed prior financial-reporting weaknesses and continuing remediation; consolidation still relied on manual steps, and China-based accounting staff and controls were still being developed. The filing does not clearly state an overall conclusion on disclosure-control effectiveness in the provided text.
- The company expected a settlement involving its 22% Sricon interest in exchange for approximately five acres of land to close by fiscal year-end. It also expected a transaction to make TBL wholly owned to close during the fiscal year.
Investor verification priorities
- Confirm the correct issuer: this filing identifies India Globalization Capital, Inc.; the request metadata names IGC Pharma, Inc.
- Review the Bricoleur note’s maturity, share-issuance terms and subsequent January 2013 issuance, including potential dilution if repayment is delayed.
- Verify the accounting and cash-flow effects of the $3 million Ironman contingent-payment reversal and related reduction in goodwill and intangible assets.
- Assess whether operating cash generation, customer concentration and working-capital needs support management’s profitability expectations.
- Check progress on mining operations, permits, the TBL and Sricon transactions, and remediation of financial-reporting controls.