IGC PHARMA, INC.
The purpose of this Management's Discussion and Analysis ("MD&A") is to provide
an understanding of the Company's consolidated financial condition, and results
of operations and cash flows, and should be read in conjunction with our
unaudited condensed financial statements and related notes that appear elsewhere
in this Quarterly Report on Form 10-Q for the three months and the six months
ended September 30, 2021 , and the Annual Report on Form 10-K for the fiscal year
ended March 31, 2021 , filed with the SEC on June 14, 2021 (the "2021 Form
10-K"). The Company's actual results could differ materially from those
discussed here. Factors that could cause differences include those discussed in
the "Forward-Looking Statements" and "Risk Factors" sections, as well as
discussed elsewhere in this report. The risks and uncertainties can cause actual
results to differ significantly from those in our forward-looking statements or
implied in historical results and trends. We caution readers not to place undue
reliance on any forward-looking statements made by us, which speak only as of
the date they are made. We disclaim any obligation, except as specifically
required by law and the rules of the SEC , to publicly update or revise any such
statements to reflect any change in our expectations or in events, conditions,
or circumstances on which any such statements may be based, or that may affect
the likelihood that actual results will differ from those set forth in the
forward-looking statements.
Overview
Our primary source of revenue in the three months ended September 30, 2021 , and
September 30, 2020 , was from our Life Sciences segment, which includes a
biopharmaceutical component, and a wellness and lifestyle business, which
involves:
(i) development of
potential new drugs,
subject to
applicable
regulatory
approvals, that use
ultra-low doses of
phytocannabinoids
including
cannabidiol ("CBD")
and
tetrahydrocannabinol
("THC"), among
others, in
combination with
other compounds,
believed to assist
in managing symptoms
of diseases like
Alzheimer's,
(ii) hand sanitizers and
several hemp-based
CBD products and
brands, in various
stages of
development, for
sale online and/or
through stores,
(iii) wholesale
of hemp
extracts
including
hemp
crude
extract,
and hemp
isolate,
among
others,
(iv) white labeling of hemp-based products, and
(v) the offering
of tolling
services
like
extraction
and
distillation
to
hemp-farmers
and
retailers.
The Company's second segment, the infrastructure segment, involves:
(i) Execution of
Construction
Contracts - The
Company is executing
a road building
contract in Kerala,
India valued at
approximately $1.2
million . Work on this
project is sporadic
based on COVID-19
restrictions. The
Company intends to
continue operations
in this business line
as the COVID-19
pandemic permits.
(ii) Purchase and Resale
of Physical
Commodities Used in
Infrastructure - This
business line
includes the purchase
and resale of
commodities,
including steel,
wooden doors, marble,
and tiles, among
others. This work has
been adversely
affected due to
COVID-19. There was
no revenue from this
business line during
the three months
ended September 30,
2021 , in part due to
the COVID-19
pandemic. The Company
intends to continue
operations in this
business line as the
COVID-19 pandemic
permits.
(iii) Rental of Heavy
Construction
Equipment - We own
heavy construction
equipment such as
motor grader and
rollers, that we rent
to construction
contractors. This
business is seasonal
and had minimal
revenue during the
three months ended
September 30, 2021 ,
in part due to the
COVID-19 pandemic.
The Company intends
to continue
operations in this
business line as the
COVID-19 pandemic
permits.
The Company operates both segments in compliance with applicable state, national, and local laws and regulations and only in locations and regions where it is legal to do so.
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Table of Contents Company Highlights
? On
broad-spectrum hemp extract cream called Holi Wonder™ at the
event held in Chicago, Illinois , U.S. ? On
certification for its facilities in Vancouver, Washington , U.S. where it
makes its products.
? On
with the USPTO for our IGC-513 for compositions and methods for treating
patients with Dementia due to Alzheimer's disease.
? On
clinical trial on IGC's tetrahydrocannabinol ("THC")- based investigational
new drug, IGC-AD1, intended to alleviate certain symptoms of individuals who
have Alzheimer's disease. The primary endpoint of this Phase 1 trial was
safety and tolerability. Based on this study and subject to FDA concurrence
the cannabis-based investigational drug IGC-AD1 was generally safe and
well-tolerated by the Alzheimer's trial participants. The safety and
tolerability data has been filed with the FDA in IGC's Annual Report. The
trial's secondary endpoints including pharmacokinetics, genotyping,
neuropsychiatric inventory, and measurement of suicide severity, have also
been completed. We expect to report this data as it becomes available andafter submission to the FDA. As previously disclosed, IGC submitted IGC-AD1,
its investigational drug candidate for Alzheimer's, to the FDA under Section
505(i) of the Federal Food, Drug, and Cosmetic Act. IGC received approval to
proceed with the Phase 1 trial, on Alzheimer's patients, from the FDA on
July 30, 2020 .
? During the six months ended September 30, 2021 , the Company raised
approximately
stock. The Company had entered an "at the market" ("ATM") offering pursuant
to the Sales Agreement (the "Agreement") entered on
up to
per share (the "Shares").
? On
borrowed as per the PPP Note of approximately $430 thousand . The PPP Note
was established under the CARES Act and administered by the SBA.
Strategy
We have a two-pronged strategy for our Life Sciences biopharmaceutical
component: the initial prong is to investigate IGC-AD1 for safety and efficacy
in managing the symptoms of Alzheimer's disease. This involves conducting Phase
1 through Phase 3 trials on IGC-AD1 over the next several years, subject to FDA
regulatory approval and adequate funding, with the anticipated goal of
demonstrating safety and efficacy and potentially obtaining FDA approval for
IGC-AD1 as a phytocannabinoid-based formulation that can help manage some
symptoms for patients suffering from Alzheimer's disease. The second prong is to
investigate the potential efficacy of IGC-AD1 on memory and on decreasing or
managing plaques and tangles, some of the hallmarks of Alzheimer's disease.
Our pipeline of investigational phytocannabinoid formulations also includes pain
creams and tinctures for pain relief. We believe that the biopharmaceutical
component of our Life Sciences strategy will take several years to implement and
involves considerable risk; however, we believe it may involve more significant
defensible growth potential and first-to-market advantage.
Our consumer service and products strategy includes advancing the women's line
of products under the brand www.holief.com and developing and creating a
cloud-based platform that connects women with health care professionals who can
help with PMS and dysmenorrhea.
We believe that the additional investment in clinical trials, research, and
development ("R&D"), facilities, marketing, and advertising, and the acquisition
of products and businesses supporting our Life Sciences segment, are likely to
be critical to the development and delivery of innovative products and positive
patient and customer experiences. Part of our strategy is to leverage our R&D
and our intellectual property to develop products that we believe are likely to
be well-differentiated and -supported by science through planned pre-clinical
and clinical trials. We believe this strategy has the potential to improve
existing products and lead to the creation of new products, which, based on
scientific study and research, may offer positive results for the management of
certain conditions, symptoms, and side effects.
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Table of Contents COVID-19 Update Our infrastructure business is based in thestate of Kerala, India , which is among the Indian states most affected by COVID-19, andHong Kong with strict quarantine and travel restrictions. The restrictions continue to adversely impact our infrastructure business, financial condition, liquidity, and operations. While IGC remains committed to its Infrastructure business line and intends to continue pursuing the execution of construction contracts, the purchase and resale of physical commodities used in infrastructure, and the rental of heavy construction equipment as the pandemic allows, we have limited visibility into when economic conditions will recover inIndia andHong Kong .
In response, we have oriented our current focus on a) the human trials on IGC-AD1 and getting an Alzheimer's drug through trials and to market, subject to FDA approval, and b) launching a cannabinoid-based women's wellness line of products designed to assist in managing PMS and Dysmenorrhea.
Results of Operations for the Three Months Ended
The historical results presented below are not necessarily indicative of the results that may be expected for any future period. The following table presents an overview of our results of operations for the three months endedSeptember 30, 2021 andSeptember 30, 2020 :
Statement of Operations (in thousands, unaudited)
Three months ended September 30,
2021 2020 Change Percent
($) ($) ($) Change
Revenue 56 125 (69 ) (55 )%
Cost of revenue (18 ) (99 ) 81 (82 )%
Gross profit 38 26 12 46 %
Selling, general and
administrative expenses (4,110 ) (1,483 ) (2,627 ) 177 %
Research and development
expenses (276 ) (219 ) (57 ) 26 %
Operating loss (4,348 ) (1,676 ) (2,672 ) 159 %
Impairment of investment 0 - - -
Other income, net 4 19 (15 ) (79 )%
Loss before income taxes (4,344 ) (1,657 ) (2,687 ) 162 %
Net loss (4,344 ) (1,657 ) (2,687 ) 162 %
Revenue - Revenue in the quarter ended September 30, 2021 , and September 30,
2020 , was primarily derived from our Life Sciences segment, which involved sales
of products such as lotion, gummies, and alcohol-based hand sanitizers, among
others. Revenue was approximately $56 thousand and $125 thousand for the three
months ended September 30, 2021 , and the three months ended September 30, 2020 ,
respectively.
Revenue in the Life Sciences segment in the three months ended September 30,
2020 , was $58 thousand as compared to $53 thousand in the three months ended
September 30, 2021 , albeit with a change in product mix. Revenue in our
Infrastructure segment for the three months ended September 30, 2020 , was $67
and $3 thousand in the three months ended September 30, 2021 . The revenue
relates to the execution of a construction contract. Primarily due to COVID-19,
we have limited visibility on when either of our segments will stabilize,
generate significant revenue, and become predictable. We expect volatility in
both segments in the foreseeable future. We expect to be opportunistic in
providing personal protection equipment, including hand sanitizers, as areas
reopen from the pandemic.
Cost of revenue - Cost of revenue amounted to approximately $18 thousand for the
three months ended September 30, 2021 , compared to $99 thousand in the three
months ended September 30, 2020 . The cost of revenue in the three months ended
September 30, 2021 , is primarily attributable to raw materials that are required
to produce our products.
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Selling, general and administrative expenses (SG&A)- SG&A expenses consist primarily of employee-related expenses, sales commission, professional fees, legal fees, marketing, other corporate expenses, allocated general overhead and provisions, depreciation and write-offs relating to doubtful accounts and advances, if any. SG&A expenses increased by approximately$2.6 million or 177% to approximately$4.1 million for the three months endedSeptember 30, 2021 , from approximately$1.48 million for the three months endedSeptember 30, 2020 . The$2.6 million increase in SG&A is attributable to the following: approximately$1.7 million to a provision for stolen inventory at our vendor's premises, approximately$352 thousand relates to provision of previously announced legal settlements and associated legal expenses, approximately$125 thousand for anIRS tax penalty, and non-cash increase of$223 thousand and$55 thousand for Common stock-based compensation and depreciation respectively. The remaining increase of about$153 thousand in the quarter is related to marketing and other operating expenses. Research and Development expenses- Research and Development ("R&D") expenses were attributed to conducting the Phase 1 trial on patients suffering from Alzheimer's disease and product research in our Life Sciences segment. The R&D expenses for the three months endedSeptember 30, 2021 , are approximately$276 thousand and approximately$219 thousand for the three months endedSeptember 30, 2020 . The cost associated with this work is mostly associated with the clinical trial on patients suffering from Alzheimer's disease, research comprising of plant extracts that could be productized and data to support the efficacy of the extracts, product research, designing, formulating and market analysis. We expect R&D expenses to increase with progression in trials on IGC-AD1, subject to FDA approval. Other income, net - Other net income increased by approximately$15 thousand or 79% during the three months endedSeptember 30, 2021 . The total other income for the three months endedSeptember 30, 2021 , and 2020 is approximately$4 thousand and$19 thousand , respectively. Other income includes interest income, rental income, and income from sale of scrap, among others.
Results of Operations for the Six Months Ended
The historical results presented below are not necessarily indicative of the results that may be expected for any future period. The following table presents an overview of our results of operations for the six months endedSeptember 30, 2021 andSeptember 30, 2020 :
Statement of Operations (in thousands, unaudited)
Six months ended September 30,
2021 2020 Change Percent
($) ($) ($) Change
Revenue 133 709 (576 ) (81 )%
Cost of revenue (69 ) (637 ) 568 (89 )%
Gross profit 64 72 (8 ) (11 )%
Selling, general and
administrative expenses (5,886 ) (3,238 ) (2,648 ) 82 %
Research and development
expenses (720 ) (441 ) (279 ) 63 %
Operating loss (6,542 ) (3,607 ) (2,935 ) 81 %
Impairment of investment (37 ) - - 100 %
Other income, net 447 68 379 557 %
Loss before income taxes (6,132 ) (3,539 ) (2,593 ) 73 %
Net loss (6,132 ) (3,539 ) (2,593 ) 73 %
Revenue - Revenue in the six months ended September 30, 2021 , was primarily
derived from our Life Sciences segment, which involved sales of products such as
lotion, gummies, and alcohol-based hand sanitizers, among others. Revenue was
approximately $133 thousand and $709 thousand for the six months ended September
30, 2021 , and the six months ended September 30, 2020 , respectively.
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Revenue in the Life Sciences segment in the six months endedSeptember 30, 2020 , was$642 thousand as compared to$115 thousand in the six months endedSeptember 30, 2021 , albeit with a change in product mix. Revenue in our Infrastructure segment for the six months endedSeptember 30, 2020 , andSeptember 30, 2021 , was$67 and$18 respectively. Such revenue relates to execution of a construction contract. Primarily due to COVID-19, we have limited visibility on when either of our segments will stabilize, generate significant revenue, and become predictable. We expect volatility in both segments in the foreseeable future. We expect to be opportunistic in providing personal protection equipment, including hand sanitizers, as the country reopens from the pandemic. Cost of revenue - Cost of revenue amounted to approximately$69 thousand for the six months endedSeptember 30, 2021 , compared to$637 thousand in the six months endedSeptember 30, 2020 . The cost of revenue in the six months endedSeptember 30, 2021 , is primarily attributable to raw materials required to produce our products. Selling, general and administrative expenses - Selling, general and administrative expenses consist primarily of employee-related expenses, sales commission, professional fees, legal fees, marketing, other corporate expenses, allocated general overhead and provisions, depreciation and write-offs relating to doubtful accounts and advances, if any. Selling, general and administrative expenses increased by approximately$2.6 million or 82% to approximately$5.9 million for the six months endedSeptember 30, 2021 , from approximately$3.2 million for the six months endedSeptember 30, 2020 . The$2.6 million increase in SG&A is attributable to the following: approximately$1.7 million to a provision for stolen inventory at our vendor's premises, approximately$352 relates to provision of previously announced legal settlements and associated legal expenses, approximately$125 thousand for anIRS tax penalty, and non-cash increase of$183 thousand and$135 thousand for Common stock-based compensation and depreciation respectively. The remaining increase of about$134 thousand in six month is related to marketing and other operating expenses. Research and Development expenses - R&D expenses were attributed to conducting the Phase 1 trial on patients suffering from Alzheimer's disease and product research in our Life Sciences segment. The R&D expenses for the six months endedSeptember 30, 2021 , are approximately$720 thousand and approximately$441 thousand for the six months endedSeptember 30, 2020 . The cost associated with this work is mostly associated with the clinical trial on patients suffering from Alzheimer's disease, research comprising of plant extracts that could be productized and data to support the efficacy of the extracts, product research, designing, formulating and market analysis. We expect R&D expenses to increase with progression in trials on IGC-AD1. Impairment of investment - OnMay 12, 2020 , the Company acquired approximately 19.8% shareholding inEvolve I, Inc. However, based on an assessment of the business environment, the Company decided to dispose the holding and exit the acquisition. During the six-months endedSeptember 30, 2021 , the Company received back partial shares of IGC common stock, which had been given pursuant to the SSA, in exchange for the return of its shareholding in Evolve. Accordingly, the Company cancelled the partial shares received by it and impaired its remaining investment of approximately$37 thousand . Other income, net - Other net income increased by approximately$379 thousand during the six months endedSeptember 30, 2021 . The total other income for the six months endedSeptember 30, 2021 , and 2020 is approximately$447 thousand and$68 thousand , respectively. Other income includes interest income, rental income, and income from sale of scrap, among others. During the six months endedSeptember 30, 2021 , the other income included approximately$430 thousand related to forgiveness of PPP Note.
Liquidity and Capital Resources
Our sources of liquidity are cash and cash equivalents, funds raised through the ATM offering, cash flows from operations, short-term and long-term borrowings, and short-term liquidity arrangements. The Company continues to evaluate various financing sources and options to raise working capital to help fund current research and development programs and operations. The Company does not have any material long-term debt, capital lease obligations or other long-term liabilities, except as disclosed in this report. Please refer to Note 12, "Commitments and contingencies", Note 11, "Loans and Other Liabilities" and Note 9, "Leases" in Item 1 of this report for further information on Company commitments and contractual obligations. While the Company believes its existing balances of cash, cash equivalents and marketable securities and other short-term liquidity arrangements will be sufficient to satisfy its working capital needs, capital asset purchases, debt repayments, investments, including but not limited to, mutual funds, treasury bonds, cryptocurrencies, and other asset classes, clinical trials and other liquidity requirements, if any, associated with its existing operations over the next 12 months, it will raise money as and when it is able to do so. The Company continues to utilize the ATM to raise capital. Management is actively monitoring the impact of COVID-19 on the Company's financial condition, liquidity, operations, suppliers, industry, legal expenses, and workforce.
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Please refer to Item 1A. "Risk Factors" for further information on the risks
related to the Company.
(in thousands, unaudited)
As of
September 30 , As of
2021 March 31, 2021
($) ($) Change Percent ChangeCash and cash equivalents 14,399 14,548 (149 ) (1 )% Working capital 19,689 21,149 (1,460 ) (7 )% Cash and cash equivalents Cash and cash equivalents decreased by approximately$149 thousand to$14.39 million in the three months endedSeptember 30, 2021 , from$14.5 million as ofMarch 31, 2021 , a decrease of approximately 1%. The major decrease was due to approximately$125 thousand in purchase of property, plant, and equipment and a net cash loss of approximately$4.15 million , part of which was set-off with approximately$4.1 million of net proceeds from the issuance of equity stock through an ATM offering. Of the$3.8 million net cash loss, approximately$1.7 million relates to a provision for inventory stolen at the vendor premises and approximately$152 thousand relates to one-off settlement related legal expense. Summary of Cash flows (in thousands, unaudited) Six months ended September 30, 2021 2020 Change Percent Change
Cash used in operating activities (4,153 ) (6,450 ) 2,297 (36 )% Cash used in investing activities (140 ) (195 ) 55 (28 )% Cash provided by financing activities 4,144 530 3,614 682 % Effects of exchange rate changes on cash and cash equivalents - 8 (8 ) (100 )% Net decrease in cash and cash equivalents (149 ) (6,107 ) 5,958 (98 )% Cash and cash equivalents at the beginning of period 14,548 7,258 7,290 100 % Cash and cash equivalents at the end of the period 14,399 1,151 13,248 1,151 % Operating Activities Net cash used in operating activities for the six months endedSeptember 30, 2021 , was approximately$4.1 million . This consists of a net loss of approximately$6 million and non-cash items totaling approximately$2.2 million , which in turn consist of an amortization/depreciation charge of approximately$320 thousand , stock-based expenses totaling approximately$549 thousand , approximately$1.7 million for a provision related to stolen inventory, approximately$37 thousand related to impairment of investment and gain due to forgiveness of PPP Note of approximately$430 thousand . Changes in operating assets and liabilities had a net negative impact of approximately$216 thousand on cash, of which approximately$20 thousand is related to inventory. Net cash used in operating activities for the six months endedSeptember 30, 2020 , was approximately$6.4 million . This consists of a net loss of approximately$3.5 million and non-cash items totaling approximately$550 thousand , which in turn consist of an amortization/depreciation charge of approximately$185 thousand and stock-based expenses totaling approximately$365 thousand . Changes in operating assets and liabilities had a negative impact of approximately$3.5 million on cash, of which approximately$2.4 million was due to an increase in inventory. Investing Activities Net cash used in investing activities for the six months endedSeptember 30, 2021 , was approximately$140 thousand , which is comprised of expenses of approximately$15 thousand for the acquisition and filing expenses related to patents and purchase of property, plant and equipment of approximately$125 thousand .
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Net cash used in investing activities for the six months endedSeptember 30, 2020 , was$195 thousand , which is comprised of approximately$48 thousand for the acquisition and filing expenses related to patents and trademarks, purchase of property, plant and equipment of$1.2 million and investments of approximately$149 thousand in non-marketable securities and proceeds of$1.2 million in marketable securities. Financing Activities Net cash provided by financing activities was approximately$4.1 million for the six months endedSeptember 30, 2021 , which is comprised of net proceeds from issuance of equity stock through ATM offering, net of all expenses related to issuance of stock.
Net cash provided by financing activities was
Off-Balance Sheet Arrangements
We do not have any outstanding derivative financial instruments, off-balance sheet guarantees, interest rate swap transactions or foreign currency forward contracts. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit support to us or that engages in leasing, hedging or research and development services with us.
Critical Accounting Policies
While all accounting policies impact the financial statements, certain policies may be viewed as critical. Critical accounting policies are those that are both most important to the portrayal of financial condition and results of operations and that require Management's most subjective or complex judgments and estimates. Our Management believes the policies that fall within this category are the policies on revenue recognition, inventory, accounts receivable, foreign currency translation, impairment of long-lived assets and investments, stock-based compensation, and cybersecurity. We have a cybersecurity policy in place and have taken cybersecurity measures that we expect are likely to safeguard the Company against breaches. There were no impactful breaches in cybersecurity during the six months endedSeptember 30, 2021 . Please see our disclosures in Note 2 - Summary of Significant Accounting Policies to the Notes to the Unaudited Condensed Consolidated Financial Statements in this report, in the Notes to the Audited Consolidated Financial Statements in the 2021 Form 10-K, as well as Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations in the 2021 Form 10-K, for a discussion of all our critical and significant accounting policies.
Recent Accounting Pronouncements
The recent accounting pronouncements are discussed in Note 2 - Summary of Significant Accounting Policies to the Notes to the Unaudited Condensed Consolidated Financial Statements in this report and in the Notes to the Audited Consolidated Financial Statements in Part II of our Annual Report on Form 10-K for fiscal year endedMarch 31, 2021 , filed with theSEC onJune 14, 2021 .
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