Item 8.01 Other Events
In an article that first appeared on February 7, 2020, the New York Times
explained that "[t]he coronavirus [COVID-19] outbreak in China has rattled the
global economy, disrupting virtually every major industry, from food, fashion
and entertainment to automobiles and technology." While our thoughts, concerns,
and prayers remain with the well-being of the individuals and communities
affected by the disease; many of whom trade infrastructure materials with our
subsidiary in India, and many of whom are part of our supply chain, COVID-19 has
disrupted many aspects of our operations.
a) Our revenue from the infrastructure business remains affected, as our staff
is unable to travel to Hong Kong, and there has been a marked disruption of
the Hong Kong economy;
b) All of our hemp processing and distillation equipment is sourced from China.
While we took delivery of the equipment, the commissioning and certification
of the equipment is delayed as the Chinese technicians, some of whom are
based in the U.S., traveled to China and now are unable to return to the U.S.
given travel restrictions. The commissioning of our large-scale processing
and distillation equipment in our Good Manufacturing Practice (GMP)-compliant
facility in the State of Washington is delayed as a result; and
c) The packaging for our products is mostly sourced from China, and shipments
are delayed as some of the factories remain closed or are minimally staffed.
Consequently, the launch of some of our brands is delayed.
Although we have retained staff for launches of various products and services,
as well as showings at CBD (cannabidiol) conferences, the impact of COVID-19 on
our operations is expected to be reflected in reduced revenue and increased
expenses in both our infrastructure and plant and cannabinoid businesses. The
Company presently cannot estimate the full potential impact of COVID-19.
As disclosed in the 10-Q filed for the quarter ended December 31, 2019, filed
with the SEC on February 10, 2020, the Company signed a non-binding term sheet
to acquire all of the issued and outstanding shares of common stock of Evolve I,
Inc., a Washington corporation ("Evolve"), a hemp product development company
for a total consideration of approximately $6 million in combination of cash and
stock of the Company, of which approximately $5 million is set out as a three
year earn-out. Evolve had minimal revenue in 2019.
On February 15, 2020, the Company signed a Share Subscription Agreement with
Evolve, to acquire seven hundred fifty (750) shares of issued and outstanding
common stock of Evolve (approximately 20% of Evolve) in exchange for $148,722.75
in cash at closing and 100,514 shares of common stock of the Company.
The Company is actively negotiating a Share Purchase Agreement with the
shareholders of Evolve to acquire the remaining issued and outstanding shares of
common stock of Evolve. At closing of the Share Purchase Agreement, the Company
expects to pay consideration consisting of $229,590 in cash and 22,040 shares of
common stock of the Company. In addition, approximately $300,000 in cash and
300,000 shares of common stock of the Company would be payable on the
achievement of various operational goals. Finally, the Company expects it will
pay additional consideration in the form of an earn-out in the event that Evolve
achieves certain revenue and profit goals: a) approximately $0.9 million is
payable on achieving revenue and profit targets in Year 1; b) approximately $1.6
million is payable on achieving revenue and profit targets in Year 2; and c)
approximately $2.5 million is payable on achieving revenue and profit targets in
Year 3. The earn-out is partly payable in cash and partly payable in stock of
the Company. As the parties continue to negotiate the terms, there can be no
guarantee that the Company will execute the Share Purchase Agreement.
Despite the evolving circumstances, management believes the Company is strong
and resilient, and management remains fully committed to building stockholder
value. Our focus continues to remain on FDA trials, building our intellectual
property, and finalizing, producing and marketing our product and service
offerings. We are and have taken steps to weather what the Company expects to be
a temporary situation related to COVID-19. The outlook set forth above speaks as
of the date hereof.
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Forward-looking Statements:
This press release contains forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934. These forward-looking
statements are based largely on IGC's expectations and are subject to a number
of risks and uncertainties, certain of which are beyond IGC's control. Actual
results could differ materially from these forward-looking statements as a
result of, among other factors, worsening of the COVID-19 outbreak in China, the
U.S., and other parts of the world, the prolonged continuation of travel
restrictions related to the outbreak, continued disruption of the Hong Kong
economy, competitive conditions in the industries in which IGC operates, failure
to reach agreement on the terms of the Share Purchase Agreement and/or any other
documents related to the transaction by which the Company anticipates acquiring
Evolve I, failure to meet operational goals and/or revenue and profit targets of
Evolve I products, failure to commercialize one or more of the products or
technologies of IGC, including any products identified herein, any changes in
federal, state, or local law applicable to our businesses and the locations
where we operate, general economic, political, and health and welfare conditions
that are less favorable than expected, the Federal Food and Drug
Administration's (FDA) general position regarding hemp-based and related
products in particular, and other factors, many of which are discussed in our
SEC filings. The Risk Factors identified in the Company's annual report, filed
on Form 10-K with the SEC on June 14, 2019, and in the Company's quarterly
reports, filed on Form 10-Q with the SEC on November 5, 2019 and February 10,
2020, are incorporated herein by reference. In light of these risks and
uncertainties, there can be no assurance that the forward-looking information
contained in this release will in fact occur.
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IGC PHARMA, INC. 
