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 ended June 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 June 30, 2021 and June
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 June 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
June 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.
Company Highlights
? On
borrowed as per the Paycheck Protection Program Promissory Note (the "PPP
Note") of approximately
to the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act")
and administered by the
? On
cohort, of its Phase 1 clinical trial on IGC's tetrahydrocannabinol ("THC")-
based investigational new drug, IGC-AD1, intended to alleviate the symptoms of
individuals suffering from Alzheimer's disease. As previously disclosed, IGC
submitted IGC-AD1, its investigational drug candidate for Alzheimer's, to the
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 .
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? During the three months ended
The Company had entered "at the market" ("ATM") offering pursuant to the Sales
Agreement (the "Agreement") entered on
share (the "Shares").
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/or 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 greater
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, as well 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.
COVID-19 Update
As our infrastructure business is based in Asia (India and Hong Kong ), the
COVID-19 pandemic and restrictions imposed by governmental entities adversely
impacted, and continues to impact, our financial condition, liquidity, and
operations. We anticipate that reduced revenue from Infrastructure will continue
in Fiscal 2022 as the pandemic continues to affect the regions where we do
business.
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 endedJune 30, 2021 andJune 30, 2020 :
Statement of Operations (in thousands, unaudited)
Three months ended June 30,
2021 2020 Change Percent
($) ($) ($) Change
Revenue 77 584 (507 ) (87 )%
Cost of revenue (51 ) (538 ) 487 (91 )%
Gross profit 26 46 (20 ) (43 )%
Selling, general and
administrative expenses (1,776 ) (1,755 ) (21 ) 1 %
Research and development
expenses (444 ) (222 ) (222 ) 100 %
Operating loss (2,194 ) (1,931 ) (263 ) 14 %
Impairment of investment (37 ) - (37 ) - %
Other income, net 443 49 394 804 %
Loss before income taxes (1,788 ) (1,882 ) 94 (5 )%
Net loss (1,788 ) (1,882 ) 94 (5 )%
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Revenue - Revenue in the three months endedJune 30, 2021 , andJune 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$77 thousand and$584 thousand for the three months endedJune 30, 2021 , and the three months endedJune 30, 2020 , respectively. Revenue in the Life Sciences segment in the three months endedJune 30, 2020 , was$584 thousand as compared to$62 thousand in the three months endedJune 30, 2021 , albeit with a change in product mix. Revenue in our Infrastructure segment for the three months endedJune 30, 2020 , was nil and$15 thousand in the three months endedJune 30, 2021 . Such revenue relates to execution of 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$51 thousand for the three months endedJune 30, 2021 , compared to$538 thousand in the three months endedJune 30, 2020 . The cost of revenue in the three months endedJune 30, 2021 , is primarily attributable to raw materials that are 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$21 thousand or 1% to approximately$1.8 million for the three months endedJune 30, 2021 , from approximately$1.8 million for the three months endedJune 30, 2020 . The increase of approximately$21 thousand is attributed to increased product sales and marketing related 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 endedJune 30, 2021 are approximately$444 thousand and approximately$222 thousand for the three months endedJune 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 an 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. As ofJune 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$394 thousand or 804% during the three months endedJune 30, 2021 . The total other income for the three months endedJune 30, 2021 , and 2020 is approximately$443 thousand and$49 thousand , respectively. Other income includes interest income, rental income, and income from sale of scrap, among others. During the three months endedJune 30, 2021 , the other income included approximately$430 thousand related to forgiveness of PPP Note.
Liquidity and Capital Resources
Our sources of liquidity are cash and cash equivalents, funds raised through the ATM offering, cash flows from operations, short-term and long-term borrowings, and short-term liquidity arrangements. The Company continues to evaluate various financing sources and options to raise working capital to help fund current research and development programs and operations. The Company does not have any material long-term debt, capital lease obligations or other long-term liabilities, except as disclosed in this report. Please refer to Note 12, "Commitments and contingencies", Note 11, "Loans and Other Liabilities" and Note 9, "Leases" in Item 1 of this report for further information on Company commitments and contractual obligations. While the Company believes its existing balances of cash, cash equivalents and marketable securities and other short-term liquidity arrangements will be sufficient to satisfy its working capital needs, capital asset purchases, debt repayments, investments, including but not limited to, mutual funds, treasury bonds, cryptocurrencies, and other asset classes, clinical trials and other liquidity requirements, if any, associated with its existing operations over the next 12 months, it will raise money as and when it is able to do so. The Company continues to utilize the ATM to raise capital. Management is actively monitoring the impact of COVID-19 on the Company's financial condition, liquidity, operations, suppliers, industry, legal expenses, and workforce.
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Please refer to Item 1A. "Risk Factors" for further information on the risks
related to the Company.
(in thousands, unaudited)
As of As of
June 30, 2021 March 31, 2021
($) ($) Change Percent ChangeCash and cash equivalents 13,319 14,548 (1,229 ) (8 )% Working capital 20,078 21,149 (1,071 ) (5 )% Cash and cash equivalents
Cash and cash equivalents decreased by approximately
The major decrease was due to approximately
Summary of Cash flows
(in thousands, unaudited)
Three months ended June 30,
2021 2020 Change Percent ChangeCash used in operating activities (1,851 ) (3,988 ) 2,137 (54 )% Cash used in investing activities (95 ) (1,136 ) 1,041 (92 )% Cash provided by financing activities 726 580 146 25 % Effects of exchange rate changes on cash and cash equivalents (9 ) (11 ) 2 (18 )% Net decrease in cash and cash equivalents (1,229 ) (4,555 ) 3,326 (73 )% 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 13,319 2,703 10,616 393 % Operating Activities Net cash used in operating activities for the three months endedJune 30, 2021 , was approximately$1.9 million . This consists of a net loss of approximately$1.8 million and non-cash items totaling approximately$110 thousand , which in turn consist of an amortization/depreciation charge of approximately$157 thousand , stock-based expenses totaling approximately$125 thousand and gain due to forgiveness of PPP Note of approximately$430 thousand . Changes in operating assets and liabilities had an impact of approximately$48 thousand on cash. Net cash used in operating activities for the three months endedJune 30, 2020 , was approximately$4 million . This consists of a net loss of approximately$1.9 million and non-cash items totaling approximately$243 thousand , which in turn consist of an amortization/depreciation charge of approximately$77 thousand and stock-based expenses totaling approximately$166 thousand . Changes in operating assets and liabilities had a negative impact of approximately$2.35 million on cash, of which approximately$2.28 million was due to increase in inventory. Investing Activities Net cash used in investing activities for the three months endedJune 30, 2021 , was approximately$95 thousand , which is comprised of expenses of approximately$2 thousand for the acquisition and filing expenses related to patents and purchase of property, plant and equipment of approximately$93 thousand .
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Net cash used in investing activities for the three months endedJune 30, 2020 , was$1.1 million , which is comprised of approximately$26 thousand for the acquisition and filing expenses related to patents and trademarks, purchase of property, plant and equipment of$944 thousand and investments of approximately$149 thousand in non-marketable securities and$17 thousand in marketable securities. Financing Activities Net cash provided by financing activities was approximately$726 thousand for the three months endedJune 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 three months endedJune 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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