10-K
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indiaglob20210331_10k.htm
FORM 10-K
indiaglob20210331_10k.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.20549
FORM 10-K
For Fiscal Year Ended March 31, 2021.
Commission file number: 001-32830
INDIA GLOBALIZATION CAPITAL, INC.
(Exact Name of Registrant as Specified in Its Charter)
(301)983-0998
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock IGC NYSE American LLC
Securities registered pursuant to Section 12(g) of the Act: None.
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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
☐ Yes ☑ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
☐ Yes ☑ No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
☑ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
☑ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☑ Smaller reporting company ☑
Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management assessment of the effectiveness of its Internal Control Over Financial Reporting under section 404 (b) of the Sarbanes-Oxley by the registered public accounting firm that prepared or issued its annual report.
☐ Yes ☑ No
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
☐ Yes ☑ No
The aggregate market value of the voting and non-voting stock held by non-affiliates of the Registrant, as of September 30, 2020, the last business day of the Registrant’s most recently completed second fiscal quarter, was approximately $38,046,963. Solely for purposes of this disclosure, shares of common stock held by executive officers and directors of the Registrant as of such date have been excluded because such persons may be deemed to be affiliates. This determination of executive officers and directors as affiliates is not necessarily a conclusive determination for any other purposes.
48,327,273 shares of our common stock were outstanding as of June 7, 2021.
DOCUMENTS INCORPORATED BY REFERENCE
None
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INDIA GLOBALIZATION CAPITAL, INC.
FORM 10-K
FOR THE FISCAL YEAR ENDED MARCH 31, 2021
TABLE OF CONTENTS
Page
PART I
Item 1. Business 5
Item 1A. Risk Factors 17
Item 1B. Unresolved Staff Comments 30
Item 2. Properties 30
Item 3. Legal Proceedings 30
Item 4. Mine Safety Disclosures 30
PART II
Item 6. [Reserved] 31
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 40
Item 8. Financial Statements and Supplementary Data 41
Item 9A. Controls and Procedures 67
Item 9B. Other Information 67
PART III
Item 10. Directors, Executive Officers and Corporate Governance 68
Item 11. Executive Compensation 72
Item 14. Principal Accountant Fees and Services 75
PART IV
Item 15. Exhibits and Financial Statement Schedules 78
Signatures 79
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FORWARD-LOOKING STATEMENTS AND IMPORTANT FACTORS
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. This report and the documents incorporated in this report by reference contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Additionally, we or our representatives may, from time to time, make other written or verbal forward-looking statements. In this report and the documents incorporated by reference, we discuss plans, expectations, and objectives regarding our business, financial condition, and results of operations. Without limiting the foregoing, statements that are in the future tense, and all statements accompanied by terms such as “believe,” “project,” “expect,” “trend,” “estimate,” “forecast,” “assume,” “intend,” “plan,” “target,” “anticipate,” “outlook,” “preliminary,” “will likely result,” “will continue,” and variations of them and similar terms are intended to be “forward-looking statements” as defined by federal securities laws. We caution you not to place undue reliance on forward-looking statements, which are based upon assumptions, expectations, plans, and projections. Forward-looking statements are subject to risks and uncertainties, including those identified in the “Risk Factors” included in this report and in the documents incorporated by reference that may cause actual results to differ materially from those expressed or implied in the forward-looking statements. Forward-looking statements speak only as of the date when they are made. Except as required by federal securities law, we do not undertake any obligation to update forward-looking statements to reflect events, circumstances, changes in expectations or the occurrence of unanticipated events after the date of those statements. We intend that all forward-looking statements made will be subject to safe harbor protection of the federal securities laws pursuant to Section 27A of the Securities Act and Section 21E of the Exchange Act.
Forward-looking statements are based upon, among other things, our assumptions with respect to:
● our ability to maintain a stock listing on a national securities exchange;
● our ability to timely complete regulatory filings;
● our ability to fund the costs of clinical trials and other related expenses;
You should consider the limitations on, and risks associated with, forward-looking statements and not unduly rely on the accuracy of predictions contained in such forward-looking statements. As noted above, these forward-looking statements speak only as of the date when they are made. Moreover, in the future, we may make forward-looking statements through our senior management that involve the risk factors and other matters described in this report, as well as other risk factors subsequently identified, including, among others, those identified in our filings with the SEC in our quarterly reports on Form 10-Q and our current reports on Form 8-K.
This document contains statements and claims that are not approved by the FDA, including statements on hemp and hemp extracts, including cannabidiol and other cannabinoids. These statements and claims are intended to be in compliance with state laws, specifically in states where medical cannabis has been legalized, and the diseases which we anticipate our products will target are approved conditions for treatment or usage with cannabis or cannabinoids.
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PART I
Unless the context requires otherwise, all references in this report to “IGC,”“the Company,”“we,”“our” and “us” refer to India Globalization Capital, Inc., together with the subsidiaries identified in Exhibit 21.1 of this Annual Report on Form 10-K. We exclude our investments and minority non-controlling interests, and any information provided by them is not incorporated by reference in this report, and you should not consider it a part of this report.
ITEM 1.BUSINESS
Company Overview
Since 2014, our team has been committed to researching the application of cannabinoids such as Tetrahydrocannabinol (“THC”) and Cannabidiol (“CBD”) in combination with other compounds to address various ailments, including Alzheimer's disease. With our research, we have developed intellectual property, formulations, and wellness and lifestyle brands.
In fiscal year ended March 31, 2021 (“Fiscal 2021”), we were awarded a patent for our cannabinoid-based formulation treatment of seizures in humans and veterinary animals. This followed our fiscal year ended March 31, 2019 (“Fiscal 2019”) and fiscal year ended March 31, 2020 (“Fiscal 2020”) awards of patents for our formulation addressing pain and formulation addressing Cachexia and eating disorders, respectively. Since 2014, the Company has also filed nine other patent applications to address various diseases such as Alzheimer's, pain, stammering, seizures, eating disorders, and fatigue, among others.
Our goal is to bring products to market based on our intellectual property (“IP”) in one of three channels:
1. We are developing a range of products for the pharmaceutical markets which are subject to FDA-approved clinical trials. We currently have one investigational product in clinical trials under an INDA filed with the FDA.
2. We are currently developing branded wellness and lifestyle products intended to be sold in diverse retail channels subject to Federal laws in the U.S. and abroad.
3. Finally, we will be seeking partnerships and licensing agreements with third parties who we anticipate will provide a clear route to market our IP.
In the Pharmaceutical channel, we created a patent-pending formulation based on ultra-low dosing of THC in combination with other compounds that, in 2021, under an INDA filed with the FDA, underwent the first stage of a phase 1 trial on safety and tolerability. The phase 1 trial is ongoing at the time of this filing.
We are motivated by the potential that, with future successful results from appropriate further trials, IGC-AD1 could contribute to relief for some of the 50 million people around the world expected to be impacted by Alzheimer's disease by 2030 (WHO, 2020). Data from pre-clinical studies, including cell lines and animal models, showed the formulation, IGC-AD1, inhibited the accumulation of the neurotoxic protein beta-amyloid (“Aβ”) that leads to the buildup of plaques, as well as the hyperphosphorylation of protein Tau that leads to Neuro Fibrillary Tangles (“NFT”) two of the hallmarks of Alzheimer's disease. In pre-clinical studies, certain combinations of IGC-AD1 also showed memory improvement and neurogenesis.
Our lead cannabinoid-based investigational drug is based on a pharmaceutical formulation comprising of purified plant-derived THC for which we have filed several patent applications and acquired rights to other patent applications. Following the conclusion of our phase 1 trial, and the evaluation of its results, we hope to initiate phase 2 trials to obtain efficacy data for Behavioral and Psychological Symptoms of Dementia (“BPSD”) and to evaluate IGC-AD1 for additional indications such as anxiety and sleep disorders. In addition, our pipeline of pharmaceutical formulations includes cannabinoid product candidates for pain and various potential targets within central nervous system disorders.
For the Retail Channel, in Fiscal 2021, we developed wellness and lifestyle brands, HoliefTM, HerboTM, and Sunday SeltzerTM. We plan on marketing these brands, including to the U.S. based Latino market, which is among the fastest-growing segment in the U.S. GDP, that in 2018 was around $2.6 Trillion. (Forbes, 2020). It is projected that the Hispanic population will reach 111.22 million by 2060 from 59 million in 2018 (Statista, 2021).
Holief, which includes our patented cream, is a brand focused on alleviating and reducing pain symptoms. It includes, among other products, targeted products for women suffering from period pain. Information is available on www.holief.com.
Herbo is a premium hemp-based CBD infused organic topical and spa line of products targeting the wellness market. The products, CBD infused body lotion, body butter, and others, all carry a signature fragrance that was developed by us. Information is available on www.herbo.com.
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Sunday Seltzer is a premium hemp-based CBD infused seltzer that is available in several flavors including grapefruit, lemon, blackberry, cucumber, ginger, and passion fruit. The products are all low- or no-calorie beverage options available in select stores in New Jersey as well as online. For more information, please visit www.sundayseltzer.com.
All of our cannabinoid-based product lines are pursued in accordance with all applicable federal, state, and local laws and regulations.
We also operate an infrastructure segment, managed from India, that involves the execution of construction projects, the purchase and resale of physical commodities mostly used in infrastructure, and the rental of heavy construction equipment. During and as a result of the COVID-19 pandemic, this segment slowed down considerably. We anticipate returning to pre-pandemic-level operations in this line of business when the pandemic allows.
We are a Maryland corporation established in 2005 with a fiscal year that is the 52- or 53-week period that ends on March 31.
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 adversely impact, our financial condition, liquidity, and operations. In Fiscal 2021, we experienced substantially reduced revenue from Infrastructure segment. We anticipate that reduced revenue from Infrastructure segment will continue in Fiscal 2022 as the pandemic continues to affect the regions where we do business. In particular, during Fiscal 2021:
Intellectual Property
As part of our intellectual property strategy, we seek appropriate patent protection for applicable product candidates, drug delivery systems, and molecular modifications, as well as other proprietary technologies and their uses, by filing patent applications in the U.S. and select other countries. We intend for these patent applications to cover, where possible, claims for medical uses, processes for preparation, and processes for delivery and formulations.
The Company holds all rights to the patents that have been filed by us with the United States Patent and Trademark office (“USPTO”). In Fiscal 2017, the Company also acquired exclusive rights to the data and the patent filing from University of South Florida (“USF”). Although the Company believes the registration of patents is an important part of its business strategy and its success depends in part on such registration, the Company cannot guarantee that such patent filings will result in a successful registration with the USPTO. Please see Item 1A, Risk Factors- “We may not successfully register the provisional patents with the USPTO.”
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The table below provides a status of our patent filings:
Formulation Indication Provisional Filing PCT Filing Status
Alzheimer’s disease
According to the National Institute of Health’s National Institute on Aging (“NIA”), Alzheimer’s is an irreversible progressive brain disorder that destroys memory and thinking skills and, eventually the ability to carry out even the simplest of tasks. Symptoms for most people may first appear for individuals at ages in their mid-60s. Some experts believe that Alzheimer’s is the third leading cause of death just behind heart disease and cancer. (NIA, 2019) According to the World Health Organization (“WHO”), Alzheimer’s is believed to cause about 60-70% of dementia, which is the loss of cognitive functioning that includes thinking, remembering, reasoning and behavioral abilities. Alzheimer’s disease is expected to effect approximately 50 million people worldwide by 2030 (WHO, 2020). According to the Alzheimer’s Association, approximately 10% of Americans over 65 have Alzheimer’s disease, and some researchers suspect that half of people over 80 develop Alzheimer’s (Piedmont Healthcare, (n.d); Alzheimer’s Association, 2021).
While some researchers view Alzheimer’s as a spectrum disease (Devi, (n.d), the NIA categorizes Alzheimer’s in three stages - mild, moderate and severe (NIA, 2019). Broadly, in mild Alzheimer’s, problems can include wandering; getting lost, not remembering the way home for example; trouble handling money and paying bills; repeating questions; and personality and behavior changes. In moderate Alzheimer’s, there is damage to the areas of the brain that control language, reasoning, sensory processing, and conscious thought. Problems can include difficulty carrying out multistep tasks such as dancing, getting dressed, and more behavior changes including hallucinations, delusions, paranoia, and impulsive behavior. By the time severe Alzheimer’s sets in, plaques and tangles spread throughout the brain, and the brain shrinks significantly. People with severe Alzheimer’s are completely dependent on others for care, they cannot communicate, and near the end, the body shuts down (NIA, 2019).
Alzheimer’s patients manifest BPSD that include, among others, depression, agitation, aggression, sleep disturbance (sundown syndrome), delusions, hallucinations, and anxiety. These symptoms put a burden on caregivers that leads to caregiver distress (Cheng, 2017). Our Phase 1 trial on IGC-AD1 has commenced on patients suffering from mild to severe dementia due to Alzheimer’s disease.
Phase 1 Trialupdates
On July 30, 2020, we received a notice from the FDA to proceed with a 12-subject Phase 1 human clinical trial (“removal of full clinical hold”) on our INDA, submitted under Section 505(i) of the Federal Food, Drug, and Cosmetic Act, for our “IGC-AD1” proprietary formulation. Our IGC-AD1 formulation is based on a patent filed by the University of South Florida (“USF”) that uses a cannabinoid as one of the active ingredients. We have exclusive rights to the patent filing. IGC-AD1, an oral tincture, is also modelled around the patent filing by USF. On May 14, 2021, the Company announced it had completed Cohort 1 of three anticipated cohorts in its Phase 1 trial. This was followed by Company announcement for completion of Cohort 2 on June 7, 2021.
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IGC’s Phase 1 study is a placebo-controlled Multiple Ascending Dose (“MAD”) study on individuals suffering from Alzheimer’s disease. This study is also evaluating the pharmacokinetics and genotyping of CYP2C9 polymorphisms to determine impact on THC metabolism. For example, the study includes evaluating whether individuals with a particular polymorphism of the CYP2C9 gene impacts the metabolism of THC, as compared to other individuals. The Company hopes that this data on pharmacogenetics can eventually inform IGC on effective dosing for patients with a specific CYP2C9 polymorphism, and better predict outcomes such as the impact of its THC-based investigational new drug IGC-AD1 or its interactions with other medications. For Cohort 1, we administered one dose of IGC-AD1 per day. We increased the dosage to two doses of IGC-AD1 per day in Cohort 2. In Cohort 3, we plan to escalate to three doses per day. Alzheimer’s participants are monitored daily for safety, and for certain behavioral changes using, among others, the Neuropsychiatric Inventory (“NPI”) scale.
As part of the clinical trial process, an independent Data and Safety Monitoring Committee (“DSMC”) monitors patient safety data and other factors. A DSMC consists of industry experts with no affiliation to the trial sponsor, which in this case is IGC Pharma, LLC, a subsidiary of IGC. The DSMC typically recommends that a trial continue or terminate based on the committee’s evaluation of trial safety data. The DSMC for IGC’s trial, having reviewed Cohort 1 and Cohort 2 data on Alzheimer’s participants, has recommended progressing to Cohort 3. The Phase 1 trial is currently anticipated to conclude during the second quarter of the Fiscal 2022.
Products & Services
Life Sciences segment
This segment is a) dedicated to research on cannabinoids and their safety and efficacy on diseases and ailments, and b) the creation, marketing, and sales of wellness and lifestyle brands. CBD mentioned in the context of products, refers to hemp extracts naturally rich in cannabinoids like CBD, but with THC 0.3% or less by dry weight.
In Fiscal 2021, we advanced the development and launch of several brands among our “house of brands” in accordance with applicable laws and regulations. We are enthusiastic about what we believe to be the potential of these concepts to address various segments of the growing cannabinoid based wellness and lifestyle product market. In Fiscal 2021, the Company generated $723 thousand of revenue from its Life Sciences segment, primarily from the sale of hand sanitizers under various Company brands. However, COVID-19 has forced the Company to delay and limit the launch of some of the brands and products.
HyalolexTM
The original formulation of HyalolexTM Drops of ClarityTM is based on work that was done at USF. USF filed a patent that we acquired and continued to pursue by responding to queries by the USPTO in Fiscal 2021. The research performed by USF indicated that in Alzheimer’s cell lines, Alzheimer’s animal models, and in some human studies, the active ingredients in HyalolexTM Drops of ClarityTM, may effectively alleviate many of the symptoms associated with Alzheimer’s. The research and cell data indicated a reduction in the aggregation of amyloid protein (“Aβ protein”) that deposits as plaque between neurons, leading to interference with intra-neuronal signaling (NCBI, 2010). The research also showed a reduction in Neurofibrillary Tangles (“NFTs”) by reducing the hyperphosphorylation of microtubule-associated protein Tau that leads to neuronal death.
Plaques and NFTs are the hallmarks of Alzheimer’s. Patients with Alzheimer’s disease may suffer from a variety of BPSD including anxiety, agitation, dementia, depression, and sleep disorder, among others. These symptoms often result in hard-to-manage patients and caregiver distress. Application of our formulation in animal studies using transgenic Alzheimer’s mice (mice with Alzheimer’s) showed an improvement in memory. These results led our team to create HyalolexTM Drops of ClarityTM as an oral formulation. The product was test marketed in Puerto Rico. A version of this formulation (IGC-AD1) is currently filed as an INDA with the FDA, for which we are conducting a phase 1 trial. We do not presently expect to market Hyalolex Drops of Clarity widely while the Company is pursuing its INDA.
Holi HempTM
In Fiscal 2021, we prepared our production facility to offer trading, distillation, tolling, and white labeling services under the brand of Holi HempTM. However, due to COVID-19, we were unable to complete the commissioning of all the equipment. We expect that when the equipment is commissioned, COVID-19 permitting, we will be vertically integrated in the hemp industry, where we can control the processing and production of products as well as offer services such as distillation of extracted hemp crude.
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HoliefTM
In Fiscal 2021 we completed the branding and development of Holief. “Holief” is derived from the words holistic and relief. The brand is made up of hemp-based CBD infused products including our patented formulation for treating pain and other products that use a combination of an analgesic and CBD, to help provide a natural, alternative to pain medications, such as opioids. Under this brand, we have in particular, created several products for women. These include a menthol (analgesic) and CBD cream designed to help alleviate period cramps. In addition, we created a tincture containing CBD, primrose oil, and peppermint oil to help with Post Menstrual Symptoms. We expect to market these products online and through retail outlets in accordance with applicable law and regulation.
HerboTM
In Fiscal 2021 the Company completed the branding and development of Herbo, a premium hemp-based CBD infused organic topical and spa line of products. The products all carry a signature fragrance derived from sandalwood oil, rose, lavender, cypress, and hemp. The products are topicals such as our CBD infused body lotion, body butter, body oil and menthol body balm. We expect to market these products online and through retail outlets in accordance with applicable law and regulation.
Sunday SeltzerTM
In Fiscal 2021 the Company completed the branding and development of Sunday Seltzer, a premium hemp-based CBD infused seltzer. Sunday Seltzer is available in several flavors including grapefruit, lemon, blackberry, cucumber, ginger, and passion fruit. Our initial launch of the product is in retail stores in New Jersey, New York, and Connecticut. The products are all low- or no-calorie beverage options.
Infrastructure segment
We have been operating the infrastructure business since 2008. Our revenue in Fiscal 2020 was primarily derived from this segment and included:
a) 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.
b) Purchase and Resale of Physical Commodities Used in Infrastructure – This business line includes the purchase and resale of infrastructure materials including steel, wooden doors, marble, and tiles, among others. This work has been adversely affected by the COVID-19 pandemic. There was no revenue from this business line during Fiscal 2021.
c) 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 Fiscal 2021.
Business Strategy
We have a two-pronged strategy for our Life Sciences, biopharmaceutical component: the initial prong is to investigate IGC-AD1 for 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, with the anticipated goal of demonstrating efficacy and potentially obtaining FDA approval for IGC-AD1 as a cannabinoid-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 cannabinoid formulations includes pain creams and tinctures for pain relief. We believe that the biopharmaceutical component of our Life Sciences strategy will take several years and involves considerable risk; however, we believe it may involve greater defensible growth potential and first-to-market advantage.
We believe that 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.
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Our shorter-term strategy also includes becoming vertically integrated in the hemp industry, as we believe this may afford us the opportunity to create the right processes, quality, and replicability for eventually creating pharmaceutical grade formulations. We also believe this may provide us with several profit opportunities, all conducted in accordance with applicable laws and regulations, and only in locations where it is legal to do so, such as:
● wholesale of hemp extracts including hemp crude extract and hemp isolate;
Our strategy for the Infrastructure segment is to invest in and competitively bid on construction contracts, for example to build roads, bridges and other civil works in Kerala, India, and to opportunistically buy and sell infrastructure and other commodities, as well as personal protection equipment. We are currently experiencing a lack of certainty in this business segment due to the COVID-19 pandemic and stay-at-home and shelter in place orders, especially in India and Hong Kong.
Markets and Distribution
Life Sciences segment
Our brands are designed to address different demographics and segments of the market. For example, Sunday SeltzerTM addresses the infused seltzer market. HerboTM addresses the spa and wellness market. HoliefTM addresses the pain market, including the menstrual cramp market. We plan on marketing these brands to the U.S. Latino market as this is among the fastest-growing segment in the U.S. GDP that in 2018 was around $2.6 Trillion. (Forbes, 2020). It is projected that the Hispanic population will reach 111.22 million by 2060 from 59 million in 2018 (Statista, 2021).
In Fiscal 2021, we have two customers and three suppliers of raw materials, which accounts for over 10% of sales and cost of sales. The COVID-19 pandemic has and might continue to affect our operations which could be reflected in reduced revenue and increased costs in our Life Sciences segment in Fiscal 2022. Revenue from our Life Sciences is less than 1% based on global revenue of relevant markets.
Overall, U.S. sales of cannabis and hemp-derived CBD products are expected to increase in all channels—dispensary, general retail and pharmaceutical, to $20.5 billion by 2025, a compound annual growth rate (“CAGR”) of more than 40% (BDSA, 2020). The global CBD skin care market size is anticipated to reach $3.48 billion by 2026, with a CAGR of 24.80% during the forecast period (Allied Market Research, n.d.). Overall revenue in the Skin Care segment amounts to about $18 billion in the U.S. in 2021. The market is expected to grow annually by approximately 5.01% (CAGR 2021-2025) (Statista, n.d.). The market is primarily driven by growing awareness with respect to the perceived benefits of CBD infused personal care products. The U.S. Cannabis infused drink market is also expected to reach $1.4 billion by 2023 (Statista, 2020).
Revenue from hand sanitizer amounted to $360.58 million in U.S. in 2021. The market is expected to grow annually by 8.47% (CAGR 2021-2025) (Statista, 2021).
Infrastructure segment
The state of Kerala and the National Highway Authority of India publish Request for Proposals (“RFP”) with a Statement of Work (“SOW” ) for the building of various infrastructure projects such as roads, bridges, by-passes, etc. In Fiscal 2021, we focused on executing a construction project in the state of Kerala. We also purchase and resell physical commodities that are used in the construction business by constructions companies. In addition, we maintain a small fleet of heavy construction equipment in Kerala consisting of motor grader, rollers, etc., that is leased out to construction companies. In Fiscal 2021, we have a total of 1 customer and 1 subcontractor/suppliers of infrastructure materials, which account for over 10% of sales and cost of sales. For the level of business, and the value of each trade, we believe that the number of customers we have does not constitute inordinate customer risk. However, there has been a marked disruption of the Hong Kong economy which combined with the impact of COVID-19 on our operations is reflected in reduced revenue and increased expenses in our infrastructure business in Fiscal 2021. The total revenue from our infrastructure business is less than 1% of the global revenue of the rental, construction, and infrastructure commodities markets.
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Business Seasonality
The Company has historically experienced seasonality in the Infrastructure segment based on low work in construction during the monsoon season. Moreover, as most of the hemp harvest in America occurs in the fall, there tends to be pricing pressure based on the volume of hemp biomass being harvested.
Competition
Some of the markets for the Company’s products and services are highly competitive, and some are not, as described below:
1.Life Sciences segment: We are focused on developing affordable FDA approved medical products that can help individuals suffering from debilitating disease like Alzheimer’s and chronic pain, among others. We believe our differentiation from our competitors, for example, in the use of phytocannabinoids for the management of symptoms related to Alzheimer’s, is based primarily on our data, patent filings, and experienced team, offering us an early-mover advantage. We face competition from well-funded seasoned companies.
On the wellness and lifestyle side, we face competition from companies that are better established in wholesale products such as hemp crude extract, hemp isolate and services such as white labeling and tolling. On the product side we face competition from companies in the food, beverage, and skin care industries. It is unclear how the FDA guidance and ruling on hemp-based CBD infused food products, when it is released, will impact the market.
2.Infrastructure segment: This business is currently limited to India and Hong Kong. The infrastructure industry is highly competitive, and we believe our differentiation is based primarily on price and industry knowledge of construction and commodity requirements for infrastructure projects in the areas in which we operate.
Regulatory
Despite the passage of the 2018 Farm Bill, the FDA has not set out guidance or rules on the infusion of hemp-based CBD into food and beverage products. While this has and continues to create a complicated framework within which we navigate, we anticipate that when such rules are set out, the demand for CBD will increase as major food and beverage manufacturers will enter the market.
Core business competencies and advantages
Our core competencies include the following:
● knowledge of plant and cannabinoid based combination therapies;
● knowledge of research and development in the field;
Licenses, Technology and Cybersecurity
We have intellectual property attorneys that advise, counsel, and represent the Company regarding the filing of patents or provisional patent applications, copyrights applications and trademark applications; trade secret laws of general applicability; employee confidentiality and invention assignment. Most of our data, including our accounting data, is stored in the cloud that helps us mitigate the overall risk of losing data. We have a cybersecurity policy in place and are in the process of implementing tighter cybersecurity measures to safeguard against hackers. The Company holds all rights to the patents that have been filed by us with the USPTO.
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The table below summarizes the nature of activity, type of license required and held, and encumbrances in obtaining permits for each location where the company operated through its subsidiaries in Fiscal 2021:
Governmental Regulations
In the U.S. we are subject to oversight and regulations, for some or all of our activities, by the following agencies: SEC, state regulators, NYSE, FTC, and the FDA. The cannabis plant consists of several strains or varieties. Hemp and Marijuana are both cannabis plants. Under the 2018 Farm Bill, Hemp is classified as a cannabis plant that has THC 0.3% or less by dry weight. Marijuana is classified as a cannabis plant that has THC above 0.3% by dry weight.
Marijuana remains illegal under federal law, including in those states in which the use of marijuana has been legalized for medical and or recreational use. On the other hand, the 2018 Farm Bill, which was effective January 1, 2019 contains provisions that make industrial hemp legal. Although, hemp is legal at the federal level, most states have created licensing and testing processes for the growing, processing, and sale of hemp and hemp-derived products.
For our business we must apply for licenses in states where we desire to grow and process hemp. For example, in the state of Arizona, where we grew hemp, we were required to apply for licenses and register with the state the geo-location of all our operations, including the land on which hemp was grown and the facilitates where hemp will be processed. These regulations are evolving, differ from jurisdiction to jurisdiction, and are subject to change.
FDA Approval Process
In the U.S., pharmaceutical products are subject to extensive regulation by the FDA. The Federal Food, Drug and Cosmetic Act, or the FDC Act, and other federal and state statutes and regulations, govern the research, development, testing, manufacturing, storage, recordkeeping, approval, labeling, promotion and marketing, distribution, post-approval monitoring and reporting, sampling, and importing and exporting of pharmaceutical products, among other things. Failure to comply with applicable U.S. requirements may subject a company to a variety of administrative or judicial sanctions, such as imposition of clinical holds, FDA refusal to approve pending New Drug Applications (“NDA”), warning letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement, civil penalties, and criminal prosecution.
Pharmaceutical product development in the U.S. typically involves pre-clinical laboratory and animal tests and the submission to the FDA of an Investigational New Drug (“IND”), which must become effective before clinical testing may commence. For commercial approval, the sponsor must submit adequate tests by all methods reasonably applicable to show that the drug is safe for use under the conditions prescribed, recommended, or suggested in the proposed labeling. The sponsor must also submit substantial evidence, generally consisting of adequate, well-controlled clinical trials to establish that the drug will have the effect it purports or is represented to have under the conditions of use prescribed, recommended, or suggested in the proposed labeling. In certain cases, the FDA may determine that a drug is effective based on one clinical study plus confirmatory evidence. Satisfaction of FDA premarket approval requirements typically takes many years and the actual time required may vary substantially based upon the type, complexity of the product or disease.
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Pre-clinical tests include laboratory evaluation of product chemistry, and formulation and toxicity, as well as animal trials to assess the characteristics and potential safety and efficacy of the product. The conduct of the pre-clinical tests must comply with federal regulations and requirements, including the FDA’s good laboratory practices regulations and the U.S. Department of Agriculture’s (“USDA’s”) regulations implementing the Animal Welfare Act. The results of pre-clinical testing are submitted to the FDA as part of an IND along with other information, including information about product chemistry, manufacturing and controls, and a proposed clinical trial protocol. Long-term pre-clinical tests, such as animal tests of reproductive toxicity and carcinogenicity, may continue after the IND is submitted.
A 30-day waiting period after the submission of each IND is required prior to the commencement of clinical testing in humans. If the FDA has not imposed a clinical hold on the IND or otherwise commented or questioned the IND within this 30-day period, the clinical trial proposed in the IND may begin.
Clinical trials involve the administration of the investigational new drug to healthy volunteers or patients under the supervision of a qualified investigator. Clinical trials must be conducted: (i) in compliance with federal regulations, (ii) in compliance with Good Clinical Practice (“GCP”), an international standard meant to protect the rights and health of patients and to define the roles of clinical trial sponsors, administrators, and monitors, and (iii) under protocols detailing the objectives of the trial, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. Each protocol involving testing on U.S. patients and subsequent protocol amendments must be submitted to the FDA as part of the IND.
The FDA may order the temporary, or permanent, discontinuation of a clinical trial at any time or impose other sanctions if it believes that the clinical trial either is not being conducted in accordance with FDA requirements or presents an unacceptable risk to the clinical trial patients. The trial protocol and informed consent information for patients in clinical trials must also be submitted to an institutional review board, or IRB, for approval. An IRB may also require the clinical trial at the site to be halted, either temporarily or permanently, for failure to comply with the IRB’s requirements or may impose other conditions.
Clinical trials to support NDAs for marketing approval are typically conducted in three sequential phases, but the phases may overlap. In general, in Phase 1, the initial introduction of the drug into healthy human subjects or patients, the drug is tested to assess metabolism, pharmacokinetics, pharmacological actions, side effects associated with increasing doses and, if possible, early evidence on effectiveness. Phase 2 usually involves trials in a limited patient population to determine the effectiveness of the drug for a particular indication, dosage tolerance and optimum dosage, and to identify common adverse effects and safety risks. If a compound demonstrates evidence of effectiveness and an acceptable safety profile in Phase 2 evaluations, Phase 3 trials are undertaken to obtain the additional information about clinical efficacy and safety in a larger number of patients, typically at geographically dispersed clinical trial sites, to permit the FDA to evaluate the overall benefit-risk relationship of the drug and to provide adequate information for the labeling of the drug. In most cases, the FDA requires two adequate and well-controlled Phase 3 clinical trials to demonstrate the efficacy of the drug. The FDA may, however, determine that a drug is effective based on one clinical study plus confirmatory evidence. Only a small percentage of investigational drugs complete all three phases and obtain marketing approval. In some cases, the FDA may require post-market studies, known as Phase 4 studies, to be conducted as a condition of approval in order to gather additional information on the drug’s effect in various populations and any side effects associated with long-term use. Depending on the risks posed by the drugs, other post-market requirements may be imposed. After completion of the required clinical testing, an NDA is prepared and submitted to the FDA. The FDA approval of the NDA is required before marketing of the product may begin in the U.S. The NDA must include the results of all pre-clinical, clinical, and other testing and a compilation of data relating to the product’s pharmacology, chemistry, manufacture, and controls.
The FDA has 60 days from its receipt of an NDA to determine whether the application will be accepted for filing based on the agency’s threshold determination that it is sufficiently complete to permit substantive review. Once the submission is accepted for filing, the FDA begins an in-depth review. Under the statute and implementing regulations, the FDA has 180 days (the initial review cycle) from the date of filing to issue either an approval letter or a complete response letter, unless the review period is adjusted by mutual agreement between the FDA and the applicant or as a result of the applicant submitting a major amendment. In practice, the performance goals established pursuant to the Prescription Drug User Fee Act have effectively extended the initial review cycle beyond 180 days. The FDA’s current performance goals call for the FDA to complete review of 90 percent of standard (non-priority) NDAs within 10 months of receipt and within six months for priority NDAs, but two additional months are added to standard and priority NDAs for a new molecular entity (“NME”).
The FDA may also refer applications for novel drug products, or drug products that present difficult questions of safety or efficacy, to an advisory committee, which is typically a panel that includes clinicians and other experts, for review, evaluation, and a recommendation as to whether the application should be approved. The FDA is not bound by the recommendation of an advisory committee, but it generally follows such recommendations. Before approving an NDA, the FDA will typically inspect one or more clinical sites to assure compliance with GCP. Additionally, the FDA will inspect the facility or the facilities at which the drug is manufactured. The FDA will not approve the product unless compliance with current GMP is satisfactory, and the NDA contains data that provide substantial evidence that the drug is safe and effective in the indication studied.
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After the FDA evaluates the NDA and the manufacturing facilities, it issues either an approval letter or a complete response letter. A complete response letter generally outlines the deficiencies in the submission and may require substantial additional testing, or information, for the FDA to reconsider the application. If, or when, those deficiencies have been addressed to the FDA’s satisfaction in a resubmission of the NDA, the FDA will issue an approval letter. The FDA has committed to reviewing 90 percent of resubmissions within two to six months depending on the type of information included.
An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications. As a condition of NDA approval, the FDA may require a risk evaluation and mitigation strategy, (“REMS”), to help ensure that the benefits of the drug outweigh the potential risks. REMS can include medication guides, communication plans for health care professionals, and elements to assure safe use, (“ETASU”). ETASU can include, but are not limited to, special training or certification for prescribing or dispensing, dispensing only under certain circumstances, special monitoring, and the use of patient registries. The requirement for a REMS can materially affect the potential market and profitability of the drug. Moreover, product approval may require substantial post-approval testing and surveillance to monitor the drug’s safety or efficacy. Once granted, product approvals may be withdrawn if compliance with regulatory standards is not maintained, or problems are identified following initial marketing.
Disclosure of Clinical Trial Information
Sponsors of clinical trials of certain FDA-regulated products, including prescription drugs, are required to register and disclose certain clinical trial information on a public website maintained by the U.S. National Institutes of Health. Information related to the product, patient population, phase of investigation, study sites and investigator, and other aspects of the clinical trial is made public as part of the registration. Disclosure of the results of these trials can be delayed for up to two years if the sponsor certifies that it is seeking approval of an unapproved product or that it will file an application for approval of a new indication for an approved product within one year. Competitors may use this publicly available information to gain knowledge regarding the design and progress of our development programs.
The Hatch-Waxman Act
Orange Book Listing
In seeking approval for a drug through an NDA, applicants are required to list with the FDA each patent the claims of which cover the applicant’s product. Upon approval of a drug, each of the patents listed in the application for the drug is then published in the FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations, commonly known as the Orange Book. Drugs listed in the Orange Book can, in turn, be cited by potential generic competitors in support of approval of an abbreviated new drug application, (“ANDA”). An ANDA provides for marketing of a drug product that has the same active ingredients in the same strengths and dosage form as the listed drug and has been shown through bioequivalence testing to be bioequivalent to the listed drug. Other than the requirement for bioequivalence testing, ANDA applicants are not required to conduct, or submit results of, pre-clinical or clinical tests to prove the safety or effectiveness of their drug product. Drugs approved in this way are considered to be therapeutically equivalent to the listed drug, are commonly referred to as “generic equivalents” to the listed drug and can often be substituted by pharmacists under prescriptions written for the original listed drug in accordance with state law.
The ANDA applicant is required to certify to the FDA concerning any patents listed for the approved product in the FDA’s Orange Book. Specifically, the applicant must certify that: (i) the required patent information has not been filed; (ii) the listed patent has expired; (iii) the listed patent has not expired but will expire on a particular date and approval is sought after patent expiration; or (iv) the listed patent is invalid or will not be infringed by the new product. The ANDA applicant may also elect to submit a section viii statement, certifying that its proposed ANDA labeling does not contain (or carves out) any language regarding the patented method-of-use, rather than certify to a listed method-of-use patent. If the applicant does not challenge the listed patents, the ANDA application will not be approved until all the listed patents claiming the referenced product have expired.
A certification that the new product will not infringe the already approved product’s listed patents, or that such patents are invalid, is called a Paragraph IV certification. If the ANDA applicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IV certification to the NDA and patent holders once the ANDA has been accepted for filing by the FDA. The NDA and patent holders may then initiate a patent infringement lawsuit in response to the notice of the Paragraph IV certification. The filing of a patent infringement lawsuit within 45 days of the receipt of a Paragraph IV certification automatically prevents the FDA from approving the ANDA until the earlier of 30 months, expiration of the patent, settlement of the lawsuit, or a decision in the infringement case that is favorable to the ANDA applicant. The ANDA application also will not be approved until any applicable non-patent exclusivity listed in the Orange Book for the referenced product has expired.
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Exclusivity
Upon NDA approval of a new chemical entity or NCE, which is a drug that contains no active moiety that has been approved by the FDA in any other NDA, that drug receives five years of marketing exclusivity during which time the FDA cannot receive any ANDA or 505(b)(2) application seeking approval of a drug that references a version of the NCE drug. Certain changes to a drug, such as the addition of a new indication to the package insert, are associated with a three-year period of exclusivity during which the FDA cannot approve an ANDA or 505(b)(2) application that includes the change.
An ANDA or 505(b)(2) application may be submitted one year before NCE exclusivity expires if a Paragraph IV certification is filed. If there is no listed patent in the Orange Book, there may not be a Paragraph IV certification and thus no ANDA or 505(b)(2) application may be filed before the expiration of the exclusivity period.
For a botanical drug, the FDA may determine that the active moiety is one or more of the principal components or the complex mixture as a whole. This determination would affect the utility of any five-year exclusivity as well as the ability of any potential generic competitor to demonstrate that it is the same drug as the original botanical drug.
Five-year and three-year exclusivities do not preclude FDA approval of a 505(b)(1) application for a duplicate version of the drug during the period of exclusivity, provided that the 505(b)(1) applicant conducts or obtains a right of reference to all of the preclinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and effectiveness.
Patent Term Extension
After NDA approval, owners of relevant drug patents may apply for up to a five-year patent extension. The allowable patent term extension is calculated as half of the drug’s testing phase — the time between IND submission and NDA submission — and all of the review phase — the time between NDA submission and approval up to a maximum of five years. The time can be shortened if the FDA determines that the applicant did not pursue approval with due diligence. The total patent term after the extension may not
exceed 14 years.
For patents that might expire during the application phase, the patent owner may request an interim patent extension. An interim patent extension increases the patent term by one year and may be renewed up to four times. For each interim patent extension granted, the post-approval patent extension is reduced by one year. The director of the PTO must determine that approval of the drug covered by the patent for which a patent extension is being sought is likely. Interim patent extensions are not available for a drug for which an NDA has not been submitted.
Orphan Drugs
Under the Orphan Drug Act, the FDA may grant orphan drug designation to drugs intended to treat a rare disease or condition generally a disease or condition that affects fewer than 200,000 individuals in the U.S. (or affects more than 200,000 in the U.S. and for which there is no reasonable expectation that the cost of developing and making available in the U.S. a drug for such disease or condition will be recovered from sales in the U.S. of such drug). Orphan drug designation must be requested before submitting an NDA. After the FDA grants orphan drug designation, the generic identity of the drug and its potential orphan use are disclosed publicly by the FDA. Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process. The first NDA applicant to receive FDA approval for a particular active ingredient to treat a particular disease with FDA orphan drug designation is entitled to a seven-year exclusive marketing period in the U.S. for that product, for that indication. During the seven-year exclusivity period, the FDA may not approve any other applications to market the same drug for the same disease, except in limited circumstances, such as a showing of clinical superiority to the product with orphan drug exclusivity. If the FDA designates an orphan drug based on a finding of clinical superiority, the FDA must provide a written notification to the sponsor that states the basis for orphan designation, including “any plausible hypothesis” relied upon by the FDA. The FDA must also publish a summary of its clinical superiority findings upon granting orphan drug exclusivity based on clinical superiority. Orphan drug exclusivity does not prevent the FDA from approving a different drug for the same disease or condition, or the same drug for a different disease or condition. Among the other benefits of orphan drug designation are tax credits for certain research and a waiver of the NDA application user fee.
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Special Protocol Assessment
A company may reach an agreement with the FDA under the Special Protocol Assessment, (“SPA”), process as to the required design and size of clinical trials intended to form the primary basis of an efficacy claim. According to its performance goals, the FDA is supposed to evaluate the protocol within 45 days of the request to assess whether the proposed trial is adequate, and that evaluation may result in discussions and a request for additional information. A SPA request must be made before the proposed trial begins, and all open issues must be resolved before the trial begins. If a written agreement is reached, it will be documented and made part of the administrative record. Under the FDC Act and FDA guidance implementing the statutory requirement, an SPA is generally binding upon the FDA except in limited circumstances, such as if the FDA identifies a substantial scientific issue essential to determining safety or efficacy after the study begins, public health concerns emerge that were unrecognized at the time of the protocol assessment, the sponsor and the FDA agree to the change in writing, or if the study sponsor fails to follow the protocol that was agreed upon with the FDA.
U.S. Coverage and Reimbursement
Significant uncertainty exists as to the coverage and reimbursement status of our lead product candidate, such as IGC-AD1 or any other for which we may seek regulatory approval. Sales in the U.S. will depend in part on the availability of adequate financial coverage and reimbursement from third-party payors, which include government health programs such as Medicare, Medicaid, TRICARE, and the Veterans Administration, as well as managed care organizations and private health insurers. Prices at which we or our customers seek reimbursement for our product candidates can be subject to challenge, reduction, or denial by payors.
The process for determining whether a payor will provide coverage for a product is typically separate from the process for setting the reimbursement rate that the payor will pay for the product. Third-party payors may limit coverage to specific products on an approved list or formulary, which might not include all the FDA-approved products for a particular indication. Also, third-party payors may refuse to include a branded drug on their formularies or otherwise restrict patient access to a branded drug when a less costly generic equivalent or another alternative is available. Medicare Part D, Medicare’s outpatient prescription drug benefit, contains protections to ensure coverage and reimbursement for oral oncology products, and all Part D prescription drug plans are required to cover substantially all oral anti-cancer agents. However, a payor’s decision to provide coverage for a product does not imply that an adequate reimbursement rate will be available. Private payors often rely on the lead of the governmental payors in rendering coverage and reimbursement determinations. Sales of products such as IGC-AD1 or any other product candidates will therefore depend substantially on the extent to which the costs of our products will be paid by third-party payors. Achieving favorable coverage and reimbursement from the Centers for Medicare and Medicaid Services (“CMS”) and/or the Medicare Administrative Contractors is typically a significant gating issue for successful introduction of a new product.
Third-party payors are increasingly challenging the price and examining the medical necessity and cost-effectiveness of medical products and services, in addition to their safety and efficacy. In order to obtain coverage and reimbursement for any product that might be approved for marketing, we may need to conduct studies in order to demonstrate the medical necessity and cost-effectiveness of any products, which would be in addition to the costs expended to obtain regulatory approvals. Third-party payors may not consider our product candidates to be medically necessary or cost-effective compared to other available therapies, or the rebate percentages required to secure favorable coverage may not yield an adequate margin over cost or may not enable us to maintain price levels sufficient to realize an appropriate return on our investment in drug development.
Employees and Consultants
As of March 31, 2021, we employed a team of approximately 50 full-time employees in our two segments. We also have contract workers and advisors in the U.S., India, Colombia, and Hong Kong.
Available Information
The Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Exchange Act, are filed with the Securities and Exchange Commission (the “SEC”). The Company is subject to the informational requirements of the Exchange Act and files or furnishes reports, proxy statements and other information with the SEC. Such reports and other information filed by the Company with the SEC are available free of charge on the Company’s website at www.igcinc.us when such reports are available on the SEC’s website. The public may read and copy any materials filed by the Company with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Room 1580, Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov. The contents of these websites are not incorporated into this filing. Further, the Company’s references to the URLs for these websites are intended to be inactive textual references only.
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IGC maintains several internet addresses including www.igcinc.us, www.igcpharma.com, www.holihemp.com, www.hyalolex.com and www.herbo.com, among others. These, including our Twitter @IGCIR and other social media contain information about IGC and our products on these websites from time to time, as we plan to provide updates on the company, announcements regarding relevant research findings and patent approval, and other important information as we grow and expand. Website and social media references in this report are provided as a convenience and do not constitute, and should not be viewed as, incorporation by reference of the information available through, or contained on, the websites and in social media. Therefore, such information should not be considered part of this report. The Company’s filings with the SEC are accessible on SEC’s website, www.sec.gov.
ITEM 1A. RISK FACTORS
You should carefully consider the following risk factors, together with all other information included in this report in evaluating the Company and our common stock. If any of the following risks and uncertainties develops into actual events, they could have a material adverse effect on our business, financial condition or results of operations.In that case, the trading price of our common stock and other securities also could be adversely affected. We make various statements in this section, which constitute “forward-looking statements.” See “Forward-Looking Statements.”
Risks Related to Our Business and Expansion Strategy
Our cannabinoid strategy makes it difficult to raise money as a public company.
Marijuana and hemp plants are both the same species, the dioecious plant Cannabis sativa L. Most countries differentiate hemp from marijuana by the amount of THC. Under the 2018 Farm Bill, hemp is classified as a cannabis plant that has THC 0.3% or less by dry weight. Marijuana is classified as a cannabis plant that has THC above 0.3% by dry weight. Both marijuana and hemp produce other cannabinoids such as CBD.
CBD mentioned in the context of products, refers to hemp extracts naturally rich in cannabinoids like CBD, but with THC 0.3% or less by dry weight. Despite having no direct involvement in selling marijuana, the Company is often incorrectly classified as a “cannabis company” or a “marijuana company,” with all the nuances that accompany that label, including being blacklisted by banks, investment banks, and until recently by the largest stock clearing services company. The near-monopoly nature of some of these institutions, especially clearing houses, makes it difficult for the Company to raise money, deposit share certificates, or even have investment banking relationships. As we cannot control how others perceive us, there can be no assurance that we will be able to raise enough capital for our planned expansion.
The Drug Enforcement Administration (“DEA”) interim final rule related to statutory amendments to the Controlled Substances Act made by the Agriculture Improvement Act of 2018 (“AIA”), regarding the scope of regulatory controls over marijuana, tetrahydrocannabinols and other related constituents may have an adverse impact on ourCompany.
Effective August 21, 2020, the interim rule to align DEA regulations in response to hemp legalization under the 2018 Farm Bill became effective. In order to meet the AIA’s definition of hemp, and thus qualify for the exception in the definition of marijuana, a cannabis-derived product must itself contain 0.3% or less delta-9-Tetrahydrocannabinol (“THC”) on a dry weight basis. It is not enough that a product is labeled or advertised as “hemp.” Cannabis-derived products that exceed the 0.3% THC limit do not meet the statutory definition of “hemp” and are schedule I controlled substances, regardless of claims made to the contrary in the labeling or advertising of the products. Further, a cannabis derivative, extract or product that exceeds the 0.3% THC limit is a schedule I controlled substance, even if the plant from which it was derived contained 0.3% or less THC on a dry weight basis. While we strive to ensure compliance, further tightening of these definitions may have an adverse impact on our products.
The Company depends on the performance of carriers, wholesalers, retailers, and other resellers.
The Company distributes its products through wholesalers, retailers, and resellers, many of whom may distribute products from competing manufacturers. The Company also intends to sell its products and resell third-party products in most of its major markets directly to consumers, small and mid-sized businesses, and other customers through its retail and online stores and its direct sales force. The Company intends to invest in programs to enhance reseller sales, including staffing selected resellers’ stores with Company employees and contractors, and improving product placement displays. These programs can require a substantial investment while not assuring return or incremental sales. The financial condition of these resellers could weaken, these resellers could stop distributing the Company’s products, or uncertainty regarding demand for some or all the Company’s products could cause resellers to reduce their ordering and marketing of the Company’s products.
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Our revenue decreased and we have a history of operating losses and there can be no assurance that we can again achieve or maintain profitability.
Our revenue declined from Fiscal 2020 to Fiscal 2021. Our short-term focus is to gain market share for our Life Sciences segment. However, we have had a history of operating losses. For Fiscal 2021 and Fiscal 2020, we had a net loss of approximately $8.8 million and $7.3 million, respectively. Accordingly, there can be no guarantee that our efforts will be successful. If we continue to have losses, we will be required to seek additional financing. No assurance can be given that we can raise any such financing and such financing could be dilutive to our shareholders.
We may engage in strategic transactions that could impact our liquidity, increase our expenses, and present significant distractions to our management, and which ultimately may not be successful.
From time to time, we may consider strategic transactions, such as acquisitions of companies, asset purchases and out-licensing or in-licensing of products, product candidates, or technologies, particularly those arrangements that seek to leverage other organizations’ internal platforms or competencies for the benefit of our products or potential products. Additional potential transactions that we may consider may include a variety of different business arrangements, including spin-offs, strategic partnerships, joint ventures, restructurings, divestitures, business combinations and investments. Any such transaction may require us to incur non-recurring or other charges, may increase our near and long-term expenditures and may pose significant integration challenges or disrupt our management or business, which could adversely affect our operations and financial results. For example, these transactions may entail numerous operational and financial risks, including:
● higher than expected acquisition and integration costs;
● write-downs of assets or goodwill or impairment charges;
● increased amortization expenses;
● inability to retain key employees of any acquired businesses.
There can be no assurance that we will undertake or successfully complete any transactions of the nature described above. Any transactions that we do complete could have a material adverse effect on our business, results of operations, financial condition, and prospects if we are unable to execute on the planned objectives or capitalize on the relationship in the manner that was originally contemplated.
A pandemic, epidemic or outbreak of an infectious disease, such as COVID-19, may materially and adversely affect our business and operations.
The outbreak of COVID-19 has affected most of the world, including the U.S., South America, European and Asian countries. On March 11, 2020, the World Health Organization declared the outbreak a pandemic. The COVID-19 pandemic is affecting the United States and global economies and has and may continue to affect our operations and those of third parties on which we rely, including by causing disruptions in the supply of our products candidates and the conduct of current and future clinical trials. As the end of the COVID-19 pandemic remains unknown, the full extent of the impact of COVID-19 on the Company remains unknown as well.
The impact of COVID-19 on our operations is reflected in reduced revenue and increased expenses in both our Infrastructure and the Life Sciences segments.
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In addition, the COVID-19 pandemic may affect the operations of the FDA and other health authorities, which could result in delays of reviews and approvals, including with respect to our product candidates. The evolving COVID-19 pandemic is also likely to directly or indirectly impact the pace of enrolment in our clinical trial for IGC-AD1 for at least the next several months and possibly longer as patients may avoid or may not be able to travel to healthcare facilities and physicians' offices unless due to a health emergency. Such facilities and offices may also be required to focus limited resources on non-clinical trial matters, including treatment of COVID-19 patients, and may not be available, in whole or in part, for clinical trial services or our other product candidates. Additionally, while the potential economic impact brought by, and the duration of the COVID-19 pandemic is difficult to assess or predict, the impact of the COVID-19 pandemic on the global financial markets may reduce our ability to access capital, which could negatively impact our short-term and long-term liquidity. The ultimate impact of the COVID-19 pandemic is highly uncertain and subject to change. We do not yet know the full extent of potential delays or impacts on our business, financing, or clinical trial activities or on healthcare systems or the global economy as a whole. However, these effects could have a material impact on our liquidity, capital resources, operations, and business and those of the third parties on which we rely. The continued impact of the ongoing COVID-19 pandemic on the Company as well as on the regions in which we do business cannot be predicted.
We may fail to expand our growing and manufacturing capability in time to meet market demand for our products and product candidates, and the FDA may refuse to accept our facilities or those of our contract manufactures as being suitable for the production of our products and product candidates. Any problems in our growing or manufacturing process could have a material adverse effect on our business, results of operations and financial condition.
In addition, before we can begin commercial manufacture of any medicinal product candidates for sale in the U.S., we must obtain FDA regulatory approval for the product, which requires a successful FDA inspection of the manufacturing facilities, which includes the facilities of the processor(s) and quality systems in addition to other product-related approvals.
The Company also established an approximately $3.4 million facility it intends to qualify as a Good Manufacturing Practice (“GMP”) certified processing facility in the State of Washington for processes such as: a) production of products such as lotions, creams, and oils, among others, to support our products and to support white labeling; b) extraction of hemp into crude oil; and c) distillation of crude oil into hemp extracts. There can be no assurance that the facility will receive the GMP certification.
Due to the complexity of the processes used to manufacture our product candidates, we may be unable to initially, or continue to, pass federal, state, or international regulatory inspections in a cost-effective manner. If we are unable to comply with manufacturing regulations, we may be subject to fines, unanticipated compliance expenses, recall or seizure of any approved products, total or partial suspension of production and/or enforcement actions, including injunctions, and criminal or civil prosecution. These possible sanctions would adversely affect our business, results of operations and financial condition.
Legal claims could be filed that may have a material adverse effect on our business, operating results, and financial condition. We may in the future face risks of litigation and liability claims, the extent of such exposure can be difficult or impossible to estimate and which can negatively impact our financial condition and results of operations.
Our operations are subject to numerous laws and regulations of the U.S., India, Colombia, and Hong Kong relating to the protection of the public and necessary disclosures regarding financial services. Liability under these laws involves inherent uncertainties. Violations of financial regulation laws are subject to civil, and, in some cases, criminal sanctions. We may not have been, or may not be, or may be alleged to have not been or to not be, at all times, in complete compliance with all requirements, and we may incur costs or liabilities in connection with such requirements or allegations. We may also incur unexpected interruptions to our operations, administrative injunctions requiring operation stoppages, fines judgments, settlements, or other financial obligations or penalties, which could negatively impact our financial condition and results of operations. See Item 3, Legal Proceedings of this report for further information on the current shareholder class action pending against the Company and some of its officers and directors. There can also be no assurance that any insurance coverage we take will be adequate or that we will prevail in any future cases. We can provide no assurance that we will be able to obtain liability insurance that would protect us from any such lawsuits. In the event that we are not covered by insurance, our management could expend significant time and resources addressing any such issues. And the legal fees necessary to defend against multiple lawsuits can be significant, impacting the Company’s overall bottom line when not covered by insurance or where the fees exceed the Company’s insurance policy limits.
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The Company is a defendant in a shareholder class action lawsuit, and the outcome of litigation cannot be accurately predicted.
On November 2, 2018, an IGC shareholder initiated a shareholder class action complaint against the Company and two of its officers and directors on behalf of himself and all others similarly situated. After the close of Fiscal 2021, the Company reached an agreement in principle to settle the litigation. The settlement is subject to court approval, and finalization of the settlement is expected to take place sometime in Fiscal 2022, although there can be no assurance. In addition, litigation is inherently unpredictable, and the potential future results of this specific litigation turn on many factors that cannot be accurately anticipated at this stage of the litigation. For instance, the decision to approve the settlement is entirely within the court’s discretion. An adverse decision in the litigation, to the extent the same is not adequately covered by insurance, could substantially impact the Company’s finances and its ability to conduct trials, develop and innovate its brands and products, and compete in the market.
Our Company is in a highly regulated industry. Significant and unforeseen changes in policy may have material impacts on our business.
Continued development in the phytocannabinoids industry is dependent upon continued state legislative authorization of cannabinoids as well as legislation and regulatory policy at the federal level. The federal Controlled Substances Act currently makes cannabinoids use and possession illegal on a national level. While there may be ample public support for legislative authorization, numerous factors impact the legislative process. Any one of these factors could slow or halt use and handling of cannabinoids in the U.S. or in other jurisdictions, which would negatively impact our development of phytocannabinoid-based therapies and our ability to test and productize these therapies.
Many U.S. state laws conflict with the federal Controlled Substances Act. While we do not, and we do not intend, to distribute or sell marijuana in the U.S., it is unclear whether regulatory authorities in the U.S. would object to the registration or public offering of securities in the U.S. by our Company, to the status of our Company as a reporting company, or even to investors investing in our Company, if we engage in legal cannabinoids cultivation and supply pursuant to the laws and authorization of the jurisdiction where the activity takes place. In addition, the status of cannabinoids under the Controlled Substances Act may have an adverse effect on federal agency approval of pharmaceutical use of phytocannabinoid products. Any such objection or interference could delay indefinitely or increase substantially the costs to access the equity capital markets, test our therapies, or create products from the Life Sciences segment.
OurCompanyisinexperienced in conducting pre-clinical and clinical trials.
Our Company is inexperienced in conducting pre-clinical and clinical trials. Our attempt at demonstrating safety, efficacy and ultimate useability may fail because of our lack of experience in designing, managing and conducting clinical trials resulting in unanticipated or adverse outcomes. Such outcomes may have an adverse effect on our stock price.
Clinical trials are expensive, time-consuming, and difficult to design and implement, and involve an uncertain outcome.
Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process. Because the results of preclinical studies and early clinical trials are not necessarily predictive of future results, IGC-AD1 and our other compounds may not have favorable results in later preclinical and clinical studies or receive regulatory approval. We may experience delays in initiating and completing any clinical trials that we intend to conduct, and we do not know whether planned clinical trials will begin on time, need to be redesigned, enroll patients on time or be completed on schedule, or at all. Clinical trials can be delayed for a variety of reasons, including delays related to:
● obtaining regulatory approval to commence a trial;
● having patients complete a trial or return for post-treatment follow-up;
● clinical sites deviating from trial protocol or dropping out of a trial;
● addressing patient safety concerns that arise during the course of a trial;
● adding a sufficient number of clinical trial sites; or
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We could also encounter delays if a clinical trial is suspended or terminated by us, the IRBs or IECs of the institutions in which such trials are being conducted, the Data Safety Monitoring Board (“DSMB”), for such trial or the FDA or other regulatory authorities. Such authorities may impose such a suspension or termination due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a drug, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial. Furthermore, we rely on CROs and clinical trial sites to ensure the proper and timely conduct of our clinical trials and, while we have agreements governing their committed activities, we have limited influence over their actual performance.
The regulatory approval processes of the FDA and comparable foreign authorities are lengthy, time consuming and inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for IGC-AD1 or any other product candidates, our business will be substantially harmed.
The time required to obtain approval by the FDA and comparable foreign authorities is unpredictable but typically takes many years following the commencement of clinical trials and depends upon numerous factors, including the substantial discretion of the regulatory authorities. In addition, approval policies, regulations or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate’s clinical development and may vary among jurisdictions. We have not obtained regulatory approval for any product candidate, and it is possible that we will never obtain regulatory approval for IGC-AD1 or any other product candidate. We are not permitted to market any of our pharmaceutical product candidates in the United States until we receive regulatory approval of an NDA from the FDA.
Prior to obtaining approval to commercialize a product candidate in the United States or abroad, we must demonstrate with substantial evidence from well-controlled clinical trials, and to the satisfaction of the FDA or foreign regulatory agencies, that such product candidates are safe and effective for their intended uses. Results from preclinical studies and clinical trials can be interpreted in different ways. Even if we believe the preclinical or clinical data for our product candidates are promising, such data may not be sufficient to support approval by the FDA and other regulatory authorities. For diseases like Alzheimer’s disease, the FDA has stated that one single Phase 3 trial is adequate for approval if it demonstrates robust and unquestionable efficacy. However, the circumstances under which a single adequate and controlled study can be used as the sole basis of demonstrating efficacy of a drug are exceptional.
The FDA or any foreign regulatory bodies can delay, limit, or deny approval of our product candidates or require us to conduct additional preclinical or clinical testing or abandon a program for many reasons, including:
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Of the large number of drugs in development, only a small percentage successfully complete the regulatory approval processes and are commercialized. This lengthy approval process, as well as the unpredictability of future clinical trial results, may result in us failing to obtain regulatory approval to market IGC-AD1 or another product candidate, which would significantly harm our business, results of operations and prospects.
In addition, the FDA or the applicable foreign regulatory agency also may approve a product candidate for a more limited indication or patient population than we originally requested, and the FDA or applicable foreign regulatory agency may approve a product candidate with a label that does not include the labeling claims necessary or desirable for the successful commercialization of that product candidate. Any of the foregoing scenarios could materially harm the commercial prospects for our product candidates.
We have concentrated our research and development efforts on the treatment of Alzheimer’s Disease, which has seen limited success in drug development. Further, IGC-AD1 is based on a new approach to treating symptoms of Alzheimer’s Disease, which makes it difficult to predict the time and cost of development and subsequent obtaining of regulatory approval.
Efforts by biopharmaceutical and pharmaceutical companies in treating Alzheimer’s Disease have seen limited success in drug development, and there are no FDA-approved disease modifying therapeutic options available for patients with Alzheimer’s Disease. We cannot be certain that our approach will lead to the development of approvable or marketable products. The only drugs approved by the FDA to treat Alzheimer’s Disease to date address the diseases’ symptoms. No new treatments have been approved for Alzheimer’s Disease since 2003 as of March 31, 2021. Alzheimer’s Disease drug candidates have the highest failure rate of approximately 99.6%. As a result, the FDA has a limited set of products to rely on in evaluating IGC-AD1. This could result in a longer than expected regulatory review process, increased expected development costs or the delay or prevention of commercialization of IGC-AD1 for the treatment of Alzheimer’s Disease.
Enrollment and retention of patients in clinical trials is an expensive and time-consuming process and could be made more difficult or rendered impossible by multiple factors outside our control.
The timely completion of clinical trials in accordance with their protocols depends, among other things, on our ability to enroll a sufficient number of patients who remain in the study until its conclusion. We may encounter delays in enrolling, or be unable to enroll, a sufficient number of patients to complete any of our clinical trials, and even once enrolled, we may be unable to retain a sufficient number of patients to complete any of our trials. Patient enrollment and retention in clinical trials depends on many factors, including:
● the patient eligibility criteria defined in the protocol;
● the nature of the trial protocol;
● the proximity of patients to clinical sites;
● competing clinical trials being conducted by other companies or institutions;
● our ability to maintain patient consents; and
Our product candidates may cause serious adverse events or undesirable side effects, which may delay or prevent marketing approval, or, if approved, require them to be taken off the market, require them to include safety warnings or otherwise limit their sales.
Serious adverse events or undesirable side effects caused by IGC-AD1, or any other product candidates could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or other comparable foreign authorities. Results of any clinical trial we conduct could reveal a high and unacceptable severity and prevalence of side effects or unexpected characteristics.
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If unacceptable side effects arise in the development of our product candidates, we, the FDA, or the IRBs at the institutions in which our studies are conducted, or the DSMB, if constituted for our clinical trials, could recommend a suspension or termination of our clinical trials, or the FDA or comparable foreign regulatory authorities could order us to cease further development of or deny approval of a product candidate for any or all targeted indications. In addition, drug-related side effects could affect patient recruitment or the ability of enrolled patients to complete a trial or result in potential product liability claims. In addition, these side effects may not be appropriately recognized or managed by the treating medical staff. We expect to have to train medical personnel using our product candidates to understand the side effect profiles for our clinical trials and upon any commercialization of any of our product candidates. Inadequate training in recognizing or managing the potential side effects of our product candidates could result in patient injury or death. Any of these occurrences may harm our business, financial condition, and prospects significantly.
Additionally, if one or more of our product candidates receives marketing approval, and we or others later identify undesirable side effects caused by such products, a number of potentially significant negative consequences could result, including:
● regulatory authorities may withdraw approvals of such product;
● we could be sued and held liable for harm caused to patients;
● the product may become less competitive; and
● our reputation may suffer.
Any of these events could prevent us from achieving or maintaining market acceptance of a product candidate, if approved, and could significantly harm our business, results of operations and prospects.
Our product candidates may be unable to achieve the expected market acceptance, consequently, limiting our ability to generate revenue from new products.
Even when product development is successful and regulatory approval has been obtained, our ability to generate sufficient revenue depends on the acceptance of our products by customers. We cannot assure you that our products will achieve the expected level of market acceptance and revenue. The market acceptance of any product depends on several factors such as, the price of the product, the effect of the product, the taste of the product, reputation of the Company, competition, and marketing and distribution support.
The success and acceptance of a product in one state may not be replicated in other states or may be negatively affected by our activities in another state. Any factors preventing or limiting the market acceptance of our products could have a material adverse effect on our business, results of operations and financial condition.
The nature of our products, customer base and sales channels cause us to lack visibility regarding future demand for our products, which makes it difficult for us to predict our revenues or operating results.
It is important to the success of our business that we have the ability to accurately predict the future demand for our products. However, several factors contribute to a lack of visibility with respect to future orders, including:
● the project-driven nature of our customers’ requirements;
This lack of visibility impacts our ability to forecast inventory requirements. An overestimate of our customers’ future requirements for products may lead to excess inventory, which would increase costs and potentially require us to write-off inventory that becomes obsolete. If we underestimate our customers’ future requirements, we may have inadequate inventory, which could interrupt and delay delivery of our products to our customers and could cause our revenues to decline. If any of these events occur, they could negatively impact our revenues, which could prevent us from achieving or sustaining profitability.
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Some, but not all, of the factors that could affect our ability to achieve results are described in forward-looking statements. If one or more of these factors materialize, or if any underlying assumptions prove incorrect, our actual results, performance or achievements may vary materially from any future results, performance or achievements expressed or implied by these forward-looking statements.
Business interruptions could delay us in the process of developing our product candidates and could disrupt our product sales.
Loss of our manufacturing facilities, stored inventory or laboratory facilities through fire, theft, natural disasters or other causes, or loss of our botanical raw material due to pathogenic infection, waste, destruction, or other causes, could have an adverse effect on our ability to meet demand for hemp-based CBD products or to continue product development activities and to conduct our business. Failure to supply our partners with commercial products may lead to adverse consequences.
Currency fluctuations may reduce our assets and profitability.
We have assets located in foreign countries that are valued in foreign currencies. Fluctuation of the U.S. dollar relative to the foreign currency may adversely affect our assets and profit.
Our business relies heavily on our management team and any unexpected loss of key officers may adversely affect our operations.
The continued success of our business is largely dependent on the continued services of our key employees. The loss of the services of certain key personnel, without adequate replacement, could have an adverse effect on our performance. Our senior management, as well as the senior management of our subsidiaries, plays a significant role in developing and executing the overall business plan, maintaining client relationships, proprietary processes, and technology. While no one is irreplaceable, the loss of the services of any would be disruptive to our business.
Our quarterly revenue, operating results and profitability will vary.
Factors that may contribute to the variability of quarterly revenue, operating results or profitability include:
● Additions and departures of key personnel;
We may not successfully register the provisional patents with the USPTO.
We have filed twelve provisional patents with the USPTO, in the combination therapy space, for the indications of pain, medical refractory epilepsy, eating disorders, and cachexia as part of our intellectual property strategy focused on the phytocannabinoid-based health care industry. Although, three patents have been issued, there is no guarantee that our remaining applications will result in a successful registration with the USPTO. If we are unsuccessful in registering patents, our ability to create a valuable line of products can be adversely affected. This in turn may have a material and adverse impact on the trading price of our common stock.
We may be unable to protect our intellectual property rights and/or intellectual property rights licensed to usand may be subject to intellectual property litigation and infringement claims by third parties.
We intend to protect our intellectual property through limited patents and our unpatented trade secrets and know-how through confidentiality or license agreements with third parties, employees, and consultants, and by controlling access to and distribution of our proprietary information. However, this method may not afford complete protection, particularly in foreign countries where the laws may not protect our proprietary rights as fully as in the U.S. and unauthorized parties may copy or otherwise obtain and use our products, processes, or technology. Additionally, there can be no assurance that others will not independently develop similar know-how and trade secrets. We are also dependent upon the owners of intellectual property rights licensed to us under various wholesale license agreements to protect and defend those rights against third party claims. If third parties take actions that affect our rights, the value of our intellectual property, similar proprietary rights or reputation or the licensors who have granted us certain rights under wholesale license agreements, or we are unable to protect the intellectual property from infringement or misappropriation, other companies may be able to offer competitive products at lower prices, and we may not be able to effectively compete against these companies. We also face the risk of claims that we have infringed third parties’ intellectual property rights. Any claims of intellectual property infringement, even those without merit, may require us to:
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● defend against infringement claims which are expensive and time consuming;
● re-design, re-engineer, or re-brand our products or packaging; or
In the event of claims by third parties for infringement of intellectual property rights we license from third parties under wholesale license agreements, we could be liable for costs of defending allegations of infringement, and there are no assurances the licensors will either adequately defend the licensed intellectual property rights or that they would prevail in the related litigation. In that event, we would incur additional costs and may be deprived from generating royalties from these agreements.
We may face risks relating to health care privacy and security laws.
We may be subject to various privacy and security regulations, including but not limited to Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), as amended by The Health Information Technology for Economic and Clinical Health Act (“HITECH”), and their respective implementing regulations, including the related final published omnibus rule. HIPAA mandates, among other things, the adoption of uniform standards for the electronic exchange of information in common health care transactions, as well as standards relating to the privacy and security of individually identifiable health information. These obligations would require the Company to adopt administrative, physical, and technical safeguards to protect such information. Among other things, HITECH makes HIPAA’s privacy and security standards directly applicable to “business associates” — independent contractors or agents of covered entities that receive or obtain protected health information in connection with providing a service on behalf of a covered entity. HITECH also increased the civil and criminal penalties that may be imposed against covered entities, business associates and possibly other persons, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorney’s fees and costs associated with pursuing federal civil actions. In addition, state laws govern the privacy and security of health information in certain circumstances, some of which are more stringent than HIPAA and many of which differ from each other in significant ways and may not have the same effect, thereby complicating compliance efforts. Failure to comply with these laws, where applicable, can result in the imposition of significant civil and criminal penalties.
Some of our lines of business will rely on third-party service providers to host and deliver services and data, and any interruptions or delays in these hosted services, security, or privacy breaches, including cybersecurity attacks, or failures in data collection could expose us to liability claims, increased costs, reduced revenue, and harm our business and reputation.
Our lines of business and services, but especially our development of hemp-based cannabinoid combination therapies for products, including HyalolexTM, Drops of ClarityTM, and our long-term use and/or development of blockchain technologies to solve critical issues facing the cannabinoids industry, rely on services hosted and controlled directly by our suppliers and distributors and their third-party service providers. We do not have redundancy for all our systems; many of our critical applications reside in only one of our data centers, and our disaster recovery planning may not account for all eventualities. These facts could cause reputational harm, loss of customers, or loss of future business, thereby reducing our revenue.
Our suppliers and distributors and their third-party service providers hold customer data, some of which is hosted in third-party facilities. A security incident or cybersecurity attack at those facilities or ours may compromise the confidentiality, integrity, or availability of customer data. We have a cybersecurity policy in place, however, unauthorized access to customer data stored on our computers or networks may be obtained through break-ins, breaches of our secure network by an unauthorized party, employee theft or misuse, or other misconduct. It is also possible that unauthorized access to customer data may be obtained through inadequate use of security controls by customers. Accounts created with weak passwords could allow cyber-attackers to gain access to customer data. If there were an inadvertent disclosure of customer information, or if a third party were to gain unauthorized access to the information we possess on behalf of our customers, our operations could be disrupted, our reputation could be damaged, and we could be subject to claims or other liabilities. In addition, such perceived or actual unauthorized disclosure of the information we collect, or breach of our security could damage our reputation, result in the loss of customers, and harm our business.
Hardware or software failures or errors in our systems or those of our suppliers and distributors or their third-party service providers, could result in data loss or corruption, cause the information that we collect to be incomplete or contain inaccuracies that our customers regard as significant, or cause us to fail to meet committed service levels. Furthermore, our ability to collect and report data may be delayed or interrupted by several factors, including access to the internet, the failure of our network or software systems or security breaches. In addition, computer viruses or other malware may harm our systems, causing us to lose data, and the transmission of computer viruses or other malware could expose us to litigation. We may also find, on occasion, that we cannot deliver data and reports in near real time because of several factors, including failures of our network or software. If we supply inaccurate information or experience interruptions in our ability to capture, store and supply information in near real time or at all, our reputation could be harmed, we could lose customers, or we could be found liable for damages or incur other losses.
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All our data is stored on the cloud on multiple servers that helps us mitigate the overall risk of losing data. We have a cybersecurity policy in place and are in the process of implementing tighter cybersecurity measures to safeguard against hackers. Complying with these security measures and compliances would incur further costs.
The states in which we and our distributers and suppliers and their service providers operate require that we maintain certain information about our customers and transactions. If we fail to maintain such information, we could be in violation of state laws. Laws and regulations relating to the handling of personal data may impede the adoption of our services or result in increased costs, legal claims, fines against us, or reputational damage.
We face risks associated with the manufacture of our products which could adversely affect our business and financial results.
We are subject to the risks inherent in manufacturing our products, including industrial accidents, environmental events, strikes and other labor disputes, disruptions in supply chain or information systems, loss or impairment of key manufacturing sites or suppliers, product quality control, safety, increase in commodity prices and energy costs, licensing requirements and other regulatory issues, as well as natural disasters and other external factors over which we have no control. If such an event were to occur, it could have an adverse effect on our business and financial results.
The Company is exposed to the risk of write-downs on the value of its inventory and other assets, in addition to purchase commitment cancellation risk.
The Company records a write-down for product and component inventories that become obsolete or exceed anticipated demand, or for which cost exceeds net realizable value. The Company may also accrue necessary cancellation fee reserves for orders of excess products and components. The Company reviews long-lived assets, including capital assets held at its suppliers’ facilities and inventory prepayments, for impairment whenever events or circumstances indicate the assets may not be recoverable. If the Company determines that an impairment has occurred, it records a write-down equal to the amount by which the carrying value of the asset exceeds its fair value. Although the Company believes its inventory, capital assets, inventory prepayments and other assets and purchase commitments are currently recoverable, no assurance can be given that the Company will not incur write-downs, fees, impairments, and other charges given the rapid and unpredictable pace of product obsolescence in the industries in which the Company competes.
The Company orders components for its products and builds inventory in advance of product announcements and shipments. Manufacturing purchase obligations cover the Company’s forecasted component and manufacturing requirements, typically for periods up to 150 days. Because the Company’s markets are volatile, competitive, and subject to rapid technology and price changes, there is a risk the Company will forecast incorrectly and order or produce excess or insufficient amounts of components or products, or not fully utilize firm purchase commitments.
Our accounting personnel may make unintentional errors.
Given our small size and foreign operations, a small unrectified mistake in the preparation of financial statements and the maintenance of our books and records in accordance with U.S. GAAP and SEC rules and regulations may constitute a material weakness in our internal controls over financial reporting. For more information, please see Item 9A, “Controls and Procedures.”
Risks Related to ownership of our common stock
Future sales of common stock by us could cause our stock price to decline and dilute your ownership in our Company.
Our certificate of incorporation authorizes the issuance of up to 150,000,000 shares of common stock, par value $0.0001 per share and 1,000,000 shares of preferred stock, par value $0.0001 per share. We are not restricted from issuing additional shares of our common stock or preferred stock, including any securities that are convertible into or exchangeable for, or that represent the right to receive, common stock or preferred stock or any substantially similar securities. The market price of our common stock could decline as a result of sales of a large number of shares of our common stock by us in the market or the perception that such sales could occur. If we raise funds by issuing additional securities in the future or stock options to purchase our common stock are exercised, the newly issued shares will also dilute your percentage ownership in our Company.
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Our common stock price has fluctuated considerably and has recently reached our highest price levels, which may not be sustained.
The market price of shares of our common stock has fluctuated substantially in recent years and is likely to fluctuate significantly from its current level. Our common stock has also been volatile, with our 52-week closing price range being at a low of $0.44 and a high of $3.1 per share. Future announcements concerning the introduction of new products, services or technologies or changes in product pricing policies by us or our competitors or changes in earnings estimates by analysts, among other factors, could cause the market price of our common stock to fluctuate substantially. Also, stock markets have experienced extreme price and volume volatility in the last year. This volatility has had a substantial effect on the market prices of securities of many public companies for reasons frequently unrelated to the operating performance of the specific companies. These broad market fluctuations may also cause declines in the market price of our common stock. Investors seeking short-term liquidity should be aware that we cannot assure that the stock price will continue at these or any higher levels.
A possible “short squeeze” due to a sudden increase in demand of our common stock that largely exceeds supply may lead to further price volatility in our common stock.
Investors may purchase shares of our common stock to hedge existing exposure in our common stock or to speculate on the price of our common stock. Speculation on the price of our common stock may involve long and short exposures. To the extent aggregate short exposure exceeds the number of shares of our common stock available for purchase in the open market, investors with short exposure may have to pay a premium to repurchase our common stock for delivery to lenders of our common stock. Those repurchases may in turn, dramatically increase the price of our common stock until investors with short exposure are able to purchase additional shares of common stock to cover their short position. This is often referred to as a “short squeeze.” A short squeeze could lead to volatile price movements in shares of our common stock that are not directly correlated to the performance or prospects of our Company and once investors purchase the shares necessary to cover their short position the price of our common stock may decline. We believe that the recent volatility in our common stock may be due, in part, to short squeezes that may be temporarily increasing the price of our common stock, which could result in a loss of some or all of your investment in our common stock.
Our management team will have broad discretion over the use of the funds.
Our management will use their discretion to direct the funds. We intend to use the net proceeds from the sale of IGC shares in ATM offering, sales proceeds, sale of capital assets and other funds to fund working capital and capital expenditure requirements. It may also be used for clinical trials, share repurchases, debt repayments, investments, including but not limited to, mutual funds, treasury bonds, cryptocurrencies, and other asset classes. Management’s judgments may not result in positive returns on investor investment and the investor will not have an opportunity to evaluate the economic, financial or other information upon which the Management bases its decisions. Company may invest the funds, pending their use, in a manner that does not produce income or that loses value. The failure by Management to apply these funds effectively could result in financial losses, and these financial losses could have a material adverse effect on our business and cause the price of our common stock to decline.
Our publicly filed reports are subject to review by the SEC, and any significant changes or amendments required as a result of any such review may result in material liability to us and may have a material adverse impact on the trading price of our common stock.
The reports of publicly traded companies are subject to review by the SEC from time to time for the purpose of assisting companies in complying with applicable disclosure requirements, and the SEC is required to undertake a comprehensive review of a company’s reports at least once every three years under the Sarbanes-Oxley Act of 2002. SEC reviews may be initiated at any time. We could be required to modify, amend, or reformulate information contained in prior filings as a result of an SEC review, as well as state in filings that we have inadequate control or expertise over financial reporting. Any modification, amendment, or reformulation of information contained in such reports could be significant and result in material liability to us and have a material and adverse impact on the trading price of our common stock.
We do not anticipate declaring any cash dividends on our common stock.
We have never declared or paid cash dividends on our common stock and do not plan to pay any cash dividends in the near future. Our current policy is to retain all funds and earnings for use in the operation and expansion of our business.
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Maryland anti-takeover provisions and certain anti-takeover effects of our Charter and Bylaws may inhibit a takeover at a premium price that may be beneficial to our stockholders.
Maryland anti-takeover provisions and certain anti-takeover effects of our charter and bylaws may be utilized, under some circumstances, as a method of discouraging, delaying, or preventing a change of control of our Company at a premium price that would be beneficial to our stockholders. For more detailed information about these provisions, please see “Anti-takeover Law, Limitations of Liability and Indemnification” as follows:
Business Combinations
Under the Maryland General Corporation Law, some business combinations, including a merger, consolidation, share exchange or, in some circumstances, an asset transfer or issuance or reclassification of equity securities, are prohibited for a period of time and require an extraordinary vote. These transactions include those between a Maryland corporation and the following persons (a “Specified Person”):
An interested stockholder, who is defined as any person (other than a subsidiary) who beneficially owns 10% or more of the corporation’s voting stock, or who is an affiliate or an associate of the corporation who, at any time within a two-year period prior to the transaction, was the beneficial owner of 10% or more of the voting power of the corporation’s voting stock; or an affiliate of an interested stockholder.
A person is not an interested stockholder if the board of directors approved in advance the transaction by which the person otherwise would have become an interested stockholder. The board of directors of a Maryland corporation also may exempt a person from these business combination restrictions prior to the time the person becomes a Specified Person and may provide that its exemption be subject to compliance with any terms and conditions determined by the board of directors. Transactions between a corporation and a Specified Person are prohibited for five years after the most recent date on which such stockholder becomes a Specified Person. After five years, any business combination must be recommended by the board of directors of the corporation and approved by at least 80% of the votes entitled to be cast by holders of voting stock of the corporation and two-thirds of the votes entitled to be cast by holders of shares other than voting stock held by the Specified Person with whom the business combination is to be effected, unless the corporation’s stockholders receive a minimum price as defined by Maryland law and other conditions under Maryland law are satisfied.
A Maryland corporation may elect not to be governed by these provisions by having its board of directors exempt various Specified Persons, by including a provision in its charter expressly electing not to be governed by the applicable provision of Maryland law or by amending its existing charter with the approval of at least 80% of the votes entitled to be cast by holders of outstanding shares of voting stock of the corporation and two-thirds of the votes entitled to be cast by holders of shares other than those held by any Specified Person. Our Charter does not include any provision opting out of these business combination provisions.
Control Share Acquisitions
The Maryland General Corporation Law also prevents, subject to exceptions, an acquirer who acquires sufficient shares to exercise specified percentages of voting power of a corporation from having any voting rights except to the extent approved by two-thirds of the votes entitled to be cast on the matter not including shares of stock owned by the acquiring person, any directors who are employees of the corporation and any officers of the corporation. These provisions are referred to as the control share acquisition statute.
The control share acquisition statute does not apply to shares acquired in a merger, consolidation or share exchange if the corporation is a party to the transaction, or to acquisitions approved or exempted prior to the acquisition by a provision contained in the corporation’s charter or bylaws. Our Bylaws include a provision exempting us from the restrictions of the control share acquisition statute, but this provision could be amended or rescinded either before or after a person acquired control shares. As a result, the control share acquisition statute could discourage offers to acquire our common stock and could increase the difficulty of completing an offer.
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Board of Directors
The Maryland General Corporation Law provides that a Maryland corporation which is subject to the Exchange Act and has at least three outside directors (who are not affiliated with an acquirer of the company) under certain circumstances may elect by resolution of the board of directors or by amendment of its charter or bylaws to be subject to statutory corporate governance provisions that may be inconsistent with the corporation’s charter and bylaws. Under these provisions, a board of directors may divide itself into three separate classes without the vote of stockholders such that only one-third of the directors are elected each year. A board of directors classified in this manner cannot be altered by amendment to the charter of the corporation. Further, the board of directors may, by electing to be covered by the applicable statutory provisions and notwithstanding the corporation’s charter or bylaws:
● reserve for itself the right to fix the number of directors,
In addition, a director elected to fill a vacancy under these provisions serves for the balance of the unexpired term instead of until the next annual meeting of stockholders. A board of directors may implement all or any of these provisions without amending the charter or bylaws and without stockholder approval. Although a corporation may be prohibited by its charter or by resolution of its board of directors from electing any of the provisions of the statute, we have not adopted such a prohibition. We have adopted a staggered board of directors with three separate classes in our charter and given the board the right to fix the number of directors, but we have not prohibited the amendment of these provisions. The adoption of the staggered board may discourage offers to acquire our common stock and may increase the difficulty of completing an offer to acquire our stock. If our Board chose to implement the statutory provisions, it could further discourage offers to acquire our common stock and could further increase the difficulty of completing an offer to acquire our common stock.
Effect of Certain Provisions of our Charter and Bylaws
In addition to the Charter and Bylaws provisions discussed above, certain other provisions of our Bylaws may have the effect of impeding the acquisition of control of our Company by means of a tender offer, proxy fight, open market purchases or otherwise in a transaction not approved by our Board of Directors. These provisions of Bylaws are intended to reduce our vulnerability to an unsolicited proposal for the restructuring or sale of all or substantially all of our assets or an unsolicited takeover attempt, which our Board believes is otherwise unfair to our stockholders. These provisions, however, also could have the effect of delaying, deterring, or preventing a change in control of our Company.
Our Bylaws provide that with respect to annual meetings of stockholders, (i) nominations of individuals for election to our Board of Directors and (ii) the proposal of business to be considered by stockholders may be made only pursuant to our notice of the meeting, by or at the direction of our Board of Directors, or by a stockholder who is entitled to vote at the meeting and has complied with the advance notice procedures set forth in our Bylaws.
Special meetings of stockholders may be called only by the chief executive officer, the board of directors or the secretary of our Company (upon the written request of the holders of a majority of the shares entitled to vote). At a special meeting of stockholders, the only business that may be conducted is the business specified in our notice of meeting. With respect to nominations of persons for election to our Board of Directors, nominations may be made at a special meeting of stockholders only pursuant to our notice of meeting, by or at the direction of our Board of Directors, or if our Board of Directors has determined that directors will be elected at the special meeting, by a stockholder who is entitled to vote at the meeting and has complied with the advance notice procedures set forth in our Bylaws.
These procedures may limit the ability of stockholders to bring business before a stockholders meeting, including the nomination of directors and the consideration of any transaction that could result in a change in control and that may result in a premium to our stockholders.
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ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Our corporate headquarters is located in Potomac, Maryland. We own a property of approximately 40,000 square feet that is used for general management and R&D operations. In addition, we are leasing, through December 2025, approximately 16,000 square feet in Vancouver, Washington for manufacturing, sales, and distribution of our Life Sciences segment products and services. We subleased a 100-acre cultivation land in Arizona for harvesting hemp until December 31, 2020. In Puerto Rico we own a property of approximately 1,355 square feet that we use primarily for medical trials and related operations. In addition, we own and have short-term lease facilities in U.S., Colombia, Hong Kong, and India that is used for sales, storage accounting, management, and R&D. We own approximately 5 acres of land in India. The Company believes its existing facilities and equipment, which are used by all reportable segments, are in good operating condition and are suitable for the conducting of its business.
ITEM 3. LEGAL PROCEEDINGS
The Company may be involved in legal proceedings, claims, and assessments arising in the ordinary course of business. Such matters are subject to many uncertainties, and outcomes are not predictable with assurance. There are no such matters that are deemed material to the consolidated financial statements as of March 31, 2021.
As of March 31, 2021, the Company was a party to two shareholder lawsuits, as described below.
Shareholder Class Action Litigation
Tchatchou v. India Globalization Capital, Inc., et al., Civil Action No. 8:18-cv-03396 (U.S. District Court for the District of Maryland). On November 2, 2018, IGC shareholder Alde-Binet Tchatchou instituted a shareholder class action complaint on behalf of himself and all others similarly situated in the United States District Court for the District of Maryland. On May 13, 2019, the plaintiff filed an amended complaint against IGC, Ram Mukunda, and Claudia Grimaldi, (collectively, the “Class Action Defendants”). The plaintiff alleges that the Class Action Defendants violated Section 10(b) of the Exchange Act, SEC Rule 10b-5, and Section 20(a) of the Exchange Act and made false and misleading statements to the public by issuing a September 25, 2018, press release entitled “IGC to Enter the Hemp/CBD-Infused Energy Drink Space” and related disclosures, in which IGC announced it had “executed a distribution and partnership agreement” for the sugar-free energy drink named Nitro G, as well as through related public statements. The plaintiff has not publicly disclosed the amount of damages they seek. On February 28, 2019, all pending shareholder class actions were consolidated, and the Tchatchou litigation was designated as the lead case.
Harris-Carr v. India Globalization Capital, Inc., et al., Civil Action No. 8:18-cv-03408 (U.S. District Court for the District of Maryland). On November 2, 2018, IGC shareholder Gabe Harris-Carr instituted a shareholder class action complaint on behalf of himself and all others similarly situated in the United States District Court for the District of Maryland. IGC, Ram Mukunda, and Claudia Grimaldi were named as defendants. On February 28, 2019, all pending shareholder class actions, including the Harris-Carr litigation, were consolidated, and the Tchatchou litigation, described above, was designated as the lead case. On May 13, 2019, the plaintiff in the Tchatchou litigation filed an amended complaint, which becomes the operative complaint for the consolidated matter and supersedes the Harris-Carr complaint.
On April 6, 2021, after the close of the Company’s Fiscal Year 2021, the plaintiffs and the Class Action Defendants reached a preliminary agreement in principle to settle all pending shareholder litigation, including the Tchatchou and Harris-Carr matters described above. The settlement is subject to the agreement and execution of formal settlement documentation and approval by the United States District Court for the District of Maryland. At present, a significant portion of the settlement is expected to be paid by the Company’s insurance policy. The Company and the Class Action Defendants are represented by counsel in the litigation.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is listed on the NYSE American under the symbol “IGC” with CUSIP number 45408X308. The common stock of the Company is also quoted on the Frankfurt, Berlin, and Stuttgart (XETRA2) stock exchanges in Germany (ticker symbol: IGS1). In Fiscal 2020 we had public warrants that expired on March 8, 2021.
We also have 91,472 units outstanding that can be separated into common stock. Ten units may be separated into one share of common stock. The unit holders are requested to contact the Company or our transfer agent, Continental Stock Transfer & Trust, to separate their units into common stock.
Further information on the securities can be referred to in Note 13, “Securities” of Part II, Item 8.
Securities authorized for issuance under equity compensation plans
The following table shows (in thousands), as of March 31, 2021, information regarding outstanding awards available under our compensation plans (including individual compensation arrangements) under which our equity securities may be delivered.
Equity compensation plans approved by security holders:
2018 Omnibus Incentive Plan (1) - $ - -
(1) Consists of our 2018 Omnibus Incentive Plans, as approved by our stockholders on November 8, 2017. See Note 14, “Stock-Based Compensation” of the Notes to the Consolidated Financial Statements included in this report.
(2) Consists of 2 million shares as a special grant of common stock, as approved by our stockholders on January 7, 2020 and 2.5 million shares as a special grant of common stock, as approved by our stockholders on January 11, 2021.
Holders
As of June 7, 2021, we had approximately 49 registered shareholders of record of our common stock and 2 registered unit holders. The number of record holders does not include persons who held our common stock in nominee or “street name” accounts through brokers. Continental Stock Transfer & Trust Company is the transfer agent and registrar for our common stock.
Dividend policy
We have not paid any dividends on our common stock to date and do not intend to pay dividends. It is the present intention of our Board of Directors to retain all earnings, if any, for use in our business operations. Accordingly, our Board does not anticipate declaring any dividends in the foreseeable future.
Unregistered sales of equity securities
None.
Purchases of equity securities by the issuer and affiliated purchasers
None.
ITEM 6. SELECTED FINANCIAL DATA
Not Applicable.
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis apply to Fiscal 2021 that ends on March 31, 2021, and Fiscal 2020 that ends on March 31, 2020. These statements should be read in conjunction with our consolidated financial statements and the related notes that appear elsewhere in this Annual Report on Form 10-K.
In addition to historical information, this report contains forward-looking statements that involve risks and uncertainties that may cause our actual results to differ materially from plans and results discussed in forward-looking statements. We encourage you to review the risks and uncertainties discussed in the sections entitled Item 1A. “Risk Factors” and “Forward-Looking Statements” included at the beginning of this Annual Report on Form 10-K.
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 Fiscal 2021, was from our Life Sciences segment, which includes a biopharmaceutical component, and a wellness and lifestyle business, which involves:
(iv) white labeling of hemp-based products, and
Our primary source of revenue in Fiscal 2020, was from our Infrastructure segment. In Fiscal 2021, we significantly reduced the buying and selling of construction materials in Hong Kong because of what we perceive to be a slow-down in the Hong Kong economy due, in part, to COVID-19. The Company’s Infrastructure segment, involves:
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, with the anticipated goal of demonstrating safety and efficacy and potentially obtaining FDA approval for IGC-AD1 as a cannabinoid-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 cannabinoid 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.
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Our shorter-term strategy also includes becoming vertically integrated in the hemp industry, as we believe this may afford us the opportunity to create the right processes, quality, and replicability for eventually creating pharmaceutical grade formulations. We also believe this may provide us with several profit opportunities, all conducted in accordance with applicable laws and regulations, and only in locations where it is legal to do so, such as:
● wholesale of hemp extracts including hemp crude extract and hemp isolate;
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.
In Fiscal 2021, we received a notice from the FDA to proceed with a 12-subject Phase 1 human clinical trial (“removal of full clinical hold”) on our INDA, submitted under Section 505(i) of the Federal Food, Drug, and Cosmetic Act, for our tetrahydrocannabinol (“THC”)-based formulation, “IGC-AD1,” intended to alleviate the symptoms of participants suffering from Alzheimer’s disease. On May 14, 2021, the Company announced it had completed Cohort 1 of its Phase 1 clinical trial. This was followed by Company announcement for completion of Cohort 2 on June 7, 2021.
The Company operates both business 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.
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. In Fiscal 2021, we experienced substantially reduced revenue from Infrastructure. We anticipate that reduced revenue from Infrastructure will continue in Fiscal 2022 as the pandemic continues to affect the regions where we do business. In particular, during Fiscal 2021:
Fiscal 2021 Highlights
• On January 13, 2021, the Company entered into a Sales Agreement (the “Agreement”) with The Benchmark Company, LLC (“Benchmark”) (the “Sales Agent”) pursuant to which the Sales Agent is acting as the Company’s sales agent with respect to the issuance and sale of up to $75,000,000 of the Company’s shares of common stock, par value $0.0001 per share (the “Shares”), from time to time in an “at the market” (“ATM”) offering as defined in Rule 415(a)(4) of the Securities Act of 1933, as amended (the “Offering”). As of March 31, 2021, the Company raised approximately $14.2 million from the ATM, net of commission. The management may use these funds for working capital and capital expenditure requirements, along with clinical trials, share repurchases, debt repayments, investments, including but not limited to, mutual funds, treasury bonds, cryptocurrencies, and other asset classes.
• On December 2, 2020, we filed a provisional patent application with the USPTO for our IGC-512 formulation for a cannabidiol-based composition and method for stress relief and calm restoring beverage.
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• On August 5, 2020, the USPTO issued the Company a patent (#10751300) for the Company’s cannabinoid formulation (IGC-502) for the treatment of seizures in humans and veterinary animals.
• On July 17, 2020, the Company filed a provisional patent application with the USPTO for its IGC-511 formulation for a Cannabidiol-based composition and method for treating pain.
Results of Operations
Fiscal 2021 compared to Fiscal 2020
The following table presents an overview of our results of operations for Fiscal 2021 and Fiscal 2020:
Statement of Operations (in thousands, audited)
Fiscal
2021 ($) 2020 ($) Change ($) Percent Change
Selling, general and administrative expenses (7,908 ) (5,968 ) (1,940 ) 33 %
Research and development expenses (929 ) (1,011 ) 82 (8 %)
Income tax expense/benefit - - - - %
Net loss attributable to common stockholders (8,811 ) (7,315 ) (1,496 ) 20 %
Revenue – Revenue in Fiscal 2021, was primarily derived from our Life Sciences segment, which involved sales of products such as alcohol-based hand sanitizers, among others. In Fiscal 2020, our revenue was primarily derived from the infrastructure segment. Revenue was approximately $898 thousand and $4.1 million for Fiscal 2021 and Fiscal 2020, respectively.
Revenue in the Life Sciences segment in Fiscal 2020, was $411 thousand as compared to $723 thousand in Fiscal 2021, albeit with a change in product mix. At the same time, revenue in our Infrastructure segment for Fiscal 2020 was $3.6 million and $175 thousand in Fiscal 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 $785 thousand for Fiscal 2021, compared to $4 million in Fiscal 2020. The cost of revenue in Fiscal 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 $1.9 million or 33% to $7.9 million for Fiscal 2021, from approximately $6 million for Fiscal 2020. The increase of approximately $1.9 million is attributed to one-time settlement expenses of approximately $225 thousand, provision for legal fees of approximately $200 thousand, $307 thousand inventory related adjustments, approximately $63 thousand provision for doubtful debt, compensation expenses attributed to increased head count and associated employee-related expenses, marketing and professional expenses related to expansion of brands and depreciation expense related to increase in Property, Plant and Equipment.
Research and Development expenses– Research and Development (“R&D”) expenses were attributed to our Life Sciences segment. The R&D expenses for Fiscal 2021 are approximately $929 thousand and approximately $1 million for Fiscal 2020. The cost associated with this work is mostly research comprising of plant extracts that could be productized and data to support the efficacy of the extracts, including preparing for and conducting FDA trials, product research, designing, formulating and market analysis. We expect R&D expenses to increase with progression in Phase 1 trials on IGC-AD1.
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Impairment loss – On May 12, 2020, the Company acquired approximately 19.8% shareholding in Evolve I, Inc., a Washington corporation (“Evolve”) under the terms of a Share Subscription Agreement (“SSA”) for a consideration of approximately $249 thousand. However, based on an assessment of the business environment, the Company decided to dispose the holding and amicably exit the acquisition. In light of the above, the Company recorded an impairment of $169 thousand as of March 31, 2021.
Pursuant to the December 18, 2014 Purchase Agreement with Apogee, we issued Apogee 1.2 million shares of IGC’s common stock valued at $888 thousand for the purchase of a 24.9% ownership interest in Midtown Partners & Co., LLC (“MTP”). During Fiscal 2018, after considering several factors, the Company concluded that it no longer had significant influence over MTP and hence maintained the same value of investment of approximately $773 thousand. During Fiscal 2020, the Company decided to impair this investment. The Company still owns 24.9% ownership in MTP as on March 31, 2021.
Other Income, net – Other net income decreased by approximately $249 thousand or 75% during Fiscal 2021. The total other income for Fiscal 2021 and 2020 is approximately $82 thousand and $331 thousand, respectively. Other income includes interest income, rental income, dividend income and unrealized gains from marketable securities, net, and income from sale of scrap, among others.
Liquidity and capital resources
Our sources of liquidity are cash and cash equivalents, funds raised through “at the market” (“ATM”) offering, cash flows from operations, short-term and long-term borrowings, and short-term liquidity arrangements. The Company continues to evaluate various financing sources and options to raise working capital to help fund current research and development programs and operations. The Company does not have any material long-term debt, capital lease obligations or other long-term liabilities, except as disclosed in this report. Please refer to Note 12, “Commitments and contingencies”, Note 11, “Loans and Other Liabilities” and Note 9, “Leases” in Item 8 of this report for further information on Company commitments and contractual obligations.
While the Company believes its existing balances of cash, cash equivalents and marketable securities and other short-term liquidity arrangements will be sufficient to satisfy its working capital needs, capital asset purchases, share repurchases, debt repayments, investments, including but not limited to, mutual funds, treasury bonds, cryptocurrencies, and other asset classes, clinical trials and other liquidity requirements, if any, associated with its existing operations over the next 12 months, it will raise money as and when it is able to do so. The Company continues to utilize the ATM to raise capital. Shares issuable under the ATM could be dilutive to the Company’s shareholders. Management is actively monitoring the impact of COVID-19 on the Company’s financial condition, liquidity, operations, suppliers, industry, legal expenses, and workforce.
Please refer to Item 1A. “Risk Factors” for further information on the risks related to the Company.
(in thousands, audited)
As of March 31, 2021 ($) As of March 31, 2020 ($) Change ($) Percent Change
Cash and cash equivalents
Cash and cash equivalents increased by approximately $7.3 million to $14.5 million in Fiscal 2021, from $7.3 million in Fiscal 2020, an increase of approximately 100%.
The major increase was due to approximately $14.2 million of net proceeds from ATM sales and approximately $5 million proceeds from investment in marketable securities, part of which was set-off with $1.5 million in purchase of property, plant, and equipment, approximately $1.2 million in inventory and a net cash loss of approximately $7.5 million.
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Summary of Cash flows
(in thousands, audited)
Fiscal
2021 ($) 2020 ($) Change ($) Percent Change
Operating Activities
Net cash used in operating activities for Fiscal 2021, was approximately $10.8 million. This consists of a net loss of approximately $8.8 million and non-cash items totaling approximately $1.3 million, which in turn consist of an amortization/depreciation charge of approximately $478 thousand, impairment of investment of $169 thousand and stock-based expenses totaling approximately $658 thousand. Changes in operating assets and liabilities had a negative impact of approximately $3.3 million on cash, of which approximately a $1.2 million is due to investment in inventory and approximately $2.2 million due to Deposits and advances.
Net cash used in operating activities for Fiscal 2020 was $8.7 million. This consists of a net loss of $7.3 million and non-cash items totaling $1.7 million, which in turn consist of an amortization/depreciation charge of $144 thousand, impairment loss of $782 thousand, and stock-based expenses totaling $770 thousand. Changes in operating assets and liabilities had a net negative impact of $3 million on cash of which approximately $4 million was due to increase in inventory.
Investing Activities
Net cash provided by investing activities for Fiscal 2021, was approximately $3.4 million, which is comprised of expenses of approximately $122 thousand for the acquisition and filing expenses related to intellectual property, purchase of property, plant, and equipment of approximately $1.5 million, sale of property, plant, and equipment of approximately $47 thousand and investments of approximately $149 thousand in non-marketable securities, and proceeds from investment of approximately $5 million, in marketable securities.
Net cash used in investing activities during Fiscal 2020 was approximately $9.5 million which is comprised of approximately $77 thousand for the acquisition and filing expenses related to intellectual property, purchase of property, plant, and equipment of $4.3 million and investments of approximately $5 million in marketable securities.
Financing Activities
Net cash provided by financing activities was approximately $14.7 million for Fiscal 2021, which is comprised of proceeds from borrowings of approximately $580 thousand, repayment of loan of approximately $50 thousand and approximately $14.2 million, net proceeds from ATM sales.
Net cash used in financing activities was $59 thousand during Fiscal 2020, consisting of $18 thousand from the exercise of share options, and the $77 thousand share related expenses.
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Critical Accounting Policies and Estimates
The preparation of financial statements and related disclosures in conformity with U.S. GAAP and the Company’s discussion and analysis of its financial condition and operating results require the Company’s management to make judgments, assumptions, and estimates that affect the amounts reported in its consolidated financial statements and accompanying notes. We base our estimates on historical experience, as appropriate, and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates, and such differences may be material.
Management believes that the following accounting policies are the most critical to understanding and evaluating our consolidated financial condition and results of operations.
Revenue Recognition
The Company recognizes revenue under ASC 606, Revenue from Contracts with Customers (ASC 606). The core principle of this standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services.
ASC 606 prescribes a 5-step process to achieve its core principle. The Company recognizes revenue from trading, rental, or product sales as follows:
I. Identify the contract with the customer.
II. Identify the contractual performance obligations.
III. Determine the amount of consideration/price for the transaction.
IV. Allocate the determined amount of consideration/price to the performance obligations.
V. Recognize revenue when or as the performing party satisfies performance obligations.
The consideration/price for the transaction (performance obligation(s)) is determined as per the agreement or invoice (contract) for the services and products in the Infrastructure and Life Sciences segment.
Revenue in the Infrastructure segment is recognized for the renting business when the equipment is rented, and terms of the agreement have been fulfilled during the period. The revenue from the purchase and resale of physical infrastructure commodities is recognized once the bill of lading along with the invoice have been transferred to the customer. Revenue from the execution of infrastructure contracts is recognized on the basis of the output method as and when part of the performance obligation has been completed and approval from the contracting agency has been obtained after survey of the performance completion as of that date. In the Life Sciences segment, the revenue from the wellness and lifestyle business is recognized once goods have been sold to the customer and the performance obligation has been completed. In retail sales, we offer consumer products through our online stores. Revenue is recognized when control of the goods is transferred to the customer. This generally occurs upon our delivery to a third-party carrier or, to the customer directly. Revenue from tolling services is recognized when the performance obligation, such as processing of the material, has been completed and output material has been transferred to the customer. We license our products to processors. The royalty income from licensing is recognized once goods have been sold by the processor to its customers.
Net sales disaggregated by significant products and services for Fiscal 2021 and 2020 are as follows:
(in thousands) Year Ended March 31
Infrastructure segment
Rental income (1) 1 7
Purchase and resale of physical commodities (3) - 3,553
Life Sciences segment
Tolling/White labeling service (5) 35 25
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