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Item 2. Management’s Discussion and Analysis

2020-08-19 compared with 2020-02-10 · 71 added, 101 removed, 45 unchanged (79% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The purpose of this Management’s Discussion and Analysis (“MD&A”) is to provide an understanding of the Company's consolidated financial condition, and results of operations and cash flows, and should be read in conjunction with our unaudited condensed financial statements and related notes that appear elsewhere in this Quarterly Report on Form 10-Q for the three- months and nine-months ended December 31, 2019, and the Annual Report on Form 10-K for the fiscal year ended March 31, 2019, filed with the SEC on June 14, 2019.

The purpose of this Management’s Discussion and Analysis (“MD&A”) is to provide an understanding of the Company's consolidated financial condition, and results of operations and cash flows, and should be read in conjunction with our unaudited condensed financial statements and related notes that appear elsewhere in this Quarterly Report on Form 10-Q for the three months ended June 30, 2020, and the Annual Report on Form 10-K for the fiscal year ended March 31, 2020, filed with the SEC on July 13, 2020.

The Company’s actual results could differ materially from those discussed here.

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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.

Our primary source of revenue in the nine-months ended December 31, 2019, and the three and nine-months ended December 31, 2018, is from our Infrastructure Business.

In the three-months ended December 31, 2019, we significantly reduced the buying and selling of construction materials in Hong Kong because of what we believe to be a slow-down in the Hong Kong economy due, in part, to widespread protests, which we expect will be temporary.

The Company’s Infrastructure Business, involves:

bidding and execution of construction contracts.

Our subsidiary TBL, with over 30 years of experience with infrastructure projects, recently began work on a construction project, building and modifying a road in Kerala, India.

In January 2019, TBL received a construction contract for the building of a National Highway Authority of India (“NHAI”) sponsored local highway.

short-term rental of heavy construction equipment including bulldozers, excavators, rollers and pavers, among others.

the purchase and resale of physical commodities used in infrastructure.

Our second line of business is the Plant and Cannabinoid Business, which stems from plant material and cannabinoids produced by industrial hemp, in accordance with applicable laws and regulations.

The Company’s Plant and Cannabinoid Business, managed from the United States, involves:

development of potential new drugs, subject to applicable regulatory approvals, that use ultra-low doses of phytocannabinoids including cannabidiol (CBD), cannabigerol (CBG), and tetrahydrocannabinol (THC), among others, in combination with other compounds, believed to assist in the treatment of diseases like Alzheimer’s,

several CBD-based products and brands, in various stages of development, for sale online and/or through stores,

wholesale of hemp extracts including hemp crude extract, and hemp isolate, among others,

hemp growing and processing facilities,

white labeling of hemp-based products,

the offering of tolling services like extraction and distillation to hemp-farmers and retailers, and

acquisitions across these business areas.

Since the legal industrial hemp industry remains relatively new, during the three months ended December 31, 2019, the Company focused on setting up facilities for long-term expansion of its Plant and Cannabinoid Business.

The Company filed an Investigative New Drug Application (INDA) with the FDA for a double-blind, placebo-controlled, 100-person trial, for its proprietary patent pending formulation based on IGC-AD1 and established an approximately $500 thousand facility in San Juan, Puerto Rico to conduct the trial.

The Company also established an approximately $1 million facility it intends to qualify as a Good Manufacturing Practice (GMP)-certified processing facility in the State of Washington for:

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.

A first test harvest, initiated in December, passed inspection by the Arizona Department of Agriculture (AZDA) with the harvest certified as legal under the United States Department of Agriculture (USDA) rules.

The Company operates both lines of business in compliance with applicable state, national, and local laws and regulations and only in locations and regions where it is legal to do so.

| December 31, 2019 Form 10-Q

COVID-19 Update

We continue to monitor the impact from restrictions imposed by the COVID-19 pandemic on our financial condition, liquidity, operations, suppliers, industry, and workforce.

Revenue from the infrastructure segment continues to be adversely affected as we are unable to fully deploy our workforce.

In response to the evolving circumstances, we supplemented our facilities to manufacture, label, and distribute FDA-registered alcohol-based hand sanitizers and hand rubs.

While there is a general lack of visibility, we anticipate drastically reduced revenue from Infrastructure, and also unpredictable revenue from the Life Sciences segment.

During the three months ended June 30, 2020:

Our revenue from the infrastructure business remains adversely affected with increased expenses.

However, as soon as we can safely do so, and in compliance with applicable laws and regulations, we expect to engage in the infrastructure business including completing the road building contract that we have been awarded.

A majority of our hemp processing and distillation equipment is sourced from China.

While we took delivery of the equipment, the commissioning and certification of the equipment is delayed as it requires Chinese technicians to commission the equipment.

The commissioning of our large-scale processing and distillation equipment is delayed.

Delivery of some of our equipment, such as the bottling machine is delayed indefinitely as the factory is impacted by an outbreak of COVID-19.

While our primary source of revenue for the three months ended June 30, 2019, is from our Infrastructure segment, our primary source of revenue for the three months ended June 30, 2020, is from our Life Sciences segment, which produced wellness products, including alcohol-based hand sanitizers, among others.

The Company operates both segments in compliance with applicable state, national, and local laws, and regulations and only in locations and regions where it is legal to do so.

Further information on the Company highlights in the three months ended June 30, 2020, can be found in Part I, Item 1, Note 1 - Business Description, “Business updates”.

| June 30, 2020 Form 10-Q

Results of Operations for the three months ended

December 31, 2019 and December 31, 2018

June 30, 2020 and June 30, 2019

The historical results presented below are not necessarily indicative of the results that may be expected for any future period.

The following table presents an overview of our results of operations for the three months ended December 31, 2019, and December 31, 2018:

Statement of Operations (in thousands , unaudited )

Three-months ended December 3 1 ,

Cost of revenue

General and administrative expenses

Research and development expenses

Inventory write-off

Operating loss

Other income, net

Revenue – Revenue was primarily derived from our Infrastructure Business for the three months ended December 31, 2019, and the three months ended December 31, 2018.

Revenue amounted to approximately $573 thousand and $1,285 thousand, for the three months ended December 31, 2019, and December 31, 2018, respectively, representing a decline of $712 thousand or 55%.

In the three months ended December 31, 2019, sales in the Plant and Cannabinoid Business, contributed $5 thousand in revenue.

In the three months ended December 31, 2019, the Infrastructure Business revenue was derived from the execution of a road building contract in Kerala, India.

This value of this contract has been increased to approximately $1.2 million and that the Company estimates it will take between 12 and 15 months to complete the work.

The remaining revenue was from the buying and selling of infrastructure materials, which we reduced to limit our exposure to what we believe to be a temporary slowing Hong Kong economy as a result of widespread protests.

The lower revenue in the Plant and Cannabinoid Business is due to management’s focus on developing a wide array of products and the hemp growing, and manufacturing facilities.

Cost of revenue – Cost of revenue amounts to approximately $543 thousand for the three months ended December 31, 2019, compared to $1,240 thousand in the three months ended December 31, 2018, a decrease of approximately $697 thousand or 56%.

This decrease in cost of revenue is attributable to decreased purchases of physical commodities.

General and administrative expenses – The General and administrative expenses consist primarily of employee-related expenses, 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.

General and administrative expenses increased by approximately $606 thousand or 75% to $1,413 thousand for the three months ended December 31, 2019, from $807 thousand for the three months ended December 31, 2018.

Of the $606 thousand increase, legal & professional fees amounted to approximately $349 thousand.

The remaining approximately $250 thousand is from employee-related expenses due to increased employee head count, as we added employees to the manufacturing and marketing teams.

Research and Development expenses - Research and Development expenses (“ R&D”) were attributed to our Plant and Cannabinoid Business.

The R&D expenses increased approximately $129 thousand or 78%, to $295 thousand for the three months ended December 31, 2019, compared to $166 thousand for the three months ended December 31, 2018.

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 running FDA trials.

All research and development costs are expensed in the quarter in which they are incurred.

Other Income, net – Other net income decreased by approximately $355 thousand or 83% during the three months ended December 31, 2019.

The total other income for the three months ended December 31, 2019, and the three months ended December 31, 2018, is approximately $75 thousand and $430 thousand, respectively.

In the three months ended December 31, 2019, such amount includes interest income, rental income and dividend income, net.

| December 31, 2019 Form 10-Q

Results of Operations for the nine months ended

The following table presents an overview of our results of operations for the three months ended June 30, 2020 and June 30, 2019:

Statement of Operations (in thousands, unaudited)

December 31, 2019, and December 31, 2018

The historical results presented below are not necessarily indicative of the results that may be expected for any future period.

The following table presents an overview of our results of operations for the nine months ended December 31, 2019, and December 31, 2018:

Nine -months ended December 3 1 ,

Three months ended June 30,

Cost of revenue

General and administrative expenses

Selling, general and administrative expenses

Research and development expenses

Inventory write off

Operating loss

Other income, net

Revenue – Revenue is primarily derived from our Infrastructure Business for the nine months ended December 31, 2019, and the nine months ended December 31, 2018.

Revenue amounted to approximately $4,043 thousand and $3,574 thousand, for the nine months ended December 31, 2019, and December 31, 2018, respectively.

The increase in revenue is from an increase in the sale of infrastructure related physical commodities, execution of a road building contract, and sales in the Plant and Cannabinoid Business.

Cost of revenue – Cost of revenue is primarily from our Infrastructure Business in the nine months ended December 31, 2019, and the nine months ended December 31, 2018.

Cost of Revenue amounted to approximately $3,944 thousand for the nine months ended December 31, 2019, compared to $3,469 thousand in the nine months ended December 31, 2018, an increase of approximately $475 thousand or 14%.

This increase in cost of revenue is attributable to increased purchases of physical commodities, with the margins remaining stable.

General and administrative expenses – General and administrative expenses consisted primarily of employee-related expenses, 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.

General and administrative expenses increased by approximately $1,801 thousand or 92% to $3,756 thousand for the nine months ended December 31, 2019, from $1,955 thousand for the nine months ended December 31, 2018.

The $1,801 thousand increase is attributed to legal & professional fees, which are one-time charges related to legal proceedings, of about $1,147 thousand.

The remaining approximately $650 thousand increase is from increased employee head count as we added employees to the manufacturing and marketing teams.

Research and Development expenses - Research and Development expenses (“ R&D”) expenses are attributed to our Plant and Cannabinoid Business.

The R&D expenses increased approximately $319 thousand or 72%, to $764 thousand for the nine months ended December 31, 2019, compared to $445 thousand for the nine months ended December 31, 2018.

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 FDA trials.

Loss before income taxes

Revenue – Revenue in the quarter ended June 30, 2020, was primarily derived from our Life Sciences segment, which involved sales of products such as alcohol-based hand sanitizers, among others.

In the quarter ended June 30, 2019, our revenue was primarily derived from the infrastructure segment.

Revenue was approximately $584 thousand and $1,649 thousand for the three months ended June 30, 2020 and 2019, respectively.

Revenue in the Life Sciences segment in the quarter ended June 30, 2019, was $104 thousand as compared to $584 thousand in the quarter ended June 30, 2020, albeit with a change in product mix.

At the same time, revenue in our Infrastructure segment for the quarter ended June 30, 2019, was $1,545 thousand and zero in the quarter ended June 30, 2020.

Primarily due to COVID-19, we have limited visibility on when either of our segments will stabilize 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 $538 thousand for three months ended June 30, 2020, compared to $1,608 thousand in three months ended June 30, 2019.

The cost of revenue in the quarter ended June 30, 2020, 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 $506 thousand or 41% to $1,755 thousand for three months ended June 30, 2020, from $1,249 thousand for three months ended June 30, 2019.

The year over year increase of $0.5 million is attributed to a one-time settlement of all derivative lawsuits at $200 thousand, a payroll accrual of $200 thousand and increased legal expenses of around $100 thousand.

We expect general and administrative expenses to decrease as one-time legal and other one-time expenses are expected to abate over the rest of this year.

Research and Development expenses – R&D expenses were attributed to our Life Sciences segment.

The R&D expenses for the three months ended June 30, 2020, is about $222 thousand and about $247 thousand for three months ended June 30, 2019.

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 potential FDA trials, product research, designing, formulating and market analysis.

We expect R&D expenses to increase as we begin Phase 1 trials on IGC-AD1.

All research and development costs are expensed in the quarter in which they are incurred.

Other Income, net – Other income decreased by approximately $166 thousand or 39% during the nine months ended December 31, 2019.

The total other income for the nine months ended December 31, 2019, and the nine months ended December 31, 2018, is approximately $260 thousand and $426 thousand, respectively.

In the nine months ended December 31, 2019, such amount included interest income, rental income, dividend income, and a non-operating settlement expense.

| December 31, 2019 Form 10-Q

Other Income, net – Other net income decreased by approximately $27 thousand or 36% during three months ended June 30, 2020.

The total other income for three months ended June 30, 2020 and 2019 is approximately $49 thousand and $76 thousand, respectively.

During the three months ended June 30, 2020, such amount includes interest income, rental income and approximately $10 thousand dividend income and approximately $7 thousand unrealized gain from marketable securities, net.

| June 30, 2020 Form 10-Q

Liquidity and Capital Resources

Our sources of liquidity are cash and cash equivalents, cash flows from operations, short-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” and Note 9, “Leases” in Item I 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 and other liquidity requirements, if any, associated with its existing operations over the next 12 months, it expects to raise money when it is able to do so.

Management is actively monitoring the impact of COVID-19 on the Company’s financial condition, liquidity, operations, suppliers, industry, legal expenses, and workforce.

This liquidity and capital resources discussion compares the unaudited consolidated Company financials.

(in thousands, unaudited)

December 31, 2019

June 30, 2020

March 31, 2020

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Cash and cash equivalents

Cash and cash equivalents decreased by approximately $15,481 thousand to $10,129 thousand in the nine months ended December 31, 2019, from $25,610 thousand in March 31, 2019, a decrease of approximately 60%.

The major decrease was due to investments of approximately $5,063 thousand in mutual funds, $3,675 thousand in purchase of property, plant and equipment and $3,337 thousand in inventory.

Cash and cash equivalents decreased by approximately $4,555 thousand to $2,703 thousand in the three months ended June 30, 2020, from $7,258 thousand as of March 31, 2020, a decrease of approximately 63%.

The major decrease in three months ended June 30, 2020, was due to $944 thousand in purchase of property, plant, and equipment and $2,277 thousand investment in inventory.

Summary of Cash flows

(in thousands, unaudited)

Nine months Ended

Three months ended June 30,

Percent Change

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Effects of exchange rate changes on cash and cash equivalents

Net decrease in cash and cash equivalents

Net increase/(decrease) in cash and cash equivalents

Cash and Cash Equivalents at the beginning of period

Cash and cash equivalents at the end of the period

| June 30, 2020 Form 10-Q

Operating Activities

Net cash used in operating activities for the nine months ended December 31, 2019, was $6,684 thousand.

Cash was consumed from continuing operations, with the net loss of $4,161 thousand, non-cash items totaling $593 thousand, consisting of a depreciation and amortization charge of $69 thousand and stock-based expenses totaling $524 thousand and changes in working capital accounts had a negative impact of $3,116 thousand on cash.

Net cash used in operating activities for the nine months ended December 31, 2018, was $2,182 thousand.

Cash was consumed from continuing operations, with the net loss of $2,519 thousand, non-cash items totaling $613 thousand, consisting of a depreciation charge of $44 thousand, inventory write off of $650 thousand, bad debts and creditor write back, net of $47 thousand, gain on settlement of note payable of $300 thousand, other adjustments of $343 thousand, primarily related to reclassification of the receivable from Cochin International Airport from current to non-current liability and stock-based expenses totaling $515 thousand and changes in working capital accounts had an impact of $276 thousand on cash.

| December 31, 2019 Form 10-Q

Net cash used in operating activities for the three months ended June 30, 2020, was approximately $4 million.

This consists of a net loss of approximately $1.9 million and non-cash items totaling approximately $243 thousand, which in turn consist of an amortization/depreciation charge of approximately $77 thousand and stock-based expenses totaling approximately $166 thousand.

Changes in operating assets and liabilities had a negative impact of approximately $2.35 million on cash, of which approximately $2.28 million was due to increase in inventory.

Net cash used in operating activities for the three months ended June 30, 2019, was approximately $2.9 million.

Cash was consumed from continuing operations, with the net loss of approximately $1.4 million, non-cash items totaling approximately $225 thousand, consisting of a depreciation charge of approximately $17 thousand and stock-based expenses totaling approximately $208 thousand and changes in working capital accounts had a negative impact of approximately $1,718 thousand on cash.

Investing Activities

Net cash used in investing activities during the nine months ended December 31, 2019, was $8,806 thousand which was comprised of approximately $3,675 thousand for purchase of office space, plant and equipment among others, $5,063 thousand for investment in a money market mutual fund and $68 thousand for the acquisition and filing of patents.

Net cash used in investing activities during the nine months ended December 31, 2018, was $49 thousand which was comprised of approximately $7 thousand for purchase of plant and equipment among others, and $42 thousand for the acquisition and filing of patents.

Net cash used in investing activities for the three months ended June 30, 2020, was $1.1 million, which is comprised of approximately $26 thousand for the acquisition and filing expenses related to patents and trademarks, purchase of property, plant and equipment of $944 thousand and investments of approximately $149 thousand in non-marketable securities and $17 thousand in marketable securities.

Net cash used in investing activities during the three months ended June 30, 2019, was $6.2 million, which is comprised of approximately $1,173 thousand for purchase of office space, plant and equipment among others, $5,009 thousand for investment in a money market mutual fund and $4 thousand of acquisition and filing of patents.

Financing Activities

Cash provided by financing activities of approximately $18 thousand during the nine months ended December 31, 2019, consisted of share options exercised by an advisor.

Cash provided by financing activities of approximately $27,605 thousand during the nine months ended December 31, 2018, consisted of raising funds through a public offering amounting to $29,482 thousand and repayment of loan amounting to $1,877 thousand.

Net cash provided by financing activities was $580 thousand for the three months ended June 30, 2020, consisting of proceeds from loans.

Please refer Note 11 - “Loans and Other Liabilities” for further information.

There were no financing activities during the three months ended June 30, 2019.

Off-Balance Sheet Arrangements

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Critical accounting policies are those that are both most important to the portrayal of financial condition and results of operations and that require Management’s most subjective or complex judgments and estimates.

Our Management believes the policies that fall within this category are the policies on revenue recognition, inventory, accounts receivable, income taxes, foreign currency translation, impairment of long-lived assets and investments, stock-based compensation, and cybersecurity.

Our Management believes the policies that fall within this category are the policies on revenue recognition, inventory, accounts receivable, foreign currency translation, impairment of long-lived assets and investments, stock-based compensation, and cybersecurity.

We have a cybersecurity policy in place and tighter cybersecurity measures to safeguard against hackers.

There were no impactful breaches in cybersecurity in the nine months ended December 31, 2019.

Please see our disclosures in Note 2 – Summary of Significant Accounting Policies to the Notes to the Unaudited Condensed Consolidated Financial Statements in this report, in the Notes to the Audited Consolidated Financial Statements in Part II of our Annual Report on Form 10-K for the fiscal year ended March 31, 2019, filed with the SEC on June 14, 2019, as well as Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations, on the same annual report, for a discussion of all our critical and significant accounting policies.

There were no impactful breaches in cybersecurity during the three months ended June 30, 2020.

Please see our disclosures in Note 2 – Summary of Significant Accounting Policies to the Notes to the Unaudited Condensed Consolidated Financial Statements in this report, in the Notes to the Audited Consolidated Financial Statements in Part II of our Annual Report on Form 10-K for the fiscal year ended March 31, 2020, filed with the SEC on July 13, 2020, as well as Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations in the same annual report, for a discussion of all our critical and significant accounting policies.

| June 30, 2020 Form 10-Q

Recent Accounting Pronouncements

The recent accounting pronouncements are discussed in Note 2 – Summary of Significant Accounting Policies to the Notes to the Unaudited Condensed Consolidated Financial Statements in this report and in the Notes to the Audited Consolidated Financial Statements in Part II of our Annual Report on Form 10-K for fiscal year ended March 31, 2019, filed with the SEC on June 14, 2019.

| December 31, 2019 Form 10-Q

Quantitative and Qualitative Disclosures about Market Risk

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis