IGC Pharma Inc

Previous wording

The purpose of this Management’s Discussion and Analysis (“MD&A”) is to provide an understanding of IGC Pharma, Inc.’s (“IGC,” the “Company,” “we,” “our,” and/or “us”) consolidated financial condition and results of operations and cash flows. The MD&A 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, 2023, and the Annual Report on Form 10-K for the fiscal year ended March 31, 2023, filed with the SEC on July 7, 2023 (the “2023 Form 10-K”). The Company’s actual results could differ materially from those discussed here. Factors that could cause differences include those discussed in the “Forward-Looking Statements” and “Risk Factors” sections and discussed elsewhere in this report. The risks and uncertainties can cause actual results to differ significantly from those in our forward-looking statements or implied in historical results and trends. Accordingly, 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 expressly 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 outlined in the forward-looking statements.

Current wording

The purpose of this Management’s Discussion and Analysis (“MD&A”) is to provide an understanding of IGC Pharma, Inc.’s (“IGC,” the “Company,” “we,” “our,” and/or “us”) consolidated financial condition and results of operations and cash flows. The MD&A 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, 2024, and the Annual Report on Form 10-K for the fiscal year ended March 31, 2024, filed with the SEC on June 24, 2024 (the “2024 Form 10-K”). The Company’s actual results could differ materially from those discussed here. Factors that could cause differences include those discussed in the “Forward-Looking Statements” and “Risk Factors” sections and discussed elsewhere in this report. The risks and uncertainties can cause actual results to differ significantly from those in our forward-looking statements or implied in historical results and trends. Accordingly, 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 expressly 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 outlined in the forward-looking statements.

Previous wording

Our manufacturing facility is also utilized to produce women’s wellness products under the brand “Holief.” IGC Pharma is a Maryland corporation established in 2005 with a fiscal year ending on March 31, spanning a 52- or 53-week period. The company operates in two primary business segments: Life Sciences and Infrastructure.

Current wording

IGC Pharma Inc., is a Maryland corporation established in 2005 with a fiscal year ending on March 31, spanning a 52- or 53-week period.

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The IGC-Pharma Electronic Data Capture system (“IGC-EDC”) is a secure and user-friendly data management software designed to collect clinical trial data in electronic format. The software incorporates rigorous security measures that help IGC to protect data and ensure compliance with regulatory requirements and industry standards. This format is designed for our clinical trials, especially our Phase 2 trial. The EDC system is designed to store and organize handwritten source documents, including medical history, concomitant medications, laboratory results, neuropsychiatric scales scores, adverse events, vital signs, safety calls, demographics, among others. The system allows users to generate data reports that will be used for data analysis and generate computational models to simulate the effects of our investigational drug IGC-AD1 on participants’ outcomes. At IGC Pharma, we recognize the significance of operational excellence and cost management in clinical trials. One major cost driver in conducting trials is the expense associated with engaging CROs. These costs can significantly impact on the overall budget of a trial. To address this challenge and optimize trial costs, we have established an internal CRO, including proprietary software that we believe sets us apart from the traditional approach of outsourcing. We believe this strategic move will enable us to reduce the costs associated with clinical trials compared to relying on external CROs, although there can be no assurance.

Current wording

The IGC-Pharma Electronic Data Capture system (“IGC-EDC”) is a secure and user-friendly data management software designed to collect electronic clinical trial data. It includes rigorous security measures to protect data and ensure compliance with regulations. The system is designed for our Phase 2 trial and can store and organize various handwritten source documents. This allows users to generate data reports for analysis and computational models to simulate the effects of our investigational drug IGC-AD1.

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The Life Sciences business strategy includes:

Current wording

The business strategy includes:

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Revenue – Revenue was approximately $1 million and $745 thousand for the nine months ended December 31, 2023, and December 31, 2022, respectively. Revenue in both quarters was primarily derived from our Life Sciences segment, which involved providing white-label manufactured products and sales of holistic women’s health care products, among others. The Infrastructure segment revenue was approximately $161 thousand and $59 thousand for the nine months ended December 31, 2023, and December 31, 2022, respectively. The increase in revenue derived from the Company’s commitment to its current strategy of driving sales in formulations both as branded and white-labeled products in the Life Science segment.

Current wording

Revenue – Revenue was approximately $272 thousand and $555 thousand for the three months ended June 30, 2024, and June 30, 2023, respectively. Revenue in both quarters was primarily derived from our Life Sciences segment, which involved providing white-label manufactured products and sales of holistic health care products, among others. The decrease in revenue is attributed to the completion of our Infrastructure project in India as well as the white-label project in the U.S., both of which comprise approximately 50% of June 2023 revenue. The Company is committed to its current strategy of driving sales in formulations both as branded and white-labeled products in the Life Science segment.

Previous wording

Cost of revenue – Cost of revenue amounted to approximately $71 thousand for the three months ended December 31, 2023, compared to $230 thousand in the three months ended December 31, 2022, this represents gross margins of 65% and 31%, respectively. The cost of revenue is primarily attributable to the cost of raw materials, labor, and other direct overheads required to produce our products in the Life Science segment. Typically, the gross margin in the Life Sciences business will fluctuate from one quarter to another based on the mix within the Life Sciences business between white label, private label, and branded products. There is insufficient revenue to model or project gross margins.

Current wording

Cost of revenue – Cost of revenue amounted to approximately $109 thousand for the three months ended June 30, 2024, compared to $300 thousand in the three months ended June 30, 2023, this represents gross margins of 60% and 46%, respectively. The cost of revenue is primarily attributable to the cost of raw materials, labor, and other direct overheads required to produce our products in the Life Science segment. Typically, the gross margin in the Life Sciences business will fluctuate from one quarter to another based on the mix within the Life Science business between white label, private label, and branded products. There is insufficient revenue to model or project gross margins.

Previous wording

Selling, General and Administrative expenses (“SG&A”) – SG&A expenses primarily encompass various costs such as employee-related expenses, sales commissions, professional fees, legal fees, marketing expenses, other corporate expenses, allocated general overhead, provisions, depreciation, and write-offs related to doubtful accounts and advances. During the three months ended December 31, 2023, SG&A expenses increased by approximately $654 thousand or 42% to approximately $2.2 million, from approximately $1.5 million recorded for the three months ended December 31, 2022. The increase in SG&A expenses is primarily attributed to an increase in the one-time non-cash expenses.

Current wording

Selling, General and Administrative expenses (“SG&A”)– SG&A expenses primarily encompass various costs such as employee-related expenses, sales commissions, professional fees, legal fees, marketing expenses, other corporate expenses, allocated general overhead, provisions, depreciation, and write-offs related to doubtful accounts and advances. During the three months ended June 30, 2024, SG&A expenses increased by approximately $23 thousand or 1% to approximately $1.7 million as compared to the three months ended June 30, 2023.

Previous wording

Research and Development expenses– R&D expenses were attributed to our Life Sciences segment. The R&D expenses decreased by approximately $50 thousand or 2% to $2.9 million during the nine months ended December 31, 2023, from approximately $2.9. It is primarily attributable to the progression of Phase 2 trials on IGC-AD1 and pre-clinical studies on the other small molecule assets. We anticipate increased R&D expenses as the development of our other small molecule assets targeting Alzheimer’s and the Phase 2B trial on Alzheimer’s expand.

Current wording

Research and Development expenses (“R&D”)– R&D expenses were attributed to our Life Sciences segment. The R&D expenses increased by approximately $142 thousand or 19% to approximately $889 thousand during the three months ended June 30, 2024, from approximately $747 thousand. It is primarily attributable to the progression of Phase 2 trials on IGC-AD1 and pre-clinical studies on the other small molecule assets. We anticipate increased R&D expenses as the development of our other small molecule assets targeting Alzheimer’s and the Phase 2 trial on Alzheimer’s expand.

Previous wording

Other income, net – Other net income increased by approximately $80 thousand or 143% during the nine months ended December 31, 2023. As a result, the total other income for the nine months ended December 31, 2023, and 2022 is approximately $136 thousand and $56 thousand, respectively. The increase in other income for the nine months ended December 31, 2023, is attributable to profit from the sale of assets. Other income includes interest and rental income, dividend income, profit from the sale of assets, unrealized gains from investments, net income, and income from scrap sales.

Current wording

Other income, net – Other net income decreased by approximately $46 thousand or 72% during the thousand months ended June 30, 2024. As a result, the total other income for the three months ended June 30, 2024, and 2023 is approximately $18 thousand and $64 thousand, respectively. The other income for the three months ended June 30, 2023, is attributable to profit from the sale of assets. Other income includes interest and rental income, dividend income, profit from the sale of assets, unrealized gains from investments, net income, and income from scrap sales.

Previous wording

On June 30, 2023, the Company signed the Master Loan and Security Agreement (the “Credit Agreement”) with O-Bank, CO., LTD. pursuant to which the Company may borrow up to $12 million. Additionally, the Company sold 10 million shares of common stock for $3 million pursuant to an SPA with Bradbury Asset Management and three unrelated investors. These measures have been taken to address ongoing liquidity requirements and ensure the Company’s ability to sustain its operations. Moreover, the Company plans to raise additional funds through private placement and ATM offerings, subject to market conditions, although there can be no assurance that such financing efforts will be successful.

Current wording

Pursuant to the signed Master Loan and Security Agreement (the “Credit Agreement”) with O-Bank, CO., LTD., the Company successfully obtained a working capital credit facility totaling $12 million and, in addition, signed two SPAs to raise $6 million in exchange for approximately 18.8 million shares. Out of $6 million, the Company received $2.5 million during the quarter ended June 30, 2024. The equity and the credit facility serve to minimize ongoing liquidity requirements and ensure the Company’s ability to sustain its operations. Furthermore, the Company intends to raise additional funds through private placement and ATM offerings, subject to market conditions, although there can be no assurance that such financing efforts will be successful. Please refer to Note 13 – “Securities”, for more information.

Previous wording

On October 27, 2023, the Company entered into a Sales Agreement (the “Agreement”) with A.G.P./Alliance Global Partners (the “Agent”) pursuant to which the Company may offer and sell, from time to time, through the Agent, as sales agent and/or principal, shares of its common stock, par value $0.0001 per share (the “Common Stock”), having an aggregate offering price of up to $60 million (“Shares”), subject to certain limitations on the amount of Common Stock that may be offered and sold by the Company set forth in the Sales Agreement (the “Offering”). Prior to entering into the Sales Agreement with A.G.P./Alliance Global Partners, the Company terminated the Sales Agreement dated January 13, 2021, with The Benchmark Company.

Current wording

On October 27, 2023, the Company entered into a Sales Agreement (the “Agreement”) with A.G.P./Alliance Global Partners (the “Agent”) pursuant to which the Company may offer and sell, from time to time, through the Agent, as sales agent and/or principal, shares of its common stock, par value $0.0001 per share (the “Common Stock”), having an aggregate offering price of up to $60 million (“Shares”), subject to certain limitations on the amount of Common Stock that may be offered and sold by the Company set forth in the Sales Agreement (the “Offering”).

Previous wording

Net cash used in operating activities for the nine months ended December 31, 2023, was approximately $4.6 million. It consists of a net loss of approximately $10.1 million, a positive impact on cash due to non-cash expenses of approximately $5.2 million, and a positive change in operating assets and liabilities of approximately $220 thousand. Non-cash expenses consist of an amortization and depreciation charge of approximately $473 thousand, stock-based expenses of approximately $1.4 million, impairment loss of approximately $3.3 million and an approximately $42 thousand decrease in other non-cash items. In addition, changes in operating assets and liabilities had a positive impact of approximately $220 thousand on cash, of which approximately $169 thousand is due to a decrease in deposits and advances, approximately $117 thousand increase in accounts payable, approximately $83 thousand decrease in accrued and other liabilities and approximately $20 thousand increase in other net current assets and liabilities.

Current wording

Net cash used in operating activities for the three months ended June 30, 2024, was approximately $1.8 million. It consists of a net loss of approximately $2.4 million, a positive impact on cash due to non-cash expenses of approximately $564 thousand, and a positive change in operating assets and liabilities of approximately $62 thousand. Non-cash expenses consist of an amortization and depreciation charge of approximately $162 thousand and stock-based expenses of approximately $402 thousand. In addition, changes in operating assets and liabilities had a positive impact of approximately $62 thousand on cash, of which a net negative impact of approximately $118 thousand is due to an increase in deposits and advances, and a positive impact of approximately $151 thousand is due to increase in accrued and other liabilities, and net other current assets and liabilities of approximately $29 thousand.

Previous wording

Net cash used in operating activities for the nine months ended December 31, 2022, was approximately $5.5 million. It consists of a net loss of approximately $7.5 million, a positive impact on cash due to non-cash expenses of approximately $2.8 million, and a negative change in operating assets and liabilities of approximately $856 thousand. Non-cash expenses consist of an amortization and depreciation charge of approximately $504 thousand, stock-based expenses of approximately $2.3 million, and net loss on the sale of a property, plant, and equipment of approximately $39 thousand. In addition, changes in operating assets and liabilities had a negative impact of approximately $856 thousand on cash, of which approximately $127 thousand is due to a decrease in accounts receivables, approximately $572 thousand decrease in accrued and other liabilities, and approximately $157 thousand decrease in other net current assets and liabilities.

Current wording

Net cash used in operating activities for the three months ended June 30, 2023, was approximately $1.5 million. It consists of a net loss of approximately $2.1 million, a positive impact on cash due to non-cash expenses of approximately $459 thousand, and a positive change in operating assets and liabilities of approximately $148 thousand. Non-cash expenses consist of an amortization and depreciation charge of approximately $155 thousand, stock-based expenses of approximately $357 thousand, and an approximately $53 thousand decrease in other non-cash items. In addition, changes in operating assets and liabilities had a positive impact of approximately $148 thousand on cash, of which a net negative impact of approximately $118 thousand is due to an increase in accounts receivables, a positive impact of approximately $142 thousand is due to increase in accounts payable, a positive impact of approximately $91 thousand is due to increase in accrued and other liabilities and net other current assets and liabilities of approximately $33 thousand.

Previous wording

Net cash provided by investing activities for the nine months ended December 31, 2022, was approximately $7 thousand, which comprised net proceeds from the sale of property, plant, and equipment of approximately $239 thousand, adjusted with cash expenses of approximately $144 thousand for the acquisition and filing expenses related to patents and approximately $88 thousand of a short-term investment.

Current wording

Net cash used in investing activities for the three months ended June 30, 2024, was approximately $131 thousand, which comprised of expenses of approximately $93 thousand for the acquisition and development of intangible assets, and approximately $38 thousand for the net purchase of property, plant, and equipment.

Previous wording

Net cash provided by investing activities for the nine months ended December 31, 2023, was approximately $6 thousand, which comprised of expenses of approximately $67 thousand for the acquisition filing expenses related to intellectual property, approximately $81 thousand for the net purchase of property, plant, and equipment and approximately $154 thousand of investment in marketable securities.

Current wording

Net cash used in investing activities for the three months ended June 30, 2023, was approximately $5 thousand, which comprised of expenses of approximately $28 thousand for the acquisition and filing expenses related to intellectual property, approximately $23 thousand for the purchase of property, plant, and equipment.

Previous wording

Net cash provided by financing activities was approximately $2.9 million for the nine months ended December 31, 2023, which is comprised of net proceeds from issuance of equity stock of approximately $2.8 million and re-payment of the loan of approximately $3 thousand.

Current wording

Net cash provided by financing activities was approximately $2.5 million for the three months ended June 30, 2024, which is comprised of net proceeds from issuance of equity stock of approximately $2.5 million and re-payment of the loan of approximately $1 thousand. Please refer to Note 13 – “Securities”, for more information.