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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended December 31, 2023

 

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _____ to _____

 

Commission File Number 001-39825

 

Intelligent Bio Solutions Inc.

(Exact name of Registrant as specified in its Charter)

 

Delaware   82-1512711
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification No.)
     
Intelligent Bio Solutions Inc.,    
142 West, 57th Street, 11th Floor, New York, NY   10019
(Address of principal executive offices)   (Zip Code)

 

Registrant’s telephone number, including area code: (646) 828-8258

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Common Stock, par value $0.01 per share   INBS   The Nasdaq Stock Market LLC

 

Securities registered pursuant to Section 12(g) of the Act: None

 

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 is a shell company (as defined in Rule 12b-2 of the Act). YES ☐ NO

 

As of February 7, 2024, there were 2,147,789 shares of the registrant’s Common Stock issued and outstanding.

 

 

 

 

 

 

Table of Contents

 

  Page
PART I. FINANCIAL INFORMATION 3
Item 1. Financial Statements (unaudited) 3
  Condensed Consolidated Balance Sheets 3
  Condensed Consolidated Statements of Operations and Other Comprehensive Loss 4
  Condensed Consolidated Statements of Changes in Shareholders’ Equity 5
  Condensed Consolidated Statements of Cash Flows 6
  Notes to Condensed Consolidated Financial Statements 7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 26
Item 3. Quantitative and Qualitative Disclosures About Market Risk 33
Item 4. Controls and Procedures 33
     
PART II. OTHER INFORMATION 35
Item 1. Legal Proceedings 35
Item 1A. Risk Factors 35
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 37
Item 3. Defaults Upon Senior Securities 37
Item 4. Mine Safety Disclosures 37
Item 5. Other Information 37
Item 6. Exhibits 38
Signatures 39

 

2

 

 

PART I. FINANCIAL INFORMATION

Intelligent Bio Solutions Inc.

Condensed Consolidated Balance Sheets

 

           
  

December 31, 2023

(Unaudited)

   June 30, 2023 
ASSETS          
Current assets:          
Cash and cash equivalents  $1,119,004   $1,537,244 
Accounts receivable, net   262,834    293,861 
Inventories, net   942,050    979,907 
Research and development tax incentive receivable   289,167    498,758 
Other current assets   331,601    552,791 
Total current assets   2,944,656    3,862,561 
Property and equipment, net   591,307    690,175 
Operating lease right-of-use assets   432,728    546,475 
Intangible assets, net   4,858,301    5,255,401 
TOTAL ASSETS  $8,826,992   $10,354,612 
           
LIABILITIES AND SHAREHOLDERS’ EQUITY          
Current liabilities:          
Accounts payable and accrued expenses  $1,763,007   $2,610,028 
Current portion of operating lease liabilities   250,751    223,447 
Current portion of deferred grant income   2,431,900    2,338,057 
Current employee benefit liabilities   366,893    358,942 
Current portion of notes payable   370,535    353,211 
Total current liabilities   5,183,086    5,883,685 
Employee benefit liabilities, less current portion   29,993    24,902 
Operating lease liabilities, less current portion   228,710    356,165 
Notes payable, less current portion   230,969    402,862 
Total liabilities   5,672,758    6,667,614 
Commitments and contingencies (Note 13)          
           
Shareholders’ equity:          
Common stock, $0.01 par value, 100,000,000 shares authorized, 1,476,042 and 194,200 shares issued and outstanding at December 31, 2023 and June 30, 2023, respectively*   14,760    1,942 
Treasury stock, at cost, 116 shares as of December 31, 2023 and June 30, 2023, respectively*   (1)   (1)
Additional paid-in capital   49,986,220    46,180,112 
Accumulated deficit   (46,202,418)   (41,807,573)
Accumulated other comprehensive loss   (518,379)   (575,496)
Total consolidated Intelligent Bio Solutions Inc. equity   3,280,182    3,798,984 
Non-controlling interest   (125,948)   (111,986)
Total shareholders’ equity   3,154,234    3,686,998 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY  $8,826,992   $10,354,612 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

*   Common stock and per share amount have been retroactively adjusted to reflect the decreased number of shares resulting from a 1-for-12 reverse stock split effected on January 26, 2024, and a 1-for-20 reverse stock split effected on February 9, 2023, throughout the condensed consolidated financial statement unless otherwise stated.

 

3

 

 

Intelligent Bio Solutions Inc.

Condensed Consolidated Statements of Operations and Other Comprehensive Loss*

(Unaudited)

 

                     
   Three Months Ended December 31,   Six Months Ended December 31, 
   2023   2022   2023   2022 
Revenue  $764,063   $356,679   $1,560,157   $356,679 
Cost of revenue (exclusive of amortization shown separately below)   (564,815)   (112,635)   (1,128,578)   (112,635)
Gross profit   199,248    244,044    431,579    244,044 
                     
Other income:                    
Government support income   153,204    269,625    263,075    580,945 
                     
Operating expenses:                    
Selling, general and administrative expenses   (1,705,044)   (2,245,289)   (4,162,104)   (3,695,707)
Development and regulatory approval expenses   (348,452)   (1,191)   (452,399)   (80,465)
Depreciation and amortization   (290,313)   (398,156)   (597,873)   (398,156)
Total operating expenses   (2,343,809)   (2,644,636)   (5,212,376)   (4,174,328)
Loss from operations   (1,991,357)   (2,130,967)   (4,517,722)   (3,349,339)
                     
Other income (expense):                    
Interest expense   (32,468)   (76,767)   (69,916)   (77,832)
Realized foreign exchange loss   (555)   (13,901)   (555)   (16,148)
Fair value gain on revaluation of financial instrument   44,488    1,793,091    175,738    1,793,091 
Interest income   3,509    1,473    3,648    9,079 
Total other income   14,974    1,703,896    108,915    1,708,190 
Net loss   (1,976,383)   (427,071)   (4,408,807)   (1,641,149)
Net loss attributable to non-controlling interest   (6,742)   (6,471)   (13,962)   (12,256)
Net loss attributable to Intelligent Bio Solutions Inc.  $(1,969,641)  $(420,600)  $(4,394,845)  $(1,628,893)
                     
Other comprehensive income, net of tax:                    
Foreign currency translation gain  $75,133   $361,597   $57,117   $226,038 
Total other comprehensive income   75,133    361,597    57,117    226,038 
Comprehensive loss   (1,901,250)   (65,474)   (4,351,690)   (1,415,111)
Comprehensive loss attributable to non-controlling interest   (6,742)   (6,471)   (13,962)   (12,256)
Comprehensive loss attributable to Intelligent Bio Solutions Inc.  $(1,894,508)  $(59,003)  $(4,337,728)  $(1,402,855)
                     
Net loss per share, basic and diluted*  $(2.07)  $(5.56)  $(7.68)  $(23.65)
Weighted average shares outstanding, basic and diluted*   949,660    75,690    571,930    68,866 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

*   Common stock and per share amount have been retroactively adjusted to reflect the decreased number of shares resulting from a 1-for-12 reverse stock split effected on January 26, 2024, and a 1-for-20 reverse stock split effected on February 9, 2023, throughout the condensed consolidated financial statement unless otherwise stated.

 

4

 

 

Intelligent Bio Solutions Inc.

Condensed Consolidated Statements of Changes in Shareholders’ Equity*

(Unaudited)

 

   Shares   Amount   Shares   Amount   Shares   Amount   capital   deficit   loss   interest   equity 
   Convertible                   Additional       Other   Non-   Total 
   preferred stock   Common stock   Treasury stock   paid in   Accumulated   comprehensive   controlling   shareholders’ 
   Shares   Amount   Shares   Amount   Shares   Amount   capital   deficit   loss   interest   equity 
Balance, June 30, 2023*   -   $-    194,200   $1,942    (116)  $(1)  $46,180,112   $(41,807,573)  $(575,496)  $(111,986)  $3,686,998 
Foreign currency translation loss   -    -    -    -    -    -    -    -    (18,016)   -    (18,016)
Net loss   -    -    -    -    -    -    -    (2,425,204)   -    (7,220)   (2,432,424)
Balance, September 30, 2023   -    -    194,200    1,942    (116)   (1)   46,180,112    (44,232,777)   (593,512)   (119,206)   1,236,558 
Issuance of common stock, Series E Preferred Stock and warrants, net of issuance costs   5,728,723    57,287    186,018    1,860    -    -    3,727,017    -    -    -    3,786,164 
Conversion of convertible preferred shares into common stock   (5,728,723)   (57,287)   477,394    4,774    -               -    52,513    -    -    -    - 
Conversion of holdback Series C Preferred Stock into common stock   -    -    6,248    62    -    -    32,700    -    -    -    32,762 
Issuance of common stock upon cashless exercise Series F warrants   -    -    612,182    6,122    -    -    (6,122)   -    -    -    - 
Foreign currency translation gain   -    -    -    -    -    -    -    -    75,133    -    75,133 
Net loss   -    -    -    -    -    -    -    (1,969,641)   -    (6,742)   (1,976,383)
Balance, December 31, 2023   -   $-    1,476,042   $14,760    (116)  $(1)  $49,986,220   $(46,202,418)  $(518,379)  $(125,948)  $3,154,234 
                                                        
Balance, June 30, 2022*   -   $-    62,042   $620    -   $-   $38,588,290   $(31,175,853)  $(788,135)  $(79,151)  $6,545,771 
Foreign currency translation loss   -    -    -    -    -    -    -    -    (135,559)   -    (135,559)
Net loss   -    -    -    -    -    -    -    (1,208,293)   -    (5,785)   (1,214,078)
Balance, September 30, 2022   -    -    62,042    620    -    -    38,588,290    (32,384,146)   (923,694)   (84,936)   5,196,134 
Issuance of Series C Preferred Stock and common stock for acquisition, net of issuance costs   2,363,003    23,630    12,347    124    -    -    4,700,517    -    -    -    4,724,271 
Issuance of Series D Preferred Stock, net of issuance costs   176,462    1,765    -    -    -    -    160,695    -    -    -    162,460 
Stock awards issued to employees   -    -    2,084    21    -    -    259,979    -    -    -    260,000 
Payment of tax withholding for employee stock awards        -    -    -    (116)   (1)   (14,406)   -    -    -    (14,407)
Foreign currency translation gain   -    -    -    -    -    -    -    -    361,597    -    361,597 
Net loss   -    -    -    -    -    -    -    (420,600)   -    (6,471)   (427,071)
Balance, December 31, 2022  2,539,465   $25,395    76,473   $765    (116)  $(1)  $43,695,075   $(32,804,746)  $(562,097)  $(91,407)  $10,262,984 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

*   Common stock and per share amount have been retroactively adjusted to reflect the decreased number of shares resulting from a 1-for-12 reverse stock split effected on January 26, 2024, and a 1-for-20 reverse stock split effected on February 9, 2023, throughout the condensed consolidated financial statement unless otherwise stated.

 

5

 

 

Intelligent Bio Solutions Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

   2023   2022 
   Six Months Ended December 31, 
   2023   2022 
Cash flows from operating activities:          
Net loss  $(4,408,807)  $(1,641,149)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation and amortization   479,044    349,533 
Amortization of right-of-use assets   118,829    48,623 
Non-cash loss on foreign currency translation, net   555    16,148 
Provision for bad debts   -    22,918 
Provision for inventory obsolescence   69,016    188,364 
Share-based compensation   -    260,000 
Non-cash refund of R&D expenditure claims   (78,281)   (98,552)
Fair value gain on revaluation of financial instruments   

(175,738

)   (1,793,091)
Non-cash other operating activities   15,529    (17,148)
Changes in operating assets and liabilities:          
Accounts receivable   31,027    (301,235)
Inventories   (31,159)   (35,145)
Grant receivable / deferred grant income   93,843    41,428 
Research and development tax incentive receivable   209,591    (137,589)
Other current assets   221,190    87,043 
Accounts and other payables   (630,570)   (1,237,803)
Operating lease liabilities   (100,151)   - 
Other long-term liabilities   5,091    (26,930)
Net cash used in operating activities   (4,180,991)   (4,274,585)
Cash flows from investing activities:          
Purchase of business, net of cash acquired   -    (181,750)
Amount invested on construction in progress   (56,669)   (504,445)
Net cash used in investing activities   (56,669)   (686,195)
Cash flows from financing activities:          
Proceeds from issuance of common stock, and warrants   1,342,296    

-

 
Proceeds from issuance of preferred stock   

3,036,223

    

220,578

 
Payment of equity issuance costs   (592,355)   (499,818)
Payment of tax withholding for employee stock awards   -    (14,407)
Payment of finance lease liabilities   -    (34,767)
Net cash provided by (used in) financing activities   3,786,164    (328,414)
           
Effect of foreign exchange rates on cash and cash equivalents   33,256    (37,425)
           
Decrease in cash and cash equivalents   (418,240)   (5,326,619)
Cash and cash equivalents, beginning of period   1,537,244    8,238,301 
Cash and cash equivalents, end of period  $1,119,004   $2,911,682 
           
Non-cash investing and financing activities          
Shares issued for business acquisition  $-   $5,530,666 
Note receivable settled for business acquisition   -    504,938 
Deferred consideration payable for business acquisition   -    481,750 
Conversion of preferred shares into common shares   57,287    - 
Conversion of holdback Series C Preferred Stock into common stock   32,762    - 
Issuance of common stock upon cashless exercise Series F warrants   6,122

   -

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

6

 

 

Intelligent Bio Solutions Inc.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

 

NOTE 1. ORGANIZATION AND DESCRIPTION OF THE BUSINESS

 

Business

 

Intelligent Bio Solutions Inc. (formerly known as GBS Inc.), and its wholly owned Delaware subsidiary, GBS Operations Inc. were each formed on December 5, 2016, under the laws of the state of Delaware. Our Australian subsidiary Intelligent Bio Solutions (APAC) Pty Ltd (formerly known as Glucose Biosensor Systems (Greater China) Pty Ltd) was formed on August 4, 2016, under the laws of New South Wales, Australia and was renamed to Intelligent Bio Solutions (APAC) Pty Ltd on January 6, 2023. On October 4, 2022, INBS acquired Intelligent Fingerprinting Limited (“IFP”), a company registered in England and Wales (the “IFP Acquisition”). INBS and its subsidiaries (collectively, “we,” “us,” “our,” “INBS” or the “Company,” unless context requires or indicates otherwise) were formed to provide non-invasive, pain free innovative medical devices and screening devices. Our headquarters are in New York, New York.

 

We are a medical technology company focused on developing and delivering intelligent, rapid, non-invasive testing and screening solutions. We operate globally with the objective of providing innovative and accessible solutions that improve the quality of life.

 

Reverse Stock Splits

 

January 2024 Reverse Stock Split

 

On January 26, 2024, the Company filed a certificate of amendment to its amended and restated certificate of incorporation to effect, as of 5:00 p.m. January 26, 2024, a 1-for-12 reverse split of the Company’s common stock (the “January 2024 Reverse Stock Split”). The Company’s common stock began trading on a reverse stock split-adjusted basis on The Nasdaq Capital Market (“Nasdaq Capital Market” or “Nasdaq”) on January 29, 2024.

 

See Note 15, Subsequent Events for further details of the January 2024 Reverse Stock Split.

 

February 2023 Reverse Stock Split

 

On February 9, 2023, the Company filed a certificate of amendment to its amended and restated certificate of incorporation to effect, as of 5:00 p.m. February 9, 2023, a 1-for-20 reverse split of the Company’s common stock (the “February 2023 Reverse Stock Split”). The Company’s common stock began trading on a reverse stock split-adjusted basis on The Nasdaq Capital Market on February 10, 2023.

 

The Reverse Stock Splits were implemented for the purpose of regaining compliance with the minimum bid price requirement for continued listing of the Company’s common stock on the Nasdaq Capital Market.

 

Unless otherwise indicated, all authorized, issued, and outstanding stock and per share amounts contained in the accompanying condensed consolidated financial statements have been adjusted to reflect both the 1-for-20 Reverse Stock Split on February 9, 2023 and the 1-for-12 Reverse Stock Split on January 26, 2024. The February 2023 Reverse Stock Split and the January 2024 Reverse Stock Split are collectively referred to herein as the “Company Reverse Stock Splits”.

 

7

 

 

NOTE 2. LIQUIDITY AND GOING CONCERN

 

On October 4, 2023, the Company raised approximately $4.38 million prior to deducting underwriting discounts and commissions and offering expenses via a registered underwritten public offering of the Company’s securities. Net proceeds to the Company, after deducting the underwriting discounts and commissions and estimated offering expenses payable by the Company, were approximately $3.79 million. Refer to Note 10 for details.

 

The Company incurred a net loss of $1,969,641 and $4,394,845 (after losses attributable to non-controlling interest) for the three and six months ended December 31, 2023, respectively (net loss of $420,600 and $1,628,893 for the three and six months ended December 31, 2022, respectively). As of December 31, 2023, the Company has shareholders’ equity of $3,154,234, a working capital deficit of $2,238,430, and an accumulated deficit of $46,202,418.

 

The Company anticipates operating losses for the foreseeable future. The Company does not expect to generate positive cash flows from operating activities and may continue to incur operating losses until it completes the development of its products and seeks regulatory approvals to market such products.

 

The Company has evaluated whether there are conditions and events, considered in the aggregate, that raise a substantial doubt about its ability to continue as going concern within one year after the date of release of the unaudited condensed consolidated financial statements. The Company expects that its cash and cash equivalents as of December 31, 2023, of $1,119,004, will be insufficient to allow the Company to fund its current operating plan through at least the next twelve months from the issuance of these unaudited condensed consolidated financial statements. These conditions raise substantial doubt about the Company’s ability to continue as a going concern for a period of at least one year from the date these unaudited condensed consolidated financial statements are issued. Accordingly, the Company will be required to raise additional funds during the next 12 months. However, there can be no assurance that when the Company requires additional financing, such financing will be available on terms which are favorable to the Company, or at all. If the Company is unable to raise additional funding to meet its working capital needs in the future, it will be forced to delay or reduce the scope of its research programs and/or limit or cease its operations. In addition, the Company may be unable to realize its assets and discharge its liabilities in the normal course of business.

 

Accordingly, these factors raise substantial doubt about the Company’s ability to continue as a going concern unless it can successfully raise additional capital.

 

The Company’s unaudited condensed consolidated financial statements have been prepared on a going concern basis which contemplates the realization of assets and satisfaction of liabilities and commitments in the normal course of business. The unaudited condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities should the Company be unable to continue as a going concern.

 

8

 

 

NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of presentation

 

The unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, our unaudited condensed consolidated financial statements do not include all the information and footnotes required by GAAP for complete financial statements. Normal and recurring adjustments considered necessary for a fair statement of the results for the interim periods, in the opinion of the Company’s management, have been included. Operating results for the three and six months ended December 31, 2023, are not necessarily indicative of the results that may be expected for the year ending June 30, 2024. The accompanying unaudited condensed consolidated financial statements and related footnote disclosures should be read in conjunction with the consolidated financial statements and notes thereto included in our Form 10-K for the fiscal year ended June 30, 2023, which was filed with the U.S. Securities and Exchange Commission (the “SEC”) on August 23, 2023 (the “2023 Form 10-K”).

 

The unaudited condensed consolidated financial statements and notes thereto give retrospective effect to the stock splits for all periods presented. All common stock, options exercisable for common stock, restricted stock units, warrants and per share amounts contained in the unaudited condensed consolidated financial statements have been retrospectively adjusted to reflect the stock splits for all periods presented.

 

Principles of consolidation

 

These unaudited condensed consolidated financial statements include the accounts of the Company, all wholly owned and majority-owned subsidiaries in which the Company has a controlling voting interest and, when applicable, variable interest entities in which the Company has a controlling financial interest or is the primary beneficiary. Investments in affiliates where the Company does not exert a controlling financial interest are not consolidated.

 

All significant intercompany transactions and balances have been eliminated upon consolidation.

 

Equity offering costs

 

The Company complies with the requirements of Accounting Standards Codification (“ASC”) 340, Other Assets and Deferred Costs, with regards to offering costs. Prior to the completion of an offering, offering costs are capitalized as deferred offering costs on the consolidated balance sheets. The deferred offering costs will be charged to shareholders’ equity upon the completion of the related offering.

 

Use of estimates

 

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could materially differ from those estimates.

 

9

 

 

Business combinations

 

The results of businesses acquired in a business combination are included in the Company’s consolidated financial statements from the date of the acquisition. The Company uses the acquisition method of accounting and allocates the purchase price to the identifiable assets and liabilities of the relevant acquired business at their acquisition date fair values. Any excess consideration over the fair value of assets acquired and liabilities assumed is recognized as goodwill. The allocation of the purchase price in a business combination requires the Company to perform valuations with significant judgment and estimates, including the selection of valuation methodologies, estimates of future revenue, costs and cash flows, discount rates and selection of comparable companies. The Company engages the assistance of valuation specialists in concluding on fair value measurements in connection with determining fair value of assets acquired and liabilities assumed in a business combination. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed with a corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the consolidated statements of operations. Transaction costs associated with business combinations are expensed as incurred and are included in selling, general and administrative expenses in the consolidated statements of operations.

 

Revenue recognition

 

Revenue is accounted for under ASC 606, Revenue from Contracts with Customers, through the following steps:

 

  Identify the contract with a customer;
  Identify the performance obligations in the contract;
  Determine the transaction price;
  Allocate the transaction price to performance obligations in the contract; and
  Recognize revenue when or as the Company satisfies a performance obligation.

 

The Company recognized revenue from contracts with customers that satisfies its performance obligations by delivering the promised goods or service deliverables to the customers. A good or service deliverable is transferred to a customer when, or as, the customer obtains control of the good or service deliverable.

 

Financial information presented on a consolidated basis is accompanied by disaggregated information about revenue and other income by product type for the purpose of allocating resources and evaluating financial performance. Currently, the Company has two products offerings. Accordingly, the Company has determined the following reporting segments (refer to Note 4, Segment Information):

 

  1) Commercially available Intelligent Fingerprinting Products (“IFPG” or “IFPG segment”)
  2) Development Stage Saliva Glucose Biosensor Platform (“SGBP” or “SGBP segment”)

 

Revenues are used to evaluate the performance of the Company’s segments, the progress of major initiatives and the allocation of resources. All of the Company’s revenues are attributable to the IFPG segment during the three and six months ended December 31, 2023 and 2022.

 

10

 

 

Revenue from the IFPG segment relates to the sale of readers, cartridges and accessories and is summarized as follows:

 

   2023   2022   2023   2022 
   Three Months Ended December 31,   Six Months Ended December 31, 
   2023   2022   2023   2022 
Sales of goods - cartridges  $330,949   $214,361   $711,008   $214,361 
Sales of goods - readers   285,889    103,188    524,691    103,188 
Other sales   147,225    39,130    324,458    39,130 
Total revenue  $764,063   $356,679   $1,560,157   $356,679 

 

Other income

 

The other income is mainly comprised of grant income and Research & Development (“R&D”) tax refund.

 

a) Grant income

 

On June 30, 2021, the Company executed a definitive grant agreement with the Australian Government to assist with building a manufacturing facility. The grant has a total value of up to $4.7 million upon the achievement of certain milestones until March 28, 2024. Proceeds from the grant will be used primarily to reimburse the Company for costs incurred in the construction of the manufacturing facility.

 

Accounting for the grant does not fall under ASC 606, Revenue from Contracts with Customers, as the Australian Government will not benefit directly from our manufacturing facility. As there is no authoritative guidance under U.S. GAAP on accounting for grants to for-profit business entities, we applied International Accounting Standards (“IAS”) 20, Accounting for Government Grants and Disclosure of Government Assistance, by analogy when accounting for the Australian Government grant to the Company. Furthermore, disclosures made below are in accordance with the disclosure requirements of Accounting Standards Update (“ASU”) 2021-10.

 

The Australian Government grant proceeds, which will be used to reimburse construction costs incurred, meet the definition of grants related to assets as the primary purpose for the payments is to fund the construction of a capital asset. Under IAS 20, government grants related to assets are presented in the statement of financial position either by setting up the grant as deferred income that is recognized in the statement of operation on a systematic basis over the useful life of the asset or by deducting the grant in arriving at the carrying amount of the asset. Either of these two methods of presentation of grants related to assets in financial statements are regarded as acceptable alternatives under IAS 20. The Company has elected to record the grants received initially as deferred income and deduct the grant proceeds received from the gross costs of the assets or construction in progress (“CIP”) and the deferred grant income liability. A total of $561,130 and $646,116 was recognized as a reduction to the CIP asset on the consolidated balance sheets as of December 31, 2023 and June 30, 2023, respectively.

 

Under IAS 20, government grants are initially recognized when there is reasonable assurance the conditions of the grant will be met and the grant will be received. As of June 30, 2021, management concluded that there was reasonable assurance the grant conditions will be met and all milestone payment received. The total grant value of $4.7 million was recognized as both a grant receivable and deferred grant income on the grant effective date. The project has been delayed due to global shortages of semiconductors that are used in manufacturing equipment and global supply chain disruption due to the coronavirus pandemic in the preceding year. The Company has only completed 4 of the 8 milestones in the grant agreement. As of December 31, 2023, there was uncertainty regarding the potential extension of the grant agreement past its original end of March 28, 2024. Therefore, management concluded that there was no reasonable assurance that the remaining grant receivable will be received.

 

After initial recognition, under IAS 20, government grants are recognized in earnings on a systematic basis in a manner that mirrors the manner in which the Company recognizes the underlying costs for which the grant is intended to compensate. Further, IAS 20 permits for recognition of earnings either separately under a general heading such as other income, or as a reduction of the cost of the asset. The Company has elected to recognize government grant income separately within other income for operating expenditures. Similarly, for capital expenditures, the carrying amount of assets purchased or constructed out of the grant funds are presented net by deducting the grant proceeds received from the gross costs of the assets or CIP and deferred grant income liability. A total of $44,759 and $78,282 deferred grant income was recognized within other income during the three and six months ended December 31, 2023, respectively. Deferred grant income recognized within other income during the three and six months ended December 31, 2022, was $38,139 and $98,552, respectively.

 

11

 

 

b) R&D tax refund

 

The Company measures the R&D grant income and receivable by considering the time spent by employees on eligible R&D activities and R&D costs incurred to external service providers. The R&D tax refund receivable is recognized when it is probable that the amount will be recovered in full through a future claim. A total of $108,445 and $184,793 of R&D tax refund income was recognized in other income during the three and six months ended December 31, 2023, respectively. R&D tax refund income was $231,486 and $482,393 during the three and six months ended December 31, 2022, respectively.

 

 Development and regulatory approval expenses

 

Expenditures relating to R&D are expensed as incurred and recorded in development and regulatory approval in the condensed consolidated statements of operations and other comprehensive loss. R&D expenses include external expenses incurred under arrangements with third parties; salaries and personnel-related costs; license fees to acquire in-process technology and other expenses. The Company recognizes the benefit of refundable R&D tax refunds as a R&D tax refund income when there is reasonable assurance that the amount claimed will be recovered (refer to the R&D tax refund discussion above).

 

Intellectual property acquired for a particular research and development project and that have no alternative future uses (in other research and development projects or otherwise) are expensed in research and development costs at the time the costs are incurred.

 

In certain circumstances, the Company may be required to make advance payments to vendors for goods or services that will be received in the future for use in R&D activities. In such circumstances, the non-refundable advance payments are deferred and capitalized, even when there is no alternative future use for the R&D, until the related goods or services are provided. In circumstances where amounts have been paid in excess of costs incurred, the Company records a prepaid expense.

 

Foreign currency translation

 
Assets and liabilities of foreign subsidiaries are translated from local (functional) currency to reporting currency (U.S. dollar) at the spot rate on the consolidated balance sheets date; income and expenses are translated at the average rate of exchange prevailing during the year. The functional currency of INBS is the United States dollar. Foreign currency movements resulted in a gain of $75,133 and $57,117 for the three and six months ended December 31, 2023, respectively. Foreign currency movements resulted in a gain of $361,597 and $226,038 for the three and six months ended December 31, 2022, respectively.

 

Income taxes

 

In accordance with the provisions of ASC 740, Income Taxes, tax positions initially need to be recognized in the consolidated financial statements when it is more likely than not that the positions will be sustained upon examination by taxing authorities. It also provides guidance for de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.

 

As of December 31, 2023, the Company had no uncertain tax positions that qualified for either recognition or disclosure in the unaudited condensed consolidated financial statements. Additionally, the Company had no interest and penalties related to income taxes.

 

The Company accounts for current and deferred income taxes and, when appropriate, deferred tax assets and liabilities are recorded with respect to temporary differences in the accounting treatment of items for financial reporting purposes and for income tax purposes. Where, based on the weight of all available evidence, it is more likely than not that some amount of the recorded deferred tax assets will not be realized, a valuation allowance is established for that amount that, in management’s judgment, is sufficient to reduce the deferred tax asset to an amount that is more likely than not to be realized.

 

12

 

 

Cash and Cash equivalents

 

The Company considers all highly liquid investments with a maturity of 90 days or less to be cash equivalents. The carrying values of cash and cash equivalents approximate their fair values due to the short-term nature of these instruments. As of December 31, 2023 and June 30, 2023, there were no cash equivalents. The Company maintains cash accounts with financial institutions. At times, balances in these accounts may exceed federally insured limits. The amounts over these insured limits as of December 31, 2023, and June 30, 2023, were $659,157 and $1,114,687, respectively. No losses have been incurred to date on any deposits.

 

Inventories, net

 

Inventories are stated at the lower of cost or net realizable value. Cost comprises direct materials and, where applicable, other costs that have been incurred in bringing the inventories to their present location and condition. Net realizable value is the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution. General market conditions, as well as the Company’s research activities, can cause certain of its products to become obsolete. The Company writes down excess and obsolete inventories based upon a regular analysis of inventory on hand compared to historical and projected demand. The determination of projected demand requires the use of estimates and assumptions related to projected sales for each product. These write downs can influence results from operations.

 

Account receivable, net and other receivables

 

Trade receivables are written off when there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include, amongst others, the failure of a debtor to engage in a repayment plan with the Company, and a failure to make contractual payments for a period of greater than 90 days past due.

 

Based upon the assessment of these factors, the Company recognized a bad debt expense of $22,918 during the three and six months ended December 31, 2022. No bad debt expense was recognized during the three and six months ended December 31, 2023.

 

Property, Plant and Equipment (PPE) & Construction in Progress (CIP)

 

In accordance with the ASC 360, Property, Plant, and Equipment, the Company’s PPE, except land, is stated at cost net of accumulated depreciation and impairment losses, if any. Land is stated at cost less any impairment losses. Costs incurred to acquire, construct, or install PPE, before the assets are ready for use, are capitalized in CIP at historical cost. The carrying amount of assets purchased or constructed out of the grant funds are presented net by deducting the grant proceeds received from the gross costs of the assets or CIP. CIP is not depreciated until such time when the asset is substantially completed and ready for its intended use. Expenditures for maintenance and repairs are charged to operations in the period in which the expense is incurred. Depreciation is calculated on a straight-line basis over the estimated useful life of the asset using the following terms:

 

  Other equipment – 3 years
  Production equipment – 2-4 years
  Leasehold improvements – shorter of asset’s estimated useful life and the remaining term of the lease

 

The assets’ residual values, useful lives and methods of depreciation are reviewed periodically and adjusted prospectively, if appropriate. Equipment is derecognized upon disposal or when no future economic benefits are expected from its use. Any gain or loss arising upon de-recognition of the asset (calculated as the difference between the net disposal proceeds, if any, and the carrying value of the asset) is included in gain or loss on sale of assets in the consolidated statements of operations in the period the asset is derecognized.

 

13

 

 

Impairment of Long-lived Assets and Goodwill

 

Long-lived assets consist of property and equipment, right-of-use assets and other intangible assets. We assess impairment of assets groups, including intangible assets at least annually or more frequently if there are any indicators for impairment. The Company did not recognize any impairments of long-lived assets during the three and six months ended December 31, 2023 and 2022.

 

Goodwill represents the excess of the purchase price over the estimated fair value of the net assets acquired in a business combination. We perform an annual impairment test on goodwill in the fourth quarter of each fiscal year or when events occur or circumstances change that would, more likely than not, reduce the fair value of a reporting unit below its carrying value. We may first assess qualitative factors, such as general economic conditions, market capitalization, the Company’s outlook, market performance and forecasted financial performance to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If we determine it is more likely than not that the fair value of the reporting unit is greater than its carrying amount, an impairment test is not necessary. If an impairment test is necessary, we estimate the fair value of a related reporting unit. If the carrying value of a reporting unit exceeds its fair value, the goodwill of that reporting unit is determined to be impaired, and we will record an impairment charge equal to the excess of the carrying value over the related fair value of the reporting unit. If we determine it is more likely than not that goodwill is not impaired, a quantitative test is not necessary.

 

During the fiscal year ended June 30, 2023, the Company’s market capitalization significantly declined and recurring cash burn of the reporting unit and continuous cash support from the parent entity led management to reassess whether an impairment had occurred considering these qualitative factors. Management’s evaluation indicated that the goodwill related to its IFPG reporting unit was potentially impaired. The Company then performed a quantitative impairment test by calculating the fair value of the reporting unit and comparing that amount to its carrying value. Significant assumptions inherent in the valuation methodologies include, but were not limited to prospective financial information, growth rates, terminal value and discount rate. The Company determined the fair value of the reporting unit utilizing the discounted cash flow model. The fair value of the reporting unit was determined to be less than its carrying value. During the fiscal year ended June 30, 2023, the Company recognized an impairment charge of $4.2 million in the IFPG segment, which is related to the goodwill associated with the IFP Acquisition. Following the impairment charge the goodwill balance was zero.

 

Intangible assets

 

Intangible assets are considered long-lived assets and are recorded at cost, less accumulated amortization and impairment losses, if any. The definite lived intangible assets are amortized over their estimated useful lives, which do not exceed any contractual periods. Certain of our intangible assets have been assigned an indefinite life as we currently anticipate that these trade names and trademarks will contribute cash flows to the Company indefinitely. Indefinite-lived intangible assets are not amortized but are evaluated at least annually to determine whether the indefinite useful life is appropriate. Amortization is recorded on a straight-line basis over their estimated useful lives. Intangible assets acquired from a foreign operation are translated from the foreign entity’s functional currency to the presentational currency based on the exchange rate at the reporting date.

 

Leases

 

The Company determines if an arrangement is a lease at its inception. Lease arrangements are comprised primarily of real estate for which the right-of-use (“ROU”) assets and the corresponding lease liabilities are presented separately on the consolidated balance sheet.

 

ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. The lease term includes options to extend the lease when it is reasonably certain that the option will be exercised. Leases with a term of 12 months or less are not recorded on the unaudited condensed consolidated balance sheet.

 

The Company uses its estimated incremental borrowing rate in determining the present value of lease payments considering the term of the lease, which is derived from information available at the lease commencement date, considering publicly available data for instruments with similar characteristics. The Company accounts for the lease and non-lease components as a single lease component.

 

14

 

 

Employee benefits

 

The costs of short-term employee benefits are recognized as a liability and an expense unless those costs are required to be recognized as part of the cost of inventories or non-current assets. The cost of any unused holiday entitlement is recognized in the period in which the employee’s services are received. Termination benefits are recognized immediately as an expense when the Company is demonstrably committed to terminate the employment of an employee or to provide termination benefits.

 

Net loss per share attributable to common shareholders (“EPS”)

 

The Company calculates earnings per share attributable to common shareholders in accordance with ASC 260, Earning Per Share. Basic net loss per share attributable to common shareholders is calculated by dividing net loss attributable to common shareholders by the weighted average number of common shares outstanding during the period. Diluted net loss per common share is calculated by dividing net loss attributable to common shareholders by weighted average common shares outstanding during the period plus potentially dilutive common shares, such as share warrants.

 

Potentially dilutive common shares are calculated in accordance with the treasury share method, which assumes that proceeds from the exercise of all warrants are used to repurchase common share at market value. The number of shares remaining after the proceeds are exhausted represents the potentially dilutive effect of the securities.

 

As the Company has incurred net losses in all periods, certain potentially dilutive securities, including convertible preferred stock, warrants to acquire common stock, and convertible notes payable have been excluded in the computation of diluted loss per share as the effects are antidilutive.

 

Recently issued accounting pronouncements

 

The Company assessed the adoption impacts of recently issued accounting standards by the Financial Accounting Standards Board (“FASB”) on the Company’s financial statements as well as material updates to previous assessments, if any, from the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2023. There were no new material accounting standards adopted during 2024 that impacted the Company.

 

Pending adoption:

 

Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”)

 

In November 2023, the FASB issued ASU 2023-07 to enhance disclosures about significant segment expenses. The amendments in this ASU require a public entity to disclose significant segment expenses and other segment items on an annual and interim basis and to provide in interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required annually. The amendments in this ASU also clarify circumstances in which an entity can disclose multiple segment measures of profit or loss and provide new segment disclosure requirements for entities with a single reportable segment. The ASU is effective for fiscal years beginning after December 15, 2023, and interim periods beginning after December 15, 2024. Early adoption is permitted. The ASU is to be applied retrospectively to all periods presented in the financial statements. The Company has not early adopted and continues to evaluate the impact of the provisions of ASU 2023-07 on its unaudited condensed consolidated financial statements.

 

Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”)

 

In December 2023, the FASB issued ASU 2023-09 to enhance disclosures about income taxes. The amendments in this ASU require a public entity to disclose in tabular format, using both percentages and reporting currency amounts, specific categories in the rate reconciliation and to provide additional information for reconciling items that meet a quantitative threshold. The amendments in this ASU also require taxes paid (net of refunds received) to be disaggregated by federal, state, and foreign taxes and further disaggregated for specific jurisdictions to the extent the related amounts exceed a quantitative threshold. The ASU is effective for fiscal years beginning after December 15, 2025, with early adoption permitted. The ASU is to be applied prospectively upon adoption. The Company has not early adopted and continues to evaluate the impact of the provisions of ASU 2023-09 on its unaudited condensed consolidated financial statements.

 

15

 

 

Concentration of credit risk

 

The Company places its cash and cash equivalents, which may at times be in excess of the Australia Financial Claims Scheme, Financial Services Compensation Scheme or the United States’ Federal Deposit Insurance Corporation insurance limits, with high credit quality financial institutions and attempts to limit the amount of credit exposure with any one institution.

 

Fair value of financial instruments

 

The accounting guidance defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or non-recurring basis. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

 

Level 1-Quoted prices in active markets for identical assets or liabilities.

 

Level 2-Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

Level 3-Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

 

Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and consider factors specific to the asset or liability.

 

The carrying amounts of cash equivalents, prepaid and other assets, accounts payable and accrued liabilities are representative of their respective fair values because of the short-term nature of those instruments.

 

NOTE 4. SEGMENT INFORMATION

 

ASC 280, Segment Reporting, establishes standards for the manner in which companies report financial information about operating segments, products, services, geographic areas and major customers.

 

Our Segments

 

Operating segments are defined as components of an entity for which separate financial information is available and that is regularly reviewed by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources to an individual segment and in assessing performance. The Company’s CODM is its Chief Executive Officer.

 

Following the acquisition of IFP, we conduct our business through two operating segments:

 

  1) Commercially available Intelligent Fingerprinting Products (IFPG or IFPG segment)
  2) Development Stage Saliva Glucose Biosensor Platform (SGBP or SGBP segment)

 

The Company has determined it operates in two operating and reportable segments, as the CODM reviews financial information presented on a consolidated basis accompanied by disaggregated information about revenue and other income by product types for the purpose of allocating resources and evaluating financial performance. Currently, the Company has two products offerings.

 

16

 

 

The IFPG segment accounted for 100% of the Company’s revenue during the three and six months ended December 31, 2023 and 2022.

 

The following tables set forth the Company’s revenue and other income by operating and reportable segment, disaggregated into geographic locations based on sales billed from the respective county.

 

A) Revenue

 

   IFPG   SGBP   Total 
   Three Months Ended December 31, 2023 
   IFPG   SGBP   Total 
United Kingdom  $655,448   $   $655,448 
Australia   16,805        16,805 
Other   91,810        91,810 
Total Revenue  $764,063   $   $764,063 

 

   IFPG   SGBP   Total 
   Three Months Ended December 31, 2022 
   IFPG   SGBP   Total 
United Kingdom  $305,365   $   $305,365 
Other   51,314        51,314 
Total Revenue  $356,679   $   $356,679 

 

   IFPG   SGBP   Total 
   Six Months Ended December 31, 2023 
   IFPG   SGBP   Total 
United Kingdom  $1,410,598   $   $1,410,598 
Australia   24,887        24,887 
Other   124,672        124,672 
Total Revenue  $1,560,157   $   $1,560,157 

 

   IFPG   SGBP   Total 
   Six Months Ended December 31, 2022 
   IFPG   SGBP   Total 
United Kingdom  $305,365   $   $305,365 
Other   51,314        51,314 
Total Revenue  $356,679   $   $356,679 

 

B) Other

 

   IFPG   SGBP   Total 
   Three Months Ended December 31, 2023 
   IFPG   SGBP   Total 
Australia  $   $91,587   $91,587 
United Kingdom   61,617        61,617 
Total Government Support Income  $61,617   $91,587   $153,204 

 

17

 

 

   IFPG   SGBP   Total 
   Three Months Ended December 31, 2022 
   IFPG   SGBP   Total 
Australia  $   $162,068   $162,068 
United Kingdom   107,557        107,557 
Total Government Support Income  $107,557   $162,068   $269,625 

 

   IFPG   SGBP   Total 
   Six Months Ended December 31, 2023 
   IFPG   SGBP   Total 
Australia  $   $156,137   $156,137 
United Kingdom   106,938        106,938 
Total Government Support Income  $106,938   $156,137   $263,075 

 

   IFPG   SGBP   Total 
   Six Months Ended December 31, 2022 
   IFPG   SGBP   Total 
Australia  $   $473,388   $473,388 
United Kingdom   107,557        107,557 
Total Government Support Income  $107,557   $473,388   $580,945 

 

The Company operates in various geographic locations. The Company does not discretely allocate assets to its operating segments, nor does management evaluate operating segments using discrete asset information. The Company’s consolidated assets are not specifically ascribed to its individual reportable segments. Rather, assets used in operations are generally shared across the Company’s operating and reportable segments.

 

Property and equipment, net and operating lease right-of-use assets, by geographic location, are summarized as follows:

 

   December 31, 2023   June 30, 2023 
Australia  $658,925   $761,220 
United Kingdom   365,110    475,430 
Total  $1,024,035   $1,236,650 

 

NOTE 5. INTELLIGENT FINGERPRINTING LIMITED ACQUISITION

 

On October 4, 2022, INBS acquired 100% of the outstanding shares of Intelligent Fingerprinting Limited (IFP), a company registered in England and Wales, pursuant to a Share Exchange Agreement, dated October 4, 2022 (the “Share Exchange Agreement”) by and among IFP, the holders of all of the issued shares in the capital of IFP (the “IFP Sellers”) and a representative of the IFP Sellers. IFP owns a portfolio of intellectual property for diagnostic tests and associated technologies, including drug testing through the analysis of fingerprint sweat. The acquisition of IFP has expanded the Company’s platform of rapid, non-invasive diagnostic testing technologies.

 

The table below summarizes the fair value of the consideration transferred in the acquisition (pre-Company Reverse Stock Splits):

 

Purchase consideration*  Amount 
Cash $363,500 
Note receivable settled for business acquisition   504,938 
Common Stock - 2,963,091 shares @ $0.5502 / share   1,630,293 
Series C Preferred Stock (base) - 2,363,003 shares @ 3 x $0.5502 / share   3,900,373 
Series C Preferred Stock (holdback) - 500,000 shares @ 3 x $0.5502 / share   825,300 
Total purchase price  $7,224,404 

 

* The description of the IFP Acquisition below this table describes the purchase consideration on a post-Company Reverse Stock Splits basis.

 

18

 

 

Pursuant to the Share Exchange Agreement, the Company acquired from the IFP Sellers all of the issued and outstanding shares of the capital stock of IFP, and as consideration therefore, the Company issued and sold to the IFP Sellers upon the closing of the IFP Acquisition (the “IFP Closing”) an aggregate number of 12,347 (as adjusted for Company Reverse Stock Splits) shares of the Company’s common stock, and (ii) 2,363,003 shares of the Company’s Series C Convertible Preferred Stock, par value $0.01 per share (the “Series C Preferred Stock”).

 

Up to an additional 1,649,273 shares of Series C Preferred Stock were reserved for potential future issuance by the Company, consisting of (i) 500,000 shares of Series C Preferred Stock, that were held back from the IFP Sellers for one year after the IFP Closing to secure potential indemnification claims by the Company against the IFP Sellers and (ii) 1,149,273 shares of Series C Preferred Stock to certain lenders to IFP (the “IFP Lenders”). Each share of Series C Preferred Stock was convertible into 0.15 shares of common stock at the time of conversion (after giving effect to the February 2023 Reverse Stock Split, but not the January 2024 Reverse Stock Split), which was contingent upon approval by the Company’s stockholders that was obtained on May 8, 2023.

 

Effective contemporaneously with the IFP Closing, the Company entered into an amendment to the bridge facility agreement between the Company and IFP, dated as of June 16, 2022, pursuant to which, among other things, the $504,938 (including accrued interest) loan from the Company to IFP remained outstanding following the date of the IFP Closing (the “Company-IFP Loan Agreement”).

 

The loan receivable from IFP of $504,938 as of October 4, 2022, was treated as a cash consideration in accordance with ASC 805, Business Combinations (“ASC 805”).

 

The Company entered into various loan agreements in the aggregate amount of $1,425,307 (£1,254,270), including accrued interest, pursuant to which IFP was the borrower and the Company became a guarantor of IFP’s obligations thereunder (the “IFP Loan Agreements” and, together with the Company-IFP Loan Agreement, the “Loan Agreements”). Under the Loan Agreements, the loans thereunder remained outstanding following the IFP Closing and (x) the loans and certain accrued interest was convertible into shares of IFP, which shares of IFP would then be immediately transferred to the Company in exchange for shares of Series C Preferred Stock that were convertible into common stock (as set forth in the Share Exchange Agreement) following approval of the Company Stockholder Approval Matters (defined below) or (y) the loans and certain accrued interest will become repayable on the second anniversary of the date of the IFP Closing. The loans bore interest at 17% per annum on a compounded basis, increasing to 22% per annum on a compounded basis with effect from the date that falls 12 months following the date of the IFP Closing, if the Company Stockholder Approval Matters had not been approved by the Company’s stockholders by such date. The “Company Stockholder Approval Matters” means the approval by the Company’s stockholders of (i) the conversion of the Series C Preferred Stock into common stock and (ii) any amendments to, or adoption of, any option or warrant plans to give effect to the transactions contemplated under the Share Exchange Agreement. The last of the Company Stockholder Approval Matters were approved at a special meeting of the Company’s stockholders (the “Special Meeting”) on May 8, 2023.

 

Each share of Series C Preferred Stock (other than the IFP Lender Preferred Shares) automatically converted into common stock upon approval of the Company’s stockholders of the conversion of Series C Preferred Stock into common stock, and each IFP Lender Preferred Share converted into common stock at the option of the applicable holder of such IFP Lender Preferred Shares following approval of the Company’s stockholders of the conversion of Series C Preferred Stock into common stock. The number of shares of common stock into which the Series C Preferred Stock was convertible was subject to adjustment in the case of any stock dividend, stock split, combinations, or other similar recapitalization with respect to the common stock.

 

The rights, preferences and privileges of the Series C Preferred Stock are set forth in the Certificate of Designation of Preferences, Rights and Limitations of Series C Convertible Preferred Stock that the Company filed with the Secretary of State of the State of Delaware on October 4, 2022, as further described below (the “Series C Certificate of Designation”).

 

The Series C Preferred Stock does not have any voting rights (other than as required by law) and does not carry dividends or a liquidation preference. Each share of Series C Preferred Stock was initially convertible into 3 shares of common stock, subject to adjustment as noted above. Following the effectiveness of the 1-for-20 Reverse Stock Split effective on February 9, 2023 (but not the January 2024 Reverse Stock Split), each share of Series C Preferred Stock was convertible into 0.15 shares of common stock. The loan receivable from IFP of $504,938 as of October 4, 2022, was treated as a cash consideration in accordance with ASC 805.

 

19

 

 

The Company incurred $806,397 of equity issuance costs in relation to issuing common and Series C Preferred Stock to acquire IFP. These costs were recognized as a reduction to additional paid-in capital on the condensed consolidated balance sheets.

 

At the Special Meeting on May 8, 2023, the last of the remaining Company Stockholder Approval Matters were approved when the Company’s stockholders approved the full conversion of all Series C Preferred Stock and an increase in the number of shares authorized for issuance under the 2019 Long Term Incentive Plan (“2019 Plan” or the “Plan”). Subsequently, effective as of May 10, 2023, all 3,512,277 shares of outstanding Series C Preferred Stock (which included the 1,149,273 Lender Preferred Shares, but not the 500,000 Closing Holdback Shares (which are not deemed outstanding)) were converted into an aggregate of 43,902 shares of common stock (as adjusted for Company Reverse Stock Splits).

 

The 500,000 “Closing Holdback Shares” were shares of Series C Preferred Stock that were held back from issuance to the IFP Sellers for one year after the IFP Closing in order to secure potential indemnification claims by the Company against the IFP Sellers. Effective one year after the IFP Closing, the 500,000 Closing Holdback Shares were issued and immediately converted into an aggregate of 6,248 shares of common stock (as adjusted for Company Reverse Stock Splits).

 

The final allocation of the purchase price of IFP to the assets acquired and liabilities assumed, based on their relative fair values, is as follows:

 

Allocation of purchase consideration  Amount 
Assets:     
Cash and cash equivalents  $174,481 
Inventory   774,625 
Other current assets   345,038 
Property and Equipment   52,170 
Intangible assets   5,463,000 
Goodwill   3,803,293 
Total assets acquired   10,612,607 
Liabilities:     
Accounts payable and accrued expenses   (1,027,302)
Notes payable   (677,137)
Convertible notes payable   (1,683,764)
Total liabilities assumed   (3,388,203)
Net assets  $7,224,404 

 

Acquired intangible assets of $5,463,000 include technology of $5,119,000 (which is estimated to have a useful life of 7 years), customer relationships of $252,000 (which are estimated to have a useful life of 3 years), and trade names and trademarks of $92,000 (which are estimated to have an indefinite useful life). The value assigned to technology was determined using the multi-period excess earnings methodology under the income approach, the customer relationships was valued using the distributor method under the income approach, and the trade name and trademarks was valued using the relief from royalty method.

 

The acquisition produced $3,803,293 of goodwill, which has been assigned to the IFPG reporting unit. The goodwill is attributable to a combination of IFP’s assembled workforce and other product and operating synergies. Goodwill arising from the IFP Acquisition is not deductible for tax purposes. During the fiscal year ended June 30, 2023, the full amount of goodwill was impaired. Refer to Note 3 for further information.

 

Transaction costs, except for the equity issuance costs discussed above, were not material and are included in selling, general and administrative expenses on the Company’s condensed consolidated statement of operations.

 

Intangible assets acquired from IFP were remeasured at December 31, 2023 and June 30, 2023 using the applicable spot rate.

 

20

 

 

Pro-Forma Results of Operations

 

Unaudited pro-forma consolidated results of operations for the three months ended December 2023, the six months ended December 2023 and the three months ended December 2022 are not required because the results of the acquired business are included in the Company’s results. The following unaudited pro-forma consolidated results of operations for the six months ended December 31, 2022, has been prepared as if the acquisition of IFP had occurred on July 1, 2022 and includes adjustments for amortization related to the valuation of acquired intangibles:

 

   As Reported   Pro Forma 
   Six Months Ended December 31, 2022 
   As Reported   Pro Forma 
Revenue  $356,679   $704,165 
Net loss  $(1,641,149)  $(2,882,704)
Net loss attributable to Intelligent Bio Solutions Inc.  $(1,628,893)  $(2,870,448)
Net loss per share, basic and diluted  $(23.65)  $(41.68)

 

NOTE 6. INVENTORIES, NET

 

Inventories consist of the following:

 

   December 31, 2023   June 30, 2023 
Work-in-progress  $   $419,889 
Finished goods   1,211,565    757,518 
Less: provision for inventory obsolescence   (269,515)   (197,500)
Inventory, net  $942,050   $979,907 

 

NOTE 7. INTANGIBLE ASSETS, NET

 

Intangible assets, net consist of the following as of December 31, 2023:

 

   Weighted
average useful lives
(years)
   Acquisition cost   Effect of foreign currency   Accumulated amortization   Carrying value 
Technology   7 years   $5,119,000   $645,187   $1,175,008   $4,589,179 
Customer relationships   3 years    252,000    31,761    118,234    165,527 
Trade names and trademarks   Indefinite    92,000    11,595        103,595 
Total intangible assets       $5,463,000   $688,543   $1,293,242   $4,858,301 

 

Intangible assets, net consist of the following as of June 30, 2023:

 

   Weighted
average useful lives
(years)
  Acquisition cost   Effect of foreign currency   Accumulated amortization   Carrying value 
Technology  7 years  $5,119,000   $603,422   $780,500   $4,941,922 
Customer relationships  3 years   252,000    29,127    70,282    210,845 
Trade names and trademarks  Indefinite   92,000    10,634        102,634 
Total intangible assets     $5,463,000   $643,183   $850,782   $5,255,401 

 

21

 

 

Intangibles assets recognized from the acquisition of IFP were allocated to the IFPG operating and reportable segment.

 

Expense related to the amortization of intangible assets for the three and six months ended December 31, 2023, was $267,259 and $442,460, respectively. Expenses related to the amortization of intangible assets for the three and six months ended December 31, 2022, was $340,022 and $340,022 respectively.

 

Amortization expense for the intangible assets is expected to be as follows over the next five years, and thereafter:

 

      
Remainder of 2024  $446,353 
2025   892,705 
2026   821,765 
2027   798,118 
2028   798,118 
Thereafter   997,647 
Total  $4,754,706 

 

There were no impairment charges related to intangible assets incurred in the periods presented.

 

NOTE 8. NOTE PAYABLE

 

As a result of the acquisition of IFP, the Company assumed a note payable due to a distributor of IFP. The unpaid principal balance of the loan will accrue interest at a rate of 0.97% per annum. The balance is offset by:

 

  Payments of 10% of the Company’s monthly worldwide gross revenue received in the preceding month;
  50% of sales by the Company to the distributor.

 

The classification of the notes payables is based on sales forecast prepared by the management.

 

NOTE 9. LEASES

 

The Company assumed a non-cancelable operating lease agreement in relation to IFP Acquisition on October 4, 2022. Additionally, the Company also entered into another non-cancelable operating lease that commenced in May 2023. The leases have original lease periods expiring from August 2025 to April 2026. The lease agreements do not contain any material residual value guarantees or material restrictive covenants.

 

The components of lease expense are as follows:

 

   2023   2022   2023   2022 
   Three Months Ended December 31,   Six Months Ended December 31, 
   2023   2022   2023   2022 
Amortization of operating lease right-of-use assets  $58,867   $48,623   $118,829   $48,623 
Interest on operating lease liabilities   19,147    22,448    40,318    22,448 
Total lease costs  $78,014   $71,071   $159,147   $71,071 

 

As of December 31, 2023, the weighted average remaining lease-term and discount rate on the Company’s leases were 1.8 years and 13.2%, respectively.

 

The reconciliation of the maturities of the operating leases to the operating lease liabilities recorded in the consolidated balance sheet as of December 31, 2023, is as follows:

 

      
Remainder of 2024  $150,243 
2025   312,661 
2026   85,195 
Total lease payments   548,099 
Less: present value discount   (68,638)
Lease liabilities  $479,461 

 

22

 

 

NOTE 10. SHAREHOLDERS’ EQUITY

 

As of December 31, 2023, there were warrants outstanding to purchase 9,263,437 shares of common stock (without giving effect to the January 2024 Reverse Stock Split), held by certain shareholders. Each warrant initially represented the right to purchase one share of the Company’s common stock, subject to adjustment upon the occurrence of specified events including reverse stock splits.

 

Following the January 2024 Reverse Stock Split, through which a 1-for-12 reverse split was effected, the number of warrants outstanding to purchase shares of common stock was reduced to approximately 771,956 (subject to rounding).

 

On October 4, 2023, the Company completed an underwritten public offering of its securities in the form of units (the “October 2023 Offering”) consisting a total of 2,232,221 shares (186,018 shares post January 2024 Reverse Stock Split) of common stock, 5,728,723 shares of the Company’s Series E Convertible Preferred Stock (each share of Series E Preferred Stock is convertible into one share the Company’s common stock (1/12 share post January 2024 Reverse Stock Split)), (“Series E Preferred Stock”), 7,960,944 warrants (663,412 warrants post January 2024 Reverse Stock Split) to purchase shares of common stock that will expire on the five-and-a-half-year anniversary of the original issuance date (the “Series E Warrants”), and 7,960,944 warrants (663,412 warrants post January 2024 Reverse Stock Split) to purchase shares of common stock that will expire on the one-and-a-half-year anniversary of the original issuance date (the “Series F Warrants”, collectively with the Series E Warrants, the “Warrants”). Each Unit consisted of one share of common stock (1/12 share post January 2024 Reverse Stock Split) (or one share of Series E Preferred Stock), one Series E Warrant and one Series F Warrant. The Units were priced at a combined public offering price of $0.55 per unit for initial gross proceeds of approximately $4.38 million. Net proceeds to the Company, after deducting the underwriting discounts and commissions and estimated offering expenses payable by the Company, were approximately $3.79 million.

 

The original exercise price of the Series E Warrants was $0.55 per share ($6.60 post-Company Reverse Stock Splits) which was subject to a one-time reset to a price equal to the lesser of (i) the then exercise price and (ii) 90% of the five-day volume weighted average price for the five trading days immediately following the date the Company effects a reverse stock split. As a result of the January 2024 Reverse Stock Split, the exercise price of the Series E Warrants was reset to $2.9232 per share. The original exercise price of the Series F Warrants was $0.55 per share ($6.60 post-Company Reverse Stock Splits), but is subject to an alternate cashless exercise option pursuant to which the holder has the right to receive an aggregate number of shares of Common Stock on a one-for-one basis (one-for-1/12 post-Company Reverse Stock Splits) (subject to adjustment)

 

The Company also agreed to issue to the Underwriters, warrants to purchase up to 5.0% of the shares of common stock (or common stock equivalents) sold in the October 2023 Offering (which equaled 398,047 shares of Common Stock (33,171 shares post January Reverse Stock Split)). These warrants have an exercise price of $0.6875 per share ($8.25 post January 2024 Reverse Stock Split) and will terminate on October 2, 2028.

 

Also on October 4, 2023, following the one-year anniversary of the IFP Acquisition, the Company issued 74,971 (6,248 shares post January 2024 Reverse Stock Split) shares of common stock to the IFP Sellers in connection with the release of the 500,000 Closing Holdback Shares, which consisted of Series C Preferred Stock that were then immediately converted to common stock at a rate of 0.15 shares (0.0125 shares post-Company Reverse Stock Splits) of common stock per share of Series C Preferred Stock. See Note 5 for further detail of the IFP Acquisition.

 

Subsequent to the October 2023 Offering, all 5,728,723 shares of the outstanding Series E Preferred Stock were converted into an aggregate of 5,728,723 shares (477,394 post-Company Reverse Stock Splits) of common stock. Additionally, the Company issued 7,346,178 shares (612,182 post-Company Reverse Stock Splits) of common stock pursuant in connection with the cashless exercise of the Company’s Series F Warrants.

 

NOTE 11. FAIR VALUE MEASUREMENTS

 

The Company held back 500,000 Series C Preferred Stock (Closing Holdback Shares), from the IFP Sellers for one year after the IFP Closing to secure potential indemnification claims by the Company against the IFP Sellers. Each share of Series C Preferred Stock was convertible into 0.0125 shares of common stock (as adjusted for January 2024 Reverse Stock Split).

 

Effective one year after the IFP Closing, the 500,000 Closing Holdback Shares were issued and immediately converted into an aggregate of 6,248 shares of common stock (as adjusted for January 2024 Reverse Stock Split).

 

See Note 5 for further information and disclosures relating to the conversion of the Series C Preferred Stock, including the Closing Holdback Shares.

 

23

 

 

The following table provides a reconciliation of the beginning and ending balance of the Closing Holdback Shares (in the form of Series C Preferred Stock) measured at fair value on a recurring basis during the period:

 

   Preferred stock
carried at fair value
(Level 2)
 
Balance at June 30, 2023  $208,500 
Fair value gain on revaluation of holdback Series C Preferred Stock   (131,250)
Balance at September 30, 2023   77,250 
Fair value gain on revaluation of holdback Series C Preferred Stock   (44,488)
Conversion of holdback Series C Preferred Stock into Common Stock   (32,762)
Balance at December 31, 2023  $ 

 

The Company did not have assets or liabilities carried at fair value using Level 1 or Level 3 inputs during the three and six months ended December 31, 2023 and 2022.

 

The Company has not transferred any assets between fair value measurement levels during the three and six months ended December 31, 2023 and 2022.

 

NOTE 12. RELATED PARTY TRANSACTIONS

 

LSBD

 

Sales to and purchases from related parties are made at arm’s length transaction both at normal market prices and on normal commercial terms.

 

As of December 31, 2023 and June 30, 2023, $0 and $8,714, respectively, remain payable to LSBD in relation to overhead reimbursements.

 

October 2023 Offering

 

Spiro Sakiris, our Chief Financial Officer, purchased 112,727 units on the same terms as the other purchasers in the October 2023 Offering. Mr. Christopher Towers, a member of our Board of Directors (the “Board”), purchased 9,090 units on the same terms as the other purchasers in the Public Offering. Each unit consisted of one share of common stock, one Series E Warrant and one Series F Warrant.

 

NOTE 13. COMMITMENTS AND CONTINGENCIES

 

The Company has no material purchase commitments. For commitments under non-cancellable leases, refer to Note 9.

 

From time to time, the Company may become a party to various legal proceedings arising in the ordinary course of business. Based on information currently available, the Company is not involved in any pending or threatened legal proceedings that it believes could reasonably be expected to have a material adverse effect on its financial condition, results of operations or liquidity. However, legal matters are inherently uncertain, and the Company cannot guarantee that the outcome of any potential legal matter will be favorable to the Company.

 

NOTE 14. LOSS PER SHARE

 

Basic loss per common share is computed by dividing net loss allocable to common shareholders by the weighted average number of shares of common stock or common stock equivalents outstanding after adjusting for the February 2023 Reverse Stock Split, and the January 2024 Reverse Stock Split. Diluted loss per common share is computed similar to basic loss per common share except that it reflects the potential dilution that could occur if dilutive securities or other obligations to issue common stock were exercised or converted into common stock.

 

   2023   2022   2023   2022 
   Three Months Ended December 31,   Six Months Ended December 31, 
   2023   2022   2023   2022 
Net loss attributable to Intelligent Bio Solutions Inc.   (1,969,641)   (420,600)   (4,394,845)   (1,628,893)
Basic and diluted net loss per share attributed to common shareholders   (2.07)   (5.56)   (7.68)   (23.65)
Weighted-average number of shares outstanding   949,660    75,690    571,930    68,866 

 

24

 

 

The following outstanding warrants, options and preferred shares were excluded from the computation of diluted net loss per share for the periods presented because their effect would have been anti-dilutive:

 

Post-Consolidated Company Reverse Stock Split: Anti-dilutive warrants and preferred stock

 

   2023   2022   2023   2022 
   Three Months Ended December 31,   Six Months Ended December 31, 
   2023   2022   2023   2022 
Warrants- Series A   5,839    5,839    5,839    5,839 
Warrants- Series B   218    218    218    218 
Private Placement Warrants (Dec 22)   2,207    2,207    2,207    2,207 
Warrants Issued to Winx Capital Pty Ltd   111    111    111    111 
Warrants Issued to Underwriters (IPO)   265    265    265    265 
Pre-IPO Warrants   -    11,403    -    11,403 
Preferred Stock (Series C)   -    9,846    -    9,846 
Preferred Stock (Series D)   -    736    -    736 
Warrants Issued to LSBD   12,500    12,500    12,500    12,500 
Warrants-Common Stock (March 23 public raise)   273    -    273    - 
Series E Warrants   663,412    -    663,412    - 
Series F Warrants   51,231    -    51,231    - 
Underwriters Warrants (March 23 public raise)   2,729    -    2,729    - 
Underwriters Warrants (October 2023 Offering)   33,171    -    33,171    - 

 

NOTE 15. SUBSEQUENT EVENTS

 

Warrant Inducement Transaction

 

On February 4, 2024, the Company entered into warrant inducement agreements (the “Inducement Agreements”) with certain accredited and institutional holders (collectively, the “Holders”) of the Company’s outstanding Series E Warrants issued on October 4, 2023 (the “Series E Warrants”). Pursuant to the Inducement Agreements, each Holder that exercised its Series E Warrants pursuant to the Inducement Agreement received one (1) replacement warrant (a “Series G Warrant”) for each Series E Warrant exercised. The Series E Warrants had an exercise price of $2.9232 per share. The Series G Warrants are exercisable immediately upon issuance, expire on the five and one half (5.5) year anniversary of the date of issuance, and have an initial exercise price equal to $4.50 per share.

 

The closing took place on February 7, 2024. Gross proceeds to the Company from the exercise of the Series E Warrants was approximately $1.77 million, prior to deducting closing costs and placement agent fees. The Company intends to use the net proceeds from the offering for working capital and general corporate purposes.

 

As a result of the Holders exercising the Series E Warrants, the Company issued an aggregate of 606,064 shares of common stock.

 

January 2024 Reverse Stock Split

 

At the annual meeting of the Company’s stockholders held on December 13, 2023, the stockholders of the Company approved an amendment to the Company’s amended and restated certificate of incorporation (the January 2024 Amendment) to effect a reverse stock split at a ratio of not less than l-for-2 and not more than l-for-12 at any time within 12 months following the date of stockholder approval, with the exact ratio to be set within this range by the Board at its sole discretion without further approval or authorization of the Company’s stockholders. Pursuant to such authority granted by the Company’s stockholders, on January 26, 2024, the Board approved a l-for-12 reverse stock split (the “January 2024 Reverse Stock Split”) of the Company’s common stock and the filing of the Amendment to effectuate the Reverse Stock Split.

 

On January 26, 2024, the Company filed the January 2024 Amendment to effect 1-for-12 reverse stock split of the Company’s common stock. The January 2024 Reverse Stock Split was effective at 5 p.m., Eastern Time, on January 26, 2024, at which time every twelve shares of the Company’s issued and outstanding common stock were automatically combined into one issued and outstanding share of common stock. No fractional shares were issued as a result of the January 2024 Reverse Stock Split. Stockholders of record who would otherwise be entitled to receive a fractional share are entitled to the rounding up of the fractional share to the nearest whole number. The par value of the Company’s common stock and the number of authorized shares of the common stock were not affected by the January 2024 Reverse Stock Split. The Company’s common stock began trading on a reverse stock split-adjusted basis on The Nasdaq Capital Market on January 29, 2024.

 

As a result of the January 2024 Reverse Stock Split, the number of shares of common stock outstanding was reduced from approximately 17,930,673 shares (excluding treasury shares) as of January 25, 2024, to approximately