Intelligent Bio Solutions Inc. 10-Q Summary
Business Context and Reporting Period
Intelligent Bio Solutions Inc. is a medical technology company developing rapid, non-invasive testing and screening solutions. Its commercially available Intelligent Fingerprinting drug-screening platform is marketed in certain countries outside the United States. Its Saliva Glucose Biosensor platform remains in development.
This unaudited Form 10-Q covers the three months ended September 30, 2023, the Company’s fiscal first quarter of 2024. The prior comparable period was the three months ended September 30, 2022. The results include Intelligent Fingerprinting Limited, acquired on October 4, 2022.
Key Financial Metrics
| Metric | Q1 FY2024 | Q1 FY2023 |
|---|---|---|
| Revenue | $796,094 | $0 |
| Gross profit | $232,331 | $0 |
| Gross margin | 29.2% | Not meaningful |
| Loss from operations | $(2,526,365) | $(1,218,372) |
| Net loss | $(2,432,424) | $(1,214,078) |
| Net loss attributable to INBS | $(2,425,204) | $(1,208,293) |
| Net loss per share, basic and diluted | $(1.04) | $(1.62) |
| Net cash used in operating activities | $(1,311,833) | $(1,893,735) |
Revenue consisted of $380,059 from cartridges, $238,802 from readers, and $177,233 from other sales. All revenue was generated by the Intelligent Fingerprinting segment; the Saliva Glucose Biosensor segment generated no revenue.
Operating expenses were $2,868,567, including $2,457,060 of selling, general and administrative expense, $103,947 of development and regulatory expense, and $307,560 of depreciation and amortization. Net loss included a $131,250 fair-value gain related to holdback Series C preferred stock and $109,871 of government support income.
| Balance sheet metric | September 30, 2023 | June 30, 2023 |
|---|---|---|
| Cash and cash equivalents | $186,401 | $1,537,244 |
| Current assets | $2,691,895 | $3,862,561 |
| Current liabilities | $6,845,938 | $5,883,685 |
| Working capital | $(4,154,043) | Not clearly provided |
| Total liabilities | $7,463,932 | $6,667,614 |
| Total shareholders’ equity | $1,236,558 | $3,686,998 |
The current ratio was approximately 0.39 at September 30, 2023. Notes payable totaled approximately $648,068, comprising $341,834 current and $306,234 non-current. Operating lease liabilities totaled $511,442. The Company had no off-balance-sheet arrangements.
Material Changes Versus the Prior Comparable Period
- Revenue increased from zero to $796,094, primarily because the IFP acquisition added a commercial product platform and the Company launched fingerprint drug testing in the Asia-Pacific region.
- Gross profit was $232,331, representing a 29.2% gross margin.
- SG&A increased by $1,006,642, or approximately 69%, largely because of IFP’s operations and approximately 32 additional staff.
- Depreciation and amortization increased to $307,560 because of acquired intangible assets and property and equipment.
- Net loss attributable to INBS increased by $1,216,911, or approximately 101%, despite the new revenue stream and the $131,250 fair-value gain.
- Operating cash burn improved by $581,902 compared with the prior-year quarter, but cash declined by $1,350,843 during the quarter to $186,401.
- Accumulated deficit increased to $44,232,777, and total equity declined by $2,450,440 during the quarter.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
Management expects operating losses and negative operating cash flow to continue until the Company completes product development and obtains regulatory approvals for products still under development. No quantitative revenue or earnings guidance was provided.
The financial statements include a going-concern warning. Management stated that September 30, 2023 cash would be insufficient to fund the current operating plan for at least the next twelve months and that additional capital would be required. Failure to obtain financing could require the Company to delay or reduce research programs, limit or cease operations, sell assets, or pursue other restructuring alternatives.
On October 4, 2023, after quarter-end, the Company completed an offering of common stock, Series E convertible preferred stock, and warrants for approximately $4.378 million of gross proceeds and approximately $3.35 million of net proceeds. Through November 7, 2023, 4,571,761 Series E preferred shares had been converted into common stock. The offering materially increased potential share and warrant dilution.
The Australian government manufacturing grant has a potential total value of up to $4.7 million, but the Company had completed only four of eight milestones. The grant agreement was scheduled to expire on March 28, 2024, and an extension was uncertain. Failure to meet milestones or obtain an extension could result in repayment obligations.
The Company owed $847,021 to the University of Newcastle under an agreement related to Saliva Glucose Biosensor research and development. No material legal proceedings were pending according to the filing.
Management concluded that disclosure controls and procedures were ineffective because of material weaknesses in internal control over financial reporting, including insufficiently documented review procedures, inadequate evidence of control performance, and limited accounting and supervisory resources. Remediation efforts include hiring personnel, enhancing review controls, and using outside consultants.
Important Facts for Investors to Verify
- Whether the October 2023 financing provides sufficient liquidity beyond the next twelve months and whether additional capital will be required.
- The terms, conversion mechanics, and ultimate dilution from the Series E preferred stock and Series E and Series F warrants.
- Revenue growth, customer retention, geographic expansion, and gross-margin trends for the Intelligent Fingerprinting platform.
- Progress toward regulatory approvals and commercialization of the Saliva Glucose Biosensor platform.
- Status of the Australian government grant, remaining milestones, potential extension, and any repayment exposure.
- Progress in remediating the material weaknesses in internal control over financial reporting.
- Collectability of the $559,588 research and development tax incentive receivable and the accounting for deferred grant income.
- Potential effects of inventory obsolescence, foreign currency movements, acquired-intangible amortization, and future impairment charges.