Intelligent Bio Solutions Inc. — Form 10-Q Summary
Reporting period: Three and six months ended December 31, 2022; fiscal year ending June 30, 2023. The filing was signed February 14, 2023. The company develops and markets non-invasive diagnostic products, including Intelligent Fingerprinting drug-screening products and the development-stage Saliva Glucose Biosensor platform.
Business context
On October 4, 2022, INBS acquired Intelligent Fingerprinting Limited (IFP), expanding the company into commercially available fingerprint-sweat drug screening products. IFP contributed all reported revenue during the period. The Saliva Glucose Biosensor remains in development and generated no revenue.
Financial performance and liquidity
| Metric | Three months ended Dec. 31, 2022 | Six months ended Dec. 31, 2022 | Comparable period |
|---|---|---|---|
| Revenue | $356,679 | $356,679 | $0 |
| Gross profit | $244,044 | $244,044 | $0 |
| Gross margin | 68.4% | 68.4% | Not meaningful |
| Loss from operations | $(2,130,967) | $(3,349,339) | $(3,466,635) / $(4,905,954) |
| Net loss attributable to INBS | $(420,600) | $(1,628,893) | $(3,459,998) / $(4,892,650) |
| Basic and diluted loss per share | $(0.46) | $(1.97) | $(4.65) / $(6.77) |
| Net cash used in operating activities | Not separately provided | $(4,274,585) | $(1,342,605) |
Revenue consisted of $214,361 from cartridges, $103,188 from readers and $39,130 from other sales. Cost of revenue was $112,635. Government support income was $269,625 for the quarter and $580,945 for the six-month period, including R&D tax refund income and deferred grant income.
The quarter’s net loss benefited from a $1,793,091 fair-value gain related primarily to convertible notes and the Series C preferred-stock holdback. This was non-cash and materially reduced the reported loss. Six-month operating expenses were $4,174,328, including $3,695,707 of general and administrative expense and $398,156 of depreciation and amortization.
Cash and cash equivalents were $2,911,682 at December 31, 2022, compared with $8,238,301 at June 30, 2022. Working capital was $1,563,530, and total liabilities were $7,784,949. The company reported $326,033 of current notes payable, $507,403 of long-term notes payable and $523,703 of convertible notes payable at fair value, in addition to $518,152 of finance lease liabilities.
Cash decreased by $5,326,619 during the six months. Investing cash outflows were $686,195, including $181,750 for the IFP acquisition and $504,445 for capital work in progress. Financing activities used net cash of $328,414; the December 2022 private placement generated approximately $220,585 of gross proceeds before fees and expenses.
Material changes versus the prior comparable period
- Revenue increased from zero to $356,679 because of the IFP acquisition.
- Gross profit increased from zero to $244,044, with a reported gross margin of 68.4%.
- Quarterly net loss attributable to INBS improved by $3,039,398, primarily because the prior-year period included a $2.6 million non-cash R&D charge and the current period included $1.793 million of fair-value gains.
- Six-month net loss attributable to INBS improved by $3,263,757 for the same principal reasons.
- General and administrative expense increased by $1,242,045 for the quarter and $1,359,943 for the six months, largely due to the acquired IFP operations.
- Development and regulatory expense declined substantially because the prior-year periods included the $2.6 million R&D contribution charge.
- The acquisition added $4,130,037 of goodwill and $5,472,510 of intangible assets at December 31, 2022, and introduced amortization expense.
- Shares and potential dilution increased through the IFP acquisition, Series C and Series D preferred stock, warrants and employee stock awards.
Guidance, outlook, risks and unusual items
- Management expects continued operating losses and negative operating cash flow until products are developed, receive regulatory approvals and achieve commercial acceptance. No quantified revenue or earnings guidance was provided.
- Management states that cash on hand is insufficient to fund the current operating plan for at least the next twelve months and that substantial doubt exists about the company’s ability to continue as a going concern. Additional private or public equity financing is being evaluated, but financing may not be available on acceptable terms or at all.
- Convertible notes assumed through the IFP acquisition mature October 4, 2024 unless converted, bear compounded interest at 17%, and may increase to 22% beginning October 4, 2023 if required shareholder approvals have not been obtained.
- The company has an $847,021 commitment to the University of Newcastle for Saliva Glucose Biosensor research and development, payable as of December 31, 2022.
- Nasdaq had notified the company of a minimum-bid-price deficiency. A 1-for-20 reverse stock split became effective February 9, 2023, intended to restore compliance; continued listing remains subject to maintaining applicable requirements.
- Life Science Biosensor Diagnostics, the technology licensor, was undergoing external administration and a proposed recapitalization. Changes in control or ownership of the licensor could affect INBS’s access to licensed intellectual property.
- Disclosure controls and internal control over financial reporting were ineffective because of material weaknesses involving the control environment, documented procedures, review evidence and limited accounting personnel. Management is pursuing remediation.
- The purchase-price allocation for IFP remained provisional. The company recorded a $1,267,791 fair-value gain on convertible notes and a $525,300 gain on the Series C preferred-stock holdback.
Most important facts for investors to verify
- Whether INBS can raise sufficient capital to address the disclosed going-concern uncertainty and fund operations beyond the next twelve months.
- The conversion, maturity, interest escalation and potential dilution associated with the IFP convertible notes and Series C and Series D preferred securities.
- Whether the reverse stock split resolved the Nasdaq bid-price deficiency and whether the company can maintain continued listing compliance.
- The final purchase-price allocation, valuation and impairment risk for IFP goodwill and acquired intangible assets.
- Actual sales growth, customer retention and gross margins for the Intelligent Fingerprinting products after the acquisition period.
- Regulatory, clinical and commercialization progress for the Saliva Glucose Biosensor, including the ability to substantiate correlation between saliva and blood glucose.
- The effect of the licensor’s external administration or recapitalization on INBS’s licensed technology rights.
- Progress in remediating the material weaknesses in internal control over financial reporting.