Intelligent Bio Solutions Inc. Form 10-Q Summary
Reporting period: Fiscal quarter and nine months ended March 31, 2023. The filing was signed May 11, 2023. Although the request metadata references “2022 Q3,” the filing reports March 31, 2023 results and compares them with March 31, 2022. INBS is a smaller reporting company and emerging growth company.
Business Context
INBS is a medical technology company developing non-invasive diagnostic products. Following its October 4, 2022 acquisition of Intelligent Fingerprinting Limited (IFP), the company generates commercial revenue primarily from fingerprint-sweat drug screening readers, cartridges and accessories. Its Saliva Glucose Biosensor and other biosensor products remain development-stage programs.
Financial Performance and Position
| Metric | Three months ended March 31, 2023 | Three months ended March 31, 2022 | Nine months ended March 31, 2023 | Nine months ended March 31, 2022 |
|---|---|---|---|---|
| Revenue | $457,058 | $0 | $813,737 | $0 |
| Gross profit | $33,049 | $0 | $277,093 | $0 |
| Gross margin | 7.2% | Not meaningful | 34.1% | Not meaningful |
| Operating loss | $(6,543,399) | $(1,342,829) | $(9,892,738) | $(6,248,783) |
| Net loss attributable to INBS | $(6,343,906) | $(1,335,246) | $(7,972,799) | $(6,227,896) |
| Basic and diluted loss per share | $(5.72) | $(1.79) | $(8.67) | $(8.54) |
| Net cash used in operating activities | Not separately provided | Not separately provided | $(6,793,040) | $(1,634,829) |
- Quarterly revenue consisted of $252,682 from cartridges, $134,366 from readers and $70,010 from other sales. All reported revenue was attributed to the IFP segment.
- Operating expenses were $6,694,128 for the quarter and $10,868,456 for the nine-month period. Quarterly expenses included a $4,096,490 goodwill impairment charge.
- Other income for the quarter was $191,382, including $269,787 of fair-value gains, partly offset by $86,125 of interest expense. Nine-month other income was $1,899,572, including $2,062,878 of fair-value gains.
- Cash and cash equivalents were $2,280,544 at March 31, 2023, down from $8,238,301 at June 30, 2022.
- Working capital was $887,136. Total assets were $10,668,701, total liabilities were $4,741,855 and shareholders’ equity was $5,926,846.
- Debt and financing obligations included $806,400 of notes payable and convertible notes payable, approximately $494,940 of finance lease liabilities, and other acquisition-related obligations.
- Financing activities provided $1,389,213 of net cash during the nine months, including approximately $2.55 million of gross proceeds from the March 2023 public offering before offering costs.
Material Changes Versus the Prior Comparable Period
- The IFP acquisition added revenue, inventory, intangible assets, lease obligations, debt and operating expenses beginning October 4, 2022. IFP contributed $813,737 of revenue and approximately $4,336,191 of net loss from acquisition through March 31, 2023.
- Revenue increased from zero to $457,058 for the quarter and from zero to $813,737 for the nine-month period because of the IFP acquisition.
- Quarterly net loss attributable to INBS increased by $5,008,660, primarily because of the $4.1 million goodwill impairment and higher SG&A, depreciation and amortization, and interest expense.
- SG&A increased 69.2% for the quarter to $1,898,754 and 61.8% for the nine months to $5,594,461, primarily due to IFP operations.
- Development and regulatory expenses decreased to $299,898 for the quarter and $380,363 for the nine months, compared with $413,325 and $3,161,306, respectively, in the prior periods.
- Goodwill created in the IFP acquisition was fully impaired at March 31, 2023. Acquired intangible assets remained recorded at $5,295,234 after accumulated amortization.
- The company completed a 1-for-20 reverse stock split effective February 9, 2023, principally to regain compliance with Nasdaq’s minimum bid-price requirement.
- Common shares and warrants issued in the March 2023 offering increased equity funding but also created potential future dilution.
Outlook, Liquidity, Risks and Unusual Items
- Going concern: Management states that $2.28 million of cash at March 31, 2023 is insufficient to fund the current operating plan for at least the next twelve months. The filing concludes that substantial doubt exists regarding the company’s ability to continue as a going concern.
- INBS expects continuing operating losses and negative operating cash flow until products are further developed, obtain regulatory approvals and achieve commercial acceptance. Management is evaluating additional private or public equity financing, but no financing is assured.
- The Australian government manufacturing grant has a potential value of up to $4.7 million, subject to milestones. The project completed four of eight milestones, and uncertainty regarding an extension beyond March 28, 2024 caused the company to reverse $2.5 million of grant receivable and deferred grant income during the quarter.
- The company may be required to refund grant amounts if milestones are not achieved or the agreement is not extended.
- The IFP-related convertible notes bear interest at 17% compounded annually and could increase to 22% if required shareholder approvals had not been obtained by October 4, 2023. Shareholders approved the relevant Series C and Series D conversions at the May 8, 2023 special meeting, and the Series C-related notes became convertible after the approval.
- INBS has an $847,021 payable commitment to the University of Newcastle for Saliva Glucose Biosensor research and development.
- The company’s technology licensor, Life Science Biosensor Diagnostics Pty Ltd., was undergoing external administration and proposed recapitalization. Changes in ownership or control could affect INBS’s rights to use licensed biosensor intellectual property.
- The filing reports no material pending legal proceedings, but legal outcomes remain inherently uncertain.
- Disclosure controls and internal control over financial reporting were ineffective as of March 31, 2023 because of material weaknesses involving documented procedures, evidence of control performance, review processes and limited accounting personnel. Management described an ongoing remediation plan.
- The company filed an FDA 513(g) submission for its Intelligent Fingerprinting Drug Screening Cartridge to determine an appropriate U.S. regulatory pathway. No definitive FDA clearance or approval is reported in this filing.
Most Important Facts to Verify
- Whether INBS raises sufficient capital to address the disclosed going-concern uncertainty and fund operations for the next twelve months.
- The cash-burn rate after March 31, 2023, including the impact of IFP integration, research spending, lease payments and acquisition-related obligations.
- The status and terms of the Australian government grant, remaining milestones and any potential repayment exposure.
- The regulatory pathway and timing for the fingerprint drug-screening product and the development status of the Saliva Glucose Biosensor.
- The final accounting for the IFP acquisition, including provisional purchase-price allocations, intangible-asset recoverability and any additional impairment charges.
- The dilution implications of Series C and Series D preferred stock, convertible notes, outstanding warrants and the March 2023 equity offering.
- Whether management successfully remediates the material weaknesses in internal control over financial reporting.