Business Context and Reporting Period
Intelligent Bio Solutions Inc. (formerly GBS Inc.) filed this unaudited Form 10-Q for the three months ended September 30, 2022, the first quarter of fiscal 2023. The company is a medical technology developer focused on non-invasive diagnostic platforms, including its Saliva Glucose Biosensor and drug-screening technologies. The company operates primarily in the Asia-Pacific region and has interests in North America.
On October 4, 2022, after quarter-end, the company acquired Intelligent Fingerprinting Limited (IFP). On October 26, 2022, it changed its corporate name to Intelligent Bio Solutions Inc.
Financial Highlights
| Metric | Three months ended September 30, 2022 | Three months ended September 30, 2021 |
|---|---|---|
| Product revenue | $0 | $0 |
| Government support income | $311,320 | $0 |
| Total operating expenses | $1,529,692 | $1,439,319 |
| Loss from operations | $1,218,372 | $1,439,319 |
| Net loss | $1,214,078 | $1,437,840 |
| Net loss attributable to INBS | $1,208,293 | $1,432,652 |
| Basic and diluted loss per share | $0.08 loss | $0.10 loss |
| Net cash used in operating activities | $1,893,735 | Cash provided of $82,962 |
Operating and net margins are not meaningful because the company generated no product revenue. Government support income consisted principally of a $250,907 research and development tax refund and $60,413 of deferred grant income recognized in earnings.
Cash and cash equivalents were $5,742,626 at September 30, 2022, compared with $8,238,301 at June 30, 2022. Working capital was $5,850,203, and shareholders’ equity was $5,196,134. The accumulated deficit was $32,384,146.
Total assets were $10,159,703 and total liabilities were $4,963,569 at September 30, 2022. The filing does not show material conventional interest-bearing debt; liabilities primarily comprised accounts payable, employee benefit liabilities, and deferred government grant income.
Investing cash outflows were $474,891, primarily for construction in progress. Total cash decreased by $2,495,675 during the quarter, including a $127,049 foreign-exchange effect.
Material Changes Versus the Prior Comparable Period
- Government support income increased from $0 to $311,320, reducing the net loss attributable to INBS by $224,359.
- General and administrative expense increased 9% to $1,450,418 from $1,332,520, primarily due to increased operating activity and post-IPO costs.
- Development and regulatory expense decreased to $79,274 from $106,799, largely due to the timing of research and development milestone invoicing.
- Operating cash flow changed from $82,962 provided in the prior-year quarter to $1,893,735 used in the current quarter.
- Foreign-currency translation loss increased to $135,559 from $67,482.
- Cash declined by approximately $2.5 million during the quarter, while construction in progress increased to $416,029 from $391,408.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
Management expects continued operating losses and negative operating cash flow until products are developed, receive regulatory approvals, and achieve commercial acceptance. The company does not expect to generate revenue in the near term and states that its September 30, 2022 cash balance may be insufficient to fund its operating plan for at least the next twelve months, including the IFP acquisition.
Management expects to seek additional funding, potentially through private placements or public equity financing. The filing states that these conditions raise substantial doubt about the company’s ability to continue as a going concern. No assurance is provided that additional financing will be available on acceptable terms or at all.
The company completed a 40-subject clinical study for its next-generation Saliva Glucose Biosensor and anticipated further clinical studies during the fourth calendar quarter of 2022. It continued design work for an Australian research and manufacturing facility, with construction expected to begin in the second calendar quarter of 2023.
The IFP acquisition consideration included 2,963,091 common shares and 2,363,003 Series C convertible preferred shares. Each preferred share may convert into three common shares, subject to stockholder approval. Up to an additional 1,649,273 preferred shares were reserved for indemnification and potential lender conversions. The purchase accounting was incomplete at the filing date, and provisional acquired assets, liabilities, transaction costs, and pro forma revenue were not disclosed.
The company reported ineffective disclosure controls and procedures due to material weaknesses involving documented policies, control evidence, review procedures, limited accounting personnel, and supervisory resources. Management described an ongoing remediation plan involving additional personnel, consultants, enhanced reviews, and improved documentation.
Nasdaq had notified the company of noncompliance with the $1.00 minimum bid-price requirement. The company requested a second 180-day compliance period, but the filing stated that no further communication had been received as of the filing date. Potential delisting remains a risk.
Life Science Biosensor Diagnostics Pty Ltd., the company’s licensor, was undergoing external administration and a proposed equity recapitalization. A change in control or ownership of the licensed intellectual property could adversely affect the company’s technology rights and operations.
The company had a remaining payable obligation of $135,615 to the University of Newcastle under a research and development agreement. It reported no material pending legal proceedings and no material future minimum lease or purchase commitments.
Important Facts for Investors to Verify
- Whether the company obtained sufficient financing after September 30, 2022 to address the disclosed going-concern uncertainty.
- The final purchase-price allocation, acquired assets and liabilities, transaction costs, and pro forma results for the IFP acquisition.
- The potential dilution from Series C preferred shares, warrants, stock options, and other reserved securities.
- Whether Nasdaq granted the requested additional compliance period and whether the company ultimately maintained its listing.
- Progress, regulatory status, and additional costs of the Saliva Glucose Biosensor clinical and commercialization programs.
- The outcome of LSBD’s external administration and the effect on the company’s technology licenses and North American option.
- Management’s remediation of the disclosed material weaknesses in internal control over financial reporting.