Notes
to the Condensed Consolidated Financial Statements
(Unaudited)
NOTE
1. ORGANIZATION AND DESCRIPTION OF THE BUSINESS
Intelligent
Bio Solutions Inc. (formerly, GBS Inc.) (“INBS”) and its wholly owned subsidiary, GBS Operations Inc. were each formed
on December 5, 2016, under the laws of the state of Delaware. 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 GBS (APAC) Pty Ltd on October 14, 2020. Glucose Biosensor
Systems (Japan) Pty Ltd and Glucose Biosensor Systems (APAC) Pty Ltd were formed under the laws of New South Wales, Australia on
February 22, 2017 and February 23, 2017 respectively. On October 26, 2022, the Company changed its corporate name (the “Name
Change”) from “GBS Inc.” to “Intelligent Bio Solutions Inc.” For purpose of the Quarterly Report on
Form 10-Q, the terms “Company”, “we,” “us” and “our” refer to INBS and its
consolidated subsidiaries unless context indicates otherwise.
We
are a medical technology company operating across the Asia-Pacific region (the “APAC Region”) with an objective to
introduce and deliver intelligent pain free diagnostic tests. We also have an interest in the North America region. Our goal is to
expand the global footprint of our drug screening tests following our recent acquisition of Intelligent Fingerprinting Limited,
while continuing to develop our Biosensor Platform that we license from Life Science Biosensor Diagnostics Pty Ltd
(“LSBD” or the “Licensor”). This will be followed by developing both of our platforms to their
full capacity across multiple diagnostic modalities of immunology, hormones, chemistry, tumor markers and nucleic acid
tests.
NOTE
2. LIQUIDITY
The
Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 205-40, Presentation
of Financial Statements - Going Concern (ASC 205-40) requires management to assess an entity’s ability to continue as a going
concern within one year of the date of the financial statements are issued. In each reporting period, including interim periods, an entity
is required to assess conditions known and reasonably knowable as of the financial statement issuance date to determine whether it is
probable an entity will not meet its financial obligations within one year from the financial statement issuance date. Substantial doubt
about an entity’s ability to continue as a going concern exists when conditions and events, considered in the aggregate, indicate
it is probable the entity will be unable to meet its financial obligations as they become due within one year after the date the financial
statements are issued.
The
Company is an emerging growth company and has not generated any revenues to date. As such, the Company is subject to all of the risks
associated with emerging growth companies. Since inception, the Company has incurred losses and negative cash flows from operating activities.
The Company does not expect to generate positive cash flows from operating activities in the near future until such time, if at all,
the Company completes the development process of its products, including regulatory approvals, and thereafter, begins to commercialize
and achieve substantial acceptance in the marketplace for the first of a series of products in its medical device portfolio.
The
Company incurred a net loss of $1,208,293 for the three months ended September 30, 2022 (net loss of $1,432,652 for the three months
ended September 30, 2021). At September 30, 2022, the Company has shareholders’ equity of $5,196,134, working capital of $5,850,203,
and an accumulated deficit of $32,384,146.
In
the near future, the Company anticipates incurring operating losses and does not expect to experience 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 condensed consolidated financial statements.
The Company expects that its cash and cash equivalents as of September 30, 2022, of $5,742,626,
may be insufficient to allow the Company to fund its current operating plan through at least the next twelve months from the
issuance of these financial statements, taking into account the acquisition of Intelligent Fingerprinting
Limited. Should revenue not be generated during this period to cover expenses, then these conditions may 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 financial
statements are issued. Accordingly, it appears that the Company will be required to raise additional funds during the next 12 months.
The Company is currently evaluating potentially raising additional funds through private placements and/or public equity financing.
However, there can be no assurance that, in the event that 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. 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.
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 months ended September 30, 2022, are not necessarily indicative of the results that may be
expected for the year ending June 30, 2023. 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 and 10-K/A for the year ended June 30, 2022, which was filed with the U.S. Securities and Exchange Commission (the
“SEC”) on September 22, 2022 and amended on Form 10-K/A filed with the SEC on October 7, 2022 (as amended, the
“2022 Form 10-K”).
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 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.
Revenue
recognition
Revenue
from contracts with customers is recognized when, or as, the Company 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 that good or service deliverable.
Deferred
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 20 (“IAS 20”), Accounting for Government Grants and Disclosure
of Government Assistance by analogy when accounting for the Australian Government grant to the Company.
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 deducting
the grant proceeds received from the gross costs of the assets or construction in progress (“CIP”) and the deferred grant
income liability.
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 grant receivable was
reduced by $2.1
million for payments received during the twelve months ended June 30, 2022 (no
payments were received during the three months ended September 30, 2022) and $2.5
million remains in grant receivable on the Condensed Consolidated Balance Sheets for the period ended September 30, 2022. The
receivable balance at September 30, 2022 is arrived at after considering the forex impact on the grant receivable by foreign
subsidiary.
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
in 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 $60,413 deferred grant income was recognized
within other income during the current period.
Development
and regulatory approval costs
Expenditures
relating to research and development (“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 below).
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.
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 as the Company believes that it
is probable that the amount will be recovered in full through a future claim. A total of $250,907 and $nil of R&D tax refund income
was recognized in other income during the three months ended September 30, 2022, and 2021, respectively.
Foreign
currency translation
Assets
and liabilities of foreign subsidiaries are translated from local (functional) currency to reporting currency (U.S. dollar) at the
rate of exchange in effect 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 loss of $135,559
and $67,482
for the three months ended September 30, 2022, and 2021, respectively.
Income
taxes
In
accordance with the provisions of FASB 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 September 30, 2022, the Company had no uncertain tax positions that qualified for either recognition or disclosure in the consolidated
financial statements. Additionally, the Company had no interest and penalties related to income taxes.
Licensing
rights
During
the first quarter of the fiscal year ended June 30, 2020, the Company purchased the license right procurement assets from LSBD for
an amount of $976,308
in relation to the development and approval process for the Glucose Biosensor Technology in the APAC region. The Company recorded the license at the
historical carrying value in the books of LSBD which was $nil and recorded the amount paid as a deemed dividend. The Company has
agreed to pay royalties of sales & milestones payments as defined.
On
September 12, 2019, the Company entered into an amended and restated license agreement for Saliva Biosensor Technology. On June 23, 2020,
the Company entered into a license agreement with LSBD for the worldwide rights to SARS-CoV-2 application of the Saliva Glucose Biosensor.
In
relation to these licenses, there is no set expiration date for the license. However, the exclusivity of the license granted under the
license agreement runs until the expiration of the patent portfolio covered by the agreement which is currently until 2033. No royalties
have been incurred through to September 30, 2022.
On
March 31, 2021, the Company entered into an agreement with LSBD to provide the Company an option to acquire an exclusive license to
use LSBD’s intellectual property in the Saliva Glucose Biosensor in North America (the “Option Agreement”). The
Option Agreement has a term of two
years ending March 31, 2023 and the exercise price for the option is $5,000,000.
The fee of $500,000
incurred for the option was expensed in the period incurred.
Trade,
note and other receivables
Trade,
note and other receivables are recorded net of allowances for uncollectible accounts. The Company evaluates the collectability of its
accounts receivable based on various factors including historical experience, the length of time the receivables are past due and the
financial health of the customer. The Company reserves specific receivables if collectability is no longer reasonably assured. Based
upon the assessment of these factors, the Company did not record an allowance for uncollectible accounts as of September 30, 2022, or
2021.
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 shall be 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.
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 is 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.
Recently
issued accounting pronouncements
As
the Company is an emerging growth company, we have elected to defer the adoption of new accounting pronouncements until they would apply
to private companies.
Adopted:
In
August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.
2020-06, Debt – Debt with Conversion and Other Options (“ASU 2020-06”), which simplifies the guidance on the
issuer’s accounting for convertible debt instruments by removing the separation models for (1) convertible debt with a cash conversion
feature and (2) convertible instruments with a beneficial conversion feature. As a result, entities will not separately present in equity
an embedded conversion feature in such debt and will account for a convertible debt instrument wholly as debt, unless certain other conditions
are met. The elimination of these models will reduce reported interest expense and increase reported net income for entities that have
issued a convertible instrument that is within the scope of ASU 2020-06. Also, ASU 2020-06 requires the application of the if-converted
method for calculating diluted earnings per share and treasury stock method will be no longer available. The Company adopted ASU 2020-06
as of July 1, 2022. Adoption did not have a material impact on the Company’s financial statements.
Pending
adoption:
In
November 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.
2021-10, Government Assistance (“ASU 2021-10”). This update requires annual disclosures about transaction with a government
that are accounted for by applying a grant or contribution accounting model by analogy. Required disclosures include (1) information
about the nature of the transactions and the related accounting policy used to account for the transactions, (2) the line items on the
balance sheet and income statement that are affected by the transactions, and the amounts applicable to each financial statement line
item, and (3) significant terms and conditions of the transactions, including commitments and contingencies. ASU 2021-10 is applicable
for fiscal years beginning after December 15, 2021, with early adoption permitted. The Company is planning to complete the required ASU
2021-10 disclosures with the filing of its Annual Report on Form 10-K for the year ending on June 30, 2023. Based on the management’s
assessment of ASU2021-10, this standard is not expected to have a material impact on the Company’s financial statements.
In
October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805) – Accounting for Contract Assets and Contract
Liabilities from Contracts with Customers (“ASU 2021-08”). ASU 2021-08 requires that an acquirer recognize and measure
contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, as if it had originated the
contracts. Prior to this ASU, an acquirer generally recognized contract assets acquired and contract liabilities assumed that arose from
contracts with customers at fair value on the acquisition date. The ASU is effective for fiscal years beginning after December 15, 2023,
with early adoption permitted. The ASU is to be applied prospectively to business combinations occurring on or after the effective date
of the amendment. The Company has not early adopted and continues to evaluate the impact of the provisions of ASU 2021-08 on its consolidated
financial statements.
In
June 2016, the FASB issued ASU No. 2016-13 (Topic 326), Financial Instruments – Credit Losses (“ASU 2016-13”).
This update (i) significantly changes the impairment model for most financial assets that are measured at amortized cost and certain
other instruments from an incurred loss model to an expected loss model which will be based on an estimate of current expected credit
loss (“CECL”) (ASC 326-20); and (ii) provides for recording credit losses on available-for-sale (“AFS”) debt
securities through an allowance account (ASC 326-30). The standard also requires certain incremental disclosures. Subsequently, the FASB
issued several ASUs to clarify, improve, or defer the adoption of ASU 2016-13. ASU 2016-13, as amended by ASU 2019-10, is applicable
for Smaller Reporting Companies (“SRCs”) for fiscal years beginning after December 15, 2022, with early adoption permitted.
The Company has not early adopted the standard and continues to evaluate the impact.
In
February 2016, the FASB issued ASU No. 2016-02, Leases (“ASU 2016-02”). This update requires all leases with a term
greater than 12 months to be recognized on the balance sheet through a right-of-use asset and a lease liability and the disclosure of
key information pertaining to leasing arrangements. This new guidance is effective for fiscal years beginning after December 15, 2021,
and interim period within fiscal years beginning after December 15, 2022, as amended by ASU 2020-05 with early adoption permitted. The
Company has not early adopted the standard and continues to evaluate the impact.
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 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. OTHER CURRENT ASSETS
Other
current assets consist of the following:
SCHEDULE OF OTHER CURRENT ASSETS
| |
September 30, 2022 | | |
June 30, 2022 | |
Intelligent Fingerprinting Limited note receivable | |
$ | — | | |
$ | 500,445 | |
Prepayments | |
| 41,532 | | |
| 116,525 | |
Goods and services tax receivable | |
| 55,852 | | |
| 57,746 | |
Deposits | |
| 44,493 | | |
| 46,602 | |
Other receivables | |
| 7,050 | | |
| 25,443 | |
Total | |
$ | 148,927 | | |
$ | 746,761 | |
NOTE 5. OTHER NON-CURRENT ASSETS
Other non-current assets consist of the following:
SCHEDULE OF OTHER NON-CURRENT ASSETS
| |
September 30, 2022 | | |
June 30, 2022 | |
Intelligent Fingerprinting Limited note receivable | |
$ | 504,938 | | |
$ | — | |
Total | |
$ | 504,938 | | |
$ | — | |
On June 16, 2022, the Company entered into an agreement
with Intelligent Fingerprinting Limited (“IFP”), providing the Company with the exclusive right, until December 31, 2022,
to evaluate and negotiate a transaction to acquire IFP or its assets. In consideration for this exclusivity, on June 16, 2022, the Company
provided IFP with an unsecured term loan facility in the amount of $500,000, which was payable by IFP on the earliest of the consummation
of an acquisition, 30 days following the termination of exclusivity under the exclusivity agreement, an event of default under the term
loan facility agreement, or December 31, 2022. This $500,000 term note receivable bears an interest rate of 2% per annum above the Sterling
Barclays Bank Base Rate from time to time. The Company subsequently completed the acquisition of IFP, and in connection therewith amended
the terms of the term loan facility, in October 2022. See note 14.
Effective contemporaneously with the closing of the
Company’s acquisition of IFP, the Company entered into an amendment to the bridge facility agreement between the Company and IFP,
dated as of June 16, 2022, the $500,000 loan from the Company to IFP pursuant thereto will remain outstanding until October 4, 2024.
NOTE
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts
payable and accrued expenses consist of the following:
SCHEDULE OF ACCOUNTS PAYABLE AND ACCRUED EXPENSES
| |
September 30, 2022 | | |
June 30, 2022 | |
Accounts and other payables | |
$ | 379,912 | | |
$ | 715,902 | |
Accruals | |
| 658,633 | | |
| 909,187 | |
Total | |
$ | 1,038,545 | | |
$ | 1,625,089 | |
As
on September 30, 2022, the Company’s $658,633 of accruals include $415,350 related to legal and consulting fees, $135,615 related
to development and regulatory approval expenses, $80,363 related to audit and accounting service fees, and $27,305 related to other general
and administrative expenses.
NOTE
7. SHAREHOLDERS’ EQUITY
As
of September 30, 2022, 1,401,377 and 52,400 Series A and Series B warrants were held by certain shareholders, respectively. Each warrant
is convertible into 1 share of the Company’s common stock.
NOTE
8. RELATED PARTY TRANSACTIONS
Sales
to and purchases from related parties are made in arm’s length transactions both at normal market prices and on normal commercial
terms. The following transactions occurred with LSBD during the comparative period July 1, 2021, to September 30, 2021:
The
Company incurred a total of $nil
during three months to September 2022 (September
2021: $119,652)
towards overhead cost reimbursement which includes salaries, rents and other related overheads directly attributable to the Company which
are included in general and administration expenses.
During
the year ended June 30, 2021, the Company contributed a total of $2,600,000 towards budgeted development and commercialization costs
to be incurred by BiosensX (North America) Inc. relating to the development and preparation for submission of the Saliva Glucose Biosensor
connected with regulatory approval for the U.S. market by the U.S. Food & Drug Administration.
As
of September 30, 2022, $8,545 (September 30, 2021: $68,808) remains payable to LSBD in relation to overhead reimbursements detailed above.
NOTE
9. INVESTMENT IN AFFILIATE
On
May 29, 2020, LSBD, issued 14,000,000 common shares of BiosensX (North America) Inc. to the Company at par value of $0.001 per share.
This transaction provided the Company with a 50% interest in BiosensX (North America) Inc., the holder of the technology license for
the North America region.
The
investment in BiosensX (North America) Inc. is accounted for by use of the equity method in accordance with ASC 323, Investments -
Equity Method and Joint Ventures.
At
the date of this transaction, LSBD was the parent of both the Company and BiosensX (North America) Inc., the transfer of BiosensX shares
to the Company was deemed to be a common control transaction. As a result of the share transfer, the Company has significant influence
over BiosensX (North America) Inc.
During
the year ended June 30, 2022, LSBD sold all its shares in INBS. The Company determined whether it has a controlling financial interest
in BiosensX (North America) Inc. by first evaluating whether the entity is a voting interest entity or a VIE under GAAP. Voting interest
entities are entities in which the total equity investment at risk is sufficient to enable the entity to finance itself independently
and provides the equity holders with the obligation to absorb losses, the right to receive residual returns and the right to make decisions
about the entity’s activities. The Company consolidates voting interest entities in which it has all, or at least a majority of,
the voting interests. As defined in applicable accounting standards, VIEs are entities that lack one or more of the characteristics of
a voting interest entity. A controlling financial interest in a VIE is present when an enterprise has both the power to direct the activities
of the VIE that most significantly impact the VIE’s economic performance and an obligation to absorb losses or the right to receive
benefits that could potentially be significant to the VIE. The enterprise with a controlling financial interest, known as the primary
beneficiary, consolidates the VIE. The Company concluded that it does not have a controlling financial interest in BiosensX (North America)
Inc., hence it continues to recognize its investments in BiosensX (North America) Inc. using the equity method.
The
carrying amount of investments in BiosensX (North America) Inc. was $nil
as of September 30, 2022, and June 30, 2022.
NOTE
10. CONSTRUCTION IN PROGRESS
During
the three months ended September 30, 2022, the Company incurred costs of $49,242 towards the construction of R&D and manufacturing
facility at the University of Newcastle. The Australian government reimbursed the Company 50% of the costs incurred towards building
of the facility. The carrying amounts of the Constructions in Progress (CIP) is calculated by deducting the reimbursement from total
cost incurred.
The
following table summarizes the amount of CIP recorded in the Condensed Consolidated Balance Sheets:
SUMMARY
OF AMOUNT RECORDED IN THE CONSOLIDATED BALANCE SHEETS
| |
September 30, 2022 | | |
June 30, 2022 | |
Investments in construction in progress | |
$ | 832,058 | | |
$ | 782,816 | |
Less: 50% contributed under government grant | |
| (416,029 | ) | |
| (391,408 | ) |
Carrying amount | |
$ | 416,029 | | |
$ | 391,408 | |
NOTE
11. COMMITMENTS AND CONTINGENCIES
During
February 2021 the Company signed a deed of confirmation and variation with the University of Newcastle for the research and development
of the Saliva Glucose Biosensor and the SARS-CoV-2 Antibody Biosensor. The Company agreed to pay the University of Newcastle $2,054,880
of which $135,615 remains payable as of September 30, 2022.
The
Company has no material future minimum lease commitments or purchase commitments.
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
12. INCOME TAX
The
Company shall file its income tax returns with the Internal Revenue Service and Australian Taxation Office. The Company has operating
losses carried forward of $28,443,205 which are derived from its operations in Australia and the US and are available to reduce future
taxable income. Such loss carry forwards may be carried forward indefinitely, subject to compliance with tests of continuity and additional
rules.
The
net operating loss carried forward gives rise to a deferred tax asset of approximately $6,325,630. However, the Company has determined
that a valuation allowance of $6,325,630 against such deferred tax asset is necessary, as it cannot be determined that the carry forwards
will be utilized.
NOTE
13. 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. 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.
SCHEDULE OF BASIC LOSS PER COMMON SHARE POTENTIAL DILUTIVE SECURITIES
| |
2022 | | |
2021 | |
| |
Three Months Ended September
30, | |
| |
2022 | | |
2021 | |
Net loss attributable to Intelligent Bio Solutions Inc. | |
$ | (1,208,293 | ) | |
$ | (1,432,652 | ) |
Basic and diluted net loss per share attributed to common shareholders | |
$ | (0.08 | ) | |
$ | (0.10 | ) |
Weighted-average number of shares outstanding | |
| 14,889,904 | | |
| 14,006,127 | |
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:
SCHEDULE OF ANTI-DILUTIVE WARRANTS
| |
| | | |
| | |
| |
Three Months Ended September
30, | |
| |
2022 | | |
2021 | |
Warrants - Series A | |
| 1,401,377 | | |
| 1,401,377 | |
Warrants - Series B | |
| 52,400 | | |
| 59,782 | |
Warrants issued to underwriters | |
| 63,529 | | |
| 63,529 | |
Pre IPO warrants | |
| 2,736,675 | | |
| 2,736,675 | |
Warrants issued to the licensor | |
| 3,000,000 | | |
| 3,000,000 | |
NOTE
14. SUBSEQUENT EVENTS
On August 5, 2022, the Company filed a registration statement on Form S-8 with the SEC to register 500,000 shares of the Company’s
common stock issuable pursuant to the Company’s 2019 Long Term Incentive Plan (the “2019 Plan”). On October 6, 2022,
the Company issued 500,000 common shares to its employees under the 2019 Plan. These shares vested immediately upon issuance, and the
respective holders thereof had the immediate right to receive all shares of common stock issued under the 2019 Plan.
On
October 4, 2022, the Company acquired Intelligent Fingerprinting Limited (“IFP”), a company registered in England and
Wales, through a share exchange agreement with the shareholders of IFP (the “Sellers”). The Company purchased 100%
of the issued shares of IFP by issuing 2,963,091
shares of the Company’s common stock and 2,363,003
shares of the Company’s series C convertible preferred stock (“preferred stock”) to the Sellers. Up to an
additional 1,649,273
shares of preferred stock have been reserved for potential future issuance by the Company, consisting of (i) 500,000
shares of preferred stock held back from the Sellers for one year after the closing of the acquisition to secure potential
indemnification claims by the Company against the Sellers and (ii) 1,149,273
shares of preferred stock for Sellers who are also the IFP convertible loan holders and, at each loan holder’s respective
option, convert such the outstanding convertible loans to IFP into shares of Company preferred stock, contingent upon approval of
the Company’s stockholders of the conversion of the preferred stock into common stock. Each preferred share will be
convertible into three shares of Company common stock, contingent upon approval by the Company’s stockholders. In addition,
the Company is obligated to pay the cash bonuses of approximately $350,150
(consisting of £239,707
and $83,043)
to certain current and former IFP employees and directors in two equal installments. The first payment was made immediately
following the closing of the acquisition, and the second payment is required to be made on the six-month anniversary of closing date
of the acquisition. The acquisition of IFP will expand the Company’s platform of rapid, non-invasive diagnostic testing
technologies.
In
conjunction with the IFP acquisition, the Company has agreed to make a Company’s stock option plan available to IFP
employees for up to 1,000,000 shares common stock following the closing of the acquisition. An equal number of stock options will be
granted to the Company’s employees, for an aggregate amount of 2,000,000 Company stock options.
Due
to the limited time between the transaction date and the Company’s filing of this Quarterly Report on Form 10-Q for the quarter
ended September 30, 2022, initial accounting for the business combination is incomplete and the Company is not yet able to disclose the
provisional amounts to be recognized as of the acquisition date for assets acquired and liabilities assumed, and the pro forma revenues
for the combined entity. Management is evaluating the transaction costs and the fair value of consideration transferred, assets acquired,
and liabilities assumed. The Company expects to provide the preliminary purchase price allocation information in the Quarterly Report
on Form 10-Q for the quarter ending December 31, 2022.