Notes
to the Condensed Consolidated Financial Statements
(Unaudited)
NOTE
1. ORGANIZATION AND DESCRIPTION OF THE BUSINESS
Business
Intelligent
Bio Solutions Inc. (“INBS”) (formerly known as GBS Inc.), and its wholly owned Delaware subsidiary, GBS Operations Inc. were
each formed on December 5, 2016, under the laws of the state of Delaware. Our Australian subsidiary Intelligent Bio Solutions (APAC)
Pty Ltd (formerly known as 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 Intelligent Bio Solutions (APAC) Pty Ltd on January 6, 2023. On October 4, 2022, INBS acquired Intelligent
Fingerprinting Limited (“IFP”), a company registered in England and Wales (the “IFP Acquisition”). The Glucose
Biosensor System (Japan) Pty Ltd and Glucose Biosensor System (APAC) Pty Ltd, were deregistered on January 6, 2023, and June 9, 2022,
respectively. INBS and its subsidiaries (collectively, “we,” “us,” “our,” “INBS” or the
“Company,” unless context requires or indicates otherwise) were formed to provide a non-invasive, pain free innovative medical
devices and screening devices. Our headquarters are in New York, New York.
We are a medical technology company delivering intelligent,
rapid, non-invasive testing solutions for patients and their primary health practitioners at point of care. We operate globally with an
objective to deliver intelligent pain free diagnostic tests.
Our
current product portfolio includes:
| ● | A
proprietary portable drug screening system that works by analyzing fingerprint sweat using
a one-time cartridge and portable handheld reader. The system comprises of commercially available
non-invasive sweat-based fingerprint diagnostics testing products (the “IFP products”)
that currently detect opioids, cocaine, methamphetamines, benzodiazepines, cannabis, methadone,
buprenorphine, and amphetamine. Customers include safety-critical industries such as construction,
transportation and logistics firms, along with drug treatment organizations in the rehabilitation
sector, and judicial organizations. |
| ● | A
development stage range of biosensor based biosensor based Point of Care diagnostic tests (“POCT”)
that are developed in the modalities of clinical chemistry, immunology, tumor markers, allergens,
and endocrinology. Our flagship product candidate is the Saliva Glucose Biosensor (“SGB”),
a POCT expected to substitute the finger pricking invasive blood glucose monitoring for diabetic
patients. These tests stem from the Biosensor Platform that we license, across the Asia Pacific
Region from Life Science Biosensor Diagnostics Pty Ltd (“LSBD” or “the
Licensor”). The Biosensor Platform is capable of detecting multiple biological analytes
by substituting the GOX enzyme with a suitable alternative for each analyte. |
Reverse
Stock Split
At
the annual meeting of the Company’s stockholders held on February 8, 2023 (the “Annual Meeting”), the stockholders
of the Company approved an amendment to the Company’s amended and restated certificate of incorporation (the “Amendment”)
to effect a reverse stock split at a ratio of not less than 1-for-2 and not more than 1-for-35 at any time within 12 months following
the date of stockholder approval, with the exact ratio to be set within this range by the Company’s Board of Directors (the “Board”)
at its sole discretion without further approval or authorization of our stockholders. Pursuant to such authority granted by the Company’s
stockholders, on February 8, 2023, the Board approved a 1-for-20 reverse stock split (the “Reverse Stock Split”) of the Company’s
common stock and the filing of the Amendment to effectuate the Reverse Stock Split.
On February 9, 2023, the Company filed the Amendment in order to effect
1-for-20 reverse stock split of the Company’s common stock. The Reverse Stock Split was effective at 4:05 p.m., Eastern Time, on
February 9, 2023, at which time every twenty shares of the Company’s issued and outstanding common stock were automatically combined
into one issued and outstanding share of common stock. No fractional shares were issued as a result of the Reverse Stock Split. Stockholders
of record who were otherwise entitled to receive a fractional share instead received one whole share in lieu of a fractional share. The
par value of the Company’s common stock and the number of authorized shares of the common stock were not affected by the Reverse
Stock Split. The Company’s common stock began trading on a Reverse Stock Split-adjusted basis on The Nasdaq Capital Market at the
open of the markets on February 10, 2023. The Reverse Stock Split was implemented for the purpose of regaining compliance with the minimum
bid price requirement for continued listing of the Company’s common stock on the Nasdaq Capital Market.
As a result of the Reverse Stock Split, the number
of shares of common stock outstanding was reduced from approximately 18,325,289 shares (excluding treasury shares) as of February 8, 2023,
to approximately 916,265 shares (excluding treasury shares, and subject to the rounding up of fractional shares), and the number of authorized
shares of common stock remained at 100 million shares. In order reflect the Reverse Stock Split, proportionate adjustments were made to
the per share exercise price and/or the number of shares issuable upon the exercise or vesting of all outstanding stock options, restricted
stock unit awards and warrants (including the Series D Warrants, Winx Warrants and March Warrants (each as defined below)), which resulted
in a proportional decrease in the number of shares of the Company’s common stock reserved for issuance upon exercise or vesting
of such stock options, restricted stock unit awards and warrants, and, in the case of stock options and warrants, a proportional increase
in the exercise price of all such stock options and warrants. In addition, the number of shares of common stock issuable upon conversion
of the Company’s Series C Preferred Stock and Series D Preferred Stock, as well as any applicable conversion ratios and terms, were
also adjusted in proportion to the reverse split ratio of the Reverse Stock Split (subject to adjustment for fractional interests).
Unless otherwise indicated, all authorized, issued,
and outstanding stock and per share amounts contained in the accompanying condensed consolidated financial statements have been adjusted
to reflect the 1-for-20 Reverse Stock Split for all prior periods presented; and all amounts relating to our common stock in connection
with the conversion or exercise of our preferred stock and warrants (including with regard to conversion prices and exercise prices)
have been adjusted to reflect the 1-for-20 Reverse Stock Split.
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.
On March 8, 2023, the Company entered into an underwriting
agreement (the “Underwriting Agreement”) with Ladenburg Thalmann & Co. Inc., as representative (the “Representative”)
of the underwriters named therein (collectively, the “Underwriters”), relating to an underwritten public offering (the “March
2023 Offering”) of shares of the Company’s Common Stock (the “March Shares”) and warrants to purchase shares of
Common Stock (the “March Warrants”). Each of the March Shares was sold in combination with an accompanying one-third Warrant.
The combined purchase price for each March Share and accompanying March Warrant was $3.90 and the Underwriters agreed to purchase 569,560
March Shares and March Warrants to purchase 170,868 shares of common stock. On March 9, 2023, the Representative fully exercised an over-allotment
option under the Underwriting Agreement and purchased an additional 85,430 March Shares and additional March Warrants to purchase 25,629
shares of Common Stock. The March 2023 Offering closed on March 10, 2023.
The March 2023 Offering was made pursuant to an effective
shelf registration statement on Form S-3, which was filed with the SEC on April 8, 2022. The gross proceeds, before deducting underwriting
discounts and commissions and other March 2023 Offering expenses, was approximately $2.55 million. As part of the Representative’s
compensation, the Company issued to the Representative unregistered warrants (the “Representative’s Warrants”) to purchase
32,750 shares of common stock, which warrants have an exercise price of $4.875 per share (125% of the public offering price per share
and accompanying warrant) and will terminate on March 8, 2028. The March Warrants have, (i) an exercise price of $3.90 per share of Common
Stock, (ii) a cashless exercise option for a net number of shares of Common Stock determined according to the formula set forth in the
March Warrant or (iii) an alternate cashless exercise option (beginning on or after the initial exercise date), to receive an aggregate
number of shares of Common Stock equal to the product of (x) the aggregate number of shares of Common Stock that would be issuable upon
a cash exercise and (y)1.00. Each whole March Warrant entitles the holder thereof to purchase 1 share of Common Stock. The March Warrants
are exercisable upon issuance and will expire on March 10, 2028. The exercise price and the number of shares of Common Stock issuable
upon exercise of the March Warrants is subject to appropriate adjustments in the event of certain stock dividends and distributions, stock
splits, stock combinations, reclassifications or similar events affecting the Common Stock.
On December 21, 2022, the Company entered into a
Securities Purchase Agreement (the “December 2022 Purchase Agreement”) with 14 investors (the “Series D Investors”),
pursuant to which the Company agreed to issue and sell to the Series D Investors in a Regulation S private placement (the “December
2022 Private Placement”) (i) 176,462 shares of the Company’s Series D Convertible Preferred Stock, par value $0.01 per share
(the “Series D Preferred Stock”), with each share of Series D Preferred Stock convertible into 0.15 shares of Common Stock
(subject to adjustment upon the occurrence of specified events); and (ii) 529,386 warrants (the “Series D Warrants”), with
each Series D Warrants representing the right to purchase 0.05 shares of common stock (subject to adjustment upon the occurrence of specified
events). An additional 26,469 warrants to purchase shares of common stock were issued to Winx Capital Pty Ltd., the placement agent for
the December 2022 Private Placement (the “Winx Warrants”), with each Winx Warrant representing the right to purchase 0.05
shares of common stock (subject to adjustment upon the occurrence of specified events). The Series D Warrants have an exercise price
of $5.80 per share (subject to adjustment) and expire June 22, 2028. The Winx Warrants have an exercise price of $10.40 per share (subject
to adjustment) and expire five years following the effective date of a registration statement covering the resale of common stock underlying
the Series D Preferred Stock acquired by the Series D Investors. The Series D Preferred Stock and Series D Warrants were sold together
as a unit (“Unit”), with each Unit consisting of one share of Series D Preferred Stock and three Series D Warrants. The purchase
price for the Units was $1.25 per Unit. The Unit offering price and the Series D Warrants exercise price were priced above the Nasdaq
“Minimum Price” as that term is defined in Nasdaq Rule 5635(d)(1). The shares of Series D Preferred Stock are convertible
into an aggregate of 26,464 shares of Common Stock following shareholder approval of such conversion and without the payment of additional
consideration. The Series D Warrants are exercisable for an aggregate of 26,478 shares of Common Stock and the Winx Warrants are
exercisable for an aggregate of 1,324 shares of Common Stock. The December 2022 Private Placement closed on December 22, 2022.
See Note 21 for information and disclosures relating to the conversion of the Series D Preferred Stock.
The
Company is an emerging growth company and has not generated sufficient revenues to date. As such, the Company is generally subject to
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 $6,343,906 and $7,972,799 for the three and nine months ended March 31, 2023, respectively (net loss of
$1,335,246 and $6,227,896 for the three and nine months ended March 31, 2022). As of March 31, 2023, the Company has shareholders’
equity of $5,926,846, working capital of $887,136, and an accumulated deficit of $39,148,652.
In
the near future, the Company anticipates incurring operating losses and does not expect to generate positive cash flows from operating
activities and may continue to incur operating losses until it completes the development of its products and seek 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 March 31, 2023, of $2,280,544, will 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. These conditions
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, the Company will be required to raise additional funds during the next 12 months.
The Company is currently evaluating 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. In addition, the
entity may be unable to realize its assets and discharge its liabilities in the normal course of business. 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 and nine months ended March 31, 2023, 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 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, and March 6, 2023 (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.
Out-of-period Reclassification
within Consolidated Statements of Operations and Other Comprehensive Loss
The Company previously included $123,800 of labor
costs in selling and administrative expenses within the condensed consolidated statement of operations and other comprehensive loss for
the six-month period ended December 31, 2022. These costs have been reclassified as cost of revenue during the three-month period ended
March 31, 2023, as an out of period adjustment. The Company evaluated this inconsistency and the impact to previously issued interim
financial statements and concluded that the adjustments and the impact of this classification inconsistency is not material to any previously
issued quarterly financial statements. To improve the consistency and comparability of the financial statements, management has recorded
an out-of-period adjustment during the three months period ended March 31, 2023. This reclassification adjustment did not have any impact
on loss from operations, net income, and earnings per common share.
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.
Business
combinations
The
results of businesses acquired in a business combination are included in the Company’s consolidated financial statements from
the date of the acquisition. The Company uses the acquisition method of accounting and allocates the purchase price to the
identifiable assets and liabilities of the relevant acquired business at their acquisition date fair values. Any excess
consideration over the fair value of assets acquired and liabilities assumed is recognized as goodwill. The allocation of the
purchase price in a business combination requires the Company to perform valuations with significant judgment and estimates,
including the selection of valuation methodologies, estimates of future revenue, costs and cash flows, discount rates and selection
of comparable companies. The Company engages the assistance of valuation specialists in concluding on fair value measurements in
connection with determining fair values of assets acquired and liabilities assumed in a business combination. As a result, during
the measurement period, which may be up to one year from the acquisition date, the Company records adjustments to the assets
acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final
determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are
recorded to the consolidated statements of operations. Transaction costs associated with business combinations are expensed as
incurred and are included in selling, general and administrative expense in the consolidated statements of operations.
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.
Financial
information presented on a consolidated basis accompanied by disaggregated information about revenue and other income by product types
for the purpose of allocating resources and evaluating financial performance. Currently, the Company has two products offerings. Accordingly,
the Company has determined the following reporting segments (Refer to Note 4, Segment Information):
| 1) | Commercially
available Intelligent Fingerprinting Products (IFPG) |
| 2) | Development
Stage Saliva Glucose Biosensor Platform (SGBP) |
Revenues
are used to evaluate the performance of the Company’s segments, the progress of major initiatives and the allocation of resources.
All of the Company’s revenues, are attributable to the IFPG segment during the three and nine months ended March 31, 2023. There
were no revenues during the three and nine months ended March 31, 2022.
Revenue
from the IFPG segment relates to the sale of readers, cartridges and accessories and is summarized as follows:
SCHEDULE
OF REVENUE SALES OF READERS CARTRIDGES AND ACCESSORIES
| |
2023 | | |
2022 | | |
2023 | | |
2022 | | |
2021 | |
| |
Three
Months Ended March 31, | | |
Nine
Months Ended March 31, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | | |
2021 | |
Sales of goods - cartridges | |
$ | 252,682 | | |
$ | — | | |
$ | 467,043 | | |
$ | — | | |
$ | — | |
Sales of goods - readers | |
| 134,366 | | |
| — | | |
| 237,554 | | |
| — | | |
| — | |
Other sales | |
| 70,010 | | |
| — | | |
| 109,140 | | |
| — | | |
| — | |
Total
revenue | |
$ | 457,058 | | |
$ | — | | |
$ | 813,737 | | |
$ | — | | |
$ | — | |
Other
income
The
other income mainly comprised of grant income and R&D tax refund.
a)
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 year ended June 30, 2022 (no payments
were received during the three or nine months ended March 31, 2023). The project has been delayed due to global shortages of
semiconductors that are used in manufacturing equipment and global supply chain disruption due to covid in the preceding year. The
Company has only completed 4 of the 8 milestones in the grant agreement. As of March 31, 2023, there is uncertainty regarding the
potential extension of the grant agreement past its original end of March 28, 2024. Therefore, management concluded that there is no
reasonable assurance that the grant receivable recognized will be received.
Accordingly,
during the three months ended March 31, 2023, the Company reversed $2.5 million of the grant receivable and corresponding $2.5
million of the deferred income liability in accordance with IAS 20.
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 $26,576 and $125,128 deferred grant income
was recognized within other income during the three and nine months ended March 31, 2023, respectively. Deferred grant income recognized
within other income during the three and nine months ended March 31, 2022, was $147,865 and $179,264, respectively.
b)
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 when it is probable that the amount
will be recovered in full through a future claim. A total of $91,104 and $573,497 of R&D tax refund income was recognized in other
income during the three and nine months ended March 31, 2023, respectively. R&D tax refund income was $35,206 and $181,598 during
the three and nine months ended March 31, 2022, respectively.
Development
and regulatory approval expenses
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 above).
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.
Foreign
currency translation
Assets
and liabilities of foreign subsidiaries are translated from local (functional) currency to reporting currency (U.S. dollar) at the spot
rate on the consolidated balance sheets date; income and expenses are translated at the average rate of exchange prevailing during the
year. Foreign currency movements resulted in a loss of $77,787 and a gain of $148,251 for the three and nine months ended March 31, 2023,
respectively. Foreign currency movements resulted in a gain of $2,793 and a loss of $57,334 for the three and nine months ended March
31, 2022, 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 March 31, 2023, 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 Asia-Pacific (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 March 31, 2023.
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 had 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. The option was not exercised and expired on March 31, 2023.
Inventories
Inventories
are stated at the lower of cost or net realizable value. Cost comprises direct materials and, where applicable, other costs that have
been incurred in bringing the inventories to their present location and condition. Net realizable value is the estimated selling price
less all estimated costs of completion and costs to be incurred in marketing, selling and distribution. General market conditions, as
well as the Company’s research activities, can cause certain of its products to become obsolete. The Company writes down excess
and obsolete inventories based upon a regular analysis of inventory on hand compared to historical and projected demand. The determination
of projected demand requires the use of estimates and assumptions related to projected sales for each product. These write downs can
influence results from operations.
Trade,
note and other receivables
Trade
receivables are written off when there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of
recovery include, amongst others, the failure of a debtor to engage in a repayment plan with the Company, and a failure to make contractual
payments for a period of greater than 90 days past due.
Based
upon the assessment of these factors, the Company recorded a bad debt provision write-back of $22,918 and a provision of $nil during
the three and nine months ended March 31, 2023. No bad debt provision was recognized during the three and nine months ended March 31,
2022. Trade receivables are recognized net of bad debt provision.
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. Expenditures for
maintenance and repairs are charged to operations in the period in which the expense is incurred. Depreciation is calculated on a straight-line
basis over the estimated useful life of the asset using the following terms:
| ● | Computers
hardware and software – 3 years |
| ● | Equipment,
Furniture and fixtures – 2-4 years |
| ● | Leasehold
improvements – shorter of asset’s estimated useful life and the remaining term
of the lease |
The
assets’ residual values, useful lives and methods of depreciation are reviewed periodically and adjusted prospectively, if appropriate.
Equipment is derecognized upon disposal or when no future economic benefits are expected from its use. Any gain or loss arising upon
de-recognition of the asset (calculated as the difference between the net disposal proceeds, if any, and the carrying value of the asset)
is included in gain or loss on sale of assets in the consolidated statements of operations in the period the asset is derecognized.
Impairment
of Long-lived Assets and Goodwill
Long-lived
assets consist of property and equipment, right-of-use assets and other intangible assets. We assess impairment of assets groups,
including intangible assets at least annually or more frequently if there are any indicators for impairment.
Goodwill
represents the excess of the purchase price over the estimated fair value of the net assets acquired in a business combination. We
perform an annual impairment test on goodwill in the fourth quarter of each fiscal year or when events occur or circumstances change
that would, more likely than not, reduce the fair value of a reporting unit below its carrying value. We may first assess qualitative
factors, such as general economic conditions, market capitalization, the Company’s outlook, market performance and forecasted
financial performance to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying
amount. If we determine it is more likely than not that the fair value of the reporting unit is greater than its carrying amount, an
impairment test is not necessary. If an impairment test is necessary, we estimate the fair value of a related reporting unit. If the
carrying value of a reporting unit exceeds its fair value, the goodwill of that reporting unit is determined to be impaired, and we will
record an impairment charge equal to the excess of the carrying value over the related fair value of the reporting unit. If we determine
it is more likely than not that goodwill is not impaired, a quantitative test is not necessary.
During
the three months ended March 31, 2023, the Company’s market capitalization significantly declined. Furthermore, as
a result of macroeconomic factors and recurring cash burn of the reporting unit and continuous cash support from the parent entity, the
Company tested the recoverability of its goodwill as of March 31, 2023. Utilizing the income approach, the Company performed a
quantitative impairment test on goodwill using a discounted cash flow analysis, which determined
the carrying value of our reporting unit exceeded its fair value. As a result, we recognized goodwill impairment of $4.1 million.
Significant assumptions inherent in the valuation methodologies include, but are not limited to, prospective financial information, growth
rates, terminal value and discount rate.
Intangible
assets
Intangible
assets are considered long-lived assets and are recorded at cost, less accumulated amortization and impairment losses, if any. The intangible
assets are amortized over their estimated useful lives, which do not exceed any contractual periods. Amortization is recorded on a straight-line
basis over their estimated useful lives. Intangible assets acquired from a foreign operation are translated from the foreign entity’s
functional currency to the presentational currency based on the exchange rate at the reporting date. The management plans to assess the recoverability of intangible assets through a detailed analysis of the asset’s
useful life, market value, impairment indicators, and potential technological changes at the June 2023 year end.
During the three-month period ended March 31,
2023, in response to market and performance conditions, the Company tested the recoverability of its intangible assets. Utilizing the
undiscounted cash flows, the Company performed a quantitative impairment test on amortizable intangible assets and concluded that
the amortizable intangible assets were not impaired at March 31, 2023. Utilizing the discounted cash flows, the Company performed a
quantitative impairment test on indefinite lived intangible assets and concluded that these intangible assets were not impaired at
March 31, 2023.
Leases
The
Company determines if an arrangement is a lease at its inception. Lease arrangements are comprised primarily of real estate for which
the right-of-use (“ROU”) assets and the corresponding lease liabilities are presented separately on the consolidated balance
sheet.
ROU
assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease
payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the estimated
present value of lease payments over the lease term. The lease term includes options to extend the lease when it is reasonably certain
that the option will be exercised. Leases with a term of 12 months or less are not recorded on the consolidated balance sheet.
The
Company uses its estimated incremental borrowing rate in determining the present value of lease payments considering the term of the
lease, which is derived from information available at the lease commencement date, considering publicly available data for instruments
with similar characteristics. The Company accounts for the lease and non-lease components as a single lease component.
Impairment
of long-lived assets
Long-lived
assets including defined lived intangible assets are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset group may not be recoverable. If events or changes in circumstances indicate that the carrying
amount of the asset group may not be recoverable, the Company compares the carrying amount of an asset group to future undiscounted
net cash flows, excluding interest costs, expected to be generated by the asset group and its ultimate disposition. If the sum of
the undiscounted cash flows is less than the carrying value, the impairment to be recognized is measured by the amount by which the
carrying amount of the asset group exceeds the fair value of the asset group. The Company did not recognize any impairments of
long-lived assets including defined lived intangible assets during the three and nine months ended March 31, 2023 and
2022.
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 are 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.
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.
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 adopted the standard on July 1, 2022. There was no impact on adoption of ASU 2016-02 as the Company did not have any material
leases as of July 1, 2022, and, therefore, application of transitional practical expedients provided by the ASU is not applicable. Topic
842 was applied to the lease assumed as part of the acquisition of IFP on October 4, 2022. See Note 10 for further information and disclosures
relating to ASC 842.
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 ASU 2021-10, 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 (a) 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 (b) 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.
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, Financial Services
Compensation 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. The Company has elected to carry its convertible notes
at fair value.
Fair
value option (“FVO”) for convertible notes
The
Company elected the FVO for recognition of its convertible notes payable upon issuance as permitted under ASC 825, Financial
Instruments. Under the FVO, the Company recognizes the convertible notes payable at fair value with changes in fair value
recognized in earnings. The FVO may be applied instrument by instrument, but it is irrevocable. As a result of applying the FVO,
direct costs and fees related to the convertible notes are recognized in selling, general and administrative expense in the
condensed consolidated statements of operations as incurred and not deferred. Changes in accrued interest for the notes are included
in the change in fair value of convertible notes. Changes in fair value of the convertible notes are recognized as part of interest
expense in the condensed consolidated statements of operations.
NOTE
4. SEGMENT INFORMATION
Operating
segments are defined as components of an entity for which separate financial information is available and that is regularly reviewed
by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources to an individual segment and in assessing
performance. The Company’s CODM is its Chief Executive Officer. The Company has determined it operates in two operating segments
and has two reportable segments, as the CODM reviews financial information presented on a consolidated basis accompanied by disaggregated
information about revenue and other income by product types for the purpose of allocating resources and evaluating financial performance.
Currently, the Company has two products offerings. Accordingly, the Company has determined the following reporting segments:
| 1) | Commercially
available Intelligent Fingerprinting Products (“IFPG” or “IFPG segment”) |
| 2) | Development
Stage Saliva Glucose Biosensor Platform (“SGBP” or “SGBP segment”) |
The
following table sets forth the Company’s revenue and other income by segment.
SCHEDULE
OF REVENUE AND OTHER INCOME SEGMENT
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| |
Three
Months Ended March 31, | | |
Nine
Months Ended March 31, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
IFPG | |
$ | 457,058 | | |
$ | — | | |
$ | 813,737 | | |
$ | — | |
SGBP | |
| — | | |
| — | | |
| — | | |
| — | |
Total
Revenue | |
$ | 457,058 | | |
$ | — | | |
$ | 813,737 | | |
$ | — | |
| B) | Other
Income (Government Support Income) |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| |
Three
Months Ended March 31, | | |
Nine
Months Ended March 31, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
IFPG | |
$ | 49,267 | | |
$ | — | | |
$ | 156,824 | | |
$ | — | |
SGBP | |
| 68,413 | | |
| 192,500 | | |
| 541,801 | | |
| 370,291 | |
Total
Government Support Income | |
$ | 117,680 | | |
$ | 192,500 | | |
$ | 698,625 | | |
$ | 370,291 | |
NOTE
5. INTELLIGENT FINGERPRINTING LIMITED ACQUISITION
On
October 4, 2022, INBS acquired 100%
of the outstanding shares of Intelligent Fingerprinting Limited (IFP), a company registered in England and Wales, pursuant to a
Share Exchange Agreement, dated October 4, 2022 (the “Share Exchange Agreement”) by and among IFP, the holders of all of
the issued shares in the capital of IFP (the “IFP Sellers”) and a representative of the IFP Sellers. IFP owns a
portfolio of intellectual property for diagnostic tests and associated technologies, including drug testing through the analysis of
fingerprint sweat. The acquisition of IFP has expanded the Company’s platform of rapid, non-invasive diagnostic testing
technologies.
The
table below summarizes the fair value of the consideration transferred in the acquisition (pre-Reverse Stock Split basis):
SCHEDULE
OF FAIR VALUE OF THE CONSIDERATION TRANSFERRED IN THE ACQUISITION
Purchase
consideration | |
Amount | |
Cash | |
$ | 868,438 | |
Common Stock - 2,963,091 shares @ $0.5502 / share | |
| 1,630,293 | |
Series C Preferred Stock (base) - 2,363,003
shares @ 3 x $0.5502 / share | |
| 3,900,373 | |
Series C Preferred Stock
(holdback) - 500,000 shares @ 3 x $0.5502 / share | |
| 825,300 | |
Total purchase price | |
$ | 7,224,404 | |
Pursuant
to the Share Exchange Agreement, the Company acquired from the IFP Sellers all of the issued and outstanding shares in the capital
stock of IFP, and as consideration therefor, the Company issued and sold to the IFP Sellers upon the closing of the IFP Acquisition
(the “IFP Closing”) an aggregate number of 148,183
shares of the Company’s common stock, and (ii) 2,363,003 shares
of the Company’s Series C Convertible Preferred Stock, par value $0.01 per
share (the “Series C Preferred Stock”).
Up
to an additional 1,649,273 shares of Series C Preferred Stock have been reserved for potential future issuance by the Company, consisting
of (i) 500,000 shares of Series C Preferred Stock, that are being held back from the IFP Sellers for one year after the IFP Closing to
secure potential indemnification claims by the Company against the IFP Sellers and (ii) 1,149,273 shares of Series C Preferred Stock
to certain lenders to IFP (the “IFP Lenders”). Each share of Series C Preferred Stock is convertible into 0.15
shares of Common Stock (subject to adjustment upon the occurrence of specified events), contingent upon approval by the Company’s
stockholders.
Effective
contemporaneously with the IFP Closing, the Company entered into an amendment to the bridge facility agreement between the Company and
IFP, dated as of June 16, 2022, pursuant to which, among other things, the $504,938 (including accrued interest) loan from the Company
to IFP that will remain outstanding following the date of the IFP Closing until the second anniversary of the date of the IFP Closing
(the “Company-IFP Loan Agreement”).
The
loan receivable from IFP of $504,938 as of October 4, 2022, was treated as a cash consideration in accordance with ASC 805, Business
Combinations.
The
Company entered into various loan agreements in the aggregate amount of £1,254,270,
including accrued interest, pursuant to which IFP is the borrower and the Company became a guarantor of IFP’s obligations
thereunder (the “IFP Loan Agreements” and, together with the Company-IFP Loan Agreement, the “Loan
Agreements”). Under the Loan Agreements, the loans thereunder remained outstanding following the IFP Closing and (x) the loans
and certain accrued interest will convert into shares of IFP, which shares of IFP will be immediately transferred to the Company in
exchange for shares of Series C Preferred Stock that are convertible into common stock (as set forth in the Share Exchange
Agreement) following approval of the Company Stockholder Approval Matters (defined below) or (y) the loans and certain accrued
interest will become repayable on the second anniversary of the date of the IFP Closing. The loans bear interest at 17%
per annum on a compounded basis, increasing to 22%
per annum on a compounded basis with effect from the date that falls 12 months following the date of the IFP Closing, if the Company
Stockholder Approval Matters have not been approved by the Company’s stockholders by such date. The “Company Stockholder
Approval Matters” means the approval by the Company’s stockholders of (i) the conversion of the Series C Preferred Stock
into common stock and (ii) any amendments to, or adoption of, any option or warrant plans to give effect to the transactions
contemplated under the Share Exchange Agreement.
Each
share of Series C Preferred Stock (other than the IFP Lender Preferred Shares) would automatically convert into common stock upon approval
of the Company’s stockholders of the conversion of Series C Preferred Stock into common stock, and each IFP Lender Preferred Share
would convert into common stock at the option of the applicable holder of such IFP Lender Preferred Shares following approval of the
Company’s stockholders of the conversion of Series C Preferred Stock into common stock. In the event Company stockholder approval
is not received, the convertible notes and accrued interest would remain outstanding. The number of shares of common stock into which
the Series C Preferred Stock is convertible is subject to adjustment in the case of any stock dividend, stock split, combinations, or
other similar recapitalization with respect to the common stock.
The
rights, preferences and privileges of the Series C Preferred Stock are set forth in the Certificate of Designation of Preferences, Rights
and Limitations of Series C Convertible Preferred Stock that the Company filed with the Secretary of State of the State of Delaware on
October 4, 2022, as further described below (the “Series C Certificate of Designation”).
The Series C Preferred Stock does not have any voting rights (other than
as required by law) and does not carry dividends or a liquidation preference. Each share of Series C Preferred Stock was initial convertible
into 3 shares of common stock, subject to adjustment as noted above. Following the effectiveness of the 1-for-20 Reverse Stock Split effective
on February 9, 2023, each share of Series C Preferred Stock is convertible into 0.15 shares of common stock. The loan receivable from
IFP of $504,938 as of October 4, 2022, was treated as a cash consideration in accordance with ASC 805 Business Combinations. See Note
21 for further information and disclosures relating to the conversion of the Series C Preferred Stock.
The
cash purchase consideration includes $504,938
(including accrued interest) of funds previously loaned to IFP by the Company, representing a note receivable from IFP and $363,500
for bonus payments made on behalf of the selling shareholders of IFP. The first installment of $181,750
was paid during the three months ended December 31, 2022. A second installment of $181,750 was paid in April 2023.
The
Company incurred $806,397 of equity issuance costs in relation to issuing common and Series C Preferred Stock to acquire IFP. These costs
were recognized as a reduction to additional paid-in capital on the condensed consolidated balance sheets.
The
provisional allocation of the purchase price of IFP to the assets acquired and liabilities assumed, based on their relative fair values,
is as follows:
SCHEDULE OF ASSETS ACQUIRED AND LIABILITIES ASSUMED, BASED ON THEIR RELATIVE FAIR VALUES
Allocation
of purchase consideration | |
Amount | |
Assets: | |
| | |
Cash and cash
equivalents | |
$ | 174,481 | |
Inventory | |
| 774,625 | |
Other current assets | |
| 345,038 | |
Property and Equipment | |
| 52,170 | |
Intangible assets | |
| 5,463,000 | |
Goodwill | |
| 3,803,293 | |
Total assets acquired | |
| 10,612,607 | |
Liabilities: | |
| | |
Accounts payable and accrued
expenses | |
| (1,027,302 | ) |
Notes payable | |
| (677,137 | ) |
Convertible
notes payable | |
| (1,683,764 | ) |
Total
liabilities assumed | |
| (3,388,203 | ) |
Net
assets | |
$ | 7,224,404 | |
Acquired
intangible assets of $5,463,000 include technology of $5,119,000 (which is estimated to have a useful life of 5 years), customer relationships
of $252,000 (which are estimated to have a useful life of 3 years), and trade names and trademarks of $92,000 (which are estimated to
have an indefinite useful life). The value assigned to technology was determined using the multi-period excess earnings methodology under
the income approach, the customer relationships was valued using the distributor method under the income approach, and the trade name
and trademarks was valued using the relief from royalty method.
The
acquisition produced $3,803,293 of goodwill, which has been assigned to the IFPG reporting unit. The goodwill is attributable to a combination
of IFP’s assembled workforce and other product and operating synergies. Goodwill arising from the IFP Acquisition is not deductible
for tax purposes. As at March 31, 2023, the full amount of the goodwill has been impaired. Refer to note 3, summary
of significant accounting policies, and note 10, goodwill and other intangible assets for further information.
The
purchase price allocation is considered provisional as the Company finalizes its determination relating to the valuation of assets and
liabilities and key assumptions, approaches and judgements with respect to intangible assets acquired and the related tax effects.
Transaction
costs, except for the equity issuance costs discussed above, were not material.
Intangibles
acquired from IFP were remeasured at March 31, 2023 using the applicable spot rate.
From
the closing date of the IFP Acquisition through March 31, 2023, the Company recognized approximately $813,737
in revenue and $4,336,191
in net loss relating to IFP, which included goodwill impairment of $ 4,096,490, amortization of $697,684
for acquired intangibles and fair value gain on revaluation of convertible notes for $1,455,078.
In addition, the Series C Preferred Stock holdback which has been treated as deferred consideration, was revalued as of March 31,
2023, and resulted in a revaluation gain of $607,800.
Pro-Forma
Results of Operations
The
following unaudited pro-forma consolidated results of operations for the
three months ended March 31, 2022, nine months ended March 31, 2023, and March 31, 2022, respectively, have been prepared as if the acquisition
of IFP had occurred on July 1, 2021, and includes adjustments for amortization related to the valuation of acquired intangibles:
SCHEDULE OF UNAUDITED PRO-FORMA CONSOLIDATED RESULTS OF OPERATIONS
| |
2022 | | |
2022 | | |
2023 | | |
2023 | | |
2022 | | |
2022 | |
| |
Three Months Ended March 31 | | |
Nine Months Ended March 31 | |
| |
2022 | | |
2022 | | |
2023 | | |
2023 | | |
2022 | | |
2022 | |
| |
As Reported | | |
Pro Forma | | |
As Reported | | |
Pro Forma | | |
As Reported | | |
Pro Forma | |
Revenue | |
$ | - | | |
$ | 370,687 | | |
$ | 813,737 | | |
$ | 1,161,223 | | |
$ | - | | |
$ | 996,937 | |
Net
loss | |
$ | (1,344,133 | ) | |
$ | (797,885 | ) | |
$ | (7,993,166 | ) | |
$ | (9,234,721 | ) | |
$ | (6,245,796 | ) | |
$ | (9,455,693 | ) |
Net
loss attributable to Intelligent Bio Solutions Inc. | |
$ | (1,335,246 | ) | |
$ | (797,885 | ) | |
$ | (7,972,799 | ) | |
$ | (9,214,354 | ) | |
$ | (6,227,896 | ) | |
$ | (9,437,795 | ) |
Net
loss per share, basic and diluted | |
$ | (1.80 | ) | |
$ | (0.89 | ) | |
$ | (8.67 | ) | |
$ | (8.67 | ) | |
$ | (8.60 | ) | |
$ | (10.75 | ) |
NOTE
6. INVENTORIES
Inventories
consist of the following:
SCHEDULE OF INVENTORIES
| |
March
31, 2023 | | |
June
30, 2022 | |
Work-in-progress | |
$ | 551,897 | | |
$ | — | |
Finished goods | |
| 378,174 | | |
| — | |
Less: provision for
inventory obsolescence | |
| (193,850 | ) | |
| — | |
Inventory,
net | |
$ | 736,221 | | |
$ | — | |
NOTE
7. OTHER CURRENT ASSETS
Other
current assets consist of the following:
SCHEDULE OF OTHER CURRENT ASSETS
| |
March
31, 2023 | | |
June
30, 2022 | |
Intelligent Fingerprinting Limited
note receivable | |
$ | — | | |
$ | 500,445 | |
Prepayments | |
| 390,527 | | |
| 116,525 | |
Goods and services tax receivable | |
| 40,044 | | |
| 57,746 | |
Deposits | |
| 101,253 | | |
| 46,602 | |
Other receivables | |
| — | | |
| 25,443 | |
Total | |
$ | 531,824 | | |
$ | 746,761 | |
On
June 16, 2022, the Company entered into an agreement with 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 bore an interest rate of 2% per annum above the Sterling
Barclays Bank Base Rate from time to time. The Company completed the acquisition of IFP on October 4, 2022, and, in connection therewith,
the loan and accrued interest outstanding as at the date of acquisition, being $504,938, was treated as a cash consideration in accordance
with ASC 805 Business Combinations. See Note 5.
NOTE
8. PROPERTY AND EQUIPMENT, NET
Property
and equipment consist of the following:
SCHEDULE OF
PROPERTY AND EQUIPMENT
| |
March
31, 2023 | | |
June
30, 2022 | |
Production equipment | |
$ | 29,788 | | |
$ | — | |
Leasehold improvements | |
| 19,698 | | |
| — | |
Other equipment | |
| 7,638 | | |
| — | |
Construction in progress
(CIP) | |
| 436,913 | | |
| 391,408 | |
Gross property and equipment | |
| 494,037 | | |
| 391,408 | |
Less: accumulated depreciation | |
| (15,917 | ) | |
| | |
Property
and equipment, net | |
$ | 478,120 | | |
$ | 391,408 | |
The
Company recorded an expense of $6,406 and $15,917 in relation to the depreciation of property and equipment for the three and nine months
ended March 31, 2023, respectively. There was no depreciation of property and equipment during the three and nine months ended March
31, 2022.
During
the three and nine months ended March 31, 2023, the Company incurred a cost of $5,368
and $91,010,
respectively, towards the construction of a building at the University of Newcastle. The Australian government reimbursed the
Company for 50%
of the incurred costs. Therefore, the Company has recorded the CIP as net of reimbursement received as of March 31, 2023.
The
following table summarizes the amount of CIP recorded in property and equipment, net on the condensed consolidated balance sheets:
SUMMARY
OF AMOUNT RECORDED IN THE CONSOLIDATED BALANCE SHEETS
| |
March
31, 2023 | | |
June
30, 2022 | |
Investments in construction in
progress | |
$ | 873,826 | | |
$ | 782,816 | |
Less: 50% contributed
under government grant | |
| (436,913 | ) | |
| (391,408 | ) |
Gross property and equipment | |
$ | 436,913 | | |
$ | 391,408 | |
NOTE
9. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts
payable and accrued expenses consist of the following:
SCHEDULE OF ACCOUNTS PAYABLE AND ACCRUED EXPENSES
| |
March
31, 2023 | | |
June
30, 2022 | |
Accounts and other payables | |
$ | 458,410 | | |
$ | 715,902 | |
Accruals | |
| 385,724 | | |
| 909,187 | |
Deferred consideration* | |
| 399,250 | | |
| — | |
Other | |
| 355,447 | | |
| — | |
Total | |
$ | 1,598,831 | | |
$ | 1,625,089 | |
* | | The deferred consideration
relates to: |
a)
the second payment of $181,750 for bonus payments to be made on behalf of the selling shareholders of IFP due on the six-month anniversary
of the closing date of the IFP Acquisition, being April 4, 2023, and
b)
the fair value of $217,500 in relation to 500,000 Series C Preferred Stock that are being held back from the IFP Sellers for one year
after the IFP Acquisition date to secure potential indemnification claims by the Company against the IFP Sellers. See Note 4 for further
details of the IFP Acquisition.
NOTE
10. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
During the three months ended March 31,
2023, the Company’s market capitalization significantly declined and recurring cash burn
of the reporting unit and continuous cash support from the parent entity led management to reassess whether an impairment had
occurred considering these qualitative factors. Management’s evaluation indicated that the goodwill related to its IFPG
reporting unit was potentially impaired. The Company then performed a quantitative impairment test by calculating the fair value of
the reporting unit and comparing that amount to its carrying value. Significant assumptions inherent in the valuation methodologies
include, but were not limited to prospective financial information, growth rates, terminal value and discount rate. The Company
determined the fair value of the reporting unit utilizing the discounted cash flow model. The fair value of the reporting unit was
determined to be less than its carrying value. The Company recognized an impairment charge of $4.1 million in the IFPG segment,
which is related to the goodwill associated with the IFP Acquisition.
The
changes in the carrying amount of goodwill were as follows:
SCHEDULE OF
CARRYING AMOUNT OF GOODWILL
Balance at June 30, 2022 | |
$ |
— | |
Acquisition of IFP | |
| 3,803,293 | |
Effect
of foreign currency | |
| 326,744 | |
Balance at December 31, 2022 | |
| 4,130,037 | |
Impairment | |
| (4,096,490 | ) |
Effect
of foreign currency | |
| (33,547 | ) |
Balance at March 31, 2023 | |
$ | — | |
Goodwill
resulting from the acquisition of IFP is allocated to the IFPG operating and reportable segment.
Other
intangible assets
Other
intangible assets consist of the following as of March 31, 2023:
SCHEDULE OF
OTHER INTANGIBLE ASSETS
| |
Weighted
average
useful lives
(years) | | |
Acquisition
cost | | |
Effect
of
foreign
currency | | |
Accumulated
amortization | | |
Carrying
value | |
Technology | |
| 5
years | | |
$ | 5,119,000 | | |
$ | 486,135 | | |
$ | 634,510 | | |
$ | 4,970,625 | |
Customer relationships | |
| 3
years | | |
| 252,000 | | |
| 23,932 | | |
| 52,060 | | |
| 223,872 | |
Trade names and trademarks | |
| Indefinite | | |
| 92,000 | | |
| 8,737 | | |
| — | | |
| 100,737 | |
Total
intangible assets | |
| | | |
$ | 5,463,000 | | |
$ | 518,804 | | |
$ | 686,570 | | |
$ | 5,295,234 | |
Expense
related to the amortization of other intangible assets for the three and nine months ended March 31, 2023, was $346,548
and $686,570,
respectively. There was no
amortization of other intangible assets during the three and nine months ended March 31, 2022. Refer to note 3, summary of significant accounting policies for further information.
Amortization
expense for the intangible assets is expected to be as follows over the next five years, and thereafter:
SCHEDULE OF
EXPECTED AMORTIZATION EXPENSES FOR INTANGIBLE ASSETS
| |
| | |
2023 | |
$ | 895,599 | |
2024 | |
| 1,194,132 | |
2025 | |
| 1,171,745 | |
2026 | |
| 1,104,583 | |
2027 | |
| 828,438 | |
Total | |
$ | 5,194,497 | |
There
were no impairment charges related to other intangible assets incurred in the periods presented.
NOTE
11. CONVERTIBLE NOTES
As
a result of the IFP Acquisition, the Company became the guarantor to unsecured convertible notes (also referred to herein as the IFP
Loan Agreements) for which IFP is the borrower. The convertible notes, plus certain accrued interest, will become due on October 4, 2024
(the second anniversary of the IFP Acquisition closing date), unless earlier converted. The convertible notes, if converted, will convert
into shares of IFP, which shares of IFP will be immediately transferred to the Company in exchange for shares of Series C Preferred Stock
that are convertible into common stock (as set forth in the Share Exchange Agreement) following approval by the Company’s stockholders
of the Company Stockholder Approval Matters. See Note 21 for further information and disclosures relating to the conversion of the Series
C Preferred Stock.
The
convertible notes bear an interest rate of 17% per annum, on a compounded basis. The interest rate will increase to 22% per annum, on
a compounded basis, on October 4, 2023 (the first anniversary of the IFP Acquisition closing date) if the Company’s shareholders
have not yet approved the Company Stockholder Approval Matters have not been approved by the Company’s stockholders by such date.
Due
to the Company’s election to apply the fair value option (FVO), the fair value of the convertible notes is subsequently re-measured
at the end of each reporting period based on the changes in their estimated fair value. See Note 15 for additional information.
NOTE
12. NOTE PAYABLE
As
a result of the acquisition of IFP, the Company assumed a note payable due to a distributor of IFP. The unpaid principal balance of the
loan will accrue interest at a rate of 0.97% per annum. The balance is offset by
| ● | Payments
of 10% of the Company’s monthly worldwide gross revenue received in the preceding month; |
| ● | 50%
of sales by the company to the distributor. |
The
classification of the notes payables is based on sales forecast prepared by the management.
NOTE
13. LEASES
In
relation to the IFP Acquisition, the Company assumed a non-cancelable finance lease agreement. The lease has an original lease period
expiring in August 2025. The lease agreement does not contain any material residual value guarantees or material restrictive covenants.
The
components of finance lease expense are as follows:
SCHEDULE
OF FINANCE LEASE EXPENSES
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| |
Three
Months Ended March 31, | | |
Nine
Months Ended March 31, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
Depreciation of finance lease right-of-use
assets | |
$ | 45,548 | | |
$ | — | | |
$ | 94,171 | | |
$ | — | |
Interest on finance
lease liabilities | |
| 23,712 | | |
| — | | |
| 46,160 | | |
| — | |
Total
finance lease costs | |
$ | 69,260 | | |
$ | — | | |
$ | 140,331 | | |
$ | — | |
As
of March 31, 2023, the remaining lease-term and discount rate on the Company’s lease was 2.4 years and 17%, respectively.
The
reconciliation of the maturities of the finance lease to the finance lease liabilities recorded in the condensed consolidated balance
sheet as of March 31, 2023, is as follows:
SCHEDULE OF MATURITIES OF THE FINANCE LEASE TO THE FINANCE LEASE LIABILITIES
| |
| | |
2023 | |
$ | 245,322 | |
2024 | |
| 255,135 | |
2025 | |
| 108,457 | |
Total
lease payments | |
| 608,914 | |
Less: imputed interest | |
| (113,974 | ) |
Present
value of lease liabilities | |
$ | 494,940 | |
Lease
payments in the table above exclude $137,780 of minimum lease payments for a lease signed, but not yet commenced, as of March 31, 2023.
NOTE
14. SHAREHOLDERS’ EQUITY
As of March 31, 2023 there were March Warrants (defined
below) to purchase 69,291 shares of common stock; Series A Warrants to purchase 70,068 shares of common stock; Series B Warrants to purchase
2,620 shares of common stock; IPO underwriter warrants to purchase 3,177 shares of common stock; pre-IPO warrants to purchase 136,834
shares of common stock; LSBD warrants to purchase 150,000 shares of common stock; Series D Warrants (defined below) to purchase 26,478
shares of common stock; Winx Warrants (defined below) to purchase 1,324 shares of common stock; and Representative’s Warrants (defined
below) to purchase 32,750 shares of common stock, outstanding and held by certain shareholders. Each warrant initially represented the
right to purchase one share of the Company’s common stock (subject to adjustment upon the occurrence of specified events).
On March 8, 2023, the Company entered into the Underwriting
Agreement with Ladenburg Thalmann & Co. Inc., as representative (the Representative) of the underwriters named therein, relating to
the March 2023 Offering of shares of the Company’s Common Stock (the March Shares) and warrants to purchase shares of Common Stock
(the March Warrants). Each of the March Shares was sold in combination with an accompanying one-third Warrant. The combined purchase price
for each March Share and accompanying March Warrant was $3.90 and the Underwriters agreed to purchase 569,560 March Shares and 170,868
March Warrant. On March 9, 2023, the Representative fully exercised an over-allotment option under the Underwriting Agreement and purchased
an additional 85,430 March Shares and additional March Warrants to purchase 25,629 shares of Common Stock. The March 2023 Offering closed
on March 10, 2023.
The March 2023 Offering was made pursuant to an effective
shelf registration statement on Form S-3, which was filed with the SEC on April 8, 2022. The gross proceeds, before deducting underwriting
discounts and commissions and other March 2023 Offering expenses, was approximately $2.55 million. As part of the Representative’s
compensation, the Company issued to the Representative unregistered warrants to purchase 32,750 shares of common stock, which warrants
have an exercise price of $4.875 per share (125% of the public offering price per share and accompanying warrant) and will terminate on
March 8, 2028. The March Warrants have, (i) an exercise price of $3.90 per share of Common Stock, (ii) a cashless exercise option for
a net number of shares of Common Stock determined according to the formula set forth in the March Warrant or (iii) an alternate cashless
exercise option (beginning on or after the initial exercise date), to receive an aggregate number of shares of Common Stock equal to the
product of (x) the aggregate number of shares of Common Stock that would be issuable upon a cash exercise and (y)1.00. Each whole March
Warrant entitles the holder thereof to purchase 1 share of Common Stock. The March Warrants are exercisable upon issuance and will expire
on March 10, 2028. The exercise price and the number of shares of Common Stock issuable upon exercise of the March Warrants is subject
to appropriate adjustments in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications
or similar events affecting the Common Stock.
On December 21, 2022, the Company entered into a
December 2022 Purchase Agreement with 14 Series D Investors, pursuant to which the Company agreed to issue and sell to the Series D Investors
in the December 2022 Private Placement (i) 176,462 shares of Series D Preferred Stock, with each share of Series D Preferred Stock convertible
into 0.15 shares of Common Stock (subject to adjustment upon the occurrence of specified events); and (ii) 529,386 Series D Warrants,
with each Series D Warrants representing the right to purchase 0.05 shares of common stock (subject to adjustment upon the occurrence
of specified events). In addition, 26,469 Winx Warrants were issued to Winx Capital Pty Ltd., the placement agent for the December 2022
Private Placement, with each Winx Warrant representing the right to purchase 0.05 shares of common stock (subject to adjustment upon
the occurrence of specified events). The Series D Warrants have an exercise price of $5.80 per share (subject to adjustment) and expire
June 22, 2028. The Winx Warrants have an exercise price of $10.40 per share (subject to adjustment) and expire five years following the
effective date of a registration statement covering the resale of common stock underlying the Series D Preferred Stock acquired by the
Series D Investors. The Series D Preferred Stock and Series D Warrants were sold together as a unit, with each Unit consisting of one
share of Series D Preferred Stock and three Series D Warrants. The purchase price for the Units was $1.25 per Unit. The Unit offering
price and the Series D Warrants exercise price were priced above the Nasdaq “Minimum Price” as that term is defined in Nasdaq
Rule 5635(d)(1). The shares of Series D Preferred Stock are convertible into an aggregate of 26,464 shares of Common Stock following
shareholder approval of such conversion and without the payment of additional consideration. The Series D Warrants are exercisable for
an aggregate of 26,478 shares of Common Stock and the Winx Warrants are exercisable for an aggregate of 1,324 shares of Common
Stock. The December 2022 Private Placement closed on December 22, 2022. See Note 21 for information and disclosures relating to the
conversion of the Series D Preferred Stock.
On
October 6, 2022, the Company granted its employees 25,000 shares of Common Stock as compensation. The Company recorded stock compensation
expense of $260,000 in relation to the issuance during the three and six months ended December 31, 2022. The Company withheld 1,386 shares
for the payment of withholding taxes.
On
October 4, 2022, the Company issued 148,183 shares of common stock and 2,363,003 shares of Series C Preferred Stock as partial consideration
in connection with the IFP Acquisition. The Company recognized $806,397 of equity issuance costs in relation to this transaction and
recorded them as reduction to additional paid-in capital on the Condensed Consolidated Balance Sheets. An additional 500,000 shares of
Series C Preferred Stock will be issued by the Company on the one-year anniversary of the IFP Acquisition, pending satisfaction of potential
indemnification claims by the Company against the IFP Sellers. See Note 5 for further detail of the IFP Acquisition.
The
Series C Preferred Stock and Series D Preferred Stock are convertible into the Company’s common stock following approval of the
Company’s stockholders of such conversion.
NOTE
15. FAIR VALUE MEASUREMENTS
Convertible
notes
As
detailed in Note 11, the Company assumed convertible notes as a result of the IFP Acquisition and elected to account for the convertible
notes under the FVO. The Company estimated the fair value of the convertible notes based on the fair value of the maximum shares issuable
upon conversion (1,149,273 shares of Series C convertible preferred stock) less one year of estimated interest to be incurred until October
4, 2023, since the number of shares to be issued factors in the interest charges for one year. If the note converts earlier than one
year less shares will be issued as a result of this. If the note converts between year 1 and year 2 the maximum amount of shares gets
issued and the Company will incur 22% annual interests for the period up to the date of conversion in the second year. The Company continues
to estimate the fair value of the convertible notes using this method, reducing the estimated interest adjustment each quarter as the
1-year anniversary of the IFP Acquisition approaches. Accordingly, as of March 31, 2023, the fair value movement related to the decrease
in the share price from the time of acquisition to reporting date.
Increases
or decreases in the fair value of the Company’s convertible notes carried at fair value are recognized as part of Other Income
(expenses) in the Condensed Consolidated Statements of Operations. The interest incurred from the date of acquisition until March 31,
2023, are included as part of Interest expense in the condensed Consolidated Statements of Operations. None of the change in the value
of the convertible notes was attributable to instrument specific credit risk.
The
following table provides a reconciliation of the beginning and ending balance of the convertible note liabilities measured at fair value
on a recurring basis during the period:
SCHEDULE
OF CONVERTIBLE NOTE LIABILITIES MEASURED AT FAIR VALUE ON A RECURRING BASIS
| |
Convertible
notes
carried at fair value
(Level 3) | |
Balance at June 30, 2022 | |
$ | — | |
Fair value of convertible notes
at acquisition (Note 5) | |
| 1,683,764 | |
Fair value gain on revaluation of convertible
notes | |
| (1,267,791 | ) |
Effect of foreign currency | |
| 107,730 | |
Balance at December 31, 2022 | |
| 523,703 | |
Fair value gain on revaluation of convertible
notes | |
| (204,207 | ) |
Effect of foreign currency | |
| 69,865 | |
Balance at March 31, 2023 | |
$ | 389,361 | |
Balance | |
$ | 389,361 | |
The
Company has held back 500,000
Series C Preferred Stock, from the IFP Sellers for one year after the IFP Closing to secure potential indemnification claims by the
Company against the IFP Sellers. Therefore, the final number of shares to be issued after the one year measurement period is
contingent on any potential claims and can be variable. Each share of Series C Preferred Stock is convertible into 0.15
shares of Common Stock (subject to adjustment upon the occurrence of specified events), contingent upon approval by the
Company’s stockholders of the conversion of Series C Preferred Stock. These shares are reserved, not issued, or held in Escrow account. As at March 31, 2023, the Company
accounted for the fair value movement relates to the decrease in the share price from the time of acquisition to reporting
date. See Note 21 for further information and disclosures relating to the conversion of the Series C Preferred Stock.
The
following table provides a reconciliation of the beginning and ending balance of the holdback Preferred Stock measured at fair value
on a recurring basis during the period:
SCHEDULE
OF PREFERRED STOCK AT FAIR VALUE ON RECURRING BASIS
| |
Preferred
stock
carried at fair value
(Level 2) | |
Balance at June 30, 2022 | |
$ | — | |
Fair value of holdback Series C
Preferred Stock at acquisition (Note 5) | |
| 825,300 | |
Fair value gain on revaluation
of holdback Series C Preferred Stock | |
| (525,300 | ) |
Balance at December 31, 2022 | |
| 300,000 | |
Fair value gain on revaluation
of holdback Series C Preferred Stock | |
| (82,500 | ) |
Balance at March 31, 2023 | |
$ | 217,500 | |
The
Company did not have assets or liabilities carried at fair value using Level 1 inputs during the three and nine months ended March 31,
2023 and 2022.
NOTE
16. RELATED PARTY TRANSACTIONS
LSBD
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 and senior management personnel during the period July 1, 2022, to March 31, 2023:
|
● |
The Company incurred a total cost of $nil
during the three and nine months ended March
31, 2023 (three and nine months ended March 31, 2022: $nil
and $145,733),
towards overhead cost reimbursement which includes salaries, rents and other related overheads directly attributable to the Company which
are included in selling, general and administration expenses in the Condensed Consolidated Statements of Operations and Other Comprehensive
Loss. |
|
● |
As of March 31, 2023, $8,821
(March 31, 2022: $9,833)
remains payable to LSBD in relation to overhead reimbursements detailed above. |
December
2022 Private Placement
Approximately
15.10% of funds raised in the December 2022 Private Placement were secured from Spiro Sakiris, our Chief Financial Officer (indirectly),
and Manuel Kostandas, our Director of Global Integration, respectively. Mr. Sakiris indirectly invested $19,991 in the December 2022
Private Placement and Mr. Kostandas invested $13,327 in the December 2022 Private Placement.
NOTE
17. 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 the shares it held in the Company but retained ownership of 5-year non-transferrable
warrants to purchase 150,000
common shares of the Company at an exercise price of $340
per share, expiring December 31, 2025. 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 March 31, 2023, and June 30, 2022.
NOTE
18. COMMITMENTS AND CONTINGENCIES
During
November 2022, the Company signed a deed of variation with the University of Newcastle for the research and development of the Saliva
Glucose Biosensor. The Company agreed to pay the University of Newcastle $847,021 of which $847,021 remains payable as of March 31, 2023.
The
Company has no material purchase commitments. For commitments on leases, refer to Note 13.
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
19. INCOME TAX
The
Company shall file its income tax returns with the Internal Revenue Service, Australian Taxation Office and His Majesty Revenue &
Customs. The Company has operating losses carried forward of $41,464,331 which are derived from its operations in Australia, the UK
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 $7,596,042
after offsetting associated deferred tax liabilities. However, the Company has determined that a valuation allowance of $7,596,042
against such deferred tax asset is necessary, as it cannot be determined that the losses carried forward will be utilized.
NOTE
20. 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
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| |
Three
Months Ended March 31, | | |
Nine
Months Ended March 31, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
Net loss attributable to Intelligent
Bio Solutions Inc. | |
$ | (6,343,906 | ) | |
$ | (1,335,246 | ) | |
$ | (7,972,799 | ) | |
$ | (6,227,896 | ) |
Basic and diluted net loss per share attributed
to common shareholders | |
$ | (5.72 | ) | |
$ | (1.79 | ) | |
$ | (8.67 | ) | |
$ | (8.54 | ) |
Weighted-average number of shares outstanding | |
| 1,108,672 | | |
| 744,495 | | |
| 919,545 | | |
| 729,533 | |
The
following outstanding warrants 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:
Anti-dilutive warrants and preferred shares - Common Stock Equivalent
SCHEDULE
OF ANTI-DILUTIVE WARRANTS
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| |
Three
Months Ended March 31, | | |
Nine
Months Ended March 31, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
Preferred Stock - Series C | |
| 354,432 | | |
| - | | |
| 354,432 | | |
| - | |
Preferred Stock - Series D | |
| 26,464 | | |
| - | | |
| 26,464 | | |
| - | |
Warrants - Common stock (March 23 public raise) | |
| 69,291 | | |
| - | | |
| 69,291 | | |
| - | |
Warrants - Series A | |
| 70,068 | | |
| 70,068 | | |
| 70,068 | | |
| 70,068 | |
Warrants - Series B | |
| 2,620 | | |
| 2,620 | | |
| 2,620 | | |
| 2,620 | |
Private placement warrants (Dec 2022) | |
| 26,478 | | |
| - | | |
| 26,478 | | |
| - | |
Warrants issued to Winx Capital Pty Ltd | |
| 1,324 | | |
| - | | |
| 1,324 | | |
| - | |
Warrants issued to underwriters (IPO) | |
| 3,177 | | |
| 3,177 | | |
| 3,177 | | |
| 3,177 | |
Warrants issued to underwriters (March 23 public
raise) | |
| 32,750 | | |
| - | | |
| 32,750 | | |
| - | |
Pre IPO warrants | |
| 136,834 | | |
| 136,834 | | |
| 136,834 | | |
| 136,834 | |
Warrants issued to LSBD | |
| 150,000 | | |
| 150,000 | | |
| 150,000 | | |
| 150,000 | |
Anti-dilutive warrants and preferred shares | |
| 150,000 | | |
| 150,000 | | |
| 150,000 | | |
| 150,000 | |
NOTE
21. SUBSEQUENT EVENTS
The Company made the second payment of $181,750 for bonus payments on behalf
of the selling shareholders of IFP in April 2023.
At the special meeting of the Company’s stockholders
held on May 8, 2023 (the “Special Meeting”), the stockholders of the Company approved, (a) for purposes of complying with
Nasdaq Listing Rule 5635, the full conversion of Series C Preferred Stock issued by the Company pursuant to the terms of a Share Exchange
Agreement, dated as of October 4, 2022, and the issuance of shares of Common Stock in connection with such conversion (the “Series
C Conversion Approval”); and (b) the full conversion of Series D Preferred Stock, issued by the Company pursuant to the terms of
a Securities Purchase Agreement, dated as of December 21, 2022, and the issuance of shares of Common Stock in connection with such conversion
(the “Series D Conversion Approval”).
As of May 9, 2023, pursuant to the Series C Conversion
Approval and the terms of the Share Exchange Agreement, the convertible notes to which the Company is a guarantor as a result of the IFP
Acquisition, with an outstanding balance of £1,360,761 in principal and accrued interest as of May 8, 2023, were convertible into
shares of IFP, which shares are immediately exchangeable for an aggregate of 1,149,273 shares of Series C Preferred Stock. The outstanding
balance of the convertible notes as at the closing date of the IFP Acquisition was £1,254,270.
Upon conversion of the convertible notes into shares of Series C Preferred
Stock, there will be 3,512,277 shares of Series C Preferred Stock outstanding and convertible into an aggregate of 526,818 shares of Common
Stock. As of May 10, 2023, there were 176,462 shares of Series D Preferred Stock outstanding and convertible into an aggregate of 26,464
shares of Common Stock.