INTELLIGENT BIO SOLUTIONS INC. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. You should read the following discussion in conjunction with our audited historical consolidated financial statements, which are included in the 2021 Form 10-K and our unaudited condensed consolidated financial statements for the fiscal quarter ended March 31, 2022 included elsewhere in this Quarterly Report on Form 10-Q. This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains statements that are forward-looking. These statements are based on current expectations and assumptions that are subject to risks, uncertainties and other factors. Actual results could differ materially because of the factors discussed below or elsewhere in this Quarterly Report on Form 10-Q. See Part II, Item 1A. “Risk Factors” of this Quarterly Report on Form 10-Q and Part I, Item 1A. “Risk Factors” of the 2021 Form 10-K. Forward-Looking Information All statements other than statements of historical fact or relating to present facts or current conditions included in this Quarterly Report on Form 10-Q are forward-looking statements. Forward-looking statements include, but are not limited to, statements regarding expectations, hopes, beliefs, intentions or strategies regarding the future. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. These statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “plan,” “intend,” “believe,” “may,” “should,” “can have,” “likely” and the negative of such words and other words and terms of similar meaning, but the absence of these words does not mean that a statement is not forward-looking. The forward-looking statements contained in this Quarterly Report on Form 10-Q are based on our current expectations and beliefs concerning future developments and their potential effects on us. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in “Item 1A — Risk Factors” of this Quarterly Report on Form 10-Q and in our 2021 Form 10-K. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. The events and circumstances reflected in the forward-looking statements may not be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Except as required by the federal securities laws, we are under no duty to update any of these forward-looking statements after the date of this Quarterly Report on Form 10-Q or to conform these statements to actual results or revised expectations. Overview We are a company with a mission to commercialize our unique Biosensor Platform technology and put the power of non-invasive, real-time diagnostic testing in the hands of patients and their primary health practitioners at point of care. LSBD, an Australian company that owns the worldwide intellectual property rights to the biosensor platform acquired from University of Newcastle, Australia has licensed to us that technology to introduce and launch the platform in the APAC Region, the world license for the SARS-CoV-2 Antibody Sensor, and furthermore we own 50% of BiosensX (North America) Inc which has the North American license to the biosensor platform. We were incorporated under the laws of Delaware on December 5, 2016. Our headquarter is in New York. Our initial priority is to develop & launch two urgently needed non-invasive real time diagnostic tests: a. the Saliva Glucose Biosensor, and b. the SARS-CoV-2 Antibody Biosensor 14 Saliva Glucose Test The Saliva Glucose Biosensor (“SGB”), together with the software app that interfaces the SGB with the Company’s Digital Information System (“SGT”), the SGT aims to provide a non-invasive and pain free way to make it easier for people to manage diabetes. ● Managing Diabetes Our innovative technology will aim to free people living with diabetes from having to use painful and invasive blook monitoring devices to manage their condition, giving them a better quality of life. ● Printable The SGB is being developed as a small, printable organic strip designed to put the power of accurate, timely diagnosis in the hands of patients and their primary health practitioners. SGB is manufactured using modified reel-to-reel printing technology which allows mass volume printing at a low cost. ● Clinical Development Plan ○ In December, GBS announced that its licensor, Life Science Biosensor Diagnostics (LSBD), has filed an application with the U.S. Food and Drug Administration (FDA) for Breakthrough Device Designation. Based on feedback from the FDA to LSBD further data generation would be advisable in order to advance this submission. The team is working towards this goal. ○ The team has submitted the correlation clinical trial protocol for IRB approval to the Mills-Peninsula Medical Center (MPMC) in California (which will be responsible for executing this initial clinical trial enrolling 40 subjects). The objectives will be: ○ Explore the relationship between salivary glucose and plasma glucose as well as the time course between the two testing modalities using Glucose Tolerance Testing in 40 subjects. ○ Generation of time course date from these studies to determine salivary glucose characteristics. It is anticipated that the first stage of this Clinical Plan to be completed by July 2022. ● Key Development and Manufacturing Advancements ○ Sourcing for required equipment has commenced. This sourcing has the dual purpose of immediately utilizing the equipment in the interests of efficiency to progress development of the biosensor and at the same time commission this equipment in preparation for the facility. The initial batch of the equipment has been ordered and is expected to be finalized in June 2022. ○ Discussions are underway between the University of Newcastle and GBS Inc for the location, buildout, and commissioning of the new high-tech manufacturing facility. ○ In response to the Australian’s government’s announcement of the Medical Research Commercialization Initiative, GBS is in the process of evaluating and preparing expressions of interests towards further Australian Government funding, as we believe that GBS firmly fits into the objectives of this initiative. The initiative will focus on Early-Stage Translation and Commercialization Support, which funds support for early stage medical research and medical innovation projects with commercial potential. The Medical Research Future Fund will have available in total approximately $225 million (USD) of project funding over the next 10 years for companies that meets the criteria. ● Quality Assurance and Regulatory Affairs ○ Strategic regulatory affairs plan is underway to address the Asian Pacific (APAC) region requirements. ○ Implementation of new Quality Assurance (QA) system underway. ○ Audit of key suppliers in progress. 15 COVID Test In relation to the potential application of the biosensor towards validating a rapid point-of-care diagnostic test intended to qualify the measurement of antibodies against SARS-CoV-2, we anticipate there to be 3 potential applications for the foreseeable future of population Screening SARS-CoV-2 antibody testing needed to estimate the incidence and prevalence of SARS-CoV-2 infection at the general population level. i. Post vaccination screening - To assess the degree of the elicited potent antigen-specific antibody responses, to SARS-CoV-2 vaccines and determine when booster vaccine shots are needed. ii. Diagnosis – The SARS-CoV-2 test can be used as a complement to the (RNA) virus detection tests for patients presenting late after symptoms onset to healthcare facilities. iii. In addition, they can potentially be used for informing the decision on discharge of patients who recovered from SARS-CoV-2 infection but remain RNA-positive by RT-PCR for a long time after symptoms have subsided. The degree of protective immunity conferred by or correlated with the antibodies detected in subjects with past SARS-CoV-2 infection is still under investigation. Once this is clarified, the SARS-CoV-2 antibody tests could be, together with the (RNA) direct virus detection, an essential tool in de-escalation strategies. Currently antibody tests are used for sero-epidemiological surveys and studies. ● Competitive Advantages Based on a recent paper publicly available and authored by the team at Johns Hopkins Department of Environmental Health and Engineering, Bloomberg School of Public Health, results indicate it is feasible to accurately measure the salivary IgG response to identify individuals with a prior SARS-CoV-2 infection. A saliva-based approach could serve as a non-invasive approach for accurate and large-scale SARS-CoV-2 “sero”-surveillance. By utilizing the Saliva Glucose Test for detecting SARS-CoV-2 we expect to have lower detection limits, improve on sensitivity and specificity characteristics of current diagnostic methods, be able to provide real time results at the point of care and provide quantitative results correlated to the WHO standards as opposed to negative or positive which is how other POCT report the results. Our COVID Test would increase the scope for diagnosis to be made in the community and outside the laboratory setting. It would have the potential to reduce the time to obtaining an actionable result, it could inform on when people need to get booster vaccine shots and inform appropriate use of isolation resources. Our Company has not generated any revenues to date. As such, the Company is subject to all of the risks associated with emerging growth companies. Since inception, the Company has incurred losses and negative cash flows from operating activities. The Company does not expect to generate positive cash flows from operating activities in the near future until such time, if at all, the Company completes the development process of its products, including regulatory approvals, and thereafter, begins to commercialize and achieve substantial acceptance in the marketplace for the first of a series of products in its medical device portfolio. Initial public offering On December 28, 2020, the Company closed its initial public offering (“IPO”) and sold 1,270,589 units, consisting of (a) one share of the Company’s common stock (or, at the purchaser’s election, one share of Series B Convertible Preferred Stock), (b) one Series A warrant (the “Series A Warrants”) to purchase one share of the Company’s common stock at an exercise price equal to $8.50 per share, exercisable until the fifth anniversary of the issuance date, and (c) one Series B warrant (the “Series B Warrants”) to purchase one share of the Company’s common stock at an exercise price equal to $17.00 per share, exercisable until the fifth anniversary of the issuance date and subject to certain adjustment and cashless exercise provisions. The public offering price of the shares sold in the IPO was $17.00 per unit. In aggregate, the units issued in the offering generated $17,732,448 in net proceeds, which amount is net of $1,714,001 in underwriters’ discount and commissions, and $2,153,564 in offering costs. Offering costs include underwriters’ warrants to acquire up to 63,529 shares with an exercise price of $18.70 per share, exercisable until the fifth anniversary of the issuance date. The Company also issued to the underwriter an option, exercisable one or more times in whole or in part, to purchase up to 190,588 additional shares of common stock and/or Series A Warrants to purchase up to an aggregate of 190,588 shares of common stock and/or Series B Warrants to purchase up to an aggregate of 190,588 shares of common stock, in any combinations thereof, from us at the public offering price per security, less the underwriting discounts and commissions, for 45 days after the date of the IPO to cover over-allotments, if any (the “Over-Allotment Option”). 16 Upon the closing of the IPO, all shares of preferred stock then outstanding were automatically converted into 2,810,190 shares of common stock, and all convertible notes then outstanding were automatically converted into 710,548 shares of common stock. Certain pre-IPO preferred shareholders were issued warrants that, following the Company’s completed IPO, allow the holders to acquire 2,736,675 shares of common stock at the IPO price during year two through to year three following the completion of the IPO. Results of Operations: Comparison of the Three and Nine Months Ended March 31, 2022 and 2021 Revenue Government support income Government support income increased by $158,210 to $192,500 from $34,290 for the quarter ended March 31, 2022 compared to same period in 2021. This increase was primarily attributable to GBS Inc.’s subsidiary companies recognizing R&D tax refund as the company believes that it is probable that the certain amount will be recovered in full through a future claim (see note 3 on R&D tax refund). Government support income decreased by $2,463 to $370,291 from $372,754 for the nine months ended March 31, 2022 compared to same period in 2021. This decrease was primarily attributable to GBS Inc.’s subsidiary companies receiving COVID-19 related government support in the previous financial year which was discontinued in April 2021 offset by the unwinding of deferred income as government support income during the nine months ended March 21, 2022 Operating expenses General and administrative expenses General and administrative expenses increased by $108,615 to $1,122,004 from $1,013,389 for the quarter ended March 31, 2022 compared to the same period in 2021. This increase was primarily driven by an increase in operational activities following completion of the IPO in December 2020. General and administrative expenses increased by $1,251,926 to $3,457,768 from $2,205,842 for the nine months ended March 31, 2022 compared to the same period in 2021. This increase was primarily driven by an increase in operational activities following completion of the IPO in December 2020. As the Company’s operating activities increase, we expect its general and administrative costs will include additional costs in overhead contribution, consultancy, as well as an increase in employee related costs associated with a higher headcount. Development and regulatory approval expenses Development and regulatory approval expenses decreased by $1,742,991 to $413,325 from $2,156,316 for the quarter ended March 31, 2022 compared to the same period in 2021. This decrease is primarily driven by delay in the timing of receipt of invoices from University of Newcastle. Development and regulatory approval expenses increased by $632,232 to $3,161,306 from $2,529,074 for the nine months ended March 31, 2022 compared to the same period in 2021. This increase is primarily driven by funding availability since completion of the IPO in December 2020 that has allowed the Company to progress on its milestones as well as expensing of the prepaid R&D contribution of $2,600,000. 17 As the Company’s operating activities increase, we expect its development and regulatory expenses to increase in future periods. Prospectus and capital raising expenses Prospectus and capital raising expenses decreased by $5,100 to zero from $5,100 for the quarter ended March 31, 2022 compared to the same period in 2021. This decrease was attributable to final expenditures required by us in the first half of the last financial year to successfully complete our IPO in December 2020. Prospectus and capital raising expenses decreased by $358,674 to zero from $358,674 for the nine months ended March 31, 2022 compared to the same period in 2021. This decrease was attributable to final expenditures required by us in the first half of the last financial year to successfully complete our IPO in December 2020. Other income and expenses Interest expense Interest expense decreased by $14,344 to $4,217 from $18,561 for the quarter ended March 31, 2022 as compared to the same period in 2021. This decrease was attributable to the conversion of convertible notes into common shares after the completion of the IPO in December 2020. Interest expense decreased by $1,086,357 to $4,892 from $1,091,249 for the nine months ended March 31, 2022 as compared to the same period in 2021. This decrease was attributable to the conversion of convertible notes into common shares after the completion of the IPO in December 2020. Realized foreign exchange gain (loss) Realized foreign exchange gain decreased by $8,764 to a gain of $10 from a gain of $8,774 for the quarter ended March 31, 2022 compared to the same period in 2021. This decrease was largely attributable to the favorable foreign exchange translations on capital raisings from AUD to USD during the same period in 2021. Realized foreign exchange loss decreased by $267,239 to a loss of $3,094 from a loss of $270,333 for the nine months ended March 31, 2022 compared to the same period in 2021. This decrease was largely attributable to the unfavorable foreign exchange translations on capital raisings from AUD to USD during the same period in 2021. Income tax (expense) benefit There was no income tax expense for the three and nine months ended March 31, 2022 and 2021, respectively, and the Company has established a full valuation allowance for all of its deferred tax assets. Other comprehensive loss Foreign currency translation loss Unrealized foreign currency translation loss decreased by $264,825 to a $2,793 gain from a $262,032 loss for the quarter ended March 31, 2022 as compared to the same period in 2021. It is calculated based on the Company’s unsettled transactions in currencies other than its functional currency. Unrealized foreign currency translation loss decreased by $221,410 to a loss of $57,334 from a loss of $278,744 for the nine months ended March 31, 2022 as compared to the same period in 2021. It is calculated based on the Company’s unsettled transactions in currencies other than its functional currency. Net loss Net loss decreased by $1,792,567 to $1,335,246 from $3,127,813 for the quarter ended March 31, 2022 compared to the same period in 2021. This decrease is primarily driven by higher expenditure incurred on research and development activities in the same period in 2021. 18 Net loss increased by $43,609 to $6,227,896 from $6,184,287 for the nine months ended March 31, 2022 compared to the same period in 2021. This increase is primarily driven by the expansion of the Company’s operational activities in order to progress on its regulatory and development milestones. Liquidity and Capital Resources We use working capital and cash measures to evaluate the performance of our operations and our ability to meet our financial obligations. We define Working Capital as current assets less current liabilities. The calculation of Working Capital provides additional information and is not defined as a measure of financial performance under GAAP. This measure should not be considered in isolation or as a substitute for any standardized measure under GAAP. This information is intended to provide investors with information about our liquidity. Other companies in our industry may calculate this measure differently than we do, limiting its usefulness as a comparative measure. Since our inception, our operations have primarily been financed through the issuance of our common stock, convertible preferred stock and the incurrence of debt. As of March 31, 2022, we had $10,756,089 in cash and cash equivalents and $8,433,248 in working capital. According to our management’s estimates, based on our budget and proposed schedules of development, approvals and organization, we believe, although there can be no assurances, we will have sufficient capital resources to enable us to continue to implement our business plan and remain in operation for at least up to the first half of 2023. During this time, we expect to use the net proceeds available to us for the following purposes: ● to obtain regulatory approvals and establish manufacturing capacities necessary for marketing of the SGT; ● to market the SGT and establish a distribution network in the APAC Region; and ● for working capital and general corporate purposes. We do not anticipate generating any revenue 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. In addition, available resources may be consumed more rapidly than currently anticipated, and there can be no assurance that we will be successful in developing the SGT and generating sufficient revenue in the timeframe set forth above, or at all. We may be unable to meet our targets for regulatory approval and market launch, or we may be unable to generate anticipated amounts of revenue from sales of the system. We may also need additional funding for developing new products and services and for additional sales, marketing and promotional activities. Should this occur, we may need to seek additional capital earlier than anticipated. In the event we require additional capital, there can be no assurances that we will be able to raise such capital on acceptable terms, or at all. Failure to generate sufficient revenues or raise additional capital through debt or equity financings, or through collaboration agreements, strategic alliances or marketing and distribution arrangements, could have a material adverse effect on our ability to meet our long-term liquidity needs and achieve our intended long-term business plan. Our failure to obtain such funding when needed could create a negative impact on our stock price or could potentially lead to a reduction in our operations or the failure of our company. See “Initial public offering” above for details about our IPO. Extended Transition Period for “Emerging Growth Companies” We have elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act. This election allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. As a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates. Because our financial statements may not be comparable to companies that comply with public company effective dates, investors may have difficulty evaluating or comparing our business, performance or prospects in comparison to other public companies, which may have a negative impact on the value and liquidity of our common stock. 19 Off-Balance Sheet Arrangements As of March 31, 2022, we do not have any off-balance-sheet arrangements that have, or are reasonably likely to have, a material current or future effect on our results of operations or financial condition, revenues, expenses, results of operations, liquidity, cash requirements or capital resources. Critical Accounting Policies and Use of Estimates The preparation of our unaudited condensed consolidated financial statements in conformity with GAAP requires management to make judgments, estimates and assumptions that impact the amounts reported in our consolidated financial statements and accompanying notes that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered relevant. Actual results may differ from these estimates. Our critical accounting policies are described in the 2021 Form 10-K, and the notes to the unaudited condensed consolidated financial statements included in “Part I, Item 1 — Financial Statements” of this Quarterly Report on Form 10-Q and incorporated herein by reference. During the three and nine months ended March 31, 2022, there were no material changes to our critical accounting policies from those in the 2021 Form 10-K. Recently issued Accounting Pronouncements For the impact of recently issued accounting pronouncements on the Company’s consolidated financial statements, see Note 3 to the unaudited condensed consolidated financial statements included in “Part I, Item 1 — Financial Statements” of this Quarterly Report on Form 10-Q and incorporated herein by reference. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this item.