INTELLIGENT BIO SOLUTIONS INC. 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. In addition to historical information, this discussion contains forward-looking statements based upon management’s current expectations that are subject to risks and uncertainties which may cause our actual results to differ materially from plans and results discussed herein. We encourage you to review the risks and uncertainties discussed in the sections entitled Item 1A. “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” included at the beginning of this Annual Report on Form 10-K. We caution readers not to place undue reliance on any forward-looking statements made by us, which speak only as of the date they are made. In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this report, and while we believe such information forms a reasonable basis for such. We disclaim any obligation, except as specifically required by law and the rules of the SEC, to publicly update or revise any such statements to reflect any change in our expectations or in events, conditions or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements. Non-GAAP Financial Measures To supplement our consolidated financial statements, which are prepared and presented in accordance with US GAAP, we present “contribution margin” and “contribution margin %”, which are non-GAAP financial measures. Contribution margin and contribution margin % are presented in the section titled “Contribution Margin (non-GAAP)”. We have also included reconciliations of these non-GAAP financial measures to their most directly comparable GAAP financial measures. These non-GAAP financial measures are not intended to be considered in isolation or as a substitute for, or superior to, financial information prepared and presented in accordance with US GAAP. These measures may be different from non-GAAP financial measures used by other companies, limiting their usefulness for comparison purposes. Moreover, presentation of contribution and contribution margin is provided for year-over-year comparison purposes. We believe these non-GAAP financial measures provide investors with useful supplemental information about the financial performance of our business, enable comparison of financial results between periods where certain items may vary independent of business performance, and allow for greater transparency with respect to key metrics used by management in operating our business. Overview Intelligent Bio Solutions 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. The Company’s Australian subsidiary, Intelligent Bio Solutions (APAC) 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 Company’s headquarters are in New York, New York. Intelligent Bio Solutions Inc. is a medical technology company focused on developing and delivering intelligent, rapid, non-invasive testing and screening solutions. The Company operates globally with the objective of providing innovative and accessible solutions that improve the quality of life. The Company’s current product portfolio includes: ● Intelligent Fingerprinting Platform: The Company’s current active product is the Intelligent Fingerprinting Platform, which consists of the proprietary portable platform that analyzes fingerprint sweat using a one-time cartridge and portable handheld reader. The flagship product from this platform, which is commercially available in certain countries outside of the United States, is the Intelligent Fingerprinting Drug Screening System (the “IFP System” or “IFP Products”), a two-part system that consists of non-invasive, fingerprint sweat-based diagnostic testing products designed to detect drugs of abuse including opiates, cocaine, methamphetamines, benzodiazepines, cannabis, methadone, and buprenorphine. The IFP System comprises a small, tamper-evident drug screening cartridge onto which ten fingerprint sweat samples are collected in under a minute before the portable analysis unit provides an on-screen result in under ten minutes. Samples collected with a confirmatory kit can also be sent to a third-party laboratory service provider for confirmation testing. Customers include safety-critical industries such as construction, transportation and logistics, manufacturing, engineering, drug treatment organizations in the rehabilitation sector, and judicial organizations. 42 We plan to bring the IFP System to new markets and grow within existing markets concentrating on: ● increasing market share across the United Kingdom and mainland Europe; ● commencing sales and distribution throughout Australia, New Zealand and other countries in the Asia Pacific Region (“APAC Region”), and establishing the infrastructure and satisfying the regulatory requirements needed to do so; ● continue to work on 510(k) pre-market notification submitted on December 2024 for expansion into United States markets that require FDA clearance, followed by the planned initial launch of our opiate test system for codeine and then for additional drugs following such additional FDA clearance as may be required ● initiating research aimed at broadening the capabilities of the IFP System to test for additional drugs and indications, facilitating the expansion of the platform into point-of-care medical testing; ● expanding the IFP System into new customer segments, including major sporting organizations, law enforcement, and commercial airlines; and ● developing a strategic network of distributors with established customer bases throughout the APAC Region, Europe and North America to distribute the IFP Products. ● Biosensor Platform : Under the terms of an Amended and Restated License Agreement dated September 12, 2019 (the “BPT License Agreement”), between the Company and Life Science Biosensor Diagnostics Pty Ltd (“LSBD” or “Licensor”), the Company held an exclusive license in the Asia Pacific Region (“APAC Region”) to the Licensor’s proprietary rights to the biosensor technology (the “Biosensor IP”) used in the biosensor platform we refer to as the Biosensor Platform Technology (“BPT”), or simply the “Biosensor Platform”. This platform consists of a small, printable modified organic thin-film transistor strip designed to detect multiple biological analytes by substituting the top enzyme layer of the biosensor to suit each analyte. We refer to products that use the BPT as the “Licensed Products”. This platform technology has the potential to develop a range of Point of Care Tests. We understand that following the appointment of a liquidator to LSBD on July 21, 2023, the Biosensor IP we licensed from LSBD has reverted back to the University of Newcastle. Following our ongoing discussions with the University, it is the Company’s understanding that the University of Newcastle cannot finalize licensing of the Biosensor IP until the liquidation of LSBD is complete. As the timeline for the completion of LSBD’s liquidation is unknown, the Company does not expect any updates or finalization of any license terms until this occurs. As a result, further development of the BPT has been postponed until we are able to finalize licensing arrangements related to the BPT. 43 Results of Operations Comparison of the Years Ended June 30, 2025 and 2024 Year Ended June 30, 2025 2024 Revenue $ 3,052,532 $ 3,111,781 Cost of revenue (exclusive of amortization shown separately below) (1,805,673 ) (1,686,155 ) Gross profit 1,246,859 1,425,626 Other income Government support income 816,901 424,776 Operating expenses Selling, general and administrative expenses (8,883,917 ) (9,258,496 ) Development and regulatory approval expenses (2,396,513 ) (1,673,806 ) Depreciation and amortization (1,207,875 ) (1,201,274 ) Impairment of long-lived assets (220,062 ) - Total operating expenses (12,708,367 ) (12,133,576 ) Loss from operations (10,644,607 ) (10,283,174 ) Other income (expense), net Interest expense (60,890 ) (167,140 ) Realized foreign exchange loss (911 ) (1,178 ) Fair value gain on revaluation of financial instrument - 175,738 Interest income 101,522 84,822 Total other income, net 39,721 92,242 Net loss (10,604,886 ) (10,190,932 ) Net loss attributable to non-controlling interest (36,153 ) (34,173 ) Net loss attributable to Intelligent Bio Solutions Inc. $ (10,568,733 ) $ (10,156,759 ) Other comprehensive income (loss), net of tax Foreign currency translation gain (loss) 384,670 (137,118 ) Total other comprehensive income (loss) 384,670 (137,118 ) Comprehensive loss (10,220,216 ) (10,328,050 ) Comprehensive loss attributable to non-controlling interest (36,153 ) (34,173 ) Comprehensive loss attributable to Intelligent Bio Solutions Inc. (10,184,063 ) (10,293,877 ) Net loss per share, basic and diluted $ (2.00 ) $ (6.38 ) Weighted average shares outstanding, basic and diluted 5,273,643 1,592,746 44 Results of Operations: Comparison of the Years Ended June 30, 2025, and 2024 Revenue Sales of goods   Revenue from sales of goods decreased by $59,249 to $3,052,532 from $3,111,781 for the year ended June 30, 2025, compared to same period in 2024. This decrease is mainly due to instability in the construction sector in our primary market, the UK which has resulted in the lower number of readers being sold during the period. Revenue from IFP Products relates to the sale of readers, cartridges and accessories and is summarized as follows: Year Ended June 30, 2025 2024 Sales of goods - cartridges $ 1,762,153 $ 1,549,409 Sales of goods - readers 711,737 938,897 Other sales 578,642 623,475 Total revenue $ 3,052,532 $ 3,111,781 Cost of revenue   Cost of revenue increased by $119,518 to $1,805,673 from $1,686,155 for the year ended June 30, 2025, compared to same period in 2024. The increase in cost of revenue is mainly due to an increase in direct labor cost due to annual salary revision for direct manufacturing labor during the fourth quarter of fiscal 2025 and direct overhead costs. The following table shows the composition of cost of revenue. Cost of revenue Year Ended June 30, 2025 2024 Direct material cost $ 923,251 $ 1,017,218 Direct labor cost 834,231 646,246 Direct overhead cost 48,191 22,691 Total cost of revenue (exclusive of amortization) $ 1,805,673 $ 1,686,155 Gross profit Year Ended June 30, 2025 2024 Revenue $ 3,052,532 $ 3,111,781 Direct material cost (923,251 ) (1,017,218 ) Direct labor cost (834,231 ) (646,246 ) Direct overhead cost (48,191 ) (22,691 ) Cost of revenue (1,805,673 ) (1,686,155 ) Gross profit $ 1,246,859 $ 1,425,626 Gross profit margin 40.85 % 45.81 % Gross profit decreased by $178,767 to $1,246,859 from $1,425,626 for the year ended June 30, 2025, compared to same period in 2024. The gross profit margin decreased by 4.96% due to an increase in direct labor costs due to additional head counts, increase in minimum wages of factory staff by 8.90% year-on-year and direct overhead costs.   45 Contribution margin (non-GAAP) Year Ended June 30, 2025 2024 Revenue $ 3,052,532 $ 3,111,781 Direct material cost (923,251 ) (1,017,218 ) Contribution margin (non-GAAP) $ 2,129,281 $ 2,094,563 Contribution margin % (non-GAAP) 69.75 % 67.31 % Contribution margin (non-GAAP) Contribution margin, which is a non-GAAP measure of our financial performance, increased by $34,718 to $2,129,281 from $2,094,563 for the year ended June 30, 2025, compared to same period in 2024. The contribution margin improved by approximately 2.44% due to improved production efficiency and sales mix, as the sales of high margin cartridges continue to increase as a proportion of the total revenue. Reconciliation of contribution margin (non-GAAP) Year Ended June 30, 2025 2024 Revenue (GAAP) $ 3,052,532 $ 3,111,781 Less: Cost of revenue (exclusive of amortization) (GAAP) (1,805,673 ) (1,686,155 ) Gross Profit (GAAP) $ 1,246,859 $ 1,425,628 Add: Direct labor cost 834,231 646,246 Add: Direct overhead cost 48,191 22,691 Contribution margin (non-GAAP) $ 2,129,281 $ 2,094,565 Contribution margin % (non-GAAP) 69.75 % 67.31 % Government support income Government support income in the United Kingdom and Australia geographic segments increased by $392,125 to $816,901 from $424,776 for the year ended June 30, 2025, compared to same period in 2024. This increase was primarily attributable to the Company’s investment in qualifying research and development expenditures for research and development government subsidies and unwinding of the grant income in the fourth fiscal quarter of FY 2024-25 upon the completion of the grant acquittal audit. The grant support income is primarily attributable to INBS’s subsidiary companies recognizing an R&D tax refund as the Company believes there is a reasonable assurance that the certain amount will be recovered in full through future claims (see Note 3 to our consolidated financial statements appearing elsewhere in our Annual Report on Form 10-K for further information and disclosures relating R&D tax refund). Operating expenses Selling, general and administrative expenses Selling, general and administrative expenses decreased by $374,579 to $8,883,917 from $9,258,496 for the year ended June 30, 2025, compared to the same period in 2024. This decrease is primarily due to a decrease in legal, insurance, and general overhead costs offset by an increase in advertising, marketing and travel costs. As the Company’s operating activities increase, we expect its selling, general and administrative expenses will include additional costs in overhead contribution, consultancy, as well as an increase in employee-related costs associated with a higher headcount. We aim to increase our cost efficiency as we streamline the business and implement changes, delivering increased value for investors. 46 Development and regulatory approval expenses Development and regulatory approval expenses increased by $722,707 to $2,396,513 from $1,673,806 for the year ended June 30, 2025, compared to the same period in 2024. This increase is primarily driven by the increased expenditure on R&D activities as the Company undertook multiple clinical trials and filed for FDA 510 (k) clearance. During the year ended June 30, 2025, the Company partnered with CenExel Research, a third party Clinical Research Organization (CRO), and completed a method comparison clinical study on its IFP System. We expect development and regulatory expenses to increase in future periods, as the Company aims to conduct future studies for additional drugs of abuse. Depreciation and amortization  Depreciation and amortization increased by $6,601 to $1,207,875 from $1,201,274 for the year ended June 30, 2025, compared to same period in 2024. This increase is mainly due to the fluctuation in the foreign exchange rate for conversion of the account balances. Impairment of long-lived assets   The Impairment of long-lived assets increased by $220,062 to $220,062 from $0 for the year ended June 30, 2025, compared to the same period in 2024. The increase is mainly due to the impairment of construction in progress (CIP) assets. Refer to Note 7 of financial reports for details. Other income and expenses Interest expense Interest expense decreased by $106,250 to $60,890 from $167,140 for the year ended June 30, 2025, as compared to the same period in 2024. This decrease was attributable to the reduction of the interest recorded for leased assets and notes payable as the leases are nearing its termination date. Realized foreign exchange loss Realized foreign exchange loss decreased by $267 to $911 from $1,178 for the year ended June 30, 2025, compared to the same period in 2024. This decrease was largely attributable to favorable exchange rates while settling transactions in currencies other than its functional currencies. Fair value gain on revaluation of financial instruments The fair value gain decreased by $175,738 to $0 from $175,738 for the year ended June 30, 2025, as compared to the same period in 2024. This decrease is due to the revaluation gain on contingent consideration for holdback Series C Preferred Stock resulting from the acquisition of IFP. The holdback Series C Preferred Stock shares were converted into common stock in October 2023. There was no fair value revaluation gain or loss on financial instruments for the year ended June 30, 2025. Interest income Interest income increased by $16,700 to $101,522 from $84,822 for the year ended June 30, 2025, as compared to the same period in 2024. This increase was attributable to funds received from capital raising activities, which contributed to the balance on which interest was earned. 47 Income tax (expense) benefit There was no income tax expense for the years ended June 30, 2025, and 2024, respectively, as the Company has established a full valuation allowance for all its deferred tax assets. The One Big Beautiful Bill Act (the “OBBBA”), signed into law on July 4, 2025, introduces amendments to U.S. tax laws with various effective dates. Key tax-related provisions of the OBBBA include changes to bonus depreciation, research and development expenditures, interest expense deductibility, and revisions to international tax regimes. The Company is currently assessing the future implications of these tax law changes. Other comprehensive income (loss)   Foreign currency translation gain (loss)   Unrealized foreign currency translation gain increased by $521,788 to a gain of $384,670 from a loss of $137,118 for the year ended June 30, 2025, compared to the same period in 2024. This is due to the favorable exchange rate calculated based on the Company’s unsettled transactions in currencies other than its functional currency and translation of assets and liabilities of foreign subsidiaries in reporting currency. Net loss attributable to INBS Net loss attributable to INBS increased by $411,974 to $10,568,733 from $10,156,759 for the year ended June 30, 2025, compared to the same period in 2024. This increase is primarily driven by increase in development and regulatory approval expenses as the Company ran multiple clinical trials for submission to the FDA and impairment of the available for sale assets during the year. 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. This measure should not be considered in isolation or as a substitute for any standardized measure under US 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, we have financed our operations primarily though proceeds from public offerings and private placements of equity securities, existing trade and shareholder financing arrangements, and the incurrence of debt. As of June 30, 2025, we had $1,019,909 in cash and cash equivalents and working capital deficit of $1,212,419. At the Market (ATM) Offering - On September 18, 2024, the Company entered into an At The Market Offering Agreement (the “ATM Agreement”) with Ladenburg Thalmann & Co. Inc. (“Ladenburg”). Pursuant to the terms of the ATM Agreement, the Company may sell from time to time through Ladenburg, as sales agent and/or principal, shares of the Company’s common stock, with an aggregate sales price of up to $3.0 million. On March 11, 2025, the Company filed a prospectus supplement (the “2025 ATM Supplement”) to the ATM Prospectus (defined below) in connection with the offer, sale, and issuance of additional shares. During the period between September 18, 2024, through to June 30, 2025, the Company raised approximately $2,251,540 (net of commissions of approximately $69,637 paid to Ladenburg) through the sale and issuance of 1,434,659 shares of Company common stock pursuant to the ATM Agreement. During the three months ended June 30, 2025, the Company raised approximately $765,201 (net of commissions of approximately $23,666 paid to Ladenburg) through the sale and issuance of 514,296 shares of Company common stock pursuant to the ATM Agreement. Any sale of shares pursuant to the ATM Agreement are made under the Company’s effective “shelf” registration statement on Form S-3 (File No. 333-264218), which became effective on April 20, 2022, and included base prospectus, and under the related prospectus supplement (the “ATM Prospectus”) filed with the SEC, dated September 18, 2024, as supplemented by the 2025 ATM Supplement filed with the SEC on March 11, 2025. February Offering - On February 20, 2025, the Company entered into an underwriting agreement with Ladenburg, as representative (the “February Representative”) for the underwriters named in Schedule 1 thereto (collectively, the “February Underwriters”) relating to an underwritten public offering of 1,304,348 shares of the Company’s common stock. The public offering price for each share was $2.00 per share and the February Underwriters agreed to purchase 1,304,348 shares (the “February Offering”). The Company granted the February Underwriters a 45-day option to purchase an additional 195,652 shares of common stock at the public offering price of $2.00 per share, less the underwriting discounts and commissions. On February 20, 2025, the February Representative fully exercised the over-allotment option to purchase an additional 195,652 shares of common stock. All of the shares were sold by the Company. The February Offering closed on February 21, 2025. As a result of the over-allotment option being exercised in full, the Company raised approximately $2,645,000 (net of underwriting discounts and commissions of approximately $355,000). The Company expects that its cash and cash equivalents as of June 30, 2025, may be insufficient to allow the Company to fund its current operating plan through at least the next twelve months from the issuance of these consolidated 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 consolidated financial statements are issued. Accordingly, the Company will be required to raise additional funds during the next 12 months. For more information regarding the repayment of a grant the Company received from the Australian Government, see “Item 1A. Risk Factors - The Company may not be able to repay the grant it received from the Australian Government on time.” However, 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 financing, 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. Accordingly, these factors raise substantial doubt about the Company’s ability to continue as a going concern unless it can successfully raise additional capital. 48 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. Off-Balance Sheet Arrangements As of June 30, 2025, we did not have any off-balance sheet arrangements. Critical Accounting Estimates The preparation of our consolidated financial statements in conformity with US 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. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised, if the revision affects only that period, or in the period of the revision and future periods, if the revision affects both current and future periods. Note 3 to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K, and incorporated herein by reference, describes the Company’s accounting policies. The following discussion should be read in conjunction with Note 3, as it presents uncertainties involved in applying the accounting policies and provides insight into the quality of management’s estimates and variability in the amounts recorded for these critical accounting estimates. While all accounting policies impact the consolidated financial statements, certain policies may be viewed to be critical. Management believes that the accounting policies which involve more significant judgments and estimates used in the preparation of our consolidated financial statements include research and development tax refunds. We believe our most critical accounting policies and estimates relate to the following: 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. Grant income Accounting for the grant income 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 US 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. 49 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. In the fourth fiscal quarter of 2025, upon the end of the project deadline for the construction of a manufacturing facility in Australia, a grant acquittal audit was completed by an independent auditor in relation to the grant received from the Australian Government. The amounted owed to the Australian Government was determined as $2,172,108, which is disclosed under liabilities in the balance sheet as of June 30, 2025, as “Accounts payable and accrued expenses”. A total of $271,780 and $0 deferred grant income was recognized within other income during the year ended June 30, 2025 and 2024 respectively. Inventories, net 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. Impairment of Long-lived Assets Long-lived assets consist of property and equipment, right-of-use assets and other intangible assets. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. When such events occur, the Company compares the carrying amounts of the assets to their undiscounted expected future cash flows. If this comparison indicates that there is impairment, the amount of impairment is calculated as the difference between the carrying value and fair value of the asset. In the fourth fiscal quarter ended June 30, 2025, upon the completion of the project deadline for the construction of a manufacturing facility in Australia, the construction in progress assets acquired specifically for the manufacturing facilities were evaluated for alternative uses. It was determined that these assets had no alternative use to the Company. Consequently, management concluded this event to be an indicator of impairment and initiated an assessment for impairment in accordance with ASC 360, Property, Plant, and Equipment. As part of this assessment, management decided to dispose these assets and obtained offers from interested third parties. The Company determined the fair value of the construction in progress using the market approach and concluded that the carrying value of the assets exceeded the fair value. Therefore, the Company recognized an impairment loss of $220,062 during the fiscal year ended June 30, 2025. There was no impairment loss recognized during the fiscal year ended June 30, 2024. 50 R&D Tax Refund The Company measures the research and development grant income and receivable by calculating the time spent by employees and costs incurred to external service providers on eligible research and development activities. The research and development tax refund receivable is recognized as the Company believes that there is a reasonable assurance the amount will be recovered in full through future claims. 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. Recently issued Accounting Pronouncements For the impact of recently issued accounting pronouncements on the Company’s consolidated financial statements, see Note 3 to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K and incorporated herein by reference. 51 ITEM 7A. 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 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The consolidated financial statements required pursuant to this item are included in Part IV, Item 15 of this Annual Report on Form 10-K, beginning on page F-1, and incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES. None.