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.
Overview
Intelligent Bio Solutions Inc.
(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). Our headquarters are in New York, New York.
We are a medical technology company
focused on developing and delivering non-invasive, rapid and pain free innovative testing and screening solutions. We operate globally
with the objective of providing intelligent, pain-free, and accessible solutions that improve the quality of life.
Our current product portfolio includes:
These platform technologies have the potential
to develop a range of POCT including the modalities of clinical chemistry, immunology, tumor markers, allergens, and endocrinology.
Highlights of Achievements
Our major highlights of achievements for
the fiscal year 2023:
Results of Operations:
Comparison of the Years Ended June 30, 2023
and 2022
Year Ended June 30,
Cost of revenue (exclusive of amortization shown separately below) (930,204 ) -
Other income:
Operating expenses:
Development and regulatory approval expenses (507,424 ) (3,853,919 )
Depreciation and amortization (966,732 ) -
Other income (expense):
Realized foreign exchange loss (9,829 ) (3,987 )
Fair value gain on revaluation of financial instruments 2,154,365 -
Net loss attributable to non-controlling interest (32,835 ) (27,925 )
Other comprehensive income (loss), net of tax:
Foreign currency translation income (loss) $ 212,639 $ (126,875 )
Comprehensive loss attributable to non-controlling interest (32,835 ) (27,925 )
Net loss per share, basic and diluted* $ (10.58 ) $ (11.33 )
Weighted average shares outstanding, basic and diluted* 1,004,593 733,263
* Common Shares and per share amount have been retroactively adjusted
to reflect the decreased number of shares resulting from a 1 for 20 reverse stock split, throughout this Annual Report on Form 10-K,
unless otherwise stated.
Results of Operations:
Comparison of the Years Ended June 30, 2023, and 2022
Revenue
Sales of goods
Revenue from sales of goods increased by $1,256,872
to $1,256,872 from $0 for the year ended June 30, 2023, compared to same period in 2022. This is due to the acquisition of IFP in October
2022, whose results of operations are consolidated and launch of fingerprint drug testing in APAC region via Intelligent Bio Solutions (APAC) Pty Ltd. The acquisition provided the Company with access to commercially available Fingerprinting drug testing system which
is currently being marketed in Europe and Asia Pacific Region.
Revenue from the IFPG segment relates to the sale
of readers, cartridges and accessories and is summarized as follows:
Year Ended June 30,
Sales of goods - cartridges $ 724,304 $ —
Sales of goods - readers 335,863 —
Cost of revenue
Cost of revenue increased by $930,204 to $930,204
from $0 for the year ended June 30, 2023, compared to same period in 2022. Cost of revenue relates to the direct labor, direct material
costs and direct overhead costs incurred in the production of the goods.
Gross profit
Gross profit increased by $326,668 to $326,668 from
$0 for the year ended June 30, 2023, compared to same period in 2022. This is due to the acquisition of IFP in October 2022.
The gross profit is primarily attributable to the
IFPG segment.
Government support income
Government support income increased by $300,482
to $737,628 from $437,146 for the year ended June 30, 2023, compared to same period in 2022. This increase was primarily attributable
to qualifying research and development expenditures incurred during the current period including the completion of Milestone 7, a phase
of its biosensor platform development at the University of Newcastle, Australia.
The grant support income is primarily
attributable to INBS’s subsidiary companies recognizing an 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 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
increased by $3,106,600 to $8,026,703 from $4,920,103 for the year ended June 30, 2023, compared to the same period in 2022. This
is largely due to the acquisition of IFP which added approximately 32 staff to our FTE headcount, and the results of operations of
IFP which are consolidated in the current period from the date of acquisition.
As the Company’s operating activities increase,
we expect its selling, 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 expenses
Development and regulatory expenses decreased by $3,346,495
to $507,424 from $3,853,919 for the year ended June 30, 2023, compared to the same period in 2022. This decrease is primarily driven by
expensing of the prepaid R&D contribution of $2,600,000 during the same period in 2022 and decrease in the R&D activities related to COVID-19, as the demand for Covid testing products decreased significantly
and we redirected our resources and efforts away from developing products related to Covid testing.
As the Company’s operating activities increase, we expect its development
and regulatory expenses to increase in future periods.
Depreciation and amortization
Depreciation and amortization increased by $966,732
to $966,732 from $0 for the year ended June 30, 2023, compared to same period in 2022. This is due to the acquisition of IFP and primarily
related to the amortization of acquired Intangibles during the current period.
Goodwill Impairment
The goodwill impairment expenses increased by
$4,158,670 to $4,158,670 from $0 for the year ended June 30, 2023, compared to the same period in 2022. Refer to note 3 of
our consolidated financial statements appearing elsewhere in our Annual Report on Form 10-K.
Other income and expenses
Interest expense
Interest expense increased by $215,995 to $223,534
from $7,539 for the year ended June 30, 2023, as compared to the same period in 2022. This increase was attributable to the interest expense
recorded for convertible notes after the acquisition of IFP.
Realized foreign exchange loss
Realized foreign exchange loss increased by $5,842 to $9,829 from $3,987
for the year ended June 30, 2023, compared to the same period in 2022. The increase in loss was largely attributable to the Company’s
settled translations in currencies other than its functional currencies.
Fair value gain on revaluation of financial instruments
The fair value gain increased by $2,154,365 to $2,154,365
from $0 for the year ended June 30, 2023, as compared to the same period in 2022. This increase is due to the revaluation gains on the
convertible notes and contingent consideration for holdback shares resulting from the acquisition of IFP.
Interest income
Interest income decreased by $4,750 to $9,676 from $14,426 for the year
ended June 30, 2023, as compared to the same period in 2022. This decrease was attributable to the lower bank balance during the current
period due to the amount spent on operating and development activities.
For additional information regarding
the conversion of the convertible notes, see “Item 1. Business – Conversion of Convertible Debt and Preferred Stock.”
Income tax (expense) benefit
There was no income tax expense for the year
ended June 30, 2023, and 2022, respectively, as the Company has established a full valuation allowance for all its deferred tax assets.
Other comprehensive income
Foreign currency translation gain/(loss)
Unrealized foreign currency translation gain increased
by $339,514 to a gain of $212,639 from a loss of $126,875 for the year ended June 30, 2023, compared to the same period in 2022. It is
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
Net loss attributable to INBS increased by $2,325,669
to $10,631,720 from $8,306,051 for the year ended June 30, 2023, compared to the same period in 2022. This increase is primarily driven
by impairment of goodwill $4,158,670 offset by a recognition of fair value gain on revaluation of convertible notes and holdback Series
C Preferred Stock during the current period of $2,154,365.
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 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, redeemable convertible preferred stock, and the incurrence of debt. As of June
30, 2023, we had $1,537,244 in cash and cash equivalents and a working capital deficit of $2,021,124.
The Company expects that its cash and cash equivalents
as of June 30, 2023, 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. 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 us, or at all. Accordingly,
these factors raise substantial doubt about the Company’s ability to continue as a going concern.
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. Accordingly, these factors raise substantial doubt about the Company’s
ability to continue as a going concern.
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
We do not have any off-balance sheet arrangements
or relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special
purpose entities.
Critical Accounting Estimates
The preparation of our 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.
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 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 Company received
payments of $1.4 million and $2.1 million during the years ended June 30, 2023 and 2022, respectively.
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-19 pandemic in the preceding
year. As of June 30, 2023, the Company has only completed 4 of the 8 milestones in the grant agreement. There is uncertainty regarding
the potential extension of the grant agreement past its original end of March 28, 2024. Therefore, management concluded that there was
no reasonable assurance that the remaining grant receivable would be received.
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 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 $127,944 and $51,258 deferred grant income was recognized within other income during
the years ended June 30, 2023, and 2022, respectively.
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.
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 year ended June 30, 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 it’s 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 $4.2 million in the IFPG segment, which is related to the goodwill
associated with the IFP Acquisition.
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.
R&D tax Refund
The Company measures the research
and development grant income and receivable by taking into account the time spent by employees on eligible research and development activities
and research and development costs incurred to external service providers. The research and development tax refund receivable is recognized
as the Company believes that it probable that the amount will be recovered in full through a future claim.
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.
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.
ITEM 9A. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Principal
Executive Officer and Principal Financial and Accounting Officer, evaluated the effectiveness of our disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Annual Report on Form 10-K, and
have concluded that, based on such evaluation, our disclosure controls and procedures were not effective due to the material weakness
in our internal control over financial reporting as of June 30, 2023 as described below.
Notwithstanding the conclusion that our disclosure
controls and procedures were not effective as of the end of the period covered by this report, we believe that our consolidated financial
statements and other information contained in this annual report on Form 10-K present fairly, in all material respects, our business,
financial condition and results of operations for the periods presented.
Management’s Report on Internal Control Over
Financial Reporting
Our management is responsible for establishing and
maintaining adequate internal control over financial reporting as defined in Rules 13a -15(f) under the Exchange Act. Our internal control
was designed to provide reasonable assurance to our management and board of directors regarding the preparation and fair presentation
of published financial statements.
Internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting principles. The Company’s internal control over financial
reporting includes those policies and procedures that (i) pertain to assets of the Company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and
directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,
use, or disposition of the Company’s assets that could have a material effect on the financial statements.
A material weakness is a deficiency, or a combination
of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement
of a company’s annual or interim consolidated financial statements will not be prevented or detected on a timely basis.
The effectiveness of any
system of internal control over financial reporting, including ours, is subject to inherent limitations, including the exercise of judgment
in designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely.
Accordingly, in designing and evaluating the disclosure controls and procedures, management recognizes that any system of internal control
over financial reporting, including ours, no matter how well designed and operated, can only provide reasonable, not absolute assurance
of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that
there are resource constraints, and that management is required to apply its judgment in evaluating the benefits of possible controls
and procedures relative to their costs. Moreover, projections of any evaluation of effectiveness to future periods are subject to the
risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures
may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business but cannot
assure you that such improvements will be sufficient to provide us with effective internal control over financial reporting.
Management assessed the effectiveness
of our internal control over financial reporting as of June 30, 2023, based on the criteria set forth by the Committee of Sponsoring Organizations
of the Treadway Commission in Internal Control-Integrated Framework (2013 Framework). Based on this assessment, management concluded that
our internal control over financial reporting was not effective as of June 30, 2023, due to the material weaknesses described below.
Material Weaknesses
As a result
of the assessment, management concluded that the Company’s internal control over financial reporting was ineffective as of the evaluation
date due to the following material weaknesses in control environment, risk assessment, control activities, information and communication
and monitoring.
The material weaknesses identified relates to the fact
that the Company has not yet designed and maintained an effective control environment commensurate with its financial reporting requirements,
including a) has not yet completed the formally documented policies and procedures with respect to the review, supervision and monitoring
of the Company’s accounting and reporting functions, b) lack of evidence to support the performance of controls and the adequacy
of review procedures, including the completeness and accuracy of information used in the performance of controls and c) as an emerging
growth company we currently have limited accounting personnel and other supervisory resources necessary to adequately execute the Company’s
accounting processes and address its internal controls over financial reporting.
Remediation Plan
Management is committed to continuing with the steps
necessary to remediate the control deficiencies that constituted the above material weaknesses. Since the IPO, we made the following enhancements
to our control environment:
● We added accounting and
finance personnel to provide additional individuals to allow for segregation of duties in the preparation and review of schedules, calculations,
and journal entries that support financial reporting, to provide oversight, structure and reporting lines, and to provide additional review
over our disclosures;
● We enhanced our controls
to improve the preparation and review over complex accounting measurements, and the application of GAAP to significant accounts and transactions,
and our financial statement disclosures; and,
● We engage independent
experts when complex transactions are entered into;
● We plan to recruit additional
financial reporting and accounting personnel with adequate knowledge of US GAAP and SEC rules; and
● We are in the process
of engaging outside consultants to assist us in our evaluation of the design, implementation, and documentation of internal controls that
address the relevant risks, and that provide for appropriate evidence of performance of our internal controls (including completeness
and accuracy procedures).
Under the direction of the Audit Committee of our
board of directors, management will continue to take measures to remediate the material weaknesses. As such, we will continue to enhance
corporate oversight over process-level controls and structures to ensure that there is appropriate assignment of authority, responsibility,
and accountability to enable remediation of our material weakness.
As we continue to evaluate, and work to improve, our
internal control over financial reporting, management may determine that additional measures to address control deficiencies or modifications
to the remediation plan are necessary.
Changes in Internal Control Over Financial Reporting
Other than the ongoing remediation
effort, described above, there have been no changes to the Company’s internal controls over financial reporting (as defined in Rules
13a-15(f) and 15d 15(f) under the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting. On October 4, 2022, the Company completed the acquisition
of IFP. In accordance with the guidance issued by the SEC, recently acquired businesses may be excluded from management’s assessment
of the effectiveness of the Company’s internal control over financial reporting in the year of acquisition. Accordingly, management
excluded the IFP Acquisition from the management’s assessment of the effectiveness of the Company’s internal control over
financial reporting from October 4, 2022 (the acquisition date), which excluded total assets and total net revenue representing approximately
75.1% and 99.5% respectively, of the Company’s related consolidated financial statement amounts as of and for year ended June 30,
2023.
Inherent Limitation on the Effectiveness of
Internal Controls
A control system, no matter how well conceived and operated, can provide
only reasonable, not absolute, assurance that the objectives of the internal control system are met. Because of the inherent limitations
of any internal control system, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company
have been detected.
ITEM 9B. OTHER INFORMATION.
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS
THAT PREVENT INSPECTION
Not applicable.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
Board of Directors
The current number of directors
on our Board of Directors is six. Under our Amended and Restated Bylaws, the number of directors on our Board will not be less than one,
nor more than ten, and is fixed, and may be increased or decreased by resolution of the Board. There are no family relationships among
any of our directors or executive officers.
Our business is managed under
the direction of our Board, which currently consists of the individuals listed below:
Director Age+ Position(s) with the Company Director Since
Stephen Boyages 66 Chairman of the Board July 2020
Former Interim Chief Executive Officer
Lawrence Fisher* 84 Director August 2020
Jonathan Hurd* 52 Director April 2018
Jason Isenberg* 50 Director October 2022
David Jenkins* 65 Director October 2022
Christopher Towers* 37 Director August 2020
+ As of June 30, 2023
* Independent
Steven Boyages MB BS PhD
Dr. Steven Boyages, 66, is a
practicing clinician in diabetes and endocrinology with more than 31 years’ experience in medicine, including multiple executive
positions. Dr Boyages held the position of Interim Chief Executive Officer of the Company for less than one year, from October 29, 2021,
to October 26, 2022. Dr. Boyages also previously held the position of Chief Executive of the Sydney West Area Health Service (SWAHS) from
February 2002 to May 2011, which is now known as Western Sydney Local Health District, covering a population of approximately 1.2 million
people, SWAHS employed more than 15,000 staff and had a gross operating budget of $2 billion, managing $1.6 billion worth of assets. Dr.
Boyages has also served as Medical Director for eHealth New South Wales and was the founding Chief Executive of the Clinical Education
and Training Institute (CETI) New South Wales, Australia, set up to ensure the development and the delivery of clinical education and
training across the NSW public health system. Previous to this, Dr. Boyages was the Director of Diabetes and Endocrinology at Westmead
Hospital, from February 1990 to December 1999. During this time, Dr. Boyages’ major achievements were to define the pathophysiology
of thyroid hormone deficiency on brain development secondary to iodine deficiency; to develop prevention strategies in iodine deficient
communities in China, India, Indonesia and Northern Italy; to define the impact of Growth Hormone excess and deficiency in adults and
to develop innovative population health models of care for people with diabetes. Dr. Boyages continues an active research career in a
range of fields, but mostly in the pursuit of better models of chronic disease prevention and management. Dr. Boyages was the founding
director of the Centre for Research and Clinical Policy in NSW Health in 1999, during which time he established the Priority Health Programs
(receiving $15 million in funding per annum), doubled the Research Infrastructure Grants Program, established the Quality Branch of NSW
Health and was appointed as Clinical Advisor to the Director General to implement the Government Action Plan for Health Reform. Additionally,
Dr. Boyages was instrumental in establishing and securing funding for the NSW biotechnology strategy, BioFirst, a $150 million investment.
We believe that Dr. Boyages is well-qualified to serve on our Board of Directors due to his medical expertise and research and development
experience. He also has extensive experience in financial management, board and corporate governance, government relations and regulatory
affairs.
Lawrence Fisher
Lawrence Fisher, 84, has been
a member of our Board since August 2020. Mr. Fisher has practiced as a securities lawyer in New York City for more than 40 years and retired
in 2002. He is a graduate of Columbia College and Columbia University Law School, and a Research Fellow of the London School of Economics.
Lawrence has extensive experience representing public companies and investment banking firms in connection with initial public offerings.
During his career, he was a partner at Orrick, Herrington & Sutcliffe law firm for 11 years and partner at Kelley, Drye & Warren
law firm for 10 years, and Parker, Chapin & Flattau for 20 years, serving on all firms’ Executive Committees. Furthermore, he
is experienced in various board positions, including Audit Committee of Viking Energy Group since August 2018, a member of the Board and
Audit Committee of National Bank of New York City for more than 20 years to December 2018, and Financial Federal Corporation (NYSE listed)
for over five years until February 2010. We believe that Mr. Fisher is well-qualified to serve on our Board of Directors due to his extensive
experience as a lawyer in the field of capital markets and will assist with understanding the legal and compliance issues pertaining to
publicly listed companies.
Jonathan S. Hurd
Mr. Hurd, 52, has been a member
of our Board of Directors since April 2018 and chairs the Company’s Compensation Committee. He previously served as our Chairman
of the Board from August 2018 to November 2019. Mr. Hurd has expertise in broker-dealer and investment advisory regulations and is well
versed in FINRA and SEC rules and regulations. Mr. Hurd has served as Founder and CEO at Asgard Regulatory Group, or “Asgard,”
since founding the firm in 2008. Asgard provides consulting, advisory and risk management services to broker-dealer, investment adviser,
hedge funds, private equity, and banking clients both domestically and abroad. Prior to starting Asgard, Mr. Hurd was the Chief Compliance
Officer for several financial institutions. His experience involved full-service broker-dealers, investment advisory firms, bank-broker-dealers
and mortgage-backed securities. Mr. Hurd also served on the Board of Directors for many of these companies. Prior to working at these
financial institutions, Mr. Hurd was a Supervisor of Examiners at FINRA, previously NASD, in the New York District Office. While with
FINRA, he supervised routine examinations of FINRA member firms, and conducted large-scale enforcement cases jointly with the Justice
Department and Federal Bureau of Investigations. Mr. Hurd also assisted the District Office with its ongoing training of new examiners.
In addition, from 2005 to 2011, Mr. Hurd was a Senior Adjunct Professor in the Townsend School of Business at Dowling College, where he
instructed MBA students in matters relating to the United States securities markets and financial institutions. He was responsible for
introducing students to the subjects of financial derivatives, foreign stock exchange, hedge transactions and risk management. Mr. Hurd
is also a Certified Anti-Money Laundering Specialist (CAMS) and holds the Series 7, 14, 24, 27, 53, 57, 63, 66, 79 and 99 licenses as
well as his NYS Life and Health Insurance licenses. We believe Mr. Hurd is well-qualified to serve on our Board of Directors due to his
substantial experience in corporate finance, his expertise in the regulation and functioning of securities markets and his widespread
relationships in the financial industry.
Jason Isenberg
Mr. Isenberg, 50, has been a member
of our Board since October 2022. Mr. Isenberg currently serves as Assistant General Counsel for RFA Management Company, LLC in Atlanta,
Georgia, where he advises a large, endowment-style portfolio of affiliated companies, trusts and foundations and their respective managers,
shareholders and boards in matters including corporate governance, corporate and real estate transactions, business operations, employment
law and risk mitigation, a position he has held since 2006. Jason is recognized for having successfully negotiated investment and corporate
transactions totaling over $500,000,000. Jason’s prior experience includes working with and for several global law firms, focusing
on areas of construction and mass-tort litigation. Mr. Isenberg holds a Bachelor of Arts from the University of Maryland and his Juris
Doctor from New England Law in Boston. We believe Mr. Isenberg is well-qualified to serve on our Board of Directors due to his substantial
experience in investments and corporate transactions.
David Jenkins
Mr. Jenkins, 65, has been a member
of our Board since October 2022 and chairs the Company’s Nominating Committee. Mr. Jenkins served as a director of Intelligent Fingerprinting
Limited (IFP), a manufacturer of portable non-invasive drug tests, from January 29, 2022 until IFP was acquired by the Company
on October 4, 2022. He spent most of his career as an entrepreneur in the medical device industry, and has established numerous companies
including Catheter Precision, where he serves as the CEO and as Chairman of Catheter’s Board, since January, 2020. He served as
Chairman and CEO of Arrhythmia Research Technology and oversaw the introduction to the market of Cardiolab, the first dual monitor, 32-channel
electrophysiology recording system from 1988 to early 1993. This technology was later acquired by General Electric and continues to be
sold into the marketplace today. Mr. Jenkins served as the founder and CEO of EP MedSystems, Inc. which was sold to St. Jude Medical,
Inc., now part of Abbott, for approximately $95.7 million in 2008. Mr. Jenkins also founded and served as the CEO of Transneuronix, Inc.,
a maker of implantable stimulators for the treatment of weight loss, which was later sold to Medtronic for $267 million in 2005. Mr. Jenkins
holds a degree in accounting from the University of Kansas, and a master’s degree in business from the University of Texas, Austin.
He began his career in public accounting with the firm Coopers and Lybrand. We believe Mr. Jenkins is well qualified to serve on our Board
of Directors due to his substantial experience in medical device industry.
Christopher Towers BSc CPA
Christopher Towers, 37, has been
a member of our Board of Directors since August 2020 and chairs the Company’s Audit Committee. Mr. Towers is a Certified Public
Accountant with 14 years’ experience in auditing, accounting, and financial reporting. Mr. Towers is Chief Accounting Officer of
Katapult Holdings, Inc. (NASDAQ: KPLT) since February 2021 and was previously EVP, Chief Accounting Officer and Principal Financial Officer
of Newtek Business Services Corp. (NASDAQ: NEWT) from September 2014 to February 2021. Prior to Newtek, Mr. Towers held previous roles
with Pall Corporation and PwC. His expertise includes auditing, SEC reporting, US GAAP, experience in leading equity & debt raisings,
due diligence on business mergers & acquisitions, SOX compliance, FP&A, treasury, and tax. He holds a Bachelor of Science from
Hofstra University and is a member of the American Institute of Certified Public Accountants. We believe that Mr. Towers is well-qualified
to serve on our Board of Directors due to his extensive experience and expertise in financial reporting to capital markets and an understanding
of compliance and the audit process.
Corporate Governance
Overview
We set high standards for the
Company’s employees, officers, and directors. Implicit in this philosophy is the importance of sound corporate governance. We regularly
monitor developments in the area of corporate governance and review our processes, policies and procedures in light of such developments.
Key information regarding our corporate governance initiatives can be found on the Governance section of our website, www.ibs.inc, including
our Code of Ethics (“Code of Ethics”) and the charters for our Audit, Compensation and Nominating Committees. We believe that
our corporate governance policies and practices, including the majority of independent directors on our Board, empower our independent
directors to effectively oversee our management—including the performance of our Chief Executive Officer—and provide an effective
and appropriately balanced board governance structure and provide an effective and appropriately balanced board governance structure.
The information on or accessible through our website is not part of this report.
Independence of the Board of Directors
Our Board of Directors has determined
that each of our directors, other than Mr. Boyages, is an independent director (as currently defined in Rule 5605(a) of the NASDAQ listing
rules).
In determining the independence
of our directors, the Board considered all transactions in which the Company and any director had any interest, including those discussed
under “Related Party Transactions” below.
Our independent directors together
constitute a majority of our full Board. The independent directors meet as often as necessary to fulfil their responsibilities and will
have regularly scheduled meetings at which only independent directors are present.
Board Leadership Structure and Role in Risk Oversight
Our Board of Directors recognizes
that one of its key responsibilities is to evaluate and determine its optimal leadership structure so as to provide effective oversight
of management. Our Bylaws provide our Board with flexibility to combine or separate the positions of chairperson of the Board of Directors
and Chief Executive Officer.
The Board believes that our optimal
leadership framework at this time is to have Harry Simeonidis serve as President and Chief Executive Officer, and to have the Board composed
of a majority of independent directors. As a company in the highly regulated medical device and product industries, we and our shareholders
benefit from a chief executive officer with deep experience and leadership in, and knowledge of, the medical device industry. In his role
of the President and Chief Executive Officer, Mr. Simeonidis is responsible for handling the day-to-day management direction of the Company,
serving as a leader to the management team, and formulating corporate strategy.
Although management is responsible
for the day-to-day management of the risks we face, our Board of Directors and its committees take an active role in overseeing management
of our risks and has the ultimate responsibility for the oversight of risk management. The Board of Directors regularly reviews information
regarding our operational, financial, legal and strategic risks. Specifically, senior management attends periodic meetings of the Board
of Directors, provides presentations on operations including significant risks, and is available to address any questions or concerns
raised by our Board of Directors.
In addition, we expect that committees
will assist the Board of Directors in fulfilling its oversight responsibilities regarding risk. The Audit Committee will coordinate the
Board of Directors’ oversight of our internal control over financial reporting, disclosure controls and procedures, related party
transactions and code of conduct and corporate governance guidelines and management will regularly report to the Audit Committee on these
areas. The Compensation Committee will assist the Board in fulfilling its oversight responsibilities with respect to the management of
risks arising from our compensation policies and programs. When any of the committees receives a report related to material risk oversight,
the chairperson of the relevant committee will report on the discussion to the full Board of Directors.
Committees of the Board of Directors
Our Board of Directors has established
an Audit Committee, a Compensation Committee, and a Nominating Committee. The following table provides the current membership information
for each of the Board committees.
Name Audit Committee* Compensation Committee Nominating Committee
Lawrence Fisher X
Jonathan S. Hurd X X (Chairperson) X
Jason Isenberg X
David Jenkins X X (Chairperson)
Christopher Towers X (Chairperson) X
* Dr. George Margelis was a member of the Audit Committee prior to
his resignation on June 9, 2023.
Below is a description of each
committee of the Board of Directors. The Board has adopted written charters for each of the committees, which are available on the Investors
- Governance section of our website at www.ibs.inc. The information on or accessible through our website is not part of this report.
Audit Committee
We have established an Audit Committee
of the Board of Directors in accordance with Section 3(a)58(A) of the Exchange Act, which consists of Mr. Fisher, Mr. Towers and Mr. Hurd,
each of whom is an independent director under the Nasdaq listing standards applicable to audit committees. Christopher Towers qualifies
as an “audit committee financial expert” as defined in the rules and regulations established by the SEC. Our Audit Committee
oversees our corporate accounting, financial reporting practices and the audits of financial statements. The Audit Committee’s duties,
which are specified in the Audit Committee Charter, include, but not be limited to:
● discussing with management major risk assessment and risk management policies;
● monitoring the independence of the independent auditor;
● reviewing and approving all related-party transactions;
● appointing or replacing the independent auditor;
Compensation Committee
We have established a Compensation
Committee of the Board of Directors that consists of Mr. Hurd, Mr. Jenkins, and Mr. Towers, each of whom is an independent director under
the NASDAQ Stock Market listing standards applicable to compensation committees. The Compensation Committee’s duties, which are
specified in our Compensation Committee charter, include, but are not limited to:
● reviewing our executive compensation policies and plans;
The Compensation Committee Charter
also provides that the Compensation Committee may, in its sole discretion, retain or obtain the advice of a compensation consultant, legal
counsel or other adviser and will be directly responsible for the appointment, compensation and oversight of the work of any such adviser.
However, before engaging or receiving advice from a compensation consultant, external legal counsel or any other adviser, the Compensation
Committee will consider the independence of each such adviser, including the factors required by the NASDAQ Stock Market and the SEC.
The Compensation Committee may delegate any or all of its responsibilities to a subcommittee of the Compensation Committee, but only to
the extent consistent with the Company’s certificate of incorporation, bylaws and other applicable law and NASDAQ Stock Market rules.
Nominating Committee
We have established a Nominating
Committee of the Board of Directors that consists of Mr. Hurd, Mr. Isenberg and Mr. Jenkins, each of whom is an independent director under
the NASDAQ Stock Market listing standards applicable to nominating committees. The Nominating Committee is responsible for identifying