Item 1A. Risk Factors 19
Item 1B. Unresolved Staff Comments 49
Item 1C. Cybersecurity 49
Item 2. Properties 49
Item 3. Legal Proceedings 50
Item 4. Mine Safety Disclosures 50
PART II
Item 6. Reserved 51
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 60
Item 8. Financial Statements and Supplementary Data 60
Item 9A. Controls and Procedures 60
Item 9B. Other Information 62
Item 9C. Disclosure Regarding Foreign Jurisdictions That Prevent Inspection 62
PART III
Item 10. Directors, Executive Officers and Corporate Governance 62
Item 11. Executive Compensation 69
Item 14. Principal Accounting Fees and Services 78
PART IV
Item 15. Exhibits, Financial Statement Schedules 79
Signatures 85
ii
PART
I
Cautionary
Note Regarding Forward-Looking Statements
All
statements other than statements of historical fact or relating to present facts or current conditions included in this Annual Report
on Form 10-K 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
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 Annual Report on Form 10-K 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 “Risk Factors.” 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 form 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 Annual Report on Form 10-K or to confirm
these statements to actual results or revised expectations.
In
this Annual Report on Form 10-K, the terms “we,” “us,” “our,” “Company,” or “INBS”
refer to Intelligent Bio Solutions Inc. together with its wholly owned subsidiaries.
ITEM
1. BUSINESS.
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 “IFP Acquisition”). 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:
Highlights
of Achievements and Developments
Our
major highlights of achievements for the fiscal year 2024:
Intelligent
Fingerprinting Drug Screening System
The
Company’s wholly owned subsidiary, Intelligent Fingerprinting Limited (IFP), is the developer and owner of a proprietary and commercially
available portable drug screening system designed to detect common drugs of abuse through fingerprint sweat. The Intelligent Fingerprinting
Drug Screening System consists of a small, tamper-evident drug screening cartridge that collects ten fingerprint sweat samples, which
are then analyzed in a portable handheld reader for precise on-screen results in minutes. This system eliminates the need for invasive urine, saliva, or blood collection to test for substance abuse. The ten samples are collected in under a minute before
the portable analysis unit provides an on-screen result in under ten minutes. The system is currently designed to detect opioids, cocaine,
methamphetamines, benzodiazepines, cannabis, methadone, and buprenorphine. In addition, samples collected via confirmatory kits can be
sent to a third-party laboratory service provider for confirmation testing.
Intelligent
Fingerprinting Drug Screening System Functionality
The Intelligent Fingerprinting Drug Screening System consists of single-use, tamper-evident Intelligent Fingerprinting
Cartridges for sample collection and the portable Intelligent Fingerprinting DSR-Plus portable analysis unit. The Cartridge is inserted
into a reader, and within 10 minutes, the results are displayed, with options to print and save anonymized data for further use.
Results
can also be downloaded to a computer and be used for, among other things, and to the extent legally permissible, integration with
employee medical records or for general statistical analysis.
History
and Background of the Intelligent Fingerprinting Drug Screening System
Founded
in 2007, IFP is a spin-out company from the University of East Anglia (UEA) and is based in Cambridge, England. IFP developed and commercialized
the patented Intelligent Fingerprinting DSR-Plus Reader and Cartridge system, which has been predominantly sold in the United Kingdom,
mainland Europe and the Middle East. IFP continues to manufacture the cartridges for the Fingerprinting Drug Screening System in its
factory in Cambridge, England.
Research
and Development
The
Company’s research and development (R&D) team collaborates with external specialist organizations across jurisdictions to conduct
comprehensive R&D initiatives. These collaborative efforts are currently driven by the following primary objectives:
To
facilitate the expansion of point-of-care testing into additional areas of interest, such as tumor markers, hormones, and allergies,
the core team will collaborate with external research specialists. This joint exploration aims to unlock the untapped potential applications
of the existing lateral flow assay technology on which the Intelligent Fingerprinting Platform has been developed. By expanding the
capabilities of this platform, the Company will be better equipped to address diverse diagnostic needs and contribute to improved patient outcomes.
Regulatory
Matters
The
Company’s R&D, manufacturing facilities and operations for drug screening products adhere to stringent quality criteria, complying
with ISO 13485 for In Vitro Diagnostic Devices and Medical Devices, as well as ISO 9001. The Company has quality and regulatory oversight
of sub-contracted reference laboratories, where its methodology is accredited by the United Kingdom Accreditation Service (UKAS), ensuring
that the laboratory operates according to the ISO 17025 standard.
Australia:
In December 2023, the National Association of Testing Authorities (NATA) accredited the Company’s laboratory partner, Racing
Analytical Services Limited (RASL), to perform its fingerprint confirmatory drug testing procedure. This accreditation serves as an independent
benchmark for technical validation, demonstrating the Company’s commitment to product quality, safety, and reliability for its
customers. This achievement positions INBS as a trusted and reliable partner, catering to the evolving compliance and safety needs of
organizations across Asia-Pacific and beyond.
United
States of America: In February 2024, the Company entered into a partnership with Cliantha Research to conduct the pharmacokinetic
(PK) study. In addition, the Company entered into agreement with CenExel in August 2024 to perform a method comparison clinical study.
Both of these clinical studies form part of the Company’s FDA 510(k) clinical study plan and pathway for clearance by the FDA.
Initiating the clinical studies plan represents a critical milestone and the Company believes it remains on track for planned submission
by the end of 2024 and planned entry into the United States market in 2025.
Other
Regions: Distributors in other countries and jurisdictions will be responsible for obtaining all necessary approvals within their
respective territories.
Manufacturing
The
equipment and facilities required to produce the Intelligent Fingerprinting Drug Screening Cartridge and DSR-Plus Reader are in place
at the Company’s manufacturing facility in Cambridge, UK, which is used for fabrication and quality control. The facility operates
a Quality Management System that complies with the requirements of ISO 13486 for the design, development, manufacture, distribution,
servicing and supply of devices and readers designed to screen for drugs of abuse using fingerprint diagnostic technology; design, development,
manufacture, distribution, servicing and supply of devices for collection of fingerprint samples used to detect drugs of abuse; and the
design, development, manufacture, distribution, servicing and supply of in vitro diagnostic kits for the detection of viral infection
antigens in human saliva and anterior nares samples. The facility further operates a quality management system that complies with the
requirements of ISO 9001 for the design, development, manufacture, distribution, servicing and supply of devices and readers designed
to screen for drugs of abuse using fingerprint diagnostic technology and the design, development, manufacture, distribution, servicing,
and supply of devices for collection of fingerprint samples used to detect drugs of abuse.
Distribution
and Sales
The
Company serves over 400 active customer accounts, primarily in the United Kingdom, with additional customers across various global locations. The
Company intends to expand its account base by strengthening its presence in existing markets and, subject to receiving necessary
regulatory approvals and clearances, venture into new regions. The Company plans to tailor its strategy to the targeted region,
establishing direct sales and marketing teams or utilizing distribution networks. In some cases, a combination of these strategies
may be appropriate.
Distributors:
Through buy-sell agreements, distributors will purchase the IFP Products and resell them to customers. These distributors can be
exclusive or non-exclusive, depending on the agreed arrangement. The Company plans to focus on distributors with existing customer networks
in the drug screening segment and a proven track record in their territories. The Company also plans to utilize exclusive distributors
who will be the sole providers within certain defined territories and will need to satisfy certain minimum quarterly purchase requirements.
United
Kingdom: Our direct sales team consists of four sales representatives and a National Sales Manager under the direction of the
Global Vice President of Sales. The team utilizes telemarketing leads and a variety of other inbound lead-generation tactics to
connect with new businesses and schedule on-site and virtual product demonstrations. The UK team includes a Customer Experience Team
that manages account relationships, product support, training and sales administration. New customer accounts are assigned to sales
representatives based on geographic territories.
Australia:
The Company utilizes a third-party sales agency under the direction of the Global Vice President of Sales. The agency’s primary
area of focus is the east coast of Australia, comprising approximately 72% of the country’s population. The agency’s team
utilizes their extensive network of existing contacts and relationships to introduce the IFP products through in-person demonstrations.
The Company further intends to utilize distributor partnerships to cover regions such as Western Australia, South Australia, and more
remote areas.
United
States: During the Company’s 510(k) premarket submission and subject to receiving appropriate approvals/ clearance from the FDA, the Company
plans to appoint a dedicated distribution leader to spearhead market entry strategies by identifying and selecting distributors and partners.
The Company plans to focus on identifying distributors and partners already operating within the U.S. drug screening market.
European
Expansion: The Company plans to appoint a dedicated European representative to identify, negotiate, and sign distributor agreements and
maximize sales in targeted territories.
Expanding
into the Middle East and Africa (“MEA”): The Company’s Vice President of Global Sales and the dedicated European representative
will initially manage MEA operations. Depending on market opportunities and sales volume, the Company may appoint a dedicated distribution
leader for MEA operations at a later stage.
Market
Analysis and Opportunity
The
Drug Screening Market
The
drug screening market encompasses various sectors, including workplaces, drug rehabilitation, drug testing labs, criminal justice,
law enforcement, schools and colleges, pain management centers, the military, medical examiners, individual users, and sporting
organizations. We intend to aggressively market IFP Products to different geographical regions outside the UK, with a focus on the
industries and segments noted above.
Drug
misuse is a global concern, and while the approach to this problem varies depending on the legal and regulatory landscape of each country,
what remains constant is the need for regular testing, particularly in areas and industries of concern. Even in regions where certain
drugs, such as cannabis, have been decriminalized (such as in various states across the United States, Canada, and Europe), social and
workplace challenges persist relating to impairment, drug dependency and associated criminal activity, which increase the need for testing.
The
Recreational Drug Industry
There
are four principal categories of recreational drugs - analgesics, depressants, stimulants, and hallucinogens. Analgesics include narcotics
like heroin, morphine, fentanyl, and codeine. Depressants include alcohol, barbiturates, tranquilizers, and nicotine. Stimulants include
cocaine, methamphetamine, and ecstasy (MDMA).
According to the World Drug Report 2023 (“WDR”) published by the United Nations Office on Drugs &
Crime, around 296 million people used drugs worldwide in 2021, a 23% increase over the previous decade. The WDR states that cannabis remains
the world’s most-used drug, with 219 million users in 2021, representing 4% of the global population. The WDR also reports that
opioids remain the most lethal group of drugs, accounting for two-thirds of drug-related deaths, with 60 million users in 2021. Additionally,
according to the WDR, there were 36 million users of amphetamines, 22 million users of cocaine, and 20 million users of ecstasy in 2021.
The WDR also reported that there were 39.5 million people with drug use disorders in 2021, an increase of 45% over the past ten years.
Point
of Care/Rapid Diagnostics Market
According
to the MarketsandMarkets study, Point of Care/Rapid Diagnostics Market by Product, Platform, Purchase, Sample, User - Global
Forecast to 2027, published in December 2022, the global market for Point of Care medical diagnostics was estimated to be
$45.36bn in 2022, rising to $75.46bn in 2027 with a compounded annual growth rate (CAGR) of 10.7% from 2022 to 2027. According to
the study, this market growth is expected to be driven by several factors, including the increasing prevalence of infectious
diseases, supportive government policies, the rising demand for over the counter (OTC) and home-based POCT testing products, and
technological advancements in diagnostic devices. The Company intends to develop pathways into areas of medical diagnostics
utilizing existing technology and techniques to exploit a competitive advantage against traditional testing
methodologies.
Intellectual
Property
The
following patents are owned by IFP.
Patent Families
Patent Numbers and Geographical Coverage Description Expiry
Secondary / Tertiary Patent Families
The
patents listed above cover virtually all aspects of fingerprint diagnostics including chemistry, screening cartridge technology, collection
cartridge technology, fingerprint quantitation, fingerprint controlled medication dispenser, lab testing of fingerprints, accessories,
and lateral flow test strip reader.
Competition
IFP
has developed a Point of Care (POC) drug screening test system and a drug laboratory-based confirmation testing service. Both of these
involve the collection of fingerprint sweat samples for analysis. For many years, competitor POC and confirmation tests relied on collecting
either urine or oral fluid (saliva) samples. There are several competitive advantages of analyzing fingerprint sweat over urine and oral
fluid drug testing:
The
combination of these benefits shows that fingerprint drug testing provides a more cost-effective, less invasive and more dignified method
when compared to urine and oral fluid-based tests.
The
below table compares the IFP System to other drug testing systems:
The
IFP System eliminates the need for highly trained technicians or personal protective equipment, providing a non-invasive and objective
testing experience. Its unique 16-hour detection window makes it ideal for assessing an individual’s fitness for work at the time
of testing. Based on research commissioned by the Company, the system has the ability to achieve sensitivity and accuracy levels, as
demonstrated by the performance characteristics in the table below.
The
Company believes that the lateral flow assay technology used in the IFP Products has the potential to also deliver significant benefits
in other areas of medical diagnostics. For example, the potential exists to use the technology to detect biomarkers of health and disease
and provide non-invasive monitoring of therapeutic drug levels via fingerprint analysis. IFP is also researching a pipeline of development
projects with the vision that fingerprint-based diagnostic tests could provide rapid health/disease triage and wellness tests, meeting
the requirements of a post-COVID medical diagnostics world. The Company seeks to broaden development pathways into other areas of medical
diagnostics utilizing existing technology and techniques to exploit a competitive advantage against traditional testing methodologies.
Some examples of potential target assays are fentanyl and other opiate pain medications, epilepsy management medications, anti-psychotic
medications, cortisol (stress marker for wellbeing determination), protein targets, diabetes markers (c-peptide, fructosamine, insulin
and proinsulin), infectious diseases (methicillin-resistant staphylococcus aureus (mrsa), Lyme disease, dengue, measles and German measles)
and food contamination / infection from animals (brucella, salmonella, proteus).
Biosensor
Platform Technology
The
Biosensor Platform Technology (BPT), or simply the “Biosensor Platform,” consists of a small, printable modified organic
thin-film transistor strip that we license across the APAC Region from LSBD. The Biosensor Platform is designed to detect multiple biological
analytes by substituting the top enzyme layer of the biosensor to suit each analyte. This platform technology has the potential to develop
a range of Point of Care Tests (POCTs), including the modalities of clinical chemistry, immunology, tumor markers, allergens, and endocrinology.
Technology
License Agreements
We understand that following the appointment of a liquidator to Life Science Biosensor Diagnostics Pty Ltd, (LSBD),
the intellectual property rights licensed by us from the Licensor have reverted to the University of Newcastle. The Company is in early-stage
discussions regarding the potential restructuring of future licensing of BPT and products with the University of Newcastle. A timeline
for these discussions has not yet been established. As the liquidation of LSBD has not been finalized, and the post-liquidation status
of our licensing arrangements with LSBD has not been determined as of the date of this report, below is a description of our existing
licensing arrangements with LSBD prior to the liquidation of LSBD.
We
are party to following technology license agreements.
In
addition to the above, we have a 50% equity interest in BiosensX (North America) Inc., which has a separate technology license
agreement with the Licensor covering glucose/diabetes management field in the North America Territory.
BPT
License Agreement
On
September 12, 2019, we entered into an Amended and Restated Technology License Agreement, or the “BPT License Agreement,”
with LSBD amending and restating all the previous BPT license agreements with LSBD. The BPT License Agreement sets forth our contractual
rights and responsibilities relating to the Licensed Products in the APAC Region. The “Licensed Products” are products consisting
of a biosensor strip and smart device application or dedicated reader device that use the biosensor technology owned by the Licensor
relating to measuring, or otherwise determining, the amount or concentration of glucose, the existence of biological markers of cancer,
allergy/immunology and hormones, in a bodily fluid. The Licensed Products only include products that are supplied by an authorized supplier.
We do not currently intend to manufacture the Licensed Products in-house.
Pursuant
to the BPT License Agreement, the Licensor granted to us an exclusive license to the Licensor’s proprietary rights to the biosensor
technology used in the Licensed Products, solely in the APAC Region and solely to:
● collect data acquired from the Licensed Products.
The
license is non-transferable, non-assignable and non-sublicensable, except that the Licensor will in good faith consider any request by
us for any sublicense. We may not exploit or seek to exploit any rights in respect of the Licensed Product outside of the APAC Region
through any means, including digitally or online where the end user is not physically resident in the APAC Region. We must do all things
necessary in turn to ensure that any distributors of Licensed Products in the APAC Region do not exploit or seek to exploit any rights
in respect of the Licensed Product outside of the distributor’s territorial boundary.
The
BPT License Agreement requires, among other material provisions, that commencing after the receipt of regulatory approval in a jurisdiction,
we will pay the Licensor a minimum royalty with respect to such jurisdiction for each year, in four equal quarterly instalments. The
minimum royalty will be 13% of the projected net sales in such jurisdiction for each such year. The projected net sales will be an amount
mutually agreed between us and the Licensor for the first such year. For each ensuing year after the first year, the projected net sales
will be the number of certain licensed products sold in the prior year, as adjusted for the expected market growth and, for each year
through the tenth year, as increased by up to an additional 7%. At the end of each quarter, if the quarterly instalment of the minimum
royalty is less than the actual royalty (13% of the actual net sales of the licensed products for such quarter) in such jurisdiction,
we will pay Licensor the difference between the quarterly instalment of the minimum royalty and the actual royalty. The royalty fee rate
will be reduced from 13% to 3% upon the expiration of the patent portfolio covered by the BPT License Agreement.
There
is no set expiration date for the BPT License Agreement. However, the exclusivity of the license granted under the BPT License Agreement
runs until the expiration of the patent portfolio covered by the BPT License Agreement, which is currently until 2033. We expect that
the patent portfolio will be extended as new patents are created throughout product development, thereby extending the exclusivity of
the BPT License Agreement. For instance, we expect to seek additional patents in connection with the development of the Prostate Specific
Antigen test, the Peanut Kernel Allergen test and the Luteinizing Hormone test. The BPT License Agreement may be terminated by us in
the event of a material breach by the Licensor, if the Licensor does not cure the breach within 30 days after receiving notice of the
breach; or in the event the Licensor discontinues its business operations or in the case of certain events related to insolvency or bankruptcy.
The BPT License Agreement also may be terminated by us after July 3, 2029 upon 180 days’ prior written notice. The BPT License
Agreement may not be terminated by the Licensor unless we permanently discontinue our business operations in relation to the Licensed
Products, or if we dissolve or cease to exist.
After
the expiration of the exclusivity period under the BPT License Agreement, we may continue to market and sell the Licensed Products. We
believe the non-invasive nature of our product may establish us as a significant participant in the POCT testing market in the APAC
Region and, therefore, by the time the patents expire, and by the time the exclusivity period under the BPT License Agreement expires,
we expect to hold a meaningful share in the market, and brand awareness that will ensure we continue to operate successfully. No assurance
can be given that there will not be significant direct competition for our products in the APAC Region following the expiration of patent
protection.
COV2
License Agreement
On
June 23, 2020, we entered into a COV2 License Agreement with LSBD. The COV2 License Agreement sets forth our contractual rights and responsibilities
relating to the COV2 Products. The “COV2 Products” include: (i) a biosensor strip for antibodies against SARS-CoV-2; (ii)
a proprietary smartphone application for the purpose reading, storing, analyzing and providing patient support programs for any one or
more of the indicators for the purpose of measuring the amount or concentration of immunoglobulins (IgG, IgM, IgA) specific to severe
acute respiratory syndrome coronavirus 2 (SARS-CoV-2); and/or (iii) a dedicated sensor strip reading device for any one or more of the
indicators for the purpose of measuring the amount or concentration of immunoglobulins (IgG, IgM, IgA) specific to severe acute respiratory
syndrome coronavirus 2 (SARS-CoV-2) The COV2 Products only include products that are supplied by an authorized supplier.
As
a result of the significant global progress made in mitigating the severity of the COVID-19 pandemic and the significantly diminished
demand for COVID-19 testing products, we have redirected our resources and efforts away from developing products related to COVID testing
to instead acquire and develop drug testing and screening systems, notwithstanding the license held by us under the COV2 License Agreement.
Pursuant
to the COV2 License Agreement, the Licensor granted to us an exclusive license to the Licensor’s proprietary rights to the biosensor
technology used in the COV2 Products, worldwide and solely to:
● collect data acquired from the COV2 Products.
The
license is non-transferable, non-assignable and non-sublicensable, except that the Licensor will in good faith consider any request by
us for any sublicense.
Under
the COV2 License Agreement, commencing after the receipt of regulatory approval in a jurisdiction, and the earning of revenue we will
be required to pay the Licensor a minimum royalty fee with respect to such jurisdiction for each year, or the “COV2 Minimum Royalty,”
in four equal quarterly installments. The COV2 Minimum Royalty will be 13% of the projected net sales in such jurisdiction for each such
year. The projected net sales will be an amount mutually agreed between us and the Licensor for the first such year. For each ensuing
year after the first year, the projected net sales will be the number of COV2 Products sold in such jurisdiction in the prior year, as
adjusted for the mutually agreed expected market growth. In addition to the expected market growth, there will be an additional growth
rate percentage of 7% for each year through the tenth year. In the event of a dispute between us and the Licensor regarding the determination
of the expected market growth or the additional growth percentage, the COV2 License Agreement provides for resolution by an independent
third party. At the end of each quarter, if the quarterly installment of the COV2 Minimum Royalty is less than 13% of the actual net
sales of COV2 Products in such jurisdiction for such quarter, or the “COV2 Actual Royalty,” we will pay Licensor the difference
between the quarterly installment of the COV2 Minimum Royalty and the COV2 Actual Royalty. The royalty fee rate will be reduced from
13% to 3% upon the expiration of the patent portfolio covered by the COV2 License Agreement.
As
between us and the Licensor, the Licensor solely owns all right, title and interest to, among other items of intellectual property, the
biosensor technology (including any improvements made to the biosensor technology by us), the anonymized data collected by us and any
other technology of the Licensor, and all derivations based on, and all proprietary rights in, the foregoing. The Licensor will have
the right to decide whether to protect or enforce, and the right to control any action relating to the protection and enforcement of,
any of the foregoing intellectual property and proprietary rights.
There
is no set expiration date for the COV2 License Agreement. However, the exclusivity of the license granted under the COV2 License Agreement
runs until the expiration of the patent portfolio covered by the COV2 License Agreement, which is currently until 2033. We expect that
the patent portfolio will be extended as new patents are created throughout product development, thereby extending the exclusivity of
the COV2 License Agreement. The COV2 License Agreement may be terminated by us in the event of a material breach by the Licensor, if
the Licensor does not cure the breach within 30 days after receiving notice of the breach; or in the event the Licensor discontinues
its business operations or in the case of certain events related to insolvency or bankruptcy. The COV2 License Agreement also may be
terminated by us at any time after the tenth anniversary of the COV2 License Agreement upon 180 days’ prior written notice.
Intellectual
Property
Our biosensor business is dependent on the proprietary biosensor technology we license from LSBD. The original patent
application, which claims a priority date of March 2012, has been granted in the United States (9,766,199) and China (ZL201380022888.2).
A second patent application for a different iteration of the device design has been filed with a priority date of June 2016 and is granted
in the United States (10,978,653) and Australia (2016412541). A third patent application for a further iteration of the device has been
filed with a priority date of May 15, 2018. Further patents may yet be issued based on all three applications.
The
Chinese and the United States patents belong to the same patent family and relate to the same invention. The United States and Australian
patents originating with the second application are similarly of the same patent family and relate to the same invention. The exact wording
of the patent claims varies between countries.
The
patents protect the following technological claims of the BPT: the architecture of a biofunctional organic thin film transistor device
comprising a gate electrode, a dielectric layer, a partially organic semiconducting layer, a source electrode, a drain electrode, a substrate
and an enzyme; the method for producing the organic thin film transistor device; and methods of using the device to detect glucose levels.
A similar device with no dielectric layer. Further devices including a porous wicking layer to facilitate onset of device function.
Licensor
is responsible for prosecuting these patent applications and file further applications, as appropriate, to protect the proprietary biosensor
technologies, including improvements thereon, in the United States as well as in the APAC Region, and to take any necessary action to
maintain and enforce its patent and other intellectual property rights. There can be no assurance, however, that the Licensor will take
such actions, and under the License Agreement, we have no right to compel them to do so. If the Licensor elects not to protect or enforce
its intellectual property rights, we would be permitted to take action to protect or enforce these rights in the APAC Region, but any
such action would be at our cost and expense.
The
Company intends to vigorously protect its intellectual property rights for any technologies owned through patents and copyrights,
both in the United States and internationally. Additionally, the Company plans to leverage trade secrets, know-how, and continuing
technological innovation to develop and maintain its competitive position. The Company intends to protect its proprietary rights
through a variety of methods, including confidentiality agreements and/or proprietary information agreements with suppliers,
employees, consultants, independent contractors and other entities who may have access to proprietary information. The Company will
generally require employees to assign patents and other intellectual property to it as a condition of employment. All consulting
agreements will pre-emptively assign all new and improved intellectual property that arise during the term of the agreement to the
Company. In addition, the Company may license additional technologies from the Licensor or third parties. Prior to any further
acquisition or licensing of technology from a third party, the Company will evaluate the existing proprietary rights, its ability to
obtain and protect these rights, and the likelihood or possibility of infringement upon competing rights of others.
The
issuance of a patent does not ensure that it is valid or enforceable. The term of individual patents depends upon the legal term of
the patents in the countries where they are obtained. In most countries where the Company files patents, the patent term is 20 years from
the earliest date of filing a non-provisional patent application. In the United States, a patent’s term may be shortened if a
patent is terminally disclaimed over another patent or as a result of delays in patent prosecution by the patentee, and a
patent’s term may be lengthened by patent term adjustment, which compensates a patentee for administrative delays by the
United States Patent and Trademark Office in granting a patent.
Competition
The
medical device industry is highly competitive, subject to rapid change, and significantly affected by new product introductions and other
activities of industry participants. We face potential competition from major medical device companies worldwide, many of which have
longer, more established operating histories and significantly greater financial, technical, marketing, sales, distribution, and other
resources. Our overall competitive position depends upon several factors, including product performance and reliability, connectivity,
manufacturing cost, and customer support.
Government
Regulation
The
Company operates in a highly regulated industry. Its current and future business has been and will continue to be subject to a variety
of laws globally regarding quality, safety, efficacy, and governing, among other things, clinical evaluations, marketing authorization,
commercial sales, and distribution of our products.
Internationally,
various regulatory bodies monitor and supervise the administration of pharmaceutical products and medical devices and equipment. Their
primary responsibilities include evaluating, registering and approving new drugs, generic drugs and imported drugs; approving and issuing
permits for the manufacture, export and import of pharmaceutical products and medical appliances; approving the establishment of enterprises
for pharmaceutical manufacture and distribution; formulating administrative rules and policies concerning the supervision and administration
of food, cosmetics and pharmaceuticals; and handling significant accidents involving these products.
The
Company will be subject to numerous post-marketing regulatory requirements, which may include labelling regulations and medical device
reporting regulations, and which may require it to report to different regulatory agencies if its device causes or contributes to a death
or serious injury or malfunctions in a way that would likely cause or contribute to a death or serious injury. The Company may be subject
to further regulations regarding import and export restrictions, tariff regulations, and duties and tax requirements. These regulatory
requirements may change in the future.
The
Company’s research, development and manufacturing operations, including its product assembly line in Cambridge, UK, involve the
use of hazardous substances, and consequently, it is subject to a variety of foreign environmental laws and regulations relating to the
storage, use, handling, generation, manufacture, treatment, discharge and disposal of hazardous substances. The Company’s products
may also contain hazardous substances and they are subject to laws and regulations relating to labelling and to their sale, collection, recycling, treatment,
storage, and disposal. Compliance with these laws and regulations may be expensive and noncompliance could result in substantial fines
and penalties. Environmental laws and regulations also impose liability for the remediation of releases of hazardous substances into
the environment and for personal injuries resulting from exposure to hazardous substances, and they can give rise to substantial remediation
costs and to third-party claims, including for property damage and personal injury. Liability under environmental laws and regulations
can be joint and several and without regard to fault or negligence, and they tend to become more stringent over time, imposing greater
compliance costs and increased risks and penalties associated with violations.
Human Capital
As
of September 16, we have 11 full-time employees in Australia and 2 in the United States. Our subsidiary, IFP, has 37 employees in
the United Kingdom.
Our
team, including our employees, contractors, and collaborators, comprises multiple cross-functional units, including strategy, project
management, technical engineering, manufacturing and supply chain, quality assurance, legal and compliance, regulatory affairs, clinical
affairs, product management, marketing, systems engineering, human resources, IT, investor relations, and finance. Our team collectively
possesses the experience and capabilities to build a robust medical technology company that develops next-generation non-invasive medical
devices and solutions.
Available Information
Our
website is at www.ibs.inc. We make available, free of charge, on our corporate website, our annual reports on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d)
of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after they are
electronically filed with the SEC. The SEC maintains an internet site that contains reports, proxy and information statements and other
information regarding issuers that file electronically with the SEC at www.sec.gov. Information contained on our website does
not, and shall not be deemed to, constitute part of this Annual Report on Form 10-K. Our reference to the URL for our website is intended
to be an inactive textual reference only.
ITEM
1A. RISK FACTORS.
Our
business involves certain risks and uncertainties. The following is a description of significant risks that might cause our future financial
condition or results of operations to differ materially from those expected. In addition to the risks and uncertainties described below,
we may face other risks and uncertainties, some of which may be unknown to us and some of which we may deem immaterial. If one or more
of these risks or uncertainties occur, our business, financial condition or results of operations may be materially and adversely affected.
A summary of our risk factors is as follows:
Summary
of Risk Factors
The
summary below provides a non-exhaustive overview of the risks that if realized could materially harm our business, prospects, operating
results and financial condition. This summary is qualified by reference to the full set of risk factors set forth in this Item.
● Our results may be impacted by changes in foreign currency exchange rates.
Risks
Related to Our Business
We
may need to raise additional capital to fund our operations in the future. If we are unsuccessful in attracting new capital, we may not
be able to continue operations or may be forced to sell assets to do so. Alternatively, capital may not be available to us on favorable
terms, or at all. If available, financing terms may lead to significant dilution of our stockholders’ equity.
We
are not profitable and have had negative cash flow from operations since our inception. To fund our operations and to develop and
commercialize our products (including the BPT and planned applications of IFP Drug Screening System), we have relied primarily on
equity and some debt financing and government support income. The Company believes there is material risk that its cash and cash
equivalents as of June 30, 2024, of $6,304,098 may be insufficient to allow the Company to fund its current operating plan through
at least the next twelve months from the issuance of its audited financial statements for the year ended June 30, 2024. 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 were issued. Accordingly, the Company may be required to raise additional funds during
the next 12 months. However, there can be no assurance that when the Company requires additional financing, such financing will be
available on terms which are favorable to the Company, or at all. If the Company is unable to raise additional funding to meet its
working capital needs in the future, it will be forced to delay or reduce the scope of its research programs and/or limit or cease
its operations. In addition, the Company may be unable to realize its assets and discharge its liabilities in the normal course of
business.
To
obtain the additional capital necessary to fund our operations, we expect to finance our cash needs through public or private equity
offerings, debt financing and/or other capital sources. Even if capital is available, it might be available only on unfavorable terms.
Any additional equity or convertible debt financing into which we enter could be dilutive to our existing stockholders. Any future debt
financing into which we enter may impose covenants upon us that restrict our operations, including limitations on our ability to incur
liens or additional debt, pay dividends, repurchase our stock, make certain investments and engage in certain merger, consolidation or
asset sale transactions. Any debt financing or additional equity that we raise may contain terms that are not favorable to us or our
stockholders. If we raise additional funds through collaboration and licensing arrangements with third parties, we may need to relinquish
rights to our technologies or our products or grant licenses on terms that are not favorable to us. If access to sufficient capital is
not available as and when needed, our business will be materially impaired and we may be required to cease operations, curtail one or
more product development or commercialization programs, scale back or eliminate the development of business opportunities, or significantly
reduce expenses, sell assets, seek a merger or joint venture partner, file for protection from creditors or liquidate all of our assets.
Any of these factors could harm our operating results.
Our
independent registered public accounting firm has included an explanatory paragraph relating to our ability to continue as a going concern
in its report on our audited financial statements included in our Annual Report on Form 10-K for the Fiscal year ended June 30, 2024.
The
report from our independent registered public accounting firm for the year ended June 30, 2024, includes an explanatory paragraph stating
that our losses from operations and required additional funding to finance our operations raise substantial doubt about our ability to
continue as a going concern for a period of one year after the date the financial statements are issued. If we are unable to obtain sufficient
funding, our business, prospects, financial condition and results of operations will be materially and adversely affected, and we may
be unable to continue as a going concern. If we are unable to continue as a going concern, we may have to liquidate our assets and may
receive less than the value at which those assets are carried on our audited financial statements, and it is likely that investors will
lose all or a part of their investment. If we seek additional financing to fund our business activities in the future and there remains
substantial doubt about our ability to continue as a going concern, investors or other financing sources may be unwilling to provide
additional funding to us on commercially reasonable terms or at all. There can be no assurance that the current operating plan will be
achieved in the time frame anticipated by us, or that our cash resources will fund our operating plan for the period anticipated by the
Company or that additional funding will be available on terms acceptable to us, or at all.
Neither
we nor the Licensor have yet launched the BPT and the ability to do so will depend on the acceptance of the BPT in the global healthcare
market.
Neither we nor the Licensor have yet launched the BPT or finalized its specific application, nor has it received regulatory approvals in any country or territory. We are faced
with the risk that the BPT will not be accepted in their respective jurisdictions over competing products and that we will be unable
to enter the marketplace or compete effectively. Factors that could affect our ability to establish the BPT include:
We
cannot assure you that the BPT will gain market acceptance. If the market
for the BPT or any future test fails to develop, or develops more slowly than expected, or if any of the technology and standards supported
by us do not achieve or sustain market acceptance, our business and operating results would be materially and adversely affected.
We
are subject to the risks associated with new businesses generally.
We
were formed in December 2016 as a new business with a plan to commercialize our licensed technology. Our limited operating history
may not be adequate to enable you to fully assess our ability to develop and market the BPT and tests based on the Biosensor
Platform, achieve market acceptance of the BPT and such other tests and respond to competition. Our efforts to date have related to
the organization and formation of our company, strategic planning, product research and development and preparation for commencing
regulatory trials. We acquired IFP in October 2022, which generates minimal revenue. Prior to the acquisition of IFP, the
Company’s operations generated no revenue other than income classified as governmental support income received in connection
with grants from the Australian Government. As at the date of this filing, the revenue generated from the sales of IFP products is
not enough to cover our operational costs. Therefore, we are, and expect for the foreseeable future to be, subject to all the risks
and uncertainties inherent in a new business focused on the development and sale of new medical devices and related software
applications. As a result, we may be unable to further develop, obtain regulatory approval for, manufacture, market, sell and derive
revenues from the BPT and the other products in our pipeline based on the Biosensor Platform, and our inability to do so would
materially and adversely impact our business. In addition, we still must optimize many functions necessary to operate a business,
including expanding our managerial, personnel and administrative structure, continuing product research and development, and
assessing and commencing our marketing activities.
In
addition, in connection with our recent acquisition of IFP, there are risks relating to the integration of IFP with the Company, including
with regard to integrating technology, processes, information systems and other matters that can lead to challenges in economies of scale
and leadership.
Accordingly,
you should consider our prospects in light of the costs, uncertainties, delays and difficulties frequently encountered by companies that
have not yet commercialized their products or services, particularly those in the medical device and digital health fields. In particular,
potential investors should consider that there is a significant risk that we will not be able to:
● maintain our management team and Board of Directors;
● attract, enter into or maintain contracts with, and retain customers; and
In
the event that we do not successfully address these risks, our business, prospects, financial condition, and results of operations could
be materially and adversely affected.
We
have incurred significant losses since inception and continue to incur losses, and we may not be able to achieve significant revenues
or profitability.
Since
our inception, we have engaged primarily in development activities. We have financed our operations primarily through financing from
the issuance of common stock, convertible preferred stock, convertible notes and the incurrence of debt and have incurred losses since
inception, including a net loss of $10,631,720 for the fiscal year ended June 30, 2023 and a net loss of $10,156,759 for the
fiscal year ended June 30, 2024. The unaudited pro-forma result was prepared as if we closed the IFP Acquisition (defined below) on July
1, 2021 (and including adjustments for amortization related to the valuation of acquired intangibles), we incurred a net loss of $11,873,274 for the fiscal year ended June 30 2023, and a net loss of $10,156,759
for the fiscal year ended June 30, 2024. We do not know whether or when we will become profitable.
Our
ability to generate higher revenue and achieve profitability depends upon our ability, alone or with others, to complete the development
process of our products, including regulatory approvals, and achieve substantial acceptance in the marketplace for our existing IFP products.
We may be unable to achieve any or all of these goals.
We
rely on third parties to perform certain confirmatory tests for our IFP Drug Screening System.
We
rely on third-party service providers to analyze samples collected from our confirmatory kit of the IFP Drug Screening System. We contract
with third-party laboratory service providers to perform confirmation testing on the samples collected. This service is critical and there
are relatively few alternatives. These third-party service providers may be unwilling or unable to provide the necessary services reliably
and at the levels we anticipate or that are required by the market. While these third-party service providers have generally met our
demand for their services on a timely basis in the past, we cannot guarantee that they will in the future be able to meet our demand
for their services or our service providers may decide in the future to discontinue or reduce the level of business they conduct with
us. If we are required to change service providers for any reason, including due to any change in or termination of our relationships
with these third parties, we may lose sales, experience delays, incur increased costs or otherwise experience impairment to our customer
relationships. We cannot guarantee that we will be able to establish alternative relationships on similar terms, without delay or at
all.
We
depend on a limited number of single-source suppliers to manufacture certain components of IFP Drug Screening System, which makes us
vulnerable to supply shortages and price fluctuations that could negatively affect our business, financial condition and results of operations.
We
rely on single-source suppliers for certain components of our IFP Drug Screening System and materials for our other current products.
These components and materials are critical and there are no or relatively few alternative sources of supply. These single-source suppliers
may be unwilling or unable to supply the necessary materials and components or manufacture and assemble our products reliably and at
the levels we anticipate or that are required by the market. While our suppliers have generally met our demand for their products and
services on a timely basis in the past, we cannot guarantee that they will in the future be able to meet our demand for their products
or our suppliers may decide in the future to discontinue or reduce the level of business they conduct with us. If we are required to
change suppliers due to any change in or termination of our relationships with these third parties, or if our suppliers are unable to