Business Context and Reporting Period
The filing identifies the registrant as GBS Inc., now associated with Intelligent Bio Solutions Inc. The unaudited Form 10-Q covers the three and six months ended December 31, 2020, with balance-sheet comparisons to June 30, 2020 and operating comparisons to December 31, 2019.
The company is developing non-invasive biosensor diagnostic products, including a saliva glucose biosensor and a SARS-CoV-2 antibody test. It holds licensed technology from Life Science Biosensor Diagnostics Pty Ltd. The company had not generated commercial product revenue.
Key Financial Metrics
| Metric | Three Months Ended December 31, 2020 | Six Months Ended December 31, 2020 |
|---|---|---|
| Total revenue and other income | $283,037 | $338,464 |
| Operating expenses | $1,200,363 | $1,918,785 |
| Loss from operations | $(917,326) | $(1,580,321) |
| Other expense | $(1,073,063) | $(1,486,983) |
| Net loss | $(1,990,389) | $(3,067,304) |
| Net loss attributable to GBS Inc. | $(1,983,964) | $(3,056,474) |
| Basic and diluted loss per share | $(0.23) | $(0.35) |
- Cash and cash equivalents were $19,877,860 at December 31, 2020, compared with $427,273 at June 30, 2020.
- Working capital was $18,799,962, and shareholders’ equity was $18,782,015 at December 31, 2020, versus a deficit of $5,214,828 at June 30, 2020.
- Accumulated deficit was $18,888,991 at December 31, 2020.
- Net cash used in operating activities for the six months was $3,454,231, compared with $474,942 in the prior-year period. Investing cash flow was zero.
- Net cash provided by financing activities was $22,904,818, principally from the initial public offering and preferred-stock issuance.
- Current liabilities declined to $1,166,446 from $7,690,468 at June 30, 2020. Convertible notes payable declined from $5,133,706 to zero because the notes converted into common stock at the IPO.
- There was no income-tax expense or benefit; deferred tax assets were subject to a full valuation allowance.
Material Changes Versus Prior Comparable Period
- Three-month total income increased to $283,037 from $(798), and six-month total income increased to $338,464 from $121,277. The 2020 amounts primarily represented government support and research-and-development tax incentives, not product sales.
- General and administrative expense decreased 31% for the quarter and 30% for the six months, reflecting spending controls while the IPO was completed.
- Development and regulatory expense decreased to $341,820 from $494,667 for the quarter and to $372,758 from $599,848 for the six months, also reflecting limited spending before financing.
- Interest expense increased to $986,860 for the quarter and $1,072,688 for the six months, primarily because the IPO triggered recognition of a $905,948 non-cash beneficial-conversion-feature charge.
- Net loss increased from $1,853,033 to $1,990,389 for the quarter and from $2,617,863 to $3,067,304 for the six months, despite lower operating expenses and government support income.
- The December 28, 2020 IPO generated $17,732,448 of net proceeds as presented in the filing. The offering included 1,270,589 units, common or Series B preferred stock, Series A warrants, and Series B warrants.
- All outstanding convertible notes and previously outstanding preferred shares converted upon the IPO. Common shares outstanding increased to 10,422,527 at December 31, 2020 from 8,630,000 at June 30, 2020.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
- Management expects continuing operating losses and negative operating cash flow until products are developed, obtain regulatory approvals, and achieve market acceptance. The company does not expect near-term positive operating cash flow.
- Management estimated that post-IPO capital would support operations for at least 30 months based on its budget and proposed development schedule, although the filing states that this cannot be assured.
- The company expected no revenue until approximately six to ten months after the filing date, if at all, and stated that future revenue may not initially fund ongoing operations.
- IPO proceeds are intended for regulatory approvals, manufacturing capacity, marketing and distribution in the Asia-Pacific region, working capital, and general corporate purposes.
- The company has exclusive worldwide rights to a SARS-CoV-2 antibody biosensor under its technology-transfer arrangement. The license carries a royalty rate of 13% on agreed net sales, declining to 3% after applicable patent expiry; no royalties had been incurred through December 31, 2020.
- A January 5, 2021 research collaboration with Harvard requires payments totaling $609,375 in three installments to advance integration of Harvard technology with the company’s COVID-19 biosensor.
- Subsequent to quarter-end, the company received $502,350 from exercise of 59,100 Series A warrants. Holders also cashlessly exercised 1,364,495 Series B warrants; 66,382 Series B warrants remained outstanding as of February 11, 2021.
- The company issued LSBD a five-year warrant to purchase 3,000,000 common shares at $17 per share in exchange for research and development contributions of up to $2 million over five years.
- The filing states that no material legal proceedings, material lease or purchase commitments, or off-balance-sheet arrangements were outstanding. Disclosure controls were assessed as effective as of December 31, 2020.
- Key risks include failure to obtain regulatory approvals, delays or failure in product development, inability to commercialize products, faster-than-expected cash consumption, reliance on additional financing, market acceptance, COVID-19-related uncertainty, foreign-exchange exposure, and dilution from outstanding warrants and convertible securities.
Important Facts for Investors to Verify
- Confirm the registrant’s corporate name and ticker, because the supplied metadata refers to Intelligent Bio Solutions Inc. while the filing text identifies GBS Inc. and ticker GBS.
- Verify that reported “revenue” primarily consisted of government support income and that the company reported no commercial product revenue.
- Reconcile IPO gross proceeds, underwriting discounts, offering costs, and the $19.9 million cash balance.
- Review the substantial increase in outstanding warrants, including Series A, Series B, pre-IPO, parent-issued, and underwriter warrants, and assess potential dilution.
- Evaluate the company’s stated 30-month liquidity estimate against its $3.45 million six-month operating cash burn and planned development, regulatory, manufacturing, and commercialization spending.
- Review the Harvard collaboration obligations, SARS-CoV-2 regulatory pathway, license royalty terms, and the uncertainty of achieving commercialization.
- Confirm the registration-rights obligations relating to the 3,000,000 Series B preferred shares and the potential 1% liquidated damages provision for noncompliance.