Filing Scope and Business Context
Filing: GBS Inc. Form 10-Q, filed May 13, 2021, for the quarter and nine months ended March 31, 2021. The request metadata identifies Intelligent Bio Solutions Inc. and “2020 Q3,” but the supplied filing identifies the registrant as GBS Inc. and reports fiscal 2021 third-quarter results.
GBS develops saliva-based biosensor diagnostics, including a SARS-CoV-2 antibody test and a Saliva Glucose Biosensor for the Asia-Pacific region. The company also holds a 50% interest in BiosensX (North America) Inc. and is controlled by voting rights through its 48.7%-owned affiliate, Life Science Biosensor Diagnostics Pty Ltd. The interim financial statements are unaudited.
Financial Results and Position
| Metric | Three months ended March 31, 2021 | Three months ended March 31, 2020 | Nine months ended March 31, 2021 | Nine months ended March 31, 2020 |
|---|---|---|---|---|
| Total revenues and other income | $34,290 | $(1,533) | $372,754 | $119,744 |
| Operating expenses | $3,174,805 | $27,291 | $5,093,590 | $2,467,844 |
| Loss from operations | $(3,140,515) | $(28,824) | $(4,720,836) | $(2,348,100) |
| Net loss attributable to GBS | $(3,127,813) | $(112,592) | $(6,184,287) | $(2,706,760) |
| Basic and diluted loss per share | $(0.27) | $(0.01) | $(0.64) | $(0.32) |
| Cash used in operating activities | Not separately provided | Not separately provided | $(9,613,666) | $(693,593) |
There were no product sales. Reported income primarily consisted of government support income, including research and development tax incentives and COVID-19-related support. Operating expenses included general and administrative costs of $1,013,389 for the quarter and $2,205,842 for the nine-month period, and development and regulatory expenses of $2,156,316 and $2,529,074, respectively. No income tax expense or benefit was recorded because deferred tax assets had a full valuation allowance.
At March 31, 2021, cash and cash equivalents were $14,261,622, working capital was $15,026,877, total assets were $17,452,678, and total liabilities were $1,577,262. Shareholders’ equity was $15,875,416, compared with a deficit of $5,214,828 at June 30, 2020. The accumulated deficit was $22,016,804.
Previously outstanding convertible notes of $5,133,706 converted into 710,548 common shares upon the IPO. Accordingly, no convertible notes payable remained at March 31, 2021. The filing does not report other conventional debt outstanding at quarter-end.
Financing activities generated $23,402,918 during the nine months, including $21,600,013 of IPO proceeds, $3,294,745 from preferred stock issuance, and $508,300 from warrant exercises, partially offset by $2,003,952 of equity issuance costs. Cash increased from $427,273 at June 30, 2020 to $14,261,622 at March 31, 2021.
Material Changes Versus the Prior Comparable Period
- Quarterly net loss increased to $3.1 million from $0.1 million, while nine-month net loss increased to $6.2 million from $2.7 million.
- Quarterly operating expenses increased by approximately $3.1 million, primarily because post-IPO funding enabled expanded development, regulatory, and corporate activities.
- Development and regulatory expenses increased by approximately $2.2 million for the quarter and $2.0 million for the nine-month period. The increases included a $500,000 expense for an option to acquire North American glucose-related intellectual property.
- General and administrative expenses increased by approximately $1.0 million for the quarter and $0.5 million for the nine-month period following completion of the IPO.
- Nine-month interest expense increased to $1.1 million, primarily because of a $905,948 non-cash beneficial conversion feature expense recognized before the convertible notes converted at the IPO. Quarterly interest expense declined to $18,561 after conversion.
- The company completed its IPO on December 28, 2020, issuing 1,270,589 units and reporting net proceeds of $17,732,448. Preferred stock and convertible notes were converted into common stock at closing.
- During the quarter, holders exercised 58,600 Series A warrants and 1,400,195 Series B warrants for common stock, increasing common shares outstanding to 11,881,322 at March 31, 2021.
- Prepayments and other assets increased substantially, including $2.6 million contributed toward development and commercialization costs for BiosensX; $866,667 was classified as non-current at quarter-end.
Outlook, Risks, Contingencies, and Unusual Items
Management expects continuing operating losses and negative operating cash flow until products are developed, obtain regulatory approvals, are commercialized, and achieve market acceptance. Management estimated that IPO resources would support operations for at least 30 months, although the filing also states that additional capital may be required earlier if spending exceeds expectations or commercialization is delayed. The company did not expect meaningful revenue within approximately six to ten months after the filing date, if at all, and stated that future revenue may not initially cover operating needs.
Key development activities included COVID-19 antibody testing research with Harvard’s Wyss Institute, a saliva collection and diagnostic study with Johns Hopkins, glucose product planning and prototyping, and preparation for potential U.S. regulatory submission. The company received Harvard Longwood Institutional Review Board approval to commence a validation study, but the filing does not report regulatory approval to market any product or commercial product revenue.
The company entered into a two-year option agreement with LSBD for an exclusive North American glucose-field license. The exercise price is $5 million, and the $500,000 option fee was expensed. It also agreed to pay Harvard $609,375 under a research collaboration agreement, of which $304,686 remained payable at March 31, 2021, and Johns Hopkins $423,589 under a sponsored research agreement, all of which remained payable at quarter-end.
The financial statements were prepared on a going-concern basis. Management concluded that IPO funding provided sufficient working capital for at least the next twelve months, but the company remains dependent on successful development, regulatory approvals, commercialization, and potential future financing. COVID-19 has had a limited reported impact on core operations, but the business remains exposed to regulatory, clinical, commercialization, foreign-exchange, funding, and market-acceptance risks.
Management reported that disclosure controls and procedures were not effective because of a material weakness in internal control over financial reporting. The weakness involved insufficiently documented policies and procedures, review and monitoring controls, and evidence supporting control performance. Management added personnel, enhanced controls, and planned to use outside consultants for remediation.
The filing reports no material pending legal proceedings and no off-balance-sheet arrangements. Subsequent to March 31, 2021, 500,000 Series B preferred shares were converted into common stock and 800 Series B warrants were exercised through a cashless exercise provision.
Investor Verification Items
- Reconcile the issuer and period discrepancy: the supplied filing is for GBS Inc. and the quarter ended March 31, 2021, not Intelligent Bio Solutions Inc. or 2020 Q3.
- Verify the company’s cash runway against the reported $14.3 million cash balance, $9.6 million nine-month operating cash burn, planned development spending, and potential $5 million license exercise.
- Confirm the status and timing of FDA or other regulatory approvals for the COVID-19 and Saliva Glucose Biosensor products; no commercial product revenue was reported.
- Assess dilution from outstanding Series A and Series B warrants, underwriter warrants, pre-IPO warrants, LSBD warrants, and Series B preferred stock.
- Review the material weakness remediation and subsequent reports for evidence that internal control deficiencies were corrected.
- Evaluate related-party arrangements with LSBD, including development services, licensing, option fees, financing transactions, and control relationships.
- Verify the commitments to Harvard and Johns Hopkins and the accounting for the $2.6 million BiosensX development prepayment.