Business Context and Reporting Period
This unaudited Form 10-Q identifies the registrant as GBS Inc., not Intelligent Bio Solutions Inc. The report covers the three months ended September 30, 2021, the first quarter of fiscal 2022, and was filed November 12, 2021. GBS develops non-invasive saliva-based diagnostic technologies, including the Saliva Glucose Biosensor and a SARS-CoV-2 antibody test. The company is an emerging growth company, smaller reporting company, and 29.9%-owned affiliate of Life Science Biosensor Diagnostics Pty Ltd. (LSBD).
Financial Performance and Position
- Revenue: $0 for the quarter, compared with $55,427 of government support income in the prior-year quarter. The company states it has not generated product revenue to date.
- Operating expenses: $1.44 million, up from $718,422. General and administrative expense increased to $1.33 million from $521,003, while development and regulatory expense increased to $106,799 from $30,938.
- Net loss: $1.44 million, including $1.43 million attributable to GBS, compared with a $1.08 million net loss, including $1.07 million attributable to GBS, in the prior-year quarter.
- Loss per share: $0.10 basic and diluted, compared with $0.12 in the prior-year quarter, reflecting a larger weighted-average share count of 14.0 million versus 8.63 million.
- Other comprehensive loss: $67,482 from foreign-currency translation, compared with $50,568.
- Margins: Gross margin is not meaningful because the company reported no revenue. Operating margin and net margin are also not meaningful on a percentage basis because revenue was zero.
- Cash flow: Operating activities generated $82,962, compared with $2.68 million used in the prior-year quarter. The current-quarter benefit primarily reflected collection of grant receivables and changes in working capital.
- Cash and liquidity: Cash and cash equivalents were $12.61 million at September 30, 2021, versus $12.57 million at June 30, 2021. Working capital was $13.03 million, and total current assets were $15.86 million against current liabilities of $2.83 million.
- Assets and equity: Total assets were $19.11 million and shareholders’ equity was $13.50 million. The accumulated deficit was $24.30 million.
- Debt: No debt balance was reported at September 30, 2021. Convertible notes had converted into common shares after the December 2020 IPO, eliminating the prior-year interest expense.
- Government grant: A $4.7 million Australian government grant for a manufacturing facility was recorded as deferred grant income and a receivable. Approximately $1.9 million was received during the quarter, leaving $2.74 million in grant receivable and long-term deferred grant income.
Material Changes Versus the Prior Comparable Period
- Government support income fell by $55,427 to zero because COVID-19-related government support received by subsidiaries in the prior year was discontinued in April 2021.
- General and administrative expense increased by $811,517, primarily because operating activity expanded after the December 2020 IPO.
- Development and regulatory expense increased by $75,861 as IPO funding enabled progress on development and regulatory milestones.
- Prospectus and capital-raising expense declined from $166,481 to zero because the IPO-related expenditures were substantially completed in the prior fiscal year.
- Interest expense declined from $85,828 to zero following the conversion of convertible notes into common shares.
- Foreign-exchange loss declined from $192,470 to $3,118, although foreign-currency translation loss in other comprehensive income increased to $67,482 from $50,568.
- Net loss attributable to GBS increased by $360,142, primarily because of increased operating activity and development spending.
- On August 31, 2021, all 1.3 million Series B convertible preferred shares converted into common shares. At September 30, 2021, 14.88 million common shares were outstanding.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
- Management expects continued operating losses and negative operating cash flow until products are developed, obtain regulatory approvals, and achieve commercial acceptance. No near-term product revenue is expected.
- Management estimates that available capital will support operations through at least the first half of 2023, although it cautions that resources may be consumed faster than expected and additional financing may be required.
- The company is progressing a proposed manufacturing facility, with initial equipment commissioning targeted for the fourth quarter of calendar 2021 or first quarter of calendar 2022, subject to grant milestones and execution.
- The company filed an FDA pre-submission package regarding clinical studies for the Saliva Glucose Biosensor. It is also seeking commercial partners and distributors in China.
- A preliminary SARS-CoV-2 antibody assay study reported 100% sensitivity and 100% specificity using the tested positive and negative plasma samples, with results in less than 10 minutes. These preliminary results do not establish regulatory approval or commercial success.
- The company has a two-year option to acquire an exclusive North American saliva glucose license for an exercise price of $5.0 million. The $0.5 million option fee was expensed when incurred.
- Remaining amounts payable under research and development arrangements included $105,897 to Johns Hopkins and $841,913 to the University of Newcastle as of September 30, 2021.
- The company reported a material weakness in internal control over financial reporting and concluded that disclosure controls and procedures were not effective. Management is adding personnel, enhancing review controls, and engaging outside consultants.
- Going-concern risk remains significant because the company has no product revenue, an accumulated deficit of $24.30 million, and a history of losses and negative operating cash flows. Management nevertheless concluded that working capital was sufficient for at least the next twelve months.
- The company reported no material pending legal proceedings, no material off-balance-sheet arrangements, and no material future minimum lease or purchase commitments.
Important Facts for Investors to Verify
- Verify the issuer identity: the supplied filing is for GBS Inc. under ticker GBS, while the request metadata names Intelligent Bio Solutions Inc.
- Confirm whether the $4.7 million government grant will be received in full and whether all construction milestones and related conditions will be met.
- Assess the cash runway against the company’s stated development, manufacturing, clinical, and regulatory spending plans and the potential need for additional capital.
- Track FDA interactions, clinical-study execution, regulatory approvals, and commercialization timelines for both the glucose and SARS-CoV-2 products.
- Review the material weakness remediation and subsequent auditor or management assessments of internal control effectiveness.
- Consider dilution from outstanding warrants, including Series A and Series B warrants, underwriter warrants, pre-IPO warrants, and warrants issued to LSBD.
- Evaluate related-party relationships with LSBD, including the $119,652 of overhead reimbursements incurred during the quarter and the company’s license and option arrangements.