Filing Overview
The filing is a Form 10-Q for the quarterly and nine-month periods ended March 31, 2022, filed May 16, 2022. The filing identifies the registrant as GBS Inc. (Nasdaq: GBS), although the request metadata identifies Intelligent Bio Solutions Inc. The company is an emerging-growth, smaller-reporting-company biosensor diagnostic developer focused on saliva-based glucose and SARS-CoV-2 testing. The financial statements are unaudited.
Financial Results and Position
| Metric | Three Months Ended March 31 | Nine Months Ended March 31 |
|---|---|---|
| Government support income | $192,500, versus $34,290 | $370,291, versus $372,754 |
| Operating loss | $1,342,829, versus $3,140,515 | $6,248,783, versus $4,720,836 |
| Net loss attributable to GBS Inc. | $1,335,246, versus $3,127,813 | $6,227,896, versus $6,184,287 |
| Basic and diluted loss per share | $0.09 loss, versus $0.27 loss | $0.43 loss, versus $0.64 loss |
| Operating cash flow | $1,634,829 used in the first nine months, versus $9,613,666 used |
- The company reports no product revenue to date; reported revenue consisted of government support income.
- Cash and cash equivalents were $10,756,089 at March 31, 2022, down from $12,573,685 at June 30, 2021.
- Working capital was approximately $8.44 million according to the financial statement disclosures; the MD&A separately states $8.43 million, creating a minor internal inconsistency.
- Total assets were $14,359,053 and total liabilities were $5,655,562. Shareholders’ equity was $8,703,491.
- The balance sheet shows no debt balance. Interest expense was $4,217 for the quarter and $4,892 for the nine months; prior-period convertible notes had been converted into common stock after the IPO.
- Grant receivables totaled approximately $2.85 million, including $1.66 million current and $1.19 million long-term. Deferred grant income totaled approximately $4.56 million.
- Capital work in progress was $306,792 at March 31, 2022, reflecting development of a manufacturing facility.
Material Changes Versus the Prior Comparable Period
- Quarterly net loss attributable to GBS Inc. improved by $1.79 million, primarily because prior-year development and research spending was higher.
- Nine-month net loss increased by $43,609 despite lower interest and foreign-exchange costs, primarily because of expanded operating activity and development spending.
- General and administrative expense increased 11% for the quarter and 57% for the nine months, reflecting increased activity following the December 2020 IPO.
- Development and regulatory expense decreased for the quarter because of delayed University of Newcastle invoices, but increased for the nine months by $632,232. The increase included a $2.6 million prepaid R&D contribution that was expensed after management determined it was most likely applicable to licensing or future royalty obligations.
- Government support income increased in the quarter because of recognized R&D tax refunds, but declined slightly for the nine months as COVID-19-related government support received in the prior year was discontinued.
- Cash used in operations declined substantially, from $9.61 million to $1.63 million, partly because of collections and changes in grant and tax receivables and non-cash expenses.
- All 1.3 million Series B convertible preferred shares were converted into common stock in August 2021. Common shares outstanding increased to 14,889,904 from 13,582,122 at June 30, 2021.
Outlook, Risks, Contingencies and Unusual Items
- Management does not expect positive operating cash flow in the near term and does not anticipate product revenue until development, regulatory approvals, commercialization and market acceptance are achieved, if at all.
- Management states that available capital is expected to support operations through at least the first half of 2023, but warns that resources may be consumed faster than projected and additional financing may be required.
- The company is pursuing clinical development of the Saliva Glucose Test, including a planned 40-subject correlation study. The first stage was expected to be completed by July 2022, subject to IRB approval and execution.
- Equipment sourcing for the manufacturing facility was underway, with the initial equipment batch expected to be finalized in June 2022. The Australian government grant provides for up to $4.7 million upon achievement of specified milestones.
- The FDA provided feedback that additional data would be advisable to advance the licensor’s Breakthrough Device Designation submission. The company is working toward generating that data.
- The company recorded a full valuation allowance against an approximately $7.51 million deferred tax asset associated with tax-loss carryforwards of approximately $29.10 million.
- Commitments included $13,175 payable under a Johns Hopkins sponsored research agreement and $499,560 payable to the University of Newcastle. The company reported no material future minimum lease or purchase commitments.
- There were no material pending legal proceedings, but management notes the general risks and costs of potential litigation.
- Nasdaq notified the company on March 17, 2022 that its closing bid price had been below $1.00 for 30 consecutive business days. The initial compliance period ran through September 13, 2022, with a possible additional 180-day period subject to Nasdaq requirements and potentially a reverse stock split.
- Management concluded that disclosure controls and procedures were not effective because of a material weakness in internal control over financial reporting. Remediation includes additional accounting personnel, enhanced review controls and outside consultants.
- The company has no material off-balance-sheet arrangements and disclosed no material changes to previously reported risk factors other than litigation and Nasdaq listing-compliance risks.
Investor Verification Points
- Confirm the registrant identity and reporting period, because the request metadata differs from the filing, which identifies GBS Inc. and the period ended March 31, 2022.
- Reconcile the working-capital figures stated in the notes and MD&A, approximately $8.44 million versus $8.43 million.
- Assess the company’s ability to fund operations beyond the first half of 2023 given continuing losses, no product revenue and reliance on future financing or other capital sources.
- Track clinical, FDA, regulatory and manufacturing milestones for the Saliva Glucose Test and related biosensor products.
- Monitor the Australian government grant’s milestone requirements, timing of collections and deferred-income recognition.
- Evaluate the potential dilution from approximately 7.25 million outstanding warrants and other antidilutive securities.
- Monitor remediation of the material weakness and the effect of ineffective disclosure controls on future reporting.
- Monitor Nasdaq bid-price compliance and any proposed reverse stock split or other actions affecting listing status and shareholder dilution.