UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington,WASHINGTON, D.C. 20549
FORM 10-Q
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended December 31, 20202021
ORor
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _____ to _____
Commission File Number 001-39825
GBS Inc.
(Exact name of Registrant as specified in its Charter)
Delaware | 82-1512711 | |
(State or other jurisdiction of incorporation or organization) | ( Identification No.) |
| ||
420 Lexington Ave, Suite 300, New York, NY | 10170 | |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (646)828-8258
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock, par value | GBS | The Nasdaq |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.YES ☒ NO ☐
YES [ ] NO [X]
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).YES ☒ NO ☐
YES [X] NO [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ | |
Non-accelerated filer | ☒ | |||
Smaller reporting company | ☒ | |||
Emerging growth company | ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]☐
Indicate by check mark whether the Registrantregistrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES [ ] ☐ NO [X] ☒
The number of shares of registrant’s common stock outstanding as of February 11, 20219 was 11,875,222.
Table of Contents
2 |
PART I. FINANCIAL INFORMATION
ItemITEM 1. Financial statements (Unaudited)FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets
(Unaudited)
(Amounts in $)
December 31, 2021 | June 30, 2021 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 11,190,622 | $ | 12,573,685 | ||||
Grant receivable, current portion | $ | 1,611,384 | 2,098,884 | |||||
Research and development tax incentive receivable | $ | 1,134,846 | 1,025,455 | |||||
Other current assets | $ | 148,157 | 2,509,017 | |||||
Total current assets | $ | 14,085,009 | 18,207,041 | |||||
Grant receivable, net of current portion | $ | 1,150,988 | 3,148,328 | |||||
Other non-current assets | $ | - | 504,000 | |||||
TOTAL ASSETS | $ | 15,235,997 | $ | 21,859,369 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable and accrued expenses | $ | 448,886 | $ | 1,467,968 | ||||
Related party payables | 9,536 | 13,323 | ||||||
Current portion of deferred grant income | 3,421,837 | 2,098,884 | ||||||
Current employee benefit liabilities | 129,212 | 102,475 | ||||||
Total current liabilities | 4,009,471 | 3,682,650 | ||||||
Employee benefit liabilities | 30,707 | 21,770 | ||||||
Long-term deferred grant income | 1,150,988 | 3,148,328 | ||||||
Total liabilities | 5,191,166 | 6,852,748 | ||||||
Commitments and contingencies (Note 9) | - | - | ||||||
Shareholders’ equity: | ||||||||
Preferred stock, $par value, shares authorized, and shares issued and outstanding at December 31, 2021 and June 30, 2021, respectively | - | 13,000 | ||||||
Common stock, $par value, shares authorized, and shares issued and outstanding at December 31, 2021 and June 30, 2021, respectively | 148,825 | 135,821 | ||||||
Additional paid-in capital | 38,440,085 | 38,440,089 | ||||||
Accumulated deficit | (27,762,453 | ) | (22,869,803 | ) | ||||
Accumulated other comprehensive loss | (721,387 | ) | (661,260 | ) | ||||
Total consolidated GBS Inc. equity | 10,105,070 | 15,057,847 | ||||||
Non-controlling interest | (60,239 | ) | (51,226 | ) | ||||
Total shareholders’ equity | 10,044,831 | 15,006,621 | ||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 15,235,997 | $ | 21,859,369 |
December 31, 2020 | June 30, 2020 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 19,877,860 | $ | 427,273 | ||||
Deferred charges | - | 1,863,613 | ||||||
Other current assets | 88,548 | 49,062 | ||||||
Total current assets | 19,966,408 | 2,339,948 | ||||||
Investment in affiliate | - | 135,692 | ||||||
TOTAL ASSETS | $ | 19,966,408 | $ | 2,475,640 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT) | ||||||||
Current liabilities: | ||||||||
Accounts payable and accrued expenses | $ | 734,825 | $ | 787,469 | ||||
Related party payables | 431,621 | 1,769,293 | ||||||
Convertible notes payable | - | 5,133,706 | ||||||
Total current liabilities | 1,166,446 | 7,690,468 | ||||||
Employee benefit liabilities | 17,947 | - | ||||||
Total liabilities | 1,184,393 | 7,690,468 | ||||||
Commitments and contingencies - Note 10 | - | - | ||||||
Shareholders’ equity (deficit): | ||||||||
Preferred stock, $0.01 par value, 10,000,000 shares authorized, 3,000,000 and 2,370,891 shares issued and outstanding at December 31, 2020 and June 30, 2020, respectively | 30,000 | 23,709 | ||||||
Common stock, $0.01 par value, 100,000,000 shares authorized, 10,422,527 and 8,630,000 shares issued and outstanding at December 31, 2020 and June 30, 2020, respectively | 104,225 | 86,300 | ||||||
Additional paid-in capital | 37,956,585 | 10,899,942 | ||||||
Accumulated deficit | (18,888,991 | ) | (15,832,517 | ) | ||||
Accumulated other comprehensive loss | (380,663 | ) | (363,951 | ) | ||||
Total consolidated group equity (deficit) | 18,821,156 | (5,186,517 | ) | |||||
Non-controlling interests | (39,141 | ) | (28,311 | ) | ||||
Total shareholders’ equity (deficit) | 18,782,015 | (5,214,828 | ) | |||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 19,966,408 | $ | 2,475,640 |
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
3 |
Condensed Consolidated Statements of Operations and Other Comprehensive LossIncome/ (Loss)
(Unaudited)
(Amounts in $)
2021 | 2020 | 2021 | 2020 | |||||||||||||
Three Months Ended December 31, | Six Months Ended December 31, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Revenue: | ||||||||||||||||
Other income: | ||||||||||||||||
Government support income | $ | 177,791 | $ | 283,037 | $ | 177,791 | $ | 338,464 | ||||||||
Total revenue | 177,791 | 283,037 | 177,791 | 338,464 | ||||||||||||
Operating expenses: | ||||||||||||||||
General and administrative | 1,003,244 | 671,450 | 2,335,764 | 1,192,453 | ||||||||||||
Development and regulatory approval | 2,641,182 | 341,820 | 2,747,981 | 372,758 | ||||||||||||
Prospectus and capital raising | - | 187,093 | - | 353,574 | ||||||||||||
Total operating expenses | 3,644,426 | 1,200,363 | 5,083,745 | 1,918,785 | ||||||||||||
Loss from operations | (3,466,635 | ) | (917,326 | ) | (4,905,954 | ) | (1,580,321 | ) | ||||||||
Other income (expense): | ||||||||||||||||
Interest expense | (675 | ) | (986,860 | ) | (675 | ) | (1,072,688 | ) | ||||||||
Loss from unconsolidated equity method investment | - | - | - | (135,692 | ) | |||||||||||
Realized foreign exchange gain (loss) | 14 | (86,637 | ) | (3,104 | ) | (279,107 | ) | |||||||||
Interest income | 3,473 | 434 | 8,070 | 504 | ||||||||||||
Total other income (expense) | 2,812 | (1,073,063 | ) | 4,291 | (1,486,983 | ) | ||||||||||
Loss before income taxes | (3,463,823 | ) | (1,990,389 | ) | (4,901,663 | ) | (3,067,304 | ) | ||||||||
Income taxes | - | - | - | - | ||||||||||||
Net loss | (3,463,823 | ) | (1,990,389 | ) | (4,901,663 | ) | (3,067,304 | ) | ||||||||
Net loss attributable to non-controlling interest | (3,825 | ) | (6,425 | ) | (9,013 | ) | (10,830 | ) | ||||||||
Net loss attributable to GBS Inc. | $ | (3,459,998 | ) | $ | (1,983,964 | ) | $ | (4,892,650 | ) | $ | (3,056,474 | ) | ||||
Other comprehensive gain (loss), net of tax: | ||||||||||||||||
Foreign currency translation gain (loss) | $ | 7,355 | $ | 33,856 | $ | (60,127 | ) | $ | (16,712 | ) | ||||||
Total other comprehensive gain (loss) | 7,355 | 33,856 | (60,127 | ) | (16,712 | ) | ||||||||||
Comprehensive loss | (3,456,468 | ) | (1,956,533 | ) | (4,961,790 | ) | (3,084,016 | ) | ||||||||
Comprehensive loss attributable to non-controlling interest | (3,825 | ) | (6,425 | ) | (9,013 | ) | (10,830 | ) | ||||||||
Comprehensive loss attributable to GBS Inc | $ | (3,452,643 | ) | $ | (1,950,108 | ) | $ | (4,952,777 | ) | $ | (3,073,186 | ) | ||||
Net loss per share, basic and diluted | $ | (0.23 | ) | $ | (0.23 | ) | $ | (0.34 | ) | $ | (0.35 | ) | ||||
Weighted average shares outstanding, basic and diluted | 14,882,522 | 8,622,724 | 14,444,324 | 8,626,362 |
Three Months Ended December 31, | Six Months Ended December 31, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Revenues | ||||||||||||||||
Other income: | ||||||||||||||||
Government support income | $ | 283,037 | - | $ | 338,464 | $ | - | |||||||||
Shared services | - | (798 | ) | - | 121,277 | |||||||||||
Total revenues | 283,037 | (798 | ) | 338,464 | 121,277 | |||||||||||
Operating expenses: | ||||||||||||||||
General and administrative expenses | 671,450 | 972,012 | 1,192,453 | 1,698,340 | ||||||||||||
Development and regulatory approval expenses | 341,820 | 494,667 | 372,758 | 599,848 | ||||||||||||
Prospectus and capital raising expenses | 187,093 | 236,438 | 353,574 | 142,365 | ||||||||||||
Total operating expenses | 1,200,363 | 1,703,117 | 1,918,785 | 2,440,553 | ||||||||||||
Loss from operations | (917,326 | ) | (1,703,915 | ) | (1,580,321 | ) | (2,319,276 | ) | ||||||||
Other (expense) income: | ||||||||||||||||
Interest expense | (986,860 | ) | (149,145 | ) | (1,072,688 | ) | (298,656 | ) | ||||||||
Loss from unconsolidated equity method investment | - | - | (135,692 | ) | - | |||||||||||
Realized foreign exchange loss | (86,637 | ) | - | (279,107 | ) | - | ||||||||||
Interest income | 434 | 27 | 504 | 69 | ||||||||||||
Total other expense | (1,073,063 | ) | (149,118 | ) | (1,486,983 | ) | (298,587 | ) | ||||||||
Loss before income taxes | (1,990,389 | ) | (1,853,033 | ) | (3,067,304 | ) | (2,617,863 | ) | ||||||||
Income tax (expense)/benefit | ||||||||||||||||
Current | - | - | - | - | ||||||||||||
Deferred | - | - | - | - | ||||||||||||
Total income tax (expense)/benefit | - | - | - | - | ||||||||||||
Net loss | (1,990,389 | ) | (1,853,033 | ) | (3,067,304 | ) | (2,617,863 | ) | ||||||||
Net loss attributable to noncontrolling interest | (6,425 | ) | (16,715 | ) | (10,830 | ) | (23,695 | ) | ||||||||
Net loss attributable to GBS, Inc. | $ | (1,983,964 | ) | $ | (1,836,318 | ) | $ | (3,056,474 | ) | $ | (2,594,168 | ) | ||||
Other comprehensive income | ||||||||||||||||
Foreign currency translation gain (loss) | 33,856 | (133,286 | ) | (16,712 | ) | (129,050 | ) | |||||||||
Total other comprehensive income | 33,856 | (133,286 | ) | (16,712 | ) | (129,050 | ) | |||||||||
Comprehensive net loss attributable to GBS, Inc | $ | (1,956,533 | ) | $ | (1,986,319 | ) | $ | (3,084,016 | ) | $ | (2,746,913 | ) | ||||
Net loss per share, basic and diluted | $ | (0.23 | ) | $ | (0.22 | ) | $ | (0.35 | ) | $ | (0.30 | ) | ||||
Weighted average shares outstanding, basic and diluted | 8,622,724 | 8,510,000 | 8,626,362 | 8,510,000 |
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
4 |
Condensed Consolidated Statements of Changes in Shareholders’ Equity
(Unaudited)
(Amounts in $)
Shares | Amount | Shares | Amount | capital | deficit | loss | interest | (deficit) | ||||||||||||||||||||||||||||
Preferred stock | Common stock | Additional paid in | Accumulated | Other | Non- controlling | Total shareholders’ equity | ||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | capital | deficit | loss | interest | (deficit) | ||||||||||||||||||||||||||||
Balance, June 30, 2021 | 1,300,000 | $ | 13,000 | 13,582,122 | $ | 135,821 | $ | 38,440,089 | $ | (22,869,803 | ) | $ | (661,260 | ) | $ | (51,226 | ) | $ | 15,006,621 | |||||||||||||||||
Issuance of common stock at initial public offering | ||||||||||||||||||||||||||||||||||||
Issuance of common stock at initial public offering, shares | ||||||||||||||||||||||||||||||||||||
Issuance cost of common stock at initial public offering | ||||||||||||||||||||||||||||||||||||
Cancellation of common stock in exchange for preferred shares | ||||||||||||||||||||||||||||||||||||
Cancellation of common stock in exchange for preferred shares, shares | ||||||||||||||||||||||||||||||||||||
Conversion of convertible notes into common stock at initial public offering | ||||||||||||||||||||||||||||||||||||
Conversion of convertible notes into common stock at initial public offering, shares | ||||||||||||||||||||||||||||||||||||
Conversion of convertible preferred shares into common stock at initial public offering | ||||||||||||||||||||||||||||||||||||
Conversion of convertible preferred shares into common stock at initial public offering, shares | ||||||||||||||||||||||||||||||||||||
Beneficial conversion feature | ||||||||||||||||||||||||||||||||||||
Series A warrants exercised to purchase common shares | ||||||||||||||||||||||||||||||||||||
Series A warrants exercised to purchase common shares, shares | ||||||||||||||||||||||||||||||||||||
Series A and B warrants acquired | ||||||||||||||||||||||||||||||||||||
Series B warrants exercised to purchase common shares | - | - | 400 | 4 | (4 | ) | - | - | - | - | ||||||||||||||||||||||||||
Conversion of convertible preferred shares into common shares | (1,300,000 | ) | (13,000 | ) | 1,300,000 | 13,000 | - | - | - | - | - | |||||||||||||||||||||||||
Foreign currency translation loss | - | - | - | - | - | - | (67,482 | ) | - | (67,482 | ) | |||||||||||||||||||||||||
Net loss | - | - | - | - | - | (1,432,652 | ) | - | (5,188 | ) | (1,437,840 | ) | ||||||||||||||||||||||||
Balance,September 30, 2021 | - | - | 14,882,522 | 148,825 | 38,440,085 | (24,302,455 | ) | (728,742 | ) | (56,414 | ) | 13,501,299 | ||||||||||||||||||||||||
Foreign currency translation gain | - | - | - | - | - | - | 7,355 | - | 7,355 | |||||||||||||||||||||||||||
Net loss | - | - | - | - | - | (3,459,998 | ) | - | (3,825 | ) | (3,463,823 | ) | ||||||||||||||||||||||||
Balance, December 31, 2021 | - | $ | - | 14,882,522 | $ | 148,825 | $ | 38,440,085 | $ | (27,762,453 | ) | $ | (721,387 | ) | $ | (60,239 | ) | $ | 10,044,831 | |||||||||||||||||
Balance, June 30, 2020 | 2,370,891 | $ | 23,709 | 8,630,000 | $ | 86,300 | $ | 10,899,942 | $ | (15,832,517 | ) | $ | (363,951 | ) | $ | (28,311 | ) | $ | (5,214,828 | ) | ||||||||||||||||
Issuance of convertible preferred shares | 439,299 | 4,393 | - | - | 3,290,352 | - | - | - | 3,294,745 | |||||||||||||||||||||||||||
Foreign currency translation loss | - | - | - | - | - | - | (50,568 | ) | - | (50,568 | ) | |||||||||||||||||||||||||
Net loss | - | - | - | - | - | (1,072,510 | ) | - | (4,405 | ) | (1,076,915 | ) | ||||||||||||||||||||||||
Balance,September 30, 2020 | 2,810,190 | 28,102 | 8,630,000 | 86,300 | 14,190,294 | (16,905,027 | ) | (414,519 | ) | (32,716 | ) | (3,047,566 | ) | |||||||||||||||||||||||
Issuance of common stock at initial public offering | - | - | 1,270,589 | 12,706 | 21,587,307 | - | - | - | 21,600,013 | |||||||||||||||||||||||||||
Issuance cost of common stock at initial public offering | - | - | - | - | (3,867,565 | ) | - | - | - | (3,867,565 | ) | |||||||||||||||||||||||||
Cancellation of common stock in exchange for preferred shares | 3,000,000 | 30,000 | (3,000,000 | ) | (30,000 | ) | - | - | - | - | - | |||||||||||||||||||||||||
Conversion of convertible notes into common stock at initial public offering | - | - | 710,548 | 7,105 | 5,126,601 | - | - | - | 5,133,706 | |||||||||||||||||||||||||||
Conversion of convertible preferred shares into common stock at initial public offering | (2,810,190 | ) | (28,102 | ) | 2,810,190 | 28,102 | - | - | - | - | - | |||||||||||||||||||||||||
Beneficial conversion feature | - | - | - | - | 905,948 | - | - | - | 905,948 | |||||||||||||||||||||||||||
Series A warrants exercised to purchase common shares | - | - | 1,200 | 12 | 10,188 | - | - | - | 10,200 | |||||||||||||||||||||||||||
Series A and B warrants acquired | - | - | - | - | 3,812 | - | - | - | 3,812 | |||||||||||||||||||||||||||
Foreign currency translation loss | - | - | - | - | - | - | 33,856 | - | 33,856 | |||||||||||||||||||||||||||
Foreign currency translation gain (loss) | - | - | - | - | - | - | 33,856 | - | 33,856 | |||||||||||||||||||||||||||
Net loss | - | - | - | - | - | (1,983,964 | ) | - | (6,425 | ) | (1,990,389 | ) | ||||||||||||||||||||||||
Balance, December 31, 2020 | 3,000,000 | $ | 30,000 | 10,422,527 | $ | 104,225 | $ | 37,956,585 | $ | (18,888,991 | ) | $ | (380,663 | ) | $ | (39,141 | ) | $ | 18,782,015 |
Preferred stock | Common stock | Additional paid in | Accumulated | Other comprehensive | Non-controlling | Total stockholders’ equity | ||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | capital | deficit | (loss) income | interest | (deficit) | ||||||||||||||||||||||||||||
Balance, June 30, 2020 | 2,370,891 | $ | 23,709 | 8,630,000 | $ | 86,300 | $ | 10,899,942 | $ | (15,832,517 | ) | $ | (363,951 | ) | $ | (28,311 | ) | $ | (5,214,828 | ) | ||||||||||||||||
Issuance of convertible preferred shares | 439,299 | 4,393 | - | - | 3,290,352 | - | - | - | 3,294,745 | |||||||||||||||||||||||||||
Foreign currency translation loss | - | - | - | - | - | - | (50,568 | ) | - | (50,568 | ) | |||||||||||||||||||||||||
Net loss | - | - | - | - | - | (1,072,510 | ) | - | (4,405 | ) | (1,076,915 | ) | ||||||||||||||||||||||||
Balance, September 30, 2020 | 2,810,190 | 28,102 | 8,630,000 | 86,300 | 14,190,294 | (16,905,027 | ) | (414,519 | ) | (32,716 | ) | (3,047,566 | ) | |||||||||||||||||||||||
Issuance of common stock at initial public offering | - | - | 1,270,589 | 12,706 | 21,587,307 | - | - | - | 21,600,013 | |||||||||||||||||||||||||||
Issuance cost of common stock at initial public offering | - | - | - | - | (3,867,565 | ) | - | - | - | (3,867,565 | ) | |||||||||||||||||||||||||
Cancellation of common stock in exchange for preferred shares | 3,000,000 | 30,000 | (3,000,000 | ) | (30,000 | ) | - | - | - | - | - | |||||||||||||||||||||||||
Conversion of convertible notes into common stock at initial public offering | - | - | 710,548 | 7,105 | 5,126,601 | - | - | - | 5,133,706 | |||||||||||||||||||||||||||
Conversion of convertible preferred shares into common stock at initial public offering | (2,810,190 | ) | (28,102 | ) | 2,810,190 | 28,102 | - | - | - | - | - | |||||||||||||||||||||||||
Beneficial conversion feature | - | - | - | - | 905,948 | - | - | - | 905,948 | |||||||||||||||||||||||||||
Series A warrants exercised to purchase common shares | - | - | 1,200 | 12 | 10,188 | - | - | - | 10,200 | |||||||||||||||||||||||||||
Series A and B warrants acquired | - | - | - | - | 3,812 | - | - | - | 3,812 | |||||||||||||||||||||||||||
Foreign currency translation gain | - | - | - | - | - | - | 33,856 | - | 33,856 | |||||||||||||||||||||||||||
Net loss | - | - | - | - | - | (1,983,964 | ) | - | (6,425 | ) | (1,990,389 | ) | ||||||||||||||||||||||||
Balance, December 31, 2020 | 3,000,000 | $ | 30,000 | 10,422,527 | $ | 104,225 | $ | 37,956,585 | $ | (18,888,991 | ) | $ | (380,663 | ) | $ | (39,141 | ) | $ | 18,782,015 |
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
5 |
Preferred stock | Common stock | Additional paid in | Accumulated | Other comprehensive | Non-controlling | Total stockholders’ equity | ||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | capital | deficit | (loss) income | interest | (deficit) | ||||||||||||||||||||||||||||
Balance, June 30, 2019 | 2,064,884 | $ | 20,649 | 8,510,000 | $ | 85,100 | $ | 8,164,804 | (12,668,741 | ) | (216,870 | ) | 637,919 | $ | (3,977,139 | ) | ||||||||||||||||||||
Reclassification of noncontrolling interest | - | - | - | - | (637,056 | ) | - | - | 637,056 | - | ||||||||||||||||||||||||||
Balance, June 30, 2019 | 2,064,884 | 20,649 | 8,510,000 | 85,100 | 8,801,860 | (12,668,741 | ) | (216,870 | ) | 863 | (3,977,139 | ) | ||||||||||||||||||||||||
Deemed dividend | - | - | - | - | (976,308 | ) | - | - | - | (976,308 | ) | |||||||||||||||||||||||||
Issuance of convertible preferred shares | 259,007 | 2,590 | - | - | 1,939,964 | - | - | - | 1,942,554 | |||||||||||||||||||||||||||
Issuance costs for common and preferred shares | - | - | - | - | (116,402 | ) | - | - | - | (116,402 | ) | |||||||||||||||||||||||||
Foreign currency translation loss | - | - | - | - | - | - | 4,234 | - | 4,234 | |||||||||||||||||||||||||||
Net loss | - | - | - | - | - | (757,850 | ) | - | (6,980 | ) | (764,830 | ) | ||||||||||||||||||||||||
Balance, September 30, 2019 | 2,323,891 | 23,239 | 8,510,000 | 85,100 | 9,649,114 | (13,426,591 | ) | (212,636 | ) | (6,117 | ) | (3,887,891 | ) | |||||||||||||||||||||||
Foreign currency translation loss | - | - | - | - | - | - | (133,286 | ) | - | (133,286 | ) | |||||||||||||||||||||||||
Net loss | - | - | - | - | - | (1,836,318 | ) | - | (16,715 | ) | (1,853,033 | ) | ||||||||||||||||||||||||
Balance, December 31, 2019 | 2,323,891 | $ | 23,239 | 8,510,000 | $ | 85,100 | $ | 9,649,114 | $ | (15,262,909 | ) | $ | (345,922 | ) | $ | (22,832 | ) | $ | (5,874,210 | ) |
GBS Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
2021 | 2020 | |||||||
Six Months Ended December 31, | ||||||||
2021 | 2020 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (4,901,663 | ) | $ | (3,067,304 | ) | ||
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||
Non-cash gain (loss) on foreign currency translation, net | 3,104 | (16,712 | ) | |||||
Loss on investment in affiliate | - | 135,692 | ||||||
Contingent beneficial conversion feature on convertible notes | - | 905,948 | ||||||
Non-cash research and development charge | 2,600,000 | - | ||||||
Non-cash other operating activities | (41,211 | ) | - | |||||
Changes in operating assets and liabilities: | ||||||||
Grant receivable | 1,828,891 | - | ||||||
Research and development tax incentive receivable | (109,391 | ) | - | |||||
Other current assets | 264,860 | (39,486 | ) | |||||
Accounts and other payables | (992,345 | ) | (52,644 | ) | ||||
Accounts payable - related party | (3,787 | ) | (1,337,672 | ) | ||||
Other long-term liabilities | 8,937 | 17,947 | ||||||
Net cash provided by (used in) operating activities | (1,342,605 | ) | (3,454,231 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from issuance of warrants | - | 3,812 | ||||||
Proceeds from warrant holders for common shares | - | 10,200 | ||||||
Proceeds from issuance of preferred stock | - | 3,294,745 | ||||||
Proceeds from initial public offering | - | 21,600,013 | ||||||
Payment of equity issuance costs | - | (2,003,952 | ) | |||||
Net cash provided by financing activities | - | 22,904,818 | ||||||
Effect of foreign exchange rates on cash and cash equivalents | (40,458 | ) | - | |||||
(Decrease)/Increase in cash and cash equivalents | (1,383,063 | ) | 19,450,587 | |||||
Cash and cash equivalents, beginning of period | 12,573,685 | 427,273 | ||||||
Cash and cash equivalents, end of period | $ | 11,190,622 | $ | 19,877,860 | ||||
Non-cash investing and financing activities | ||||||||
Reclassification of deferred charges to additional paid in capital upon completion of initial public offering | $ | - | $ | 1,863,613 | ||||
Conversion of notes to common shares at initial public offering | - | 5,133,706 | ||||||
Conversion of preferred shares into common shares | 13,000 | 28,102 | ||||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid for income taxes | $ | - | $ | - | ||||
Cash paid for interest | - | 166,740 |
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Amount in $)
Six Months Ended December 31, | ||||||||
2020 | 2019 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (3,067,304 | ) | $ | (2,617,863 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Loss on foreign currency translation | (16,712 | ) | (129,050 | ) | ||||
Loss on investment in affiliate | 135,692 | - | ||||||
Amortization of debt discount and issuance costs | - | 138,209 | ||||||
Contingent beneficial conversion feature on convertible notes | 905,948 | - | ||||||
Changes in operating assets and liabilities: | ||||||||
Other receivables | - | 118,056 | ||||||
Other current assets | (39,486 | ) | 72,939 | |||||
Accounts payable | (52,644 | ) | (515,391 | ) | ||||
Accounts payable - related party | (1,337,672 | ) | 2,458,158 | |||||
Other long-term liabilities | 17,947 | - | ||||||
Net cash used in operating activities | (3,454,231 | ) | (474,942 | ) | ||||
Cash flows from investing activities: | ||||||||
Net cash used in investing activities | - | - | ||||||
Cash flows from financing activities: | ||||||||
Proceeds from issuance of warrants | 3,812 | - | ||||||
Proceeds from warrant holders for common shares | 10,200 | - | ||||||
Proceeds from issuance of preferred stock | 3,294,745 | 648,750 | ||||||
Proceeds from initial public offering | 21,600,013 | - | ||||||
Payment of equity issuance costs | (2,003,952 | ) | (116,402 | ) | ||||
Net cash provided by financing activities | 22,904,818 | 532,348 | ||||||
Increase in cash and cash equivalents | 19,450,587 | 57,406 | ||||||
Cash and cash equivalents, beginning of period | 427,273 | 197,940 | ||||||
Cash and cash equivalents, end of period | $ | 19,877,860 | $ | 255,346 | ||||
Non-cash investing and financing activities | ||||||||
Reclassification of deferred charges to additional paid in capital upon completion of initial public offering | $ | 1,863,613 | $ | - | ||||
Conversion of notes to common shares at initial public offering | 5,133,706 | - | ||||||
Conversion of preferred shares into common shares | 28,102 | - | ||||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid for income taxes | $ | - | $ | - | ||||
Cash paid for interest | $ | 166,740 | $ | 170,198 |
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
GBS Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE 1. ORGANIZATION AND DESCRIPTION OF THE BUSINESS
GBS Inc. and its wholly owned subsidiary, GBS Operations Inc. are formed on December 5, 2016 under the laws of the state of Delaware, and were formed on December 5, 2016.Delaware. Glucose Biosensor Systems (Greater China) Pty Ltd (“GBSPL”) was formed on August 4, 2016 under the laws of New South Wales, Australia and was renamed to GBS (APAC) Pty Ltd on October 14, 2020. Glucose Biosensor Systems (Japan) Pty Ltd and Glucose Biosensor Systems (APAC) Pty Ltd were formed under the laws of New South Wales, Australia on February 22, 2017 and February 23, 2017 respectively. These companies (collectively, “we,” “us,” “our,” or the “Company” or “Group”“Company,”) were formed to provide a non-invasive, pain free innovation to make it easier for people to manage diabetes using the Company’s Saliva Glucose Biosensor (“SGB” and, together with the software app that interfaces the SGB with the Company’s digital information system, the “SGT”). Our headquarters are located in New York.
GBS Inc, has 54.4%We are a biosensor diagnostic technology company operating across the Asia-Pacific Region (the “APAC Region”) and an interest in the USA Region with the biosensor platform comprising of its common stock owned ofbiochemistry, immunology, tumor markers, hormones, and nucleic acid diagnostic modalities, and worldwide with our SARS-CoV-2 test.
Our objective is to introduce and launch initially the SGB, the diagnostic test that stems from the Biosensor Platform that we license from Life Science Biosensor Diagnostics Pty Ltd (“LSBD” or the “Licensor”), in our regions and the SARS-CoV-2 test globally. This will be followed by developing the platform to its full capacity testing across the diagnostic modalities of immunology, hormones, chemistry, tumor markers and nucleic acid tests.
As of December 31, 2021, GBS Inc, is an 18.5% owned affiliate of LSBD, an Australian company that owns the worldwide intellectual property rights to the biosensor platform from University of Newcastle, Australia. LBSDLSBD has licensed to the Company that technology to introduce and launch the platform in the Asia-Pacific Region (“APAC”). We will commence this process with the SGT.APAC Region.
On May 29, 2020, a research agreement was executed between LSBD and the Wyss Institute for Biologically Inspired Engineering at Harvard University (Wyss). The Company is not a legal party to the agreement but is expecting to derive a benefit through the Technology Transfer Agreement executed with LSBD and the Company on June 23, 2020, further details which are provided below. The Company has transferred biosensors (research materials) to the Wyss Institute where its research and development scientists have commenced a pilot research program. Since the biosensor architecture is complete and given the pre-existing plans to develop immunology diagnostic tests, it is therefore relatively straightforward and expeditious to develop the SARS-CoV-2 test.
SARS-CoV-2 antibody testing in saliva can play a critically important role in large-scale ‘sero’-surveillance to address key public health priorities and guide policy and decision-making for COVID-19. It is anticipated that FDA review will be under the Emergency Use Authorization program, which means expedited time to market.
On June 23, 2020, The Company entered into a Technology Transfer Agreement global license with LSBD. The significant terms of the license agreement are:
There are no milestone payments.
Initial public offering
On December 28, 2020, the Company closed its initial public offering (“IPO”) and sold 1,270,589 units, consisting of (a) one share of the Company’s common stock (or, at the purchaser’s election, one share of Series B Convertible Preferred Stock), (b) one Series A warrant (the “Series A Warrants”) to purchase one share of the Company’s common stock at an exercise price equal to $8.50 per share, exercisable until the fifth anniversary of the issuance date, and (c) one Series B warrant (the “Series B Warrants”) to purchase one share of the Company’s common stock at an exercise price equal to $17.00 per share, exercisable until the fifth anniversary of the issuance date and subject to certain adjustment and cashless exercise provisions. The public offering price of the shares sold in the IPO was $17.00 per unit. In aggregate, the units issued in the offering generated $17,732,448 in net proceeds, which amount is net of $1,714,001 in underwriters’ discount and commissions, $2,153,564 in offering costs (including deferred equity offering cost of $1,863,612). Offering costs include underwriters’ warrants to acquire up to 63,529 shares with an exercise price of $18.70 per share, exercisable until the fifth anniversary of the issuance date. The Company also issued to the underwriter an option, exercisable one or more times in whole or in part, to purchase up to 190,588 additional shares of common stock and/or Series A Warrants to purchase up to an aggregate of 190,588 shares of common stock and/or Series B Warrants to purchase up to an aggregate of 190,588 shares of common stock, in any combinations thereof, from us at the public offering price per security, less the underwriting discounts and commissions, for 45 days after the date of the IPO to cover over-allotments, if any (the “Over-Allotment Option”).
Upon the closing of the IPO, all shares of preferred stock then outstanding were automatically converted into 2,810,190 shares of common stock, and all convertible notes then outstanding were automatically converted into 710,548 shares of common stock.
Pre-IPO preferred shareholders were issued warrants following the Company’s completed IPO, that allows the holder to acquire 2,736,675 shares of common stock at the IPO price during year two through to year three following the completion of the IPO. At exercise date, the shareholder must hold, for each warrant to be exercised, the underlying common share to exercise the warrant. The warrants are not transferable and apply to the number of shares that were subscribed for.
NOTE 2. LIQUIDITY
The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 205-40, Presentation of Financial Statements - Going Concern (ASC 205-40) requires management to assess an entity’s ability to continue as a going concern within one year of the date of filing of this Quarterly Report on Form 10-Q with the financial statements are issued.SEC. In each reporting period, including interim periods, an entity is required to assess conditions known and reasonably knowable as of the financial statement issuance date to determine whether it is probable an entity will not meet its financial obligations within one year from the financial statement issuance date. Substantial doubt about an entity’s ability to continue as a going concern exists when conditions and events, considered in the aggregate, indicate it is probable the entity will be unable to meet its financial obligations as they become due within one year after the date the financial statements are issued.
The Company is an emerging growth company and has not generated any revenues to date. As such, the Company is subject to all of the risks associated with emerging growth companies. Since inception, the Company has incurred losses and negative cash flows from operating activities. The Company does not expect to generate positive cash flows from operating activities in the near future until such time, if at all, the Company completes the development process of its products, including regulatory approvals, and thereafter, begins to commercialize and achieve substantial acceptance in the marketplace for the first of a series of products in its medical device portfolio.
The Company incurred a net loss of $3,067,304 $3,463,823and $4,901,663 for the three and six months ended December 31, 2021, respectively (net loss of $1,990,389and $3,067,304 for the three and six months ended December 31, 2020, (Net loss $2,617,863 for the six months ended December 31, 2019)respectively). At December 31, 2020,2021, the Company has shareholders’ equity of $18,782,015,$10,044,831, working capital of $18,799,962,$10,075,538, and an accumulated deficit of $(18,888,991)$27,762,453.
On January 30, 2020, the International Health Regulations Emergency Committee of the World Health Organization (WHO) declared the novel coronavirus disease 2019 (“COVID-19”) outbreak a public health emergency of international concern and on March 12, 2020 the WHO announced the outbreak was a pandemic. The COVID-19 pandemic is having a negative impact on global markets and business activity, which has had a limited impact on our core business operations. However, due to the nature of our platform technology we are able to quickly adapt to this rapidly evolving environment. As part of the immunology modality of the biosensor platform, the parent company, Life Science Biosensor Diagnostics Pty Ltd (LSBD) executed an agreement on May 29, 2020 with the Wyss Institute for Biologically Inspired Engineering at Harvard University (Wyss) to use the biosensor platform to develop a COVID-19 rapid diagnostic test. The Company has the rights to the technology from this agreement under a Technology Transfer Agreement global license with LSBD entered into on June 23, 2020.
GBS Inc. is the global licensee and intends to commercialize COVID-19 diagnostic tests across the US, Europe, APAC and the rest of the world through appropriately qualified distributors.
In the near future, the Company anticipates incurring operating losses and does not expect to experience positive cash flows from operating activities and may continue to incur operating losses until it completes the development of its products and seeks regulatory approvals to market such products.
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The Group’sCompany’s unaudited condensed consolidated financial statements have been prepared on a going concern basis which contemplates the realization of assets and satisfaction of liabilities and commitments in the normal course of business. The unaudited condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities should the GroupCompany be unable to continue as a going concern.
As a result of the Company’s initial public offering (see Note 1), theThe Company believes it has sufficient working capital to finance its operations for at least the next twelve months, as such, these unaudited condensed consolidated financial statements are prepared on the going concern basis.
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and pursuantthe instructions to the requirements for reporting on Form 10-Q and Article 10 of Regulation S-X and, therefore, omit or condense certain footnotes and other information normally included in financial statements prepared in accordance with U.S. GAAP. In the opinion of management, theS-X. Accordingly, our unaudited condensed consolidated financial statements reflectdo not include all the information and footnotes required by GAAP for complete financial statements. Normal and recurring adjustments and reclassifications that areconsidered necessary for thea fair presentation of financial results as of and for the periods presented. The results of operations for an interim period may not give a true indicationstatement of the results for the entire year. Theinterim periods, in the opinion of the Company’s management, have been included. Operating results for the three and six months ended December 31, 2021, are not necessarily indicative of the results that may be expected for the year ending June 30, 2020 consolidated balance sheet has been derived from the audited financial statements as of that date.
These2022. The accompanying unaudited condensed consolidated financial statements have been derived from, and related footnote disclosures should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto as of andincluded in our Form 10-K for the year ended June 30, 2020 included in the Company’s Registration Statement on Form S-1, File No. 333-252277 on file2021, which was filed with the U.S. Securities and Exchange Commission (the “SEC”) on September 16, 2021 and amended on Form 10-K/A filed with the SEC on September 30, 2021 (as amended, the “2021 Form 10-K”). There
Principles of consolidation
These accompanying unaudited condensed consolidated financial statements include the accounts of the Company, all wholly owned and majority-owned subsidiaries in which the Company has a controlling voting interest and, when applicable, variable interest entities in which the Company has a controlling financial interest or is the primary beneficiary. Investments in affiliates where the Company does not exert a controlling financial interest are not consolidated.
All significant intercompany transactions and balances have not been any significant changes to the Company’s significant accounting policies during the six months ended December 31, 2020.eliminated upon consolidation.
Use of estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could materially differ from those estimates.
Reclassifications
Certain reclassifications have been made to prior periods to conform to current period presentation as described below.
In the comparative period (FY 2020), management determined that certain transactions involving the issuance of shares of its subsidiary that occurred during the prior year should have resulted in an adjustment to non-controlling interest (“NCI”) and Additional Paid-in-Capital (“APIC”) to reflect the difference between the fair value of the consideration received and the book value of NCI involving these changes in ownership. As a result, the Company increased its prior year APIC with an offsetting reduction to NCI of $637,056. Management concluded that this reclassification was not meaningful to the Company’s financial position for the prior year, and as such, this change was recorded in the consolidated balance sheet and statement of shareholder’s equity in the first quarter of the comparative period (FY 2020) as an out-of-period adjustment.
Revenue recognition
Revenue from contracts with customers is recognized when, or as, the Company satisfies its performance obligations by delivering the promised goods or service deliverables to the customers. A good or service deliverable is transferred to a customer when, or as, the customer obtains control of that good or service deliverable.
Development and regulatory approval costs
Expenditures relating to R&D are expensed as incurred and recorded in development and regulatory approval in the Condensed Consolidated Statements of Operations and Other Comprehensive Loss. R&D expenses include external expenses incurred under arrangements with third parties; salaries and personnel-related costs; license fees to acquire in-process technology and other expenses. The Company currently does not generate any revenue.recognizes the benefit of refundable R&D tax refunds as a R&D tax refund income when there is reasonable assurance that the amount claimed will be recovered (refer to the R&D tax refund discussion below).
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Intellectual property acquired for a particular research and development project and that have no alternative future uses (in other research and development projects or otherwise) are expensed in research and development costs at the time the costs are incurred.
In certain circumstances, the Company may be required to make advance payments to vendors for goods or services that will be received in the future for use in R&D activities. In such circumstances, the non-refundable advance payments are deferred and capitalized, even when there is no alternative future use for the R&D, until the related goods or services are provided. In circumstances where amounts have been paid in excess of costs incurred, the Company records a prepaid expense.
R&D tax refund
The Company measures the R&D grant income and receivable by considering the time spent by employees on eligible R&D activities and R&D costs incurred to external service providers. The R&D tax refund receivable is recognized as an income as the Company believes that it probable that the amount will be recovered in full through a future claim. A total of $146,392 R&D tax refund income is recognized in the other income during the current period.
Foreign currency translation
Assets and liabilities of foreign subsidiaries are translated from local (functional) currency to presentationreporting currency (U.S. dollar) at the rate of exchange in effect on the consolidated balance sheets date; income and expenses are translated at the average rate of exchange prevailing during the year. The functional currency of GBS IncInc. is the United States dollar. Foreign currency movements resulted in a gain/(loss)gain of $33,856 $7,355 and ($16,712) a loss of $60,127 for the three and six months ended December 31, 2021 respectively (a gain of $33,856 and a loss of $16,712 for the three and six months ended December 31, 2020, respectively ($133,286) and ($129,050) for the three and six months ended December 31, 2019, respectively.respectively).
Income taxes
In accordance with the provisions of Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”)ASC 740, Income Taxes, tax positions initially need to be recognized in the consolidated financial statements when it is more likely than not that the positions will be sustained upon examination by taxing authorities. It also provides guidance for de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.
As of December 31, 2020,2021, the GroupCompany had no uncertain tax positions that qualified for either recognition or disclosure in the consolidated financial statements. Additionally, the GroupCompany had no interest and penalties related to income taxes.
The Group accounts for current and deferred income taxes and, when appropriate, deferred tax assets and liabilities are recorded with respect to temporary differences in the accounting treatment of items for financial reporting purposes and for income tax purposes. Where, based on the weight of all available evidence, it is more likely than not that some amount of the recorded deferred tax assets will not be realized, a valuation allowance is established for that amount that, in management’s judgment, is sufficient to reduce the deferred tax asset to an amount that is more likely than not to be realized.
Debt issuance cost
Debt issuance costs are amortized using the effective interest rate method over the term of the loan and the amortization expense is recorded as part of interest expense of the consolidated statements of operations.
Licensing rights
During the first quarter of the FYfiscal year ended June 30, June 2020, the Company had purchased the license right procurement assets from Life Science Biosensor Diagnostics Pty LtdLSBD for an amount of $976,308 (June 30, 2019: $ nil)976,308 in relation to the development and approval process for the Glucose Biosensor Technology. The Company recorded the license at the historical carrying value in the books of LSBD which was $ nil$nil and recorded the amount paid as a deemed dividend. The Company has agreed to pay royalties of sales & milestones payments as defined.
On July 3,September 12, 2019, the Company entered into an amended and restated license agreement. Thereagreement for Saliva Biosensor Technology. On June 23, 2020, the Company entered into a license agreement with LSBD for the worldwide rights to SARS-CoV-2 application of the Saliva Glucose Biosensor.
In relation to these licenses, there is no set expiration date for the license. However, the exclusivity of the license granted under the license agreement runs until the expiration of the patent portfolio covered by the agreement which is currently until 2033. No royalties have been incurred through to December 31, 20202021 (December 31, 2019:2020: $nil).
On March 31, 2021, the Company entered into an agreement with LSBD to provide the Company an option to acquire an exclusive license to use LSBD’s intellectual property in the Saliva Glucose Biosensor in North America (the “Option Agreement”). The Option Agreement has a term of nil)5,000,000. The fee of $500,000 incurred for the option was expensed in the period incurred. and the exercise price for the option is $
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Deferred grant income
On June 30, 2021, the Company executed a definitive grant agreement with the Australian Government to assist with building a manufacturing facility. The grant has a total value of up to $4.7 million upon the achievement of certain milestones. Proceeds from the grant will be used primarily to reimburse the Company for costs incurred in the construction of the manufacturing facility.
Accounting for the grant does not fall under ASC 606, ResearchRevenue from Contracts with Customers, as the Australian Government will not benefit directly from our manufacturing facility. As there is no authoritative guidance under U.S. GAAP on accounting for grants to for-profit business entities, we applied International Accounting Standards 20 (“IAS 20”), Accounting for Government Grants and developmentDisclosure of Government Assistance by analogy when accounting for the Australian Government grant to the Company.
The Australian Government grant proceeds will be used to reimburse construction costs incurred meet the definition of grants related to assets as the primary purpose for the payments is to fund the construction of a capital asset. Under IAS 20, government grants related to assets are presented in the statement of financial position either by setting up the grant as deferred income or by deducting the grant in arriving at the carrying amount of the asset. Either of these two methods of presentation of grants related to assets in financial statements are regarded as acceptable alternatives under IAS 20. We have elected to record the grants received as deferred income using the first method.
ResearchUnder IAS 20, government grants are initially recognized when there is reasonable assurance the conditions of the grant will be met and developmentthe grant will be received. As of June 30, 2021, management concluded that there was reasonable assurance the grant conditions will be met and all milestone payment received. The total grant value of $4.7 million was recognized as both a grant receivable and deferred grant income on the grant effective date. The grant receivable was reduced by $1.9 million for payments received during the six months ended December 31, 2021 (no payments were received during the three months ended December 31, 2021) and $2.8 million remains in grant receivable on the Condensed Consolidated Balance Sheets.
After initial recognition, under IAS 20, government grants are recognized in earnings on a systematic basis in a manner that mirrors the manner in which the Company recognizes the underlying costs are expensedfor which the grant is intended to compensate. Further, IAS 20 permits for recognition in earnings either separately under a general heading such as incurred.other income, or as a reduction of the cost of the asset. The Company has elected to recognize government grant income separately within other income. Accordingly, the deferred income related to the construction of the manufacturing facility will be amortized over the period of depreciation for the related factory as other income. A total of $31,399 deferred grant income was recognized in other income during the current period.
The Company calculates earnings per share attributable to common shareholders in accordance with ASC Topic 260, “EarningEarning Per Share.”Share. Basic net income (loss) per share attributable to common shareholders is calculated by dividing net income (loss) attributable to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per common share is calculated by dividing net income (loss) attributable to common shareholders by weighted-average common shares outstanding during the period plus potentially dilutive common shares, such as share warrants.
Potentially dilutive common shares shall be calculated in accordance with the treasury share method, which assumes that proceeds from the exercise of all warrants are used to repurchase common share at market value. The number of shares remaining after the proceeds are exhausted represents the potentially dilutive effect of the securities.
As the Company has incurred net losses in all periods, certain potentially dilutive securities, including convertible preferred stock, warrants to acquire common stock, and convertible notes payable have been excluded in the computation of diluted loss per share as the effects are antidilutive.
Recently issued but not yet effective
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Recent accounting pronouncements
As the Company is an emerging growth company, it haswe have elected to defer the adoption of new accounting pronouncements until they would apply to private companies.
In August 2020, the FASB issued ASU No. 2020-06, whichDebt – Debt with Conversion and Other Options (“ASU 2020-06”). This update simplifies the guidance on the issuer’s accounting for convertible debt instruments by removing the separation models for (1) convertible debt with a cash conversion feature and (2) convertible instruments with a beneficial conversion feature. As a result, entities will not separately present in equity an embedded conversion feature in such debt and will account for a convertible debt instrument wholly as debt, unless certain other conditions are met. The elimination of these models will reduce reported interest expense and increase reported net income for entities that have issued a convertible instrument that is within the scope of ASU 2020-06. Also, ASU 2020-06 requires the application of the if-converted method for calculating diluted earnings per share and treasury stock method will be no longer available. ASU 2020-06 is applicable for fiscal years beginning after December 15, 2021, with early adoption permitted no earlier than fiscal years beginning after December 15, 2020. The Company doeshas not intend to early adoptadopted and continues to evaluate the impact of the provisions of ASU 2020-06 on its consolidated financial statements.2020-06.
In February 2016, the FASB issued ASU No. 2016-02, Leases (“ASU 2016-02”). This update requires all leases with a term greater than 12 months to be recognized on the balance sheet through a right-of-use asset and a lease liability and the disclosure of key information pertaining to leasing arrangements. This new guidance is effective for fiscal years beginning after December 15, 2021, and interim period within fiscal years beginning after December 15, 2022 as amended by ASU 2020-05 with early adoption permitted. The Company has not early adopted the standard.standard and continues to evaluate the impact.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740):, Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which. This update is intended to simplify various aspects of the accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This standard is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2020. EarlyThe Company adopted ASU 2019-12 as of July 1, 2021 and the adoption did not have a material impact on the Company’s unaudited interim condensed consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13 (Topic 326), Financial Instruments – Credit Losses (“ASU 2016-13”). This update (i) significantly changes the impairment model for most financial assets that are measured at amortized cost and certain other instruments from an incurred loss model to an expected loss model which will be based on an estimate of current expected credit loss (“CECL”) (ASC 326-20); and (ii) provides for recording credit losses on available-for-sale (“AFS”) debt securities through an allowance account (ASC 326-30). The standard also requires certain incremental disclosures. Subsequently, the FASB issued several ASUs to clarify, improve, or defer the adoption of ASU 2016-13. ASU 2016-13, as amended by ASU 2019-10, is applicable for Smaller Reporting Companies (“SRCs”) for fiscal years beginning after December 15, 2022, with early adoption permitted. The Company has not early adopted the standard.
Concentration of credit risk
The Company places its cashstandard and cash equivalents, which may at times be in excess ofcontinues to evaluate the Australia Financial Claims Scheme or the United States’ Federal Deposit Insurance Corporation insurance limits, with high credit quality financial institutions and attempts to limit the amount of credit exposure with any one institution.impact.
Related parties
The Company has related party transactions with its parent LSBD. See Notes 7 and 8.
Fair value of financial instruments
The carrying value of financial instruments classified as current assets and current liabilities approximate fair value due to their liquidity and short-term nature.
NOTE 4. OTHER CURRENT ASSETS
Other current assets consist of the following:
SCHEDULE OF OTHER CURRENT ASSETS
December 31, 2021 | June 30, 2021 | |||||||
Goods and services tax receivable | $ | — | $ | 83,278 | ||||
Prepayments | 120,000 | 2,424,143 | ||||||
Other receivables | 28,157 | 1,596 | ||||||
Total | $ | 148,157 | $ | 2,509,017 |
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December 31, 2020 | June 30, 2020 | |||||||
Goods and services tax receivable | $ | 77,710 | $ | 7,509 | ||||
Prepayments | 1,596 | 29,469 | ||||||
Other receivables | 9,242 | 12,084 | ||||||
Total | $ | 88,548 | $ | 49,062 |
As of the year ended June 30, 2021, the Company made $2,600,000 in prepayments for research and development. Of the total prepayments, $504,000 was recorded as a non-current asset based on the expected outflow of the budgeted research and development costs. Under the terms of the R&D agreement with BiosensX North America Inc., dated April 20, 2021, in which LSBD also committed to fund $2,600,000 as a direct 50% shareholder in BiosensX North America Inc., the Company would have the right to apply any differences in contributions between LSBD and the Company towards any amounts owing between the Company and LSBD, including the exercise price of the option ($5,000,000) as included in the Option Agreement dated March 31, 2021 with LSBD (see Note 3).
During the three months ended December 31, 2021, the Company assessed the current status of the R&D activities and determined that the most likely outcome of the prepaid R&D contribution would be to be application against the exercise price in the Option Agreement and/or future royalty payments due for the Glucose Biosensor intellectual property. As this payment for the license of the Glucose Biosensor intellectual property occurred prior to regulatory approval and there is no alternative future use, the prepayment of $2,600,000 has been expensed as development and regulatory approval costs in the Condensed Consolidated Statements of Operations and Other Comprehensive Loss during the current period.
NOTE 5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
December 31, 2020 | June 30, 2020 | |||||||
Accounts and other payables | $ | 595,549 | $ | 483,576 | ||||
Accruals | 29,051 | 56,894 | ||||||
Employee liabilities (current and non-current) | 128,172 | 246,999 | ||||||
Total | $ | 752,772 | $ | 787,469 |
NOTE 6. CONVERTIBLE NOTES PAYABLE
The Company’s previously outstanding notes mandatorily converted, at a conversion price equal to 85% of 50%Accounts payable and accrued expenses consist of the unit offering pricefollowing:
SCHEDULE OF ACCOUNTS PAYABLE AND ACCRUED EXPENSES
December 31, 2021 | June 30, 2021 | |||||||
Accounts and other payables | $ | 344,920 | $ | 1,355,894 | ||||
Accruals | 103,966 | 112,074 | ||||||
Total | $ | 448,886 | $ | 1,467,968 |
NOTE 6. SHAREHOLDERS�� EQUITY
As of the IPO (or $7.23), for an aggregate of 710,548 shares based on $5,133,706 of principal and zero accrued interest outstanding at the date of conversion.
The convertible notes had a contingent Beneficial Conversion Features (BCF), with the contingency being the event of IPO. As such, a financing cost of $905,948 was recognized as interest expense in the consolidated statements of operations and other comprehensive loss in relation to this contingent BCF during the three and six months ended December 31, 2020.
NOTE 7. SHAREHOLDERS’ EQUITY
December 2020 Transactions
On December 14, 2020, the Company agreed to issue to LSBD, in consideration of LSBD’s contribution towards the research2021, 1,401,377 and development of applications other than glucose59,782 Series A and COVID-19 applications to a maximum of $2 million over a 5-year period, a 5-year non-transferableSeries B warrants were held by certain shareholders, respectively. Each warrant to purchase 3,000,000 sharesis convertible into 1 share of the Company’s common stock at the exercise price of $17.00 per share. As this was a transaction between entities under common control, the $2 million receivable due from LSBD has been recognized as contra-equity.stock.
On December 18, 2020,September 9, 2021, the Company entered into an Exchange Agreement (the “EA”) with LSBD to exchange 3,000,000issued shares of its common stock held by LSBD for 3,000,000 sharesas a result of the Company’sSeries B warrants that were exercised and converted into common stock.
On August 31, 2021, all (“Exchange”). In addition, the parties to the Exchange Agreement enteredwas converted into a Registration Rights Agreement (the “RRA”) pursuant to which the Company agreed to prepare and file within 30 days following the closing of the IPO with the Securities and Exchange Commission a registration statement to register for resale the shares of Common Stock issuable upon conversion of the Series B Convertible Preferred Stock. If and to the extent the Company fails to, among other things, file such resale registration statement or have it declared effective as required under the terms of the RRA, the Company will be required to pay to the holder of such registration rights partial liquidated damages payable in cash in the amount equal to the product of 1.0% multiplied by the aggregate purchase price paid by such holder pursuant to the EA. The EA and the RRA contain customary representations, warranties, agreements and, indemnification rights and obligations of the parties. The common stock acquired in the Exchange was immediately retired. stock. Each share of Series B Convertible Preferred Stock is convertiblewas converted into 1 sharesshare of the Company’s common stock subject to proportional adjustment and beneficial ownership limitations. In the event of the Company’s liquidation, dissolution or winding up, holders of Series B Convertible Preferred Stock will participate pari passu with any distribution of proceeds to holders of the Company’s common stock. Holders of Series B Convertible Preferred Stock are entitled to receive dividends on shares of Series B Preferred equal (on an as converted to common stock basis) to and in the same form as dividends actually paid on the Company’s common stock. Shares of Series B Convertible Preferred Stock generally have no voting rights, except as required by law.. Series B Convertible Preferred Stock
Initial public offering
In December 2020, the Company completed its initial public offering. See Note 1.
NOTE 8. 7. RELATED-PARTY TRANSACTIONS
In December 2020, the Company completed certain financing transactions with its Parent, LSBD as described in Note 7.
Sales to and purchases from related parties are made in arm’s length transactions both at normal market prices and on normal commercial terms. The following transactions occurred with LSBD during the period July 1, 20202021 to December 31, 2020 (FY2020: July 1, 2019 to December 31, 2019):2021.
The Company incurred a total cost of $nil (FY2020: $599,848) towards$26,081 and $145,733 during the services in connection with developmentthree and regulatory approval pathway for the technology, including payments made or expenses incurred on behalf of the Company.
The Company incurred a total of $nil (FY2020: $730,148)six months ended December 31, 2021, respectively (three and six months ended December 31, 2020: $nil), towards overhead cost reimbursement which includes salaries, rents and other related overheads directly attributable to the companyCompany which are included in general and administration expenses.
The Company recognized incomeexpenses in the Condensed Consolidated Statements of $nil (FY2020: $121,277) in relation to shared labor reimbursement which includes salaries directly attributable to the company which are included in shared-services revenue.Operations and Other Comprehensive Loss.
NOTE 9. 8. INVESTMENT IN AFFILIATE
On May 29, 2020, the parent Company, Life Science Biosensor Diagnostics Pty Ltd,LSBD, issued common shares of BiosensX (North America) Inc. to the Company at par value of $0.001$ per share. This transaction provided the Company with a 50%50% interest in BiosensX (North America) Inc., the holder of the technology license for the North America region.
The investment in BiosensX (North America) Inc. is accounted for by use of the equity method in accordance with ASC 323, Investments - Equity Method and Joint Ventures.
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Life Science Biosensor Diagnostics Pty Ltd is
At the date of this transaction, LSBD was the parent of both the Company and BiosensX (North America) Inc., the transfer of BiosensX shares to the Company was deemed to be a common control transaction. As a result of the share transfer, the Company has significant influence over BiosensX (North America) Inc. but, in accordance with ASC 810, Consolidation Life Science Biosensor Diagnostics, LSBD is deemed to have control over BiosensX (North America) Inc. due to its direct ownership of 50% in BiosensX (North America) Inc. and indirect ownership of 50% in BiosensX (North America) Inc. through GBS Inc.
As of December 31, 2021, LSBD holds 18.5% of common Stock of GBS Inc. and therefore still has control over BiosensX (North America) Inc.
The following table summarizes the amount recorded in the unaudited condensed consolidated financial statements:
SUMMARY OF AMOUNT RECORDED IN THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020 | June 30, 2020 | |||||||||||||||
December 31, 2021 | June 30, 2021 | |||||||||||||||
Investment value | $ | 135,692 | $ | 14,000 | $ | — | $ | 135,692 | ||||||||
(Loss) income from the affiliate | (135,692 | ) | 121,692 | |||||||||||||
Loss from the affiliate | — | (135,692 | ) | |||||||||||||
Carrying amount | $ | - | $ | 135,692 | $ | — | $ | — |
NOTE 10. 9. COMMITMENTS AND CONTINGENCIES
On January 21, 2021, the Company entered into a sponsored research agreement with Johns Hopkins Bloomberg School of Public Health to accelerate the development of next-generation saliva-based diagnostic tests. The Company is collaborating with the Bloomberg School of Public Health to optimize the collection of saliva and monitoring of diverse biomarkers across a number of modalities including clinical chemistry and infectious diseases. Johns Hopkins intend to utilize biosensor products to conduct in-field epidemiological studies. The Company agreed to pay Johns Hopkins a total amount of $423,589 as a part of this sponsored research agreement of which $119,072 remains payable as of December 31, 2021.
During February 2021 the Company signed a deed of confirmation and variation with the University of Newcastle for the research and development of the Saliva Glucose Biosensor and the SARS-CoV-2 Antibody Biosensor. The Company agreed to pay the University of Newcastle $2,054,880 of which $841,913 remains payable as of December 31, 2021.
The Company has no0 material future minimum lease commitments or purchase commitments.
From time to time, the Company ismay become a party to various legal proceedings arising in the ordinary course of business. Based on information currently available, the Company is not involved in any pending or threatened legal proceedings that it believes could reasonably be expected to have a material adverse effect on its financial condition, results of operations or liquidity. However, legal matters are inherently uncertain, and the Company cannot guarantee that the outcome of any potential legal matter will be favorable to the Company.
NOTE 10. INCOME TAX
The Company shall file its income tax returns with the Internal Revenue Service and Australian Taxation Office. The Company has operating losses carried forward of $29,929,253which are derived from its operations in Australia and the US and are available to reduce future taxable income. Such loss carry forwards may be carried forward indefinitely, subject to compliance with tests of continuity and additional rules.
The net operating loss carried forward gives rise to a deferred tax asset of approximately $6,456,938. However, the Company has determined that a valuation allowance of $6,456,938against such deferred tax asset is necessary, as it cannot be determined that the carry forwards will be utilized.
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Basic loss per common share is computed by dividing net loss allocable to common stockholdersshareholders by the weighted average number of shares of common stock or common stock equivalents outstanding. Diluted loss per common share is computed similar to basic loss per common share except that it reflects the potential dilution that could occur if dilutive securities or other obligations to issue common stock were exercised or converted into common stock.
Three Months Ended | Six Months Ended | |||||||||||||||
December 31, 2020 | December 31, 2019 | December 31, 2020 | December 31, 2019 | |||||||||||||
Net loss attributable to GBS, Inc. | $ | (1,983,964 | ) | $ | (1,836,318 | ) | $ | (3,056,474 | ) | $ | (2,594,168 | ) | ||||
Basic and diluted net loss per share attributed to common shareholders | $ | (0.23 | ) | $ | (0.22 | ) | $ | (0.35 | ) | $ | (0.30 | ) | ||||
Weighted-average number of ordinary shares | 8,622,724 | 8,510,000 | 8,626,362 | 8,510,000 |
Three Months Ended December 31, | Six Months Ended December 31, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Net loss attributable to GBS Inc. | $ | (3,459,998 | ) | $ | (1,983,964 | ) | $ | (4,892,650 | ) | $ | (3,056,474 | ) | ||||
Basic and diluted net loss per share attributed to common shareholders | $ | (0.23 | ) | $ | (0.23 | ) | $ | (0.34 | ) | $ | (0.35 | ) | ||||
Weighted-average number of shares outstanding | 14,882,522 | 8,622,724 | 14,444,324 | 8,626,362 |
SCHEDULE OF ANTI-DILUTIVE WARRANTS
2021 | 2020 | 2021 | 2020 | |||||||||||||
Three Months Ended December 31, | Six Months Ended December 31, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Warrants - Series A | 1,401,377 | 1,459,997 | 1,401,377 | 1,459,997 | ||||||||||||
Warrants - Series B | 59,782 | 1,461,177 | 59,782 | 1,461,177 | ||||||||||||
Warrants issued to underwriters | 63,529 | 63,529 | 63,529 | 63,529 | ||||||||||||
Pre IPO warrants | 2,736,675 | 2,736,675 | 2,736,675 | 2,736,675 | ||||||||||||
Warrants to LSBD | 3,000,000 | 3,000,000 | 3,000,000 | 3,000,000 | ||||||||||||
Preferred stock - Series B | - | 3,000,000 | - | 3,000,000 | ||||||||||||
Antidilutive securities excluded from computation of earnings per share, amount | - | 3,000,000 | - | 3,000,000 |
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Anti-dilutive warrants and preferred shares:
Three Months Ended | Six Months Ended | |||||||||||||||
December 31, 2020 | December 31, 2019 | December 31, 2020 | December 31, 2019 | |||||||||||||
Warrants - Series A | 1,459,977 | - | 1,459,977 | - | ||||||||||||
Warrants - Series B | 1,461,177 | - | 1,461,177 | - | ||||||||||||
Warrants issued to underwriters | 63,529 | - | 63,529 | - | ||||||||||||
Pre IPO warrants | 2,736,675 | 2,250,376 | 2,736,675 | 2,250,376 | ||||||||||||
Warrants issued to parent entity | 3,000,000 | - | 3,000,000 | - | ||||||||||||
Preferred stock - Series A | - | 2,323,891 | - | 2,323,891 | ||||||||||||
Preferred stock - Series B | 3,000,000 | - | 3,000,000 | - |
NOTE 12. SUBSEQUENT EVENTS
Subsequent to December 31, 2020, the Company received $502,350 in relation to the exercise of 59,100 Series A Warrants to purchase one share of Common Stock per Warrant at an exercise price $ 8.50. As of February 11, 2021, a total of 1,402,077 Series A warrants remain outstanding.
Subsequent to December 31, 2020 a total of 1,364,495 Series B Warrants were exercised to purchase one Common Stock per Warrants in a cashless exercise provision as described in Company’s Registration Statement on Form S-1, File No. 333-252277 on file with the U.S. Securities and Exchange Commission (the “SEC”). As of February 11, 2021, a total of 66,382 Series B remain outstanding.
On January 5, 2021, the Company entered into a certain Research Collaboration Agreement with Harvard College for the purposes of facilitating mutual collaboration in scientific research in connection with the Company’s non-exclusive royalty free license to combat COVID-19 coronavirus. The contemplated collaboration includes research teams from the Company and Harvard and will include, among others, exchange of materials and research data, to now progress with the milestone of integrating the Harvard technology with the Company’s biosensor with applications for SARS-Cov-2 antibody test for COVID-19. The Company agreed to pay Harvard a total amount of $609,375 payable in 3 instalments, with $304,687.50 payable upon receipt of the initial invoice, and two additional payments of $152,343.75 each, upon 90 and 180 day anniversary following the date of the agreement. For additional details refer to form 8-k on January 8, 2021.
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Result of OperationsMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
You should read the following discussion and analysis of our financial condition and results of operations togetherin conjunction with our audited historical consolidated financial statements, which are included in the 2021 Form 10-K and our unaudited condensed consolidated financial statements andfor the related notes and other financial informationfiscal quarter ended December 31, 2021 included elsewhere in this Quarterly Report on Form 10-Q. This discussionManagement’s Discussion and other partsAnalysis of this report contain forward-lookingFinancial Condition and Results of Operations contains statements that involve risks and uncertainties, such asare forward-looking. These statements of our plans, objectives, expectations and intentions, that are based on current expectations and assumptions that are subject to risks, uncertainties and other factors. Actual results could differ materially because of the factors discussed below or elsewhere in this Quarterly Report on Form 10-Q. See Part II, Item 1A. “Risk Factors” of this Quarterly Report on Form 10-Q and Part I, Item 1A. “Risk Factors” of the 2021 Form 10-K.
Forward-Looking Information
All statements other than statements of historical fact or relating to present facts or current conditions included in this Quarterly Report on Form 10-Q 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 the negative of such words 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 Quarterly Report on Form 10-Q 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 “Item 1A — Risk Factors” of this Quarterly Report on Form 10-Q and in our 2021 Form 10-K. 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 as well asto 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, made by,the future events and information currently available to, our management. Ourtrends discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those discussedanticipated 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. Given these uncertainties, you should not place undue reliance on these forward-looking statements. In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as ofafter the date of this report, and while we believe such information forms a reasonable basis for such.Quarterly Report on Form 10-Q or to conform these statements to actual results or revised expectations.
Overview
We are a biosensorcompany with a mission to commercialize our unique Biosensor Platform technology and put the power of non-invasive, real-time diagnostic technologytesting in the hands of patients and their primary health practitioners at point of care.
We are 18.5% (as of December 31, 2021) owned by LSBD, an Australian company developing our COV2 test and acrossthat owns the Asia-Pacific region (“APAC”) and aworldwide intellectual property rights to the biosensor platform comprisingacquired from University of biochemistry, immunology, tumour markers, hormones,Newcastle, Australia. LSBD has licensed to us that technology to introduce and nucleic acid diagnostic modalities.launch the platform in the APAC Region, the world license for the SARS-CoV-2 Antibody Sensor, and furthermore we own 50% of BiosensX (North America) Inc which has the North American license to the biosensor platform. We were incorporated under the laws of Delaware on December 5, 2016. Our headquarter is in New York. We were formed
Our initial priority is to provide adevelop & launch two urgently needed non-invasive pain free innovation to make it easier for people to manage diabetes using the Company’sreal time diagnostic tests:
a. | the Saliva Glucose Biosensor, and | |
b. | the SARS-CoV-2 Antibody Biosensor |
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Saliva Glucose Test
The Saliva Glucose Biosensor (“SGB” and,), together with the software app that interfaces the SGB with the Company’s digital information system,Digital Information System (“SGT”), the “SGT”)SGT aims to provide a non-invasive and pain free way to make it easier for people to manage diabetes.
We currently have 54.4% of our common stock owned by Life Science Biosensor Diagnostics Pty Ltd (“LSBD”). an Australian company that owns the worldwide intellectual property rights to the biosensor platform from University of Newcastle, Australia. LSBD has licensed to us that technology for us to introduce and launch the platform in the APAC Region. We will commence this process with the SGT.
● | Managing Diabetes |
Our innovative technology aims to free people living with diabetes from having to use painful and invasive blood monitoring devices to manage their condition, giving them a better quality of life. | |
● | Printable |
The SGB is being developed as a small, printable organic strip designed to put the power of accurate, timely diagnosis in the hands of patients and their primary health practitioners. SGB is manufactured using modified reel-to-reel printing technology which allows mass volume printing at a low cost. |
● | Clinical Development Plan | |
● | In December, GBS announced that its licensor, Life Science Biosensor Diagnostics (LSBD), has filed an application with the U.S. Food and Drug Administration (FDA) for Breakthrough Device Designation. Based on feedback from the FDA to LSBD further data generation would be advisable in order to advance this submission. The team is working towards this goal. | |
● | The team has submitted the correlation clinical trial protocol for IRB approval to the Mills-Peninsula Medical Center (MPMC) in California ( which will be responsible for executing this initial clinical trial enrolling 40 subjects.) The objectives will be: |
Our objective is to introduce and launch a COV2 test globally and then the SGB, the second of our diagnostic tests that stem from the Biosensor Platform that we license, in the APAC Region. In the next four years we intend on developing the platform to its full capacity testing across the following diagnostic modalities: immunology, hormones, chemistry, tumour markers and nucleic acid tests.
We believe that the COVID-19 pandemic is likely to remain with us for many decades. Development of an improved antibody assays to detect prior infection with SARS-CoV-2 has been identified as one of the top unmet needs in the ongoing COVID-19 pandemic response. Precise knowledge of SARS-CoV-2 infection at the individual level can potentially inform clinical decision-making, whereas at the population level, precise knowledge of prior infection, immunity, and attack rates (particularly asymptomatic infection) is needed to prioritize risk management decision-making about social distancing, treatments, and vaccination. If saliva can support measurements of both the presence of SARS-CoV-2 RNA26-28
○ | Explore the relationship between salivary glucose and plasma glucose as well as the time course between the two testing modalities using Glucose Tolerance Testing in 40 subjects | |
○ | Generation of time course date from these studies to determine salivary glucose characteristics |
It is anticipated that the first stage of this Clinical Plan to be completed by July 2022 |
● | Key Development and Manufacturing Advancements | |
● | Sourcing for required equipment has commenced. This sourcing has the dual purpose of immediately utilizing the equipment in the interests of efficiency to progress development of the biosensor and at the same time commission this equipment in preparation for the facility. The initial batch of the equipment is expected to be ordered in April and finalized in June 2022. | |
● | Discussions are underway between the University of Newcastle and GBS Inc for the location, buildout, and commissioning of the new high-tech manufacturing facility. | |
● | In response to the Australian government’s announcement of the Medical Research Commercialization Initiative, GBS is in the process of evaluating and preparing expressions of interests towards further Australian Government funding, as we believe that GBS firmly fits into the objectives of this initiative. The initiative will focus on Early-Stage Translation and Commercialization Support, which funds support for early stage medical research and medical innovation projects with commercial potential. The Medical Research Future Fund will have available in total approximately $225 million (USD) of project funding over the next 10 years for companies that meets the criteria. | |
● | Quality Assurance and Regulatory Affairs | |
● | Strategic regulatory affairs plan is underway to address the Asian Pacific (APAC) region requirements | |
● | GBS team is working closely with LSBD on its FDA submissions and the clinical development plan | |
● | Implementation of new Quality Assurance (QA) system underway | |
● | Audit of key suppliers in progress |
COVID Test
A clinical validation study was conducted at the Wyss Institute for Biologically Inspired Engineering at Harvard University. The objective of this study was to develop an electrochemical assay to detect SARS-CoV-2 IgG in human plasma. The statistical design of the study was powered in accordance with this study objective. Preliminary findings were:
○ | The SARS-CoV-2 Antibody biosensor assay was 100% sensitive and 100% specific using positive and negative SARS-CoV-2 human plasma samples. | |
○ | The time in obtaining results was less than 10 minutes. |
The study is a key milestone towards validating a rapid point-of-care diagnostic test intended to quantify the measurement of antibodies against SARS-CoV-2 this sample type could provide an important opportunity to monitor individualin saliva and population-level SARS-CoV-2 transmission, infection, and immunity dynamics over place and time.will assist in the preparation for clinical trials.
We anticipate there to be 3 different applications for the foreseeable future:
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● | Potential Applications | |
We anticipate there to be 3 different applications for the foreseeable future: Population Screening |
i. | Post vaccination screening - To assess the degree of | |
ii. | Diagnosis – The | |
iii. | In addition, they can potentially be used for informing the decision on discharge of patients who recovered from SARS-CoV-2 infection but remain RNA-positive by RT-PCR for a long time after symptoms have subsided. The degree of protective immunity conferred by or correlated with the antibodies detected in subjects with past SARS-CoV-2 infection is still under investigation. Once this is clarified, the | |
● | Competitive Advantages |
Based on a recent paper publicly available and authored by the team at Johns Hopkins Department of Environmental Health and Engineering, Bloomberg School of Public Health, results indicate it is feasible to accurately measure the salivary IgG response to identify individuals with a prior SARS-CoV-2 infection. A saliva-based approach could serve as a non-invasive approach for accurate and large-scale SARS-CoV-2 “sero”-surveillance.
A saliva antibody test can greatly increase the scale of testing—particularly among susceptible populations—compared to blood and could clarify population immunity and susceptibility to SARS-CoV-2. The team at John Hopkins further demonstrated in the laboratory that when saliva was collected ≥10 days post symptom onset, the anti-SARS-CoV-2 IgG assay detects SARS-CoV-2 infection with 100% sensitivity and 99% specificity. In addition, the team demonstrated that the temporal kinetics of SARS CoV-2-specificSARS-CoV-2-specific IgG responses in saliva are consistent with those observed in serum and indicate that most individuals seroconvert approximately 10 days after COVID-19 symptom onset or approximately two weeks post-presumed infection.
By utilizing the biosensor platformSaliva Glucose Test for detecting COV2SARS-CoV-2 we expect to have lower detection limits, improve on sensitivity and specificity characteristics of current diagnostic methods, be able to provide real time results at the point of care and provide quantitative results correlated to the WHO standards as opposed to negative or positive which is how other POCT report the results.
Accurate and scalable point-of-care (POC) tests for the diagnosis of COVID-19Our COVID Test would increase the scope for diagnosis to be made in the community and outside the laboratory setting Theysetting. It would have the potential to reduce the time to obtaining an actionable result, it could support early identification of those with COVID-19inform on when people need to get booster vaccine shots and could also supportinform appropriate use of isolation resources, infection control measures, and recruitment into clinical trials of treatments.resources.
We are progressing with the milestone of integrating Harvard University’s technology with our biosensor applications for SARS-Cov-2 antibody test for COVID-19 by entering on January 5, into a Research Collaboration Agreement with Harvard College for the purposes of facilitating mutual collaboration in scientific research in connection with the Company’s non-exclusive royalty free license to combat COVID-19 coronavirus. The contemplated collaboration includes research teams from the Company and Harvard and will include, among others, exchange of materials and research data.
Our Company has not generated any revenues to date. As such, the Company is subject to all of the risks associated with emerging growth companies. Since inception, the Company has incurred losses and negative cash flows from operating activities. The Company does not expect to generate positive cash flows from operating activities in the near future until such time, if at all, the Company completes the development process of its products, including regulatory approvals, and thereafter, begins to commercialize and achieve substantial acceptance in the marketplace for the first of a series of products in its medical device portfolio.
Recent Developments
December 2020 Transactions
On December 14, 2020, the Company agreed to issue to LSBD, in consideration of LSBD’s contribution towards the research and development of applications other than glucose and COVID-19 applications to a maximum of $2 million over a 5-year period, a 5-year non-transferable warrant to purchase 3,000,000 shares of the Company’s common stock at the exercise price of $17.00 per share.
On December 18, 2020, the Company entered into an Exchange Agreement (the “EA”) with LSBD to exchange 3,000,000 shares of its common stock held by LSBD for 3,000,000 shares of the Company’s Series B Convertible Preferred Stock. In addition, the parties to the Exchange Agreement entered into a Registration Rights Agreement (the “RRA”) pursuant to which the Company agreed to prepare and file within 30 days following the closing of the IPO with the Securities and Exchange Commission a registration statement to register for resale the shares of Common Stock issuable upon conversion of the Series B Convertible Preferred Stock. If and to the extent the Company fails to, among other things, file such resale registration statement or have it declared as required under the terms of the RRA, the Company will be required to pay to the holder of such registration rights partial liquidated damages payable in cash in the amount equal to the product of 1.0% multiplied by the aggregate purchase price paid by such holder pursuant to the EA. The EA and the RRA contain customary representations, warranties, agreements and, indemnification rights and obligations of the parties.
On December 18, 2020, LSBD entered into a certain Purchase and Assignment Agreement (the “PAA”) with an institutional accredited investor (the “Purchaser”) pursuant to which LSBD sold and assigned to the Purchaser 3,000,000 shares of the Series B Convertible Preferred Stock and assigned to the Purchaser its rights under the EA and the RRA with respect to the such preferred shares for a total purchase price of $2,000,000. The investor’s Series B Convertible Preferred Stock is convertible into 3,000,000 shares of the Company’s common stock, subject to beneficial ownership limitation.
On January 21, 2021, we filed a registration statement on Form S-1 with the U.S. Securities and Exchange Commission to register the resale of the shares issuable upon conversion of the Series B Convertible Preferred Stock.
Initial public offering
On December 28, 2020, the Company closed its initial public offering (“IPO”) and sold 1,270,589 units, consisting of (a) one share of the Company’s common stock (or, at the purchaser’s election, one share of Series B Convertible Preferred Stock), (b) one Series A warrant (the “Series A Warrants”) to purchase one share of the Company’s common stock at an exercise price equal to $8.50 per share, exercisable until the fifth anniversary of the issuance date, and (c) one Series B warrant (the “Series B Warrants”) to purchase one share of the Company’s common stock at an exercise price equal to $17.00 per share, exercisable until the fifth anniversary of the issuance date and subject to certain adjustment and cashless exercise provisions. The public offering price of the shares sold in the IPO was $17.00 per unit. In aggregate, the units issued in the offering generated $17,732,448 in net proceeds, which amount is net of $1,714,001 in underwriters’ discount and commissions, and $2,153,564 in offering costs. Offering costs (including deferred equity offering costinclude underwriters’ warrants to acquire up to 63,529 shares with an exercise price of $1,863,612).$18.70 per share, exercisable until the fifth anniversary of the issuance date. The Company also issued to the underwriter an option, exercisable one or more times in whole or in part, to purchase up to 190,588 additional shares of common stock and/or Series A Warrants to purchase up to an aggregate of 190,588 shares of common stock and/or Series B Warrants to purchase up to an aggregate of 190,588 shares of common stock, in any combinations thereof, from us at the public offering price per security, less the underwriting discounts and commissions, for 45 days after the date of the IPO to cover over-allotments, if any (the “Over-Allotment Option”).
Upon the closing of the IPO, all shares of preferred stock then outstanding were automatically converted into 2,810,190 shares of common stock, and all convertible notes then outstanding were automatically converted into 710,548 shares of common stock.
Certain of thepre-IPO preferred shareholders were issued warrants that, following the Company’s completed IPO, allow the holderholders to acquire 2,736,675 shares of common stock at the IPO price during yearsyear two through to year three following the IPO. At exercise date,completion of the shareholder must hold for each warrant to be exercised, one underlying common share to exercise the option. The warrants are not transferable and apply to the number of shares that were subscribed for.IPO.
Results of Operations:
Comparison of the Three and Six Months Ended December 31, 20202021 and 20192020
Revenue
Government support income
Government support income increaseddecreased by $283,037$105,246 to $283,037$177,791 from $0$283,037 for the three monthsquarter ended December 31, 20202021 compared to same period in 2019.2020. This increasedecrease was primarily attributable to GBS Inc and itsInc.’s subsidiary companies receiving Research and Development tax incentives and other COVID-19 related government support in the current period where the companies are located. The purpose of the grant is to support companiesprevious financial year which was discontinued in managing its business and payroll costs.April 2021.
Government support income increaseddecreased by $338,464$160,673 to $338,464$177,791 from $0$338,464 for the six months ended December 31, 20202021 compared to same period in 2019.2020. This increasedecrease was primarily attributable to GBS Inc and itsInc.’s subsidiary companies receiving Research and Development tax incentives and other COVID-19 related government support in the current period where the companies are located. The purpose of the grant isprevious financial year which was discontinued in April 2021.
Operating expenses
General and administrative expenses
General and administrative expenses increased by $331,794 to support companies in managing its business and payroll costs.
Shared service
Shared service revenue was $0 and ($798)$1,003,244 from $671,450 for the three monthsquarter ended December 31, 20202021 compared to the same period in 2020. This increase was primarily driven by an increase in operational activities following completion of the IPO in December 2020.
General and 2019, respectively, and $0 and $121,277administrative expenses increased by $1,143,311 to $2,335,764 from $1,192,453 for the six months ended December 31, 2020 and 2019, respectively. Shared service revenue is mainly attributable to the recovery of costs from entities owned by its parent. There were no shared services in the current period.
Operating expenses
General and administrative expenses
General and administrative expenses decreased by $300,562 to $671,450 from $972,012 for the three months ended December 31, 20202021 compared to the same period in 2019.2020. This decreaseincrease was attributable to reductionprimarily driven by an increase in operational activities following completion of expenditures whilst completing the IPO and planning for the milestones to be achieved after the IPO.in December 2020.
General and administrative expenses decreased by $505,887 to $1,192,453 from $1,698,340 for the six months ended December 31, 2020 compared to the same period in 2019. This decrease was also attributable to the limitation of expenditures whilst completing the IPO and planning for the milestones to be achieved after the IPO.
As the Company’s operating activities increase, we expect its general and administrative costs will include additional costcosts in overhead contribution, consultancy, and travel expenses.as well as an increase in employee related costs associated with a higher headcount.
Development and regulatory expenses
Development and regulatory expenses decreasedincreased by $152,847$2,299,362 to $341,820$2,641,182 from $494,667$341,820 for the three monthsquarter ended December 31, 20202021 compared to the same period in 2019.2020. This decrease was attributable to limitationincrease is primarily driven by funding availability since completion of expenditure on such activities until the funding had been secured byIPO in December 2020 that has allowed the IPO. The Company is now in a position to progress on its milestones.milestones as well as expensing of the prepaid R&D contribution of $ 2,600,000.
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Development and regulatory expenses decreasedincreased by $227,090$2,375,223 to $372,758$2,747,981 from $599,848$372,758 for the six months ended December 31, 20202021 compared to the same period in 2019.2020. This decrease was again attributable to limitationincrease is primarily driven by funding availability since completion of expenditure on such activities until the funding had been secured byIPO in December 2020 that has allowed the IPO. The Company is now in a position to progress on its milestones.milestones as well as expensing of the prepaid R&D contribution of $ $2,600,000.
As the Company’s operating activities increase, we expect its development and regulatory expenses to increase in future periods.
Prospectus and capital raising expenses
Prospectus and capital raising expenses decreased by $49,345$187,093 to $187,093zero from $236,438$187,093 for the threequarter ended December 31, 2021 compared to the same period in 2020. This decrease was attributable to final expenditures required by us in the first half of the last financial year to successfully complete our IPO in December 2020.
Prospectus and capital raising expenses decreased by $353,574 to zero from $353,574 for the six months ended December 31, 20202021 compared to the same period in 2020. This decrease was attributable to final expenditures required by us in the first half of the last financial year to successfully complete our IPO in December 2020.
Other income and expenses
Interest expense
Interest expense decreased by $986,185 to $675 from $986,860 for the quarter ended December 31, 2021 as compared to the same period in 2019.2020. This decrease was attributable to fewer expenditures requiredthe conversion of convertible notes into common shares after the completion of the IPO in December 2020.
Interest expense decreased by us in the current period being in the final stages of completing our IPO.
Prospectus and capital raising expenses increased by $211,209$1,072,013 to $353,574$675 from $142,365$1,072,688 for the six months ended December 31, 20202021 as compared to the same period in 2019, respectively.2020. This increasedecrease was attributable to creditthe conversion of convertible notes received from some suppliers ininto common shares after the first quartercompletion of the previous period.IPO in December 2020.
Other income and expensesRealized foreign exchange gain (loss)
Interest expense
Interest expenseRealized foreign exchange gain (loss) increased $837,715by $86,651 to $986,860a gain of $14 from $149,145a loss of $86,637 for the three monthsquarter ended December 31, 2020 as2021 compared to the same period in 2019.2020. This increase was largely attributable to the non-cash recognition of a beneficial conversion feature associated with convertible notes.
Interest expense increased $774,032 to $1,072,688 from $298,656 for the six months ended December 31, 2020 as compared to the same period in 2019. This increase was also attributable to the non-cash recognition of a beneficial conversion feature associated with convertible notes.
Loss from unconsolidated equity method investment
Loss from unconsolidated equity method investment was $0 for the three months ended December 31, 2020 and 2019, respectively.
Loss from unconsolidated equity method investment increased $135,692 from $0 for the six months ended December 31, 2020 compared to the same period in 2019. This increase was attributable to the reduction in the carrying amount of its investment in BiosensX (North America) Inc.
Realized foreign exchange loss
Realized foreign exchange loss increased $86,637 from $0 for the three months ended December 31, 2020 compared to the same period in 2019. This increase was attributable to the unfavourablefavorable foreign exchange translations on capital raisings from AUD to USD.USD during the same period in 2020.
Realized foreign exchange loss increaseddeceased by $276,003 to a loss of $3,104 from a loss of $279,107 from $0 for the six months ended December 31, 20202021 compared to the same period in 2019.2020. This increase was largely attributable to the unfavourableunfavorable foreign exchange translations on capital raisings from AUD to USD.USD during the same period in 2020.
Income tax (expense) benefit
IncomeThere was no income tax expense was $0 for the three and six months ended December 31, 2021 and 2020, respectively, and 2019 as the Company has established a full valuation allowance for all of its deferred tax assetsassets.
Other comprehensive income
Foreign currency translation gain/gain (loss)
Unrealized foreign currency translation gain/gain (loss) increaseddecreased by $167,142$26,501 to a $7,355 gain from a $33,856 from ($133,286)gain for the three monthsquarter ended December 31, 20202021 as compared to the same period in 2019.2020. It is calculated based on the Company’s unsettled transactions in currencies other than its functional currency.
Unrealized foreign currency translation gain/(loss)loss increased by $112,338$43,415 to ($16,712)a loss of $60,127 from ($129,050)a loss of $16,712 for the six months ended December 31, 2020 and 2019, respectively.2021 as compared to the same period in 2020. It is calculated based on the Company’s unsettled transactions in currencies other than its functional currency.
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Net loss
Net loss increased by $137,356$1,473,434 to $1,990,389$3,463,832 from $1,853,033$1,990,389 for the three monthsquarter ended December 31, 20202021 compared to the same period in 2019.2020. This overall increase was largely attributable to the non-cash recognition of a beneficial conversion feature, partially offset by government support income and the limitation of expenditure on general and administrative expenses until funding had been securedis primarily driven by the IPO, andexpansion of the company wasCompany’s operational activities in a positionorder to progress on its regulatory and development milestones.
Net loss increased by $449,441$1,834,359 to $3,067,304$4,901,663 from $2,617,863$3,067,304 for the six months ended December 31, 20202021 compared to the same period in 2019.2020. This overall increase was largely attributable to the non-cash recognition of a beneficial conversion feature, partially offset by government support income and the limitation of expenditure on general and administrative expenses until funding had been securedis primarily driven by the IPO, andexpansion of the company wasCompany’s operational activities in a positionorder to progress on its regulatory and development milestones.
Liquidity and Capital Resources
We use working capital and cash measures to evaluate the performance of our operations and our ability to meet our financial obligations. We define Working Capital as current assets less current liabilities. The calculation of Working Capital provides additional information and is not defined as a measure of financial performance under GAAP. This measure should not be considered in isolation or as a substitute for any standardized measure under GAAP. This information is intended to provide investors with information about our liquidity. Other companies in our industry may calculate this measure differently than we do, limiting its usefulness as a comparative measure.
Since our inception, our operations have primarily been financed through the issuance of our common stock, redeemable convertible preferred stock and the incurrence of debt. As of December 31, 2020,2021, we had $19,877,860$11,190,622 in cash and cash equivalents and $18,799,962$10,075,538 in working capital.
See “Initial public offering” herein for details about our IPO.
According to our management’s estimates, based on our budget and proposed schedules of development, approvals and organization, we believe, although there can be no assurances, that after our IPO we will have sufficient capital resources to enable us to continue to implement our business plan and remain in operation for at least 30 months.up to the first half of 2023. During this time, we expect to use the net proceeds available to us for the following purposes:
● | to obtain regulatory approvals and establish manufacturing capacities necessary for marketing of the SGT; | |
● | ||
to market the SGT and establish a distribution network in the APAC Region; and | ||
● | ||
for working capital and general corporate purposes. |
We do not anticipate generating any revenue in the near future, until after 6-10 months following the date of this filing,such time, if at all, the Company completes the development process of its products, including regulatory approvals, and our revenues will not immediately be sufficientthereafter, begins to finance our ongoing operations.commercialize and achieve substantial acceptance in the marketplace for the first of a series of products in its medical device portfolio. In addition, available resources may be consumed more rapidly than currently anticipated, and there can be no assurance that we will be successful in developing the SGT and generating sufficient revenue in the timeframe set forth above, or at all. We may be unable to meet our targets for regulatory approval and market launch, or we may be unable to generate anticipated amounts of revenue from sales of the system. We may also need additional funding for developing new products and services and for additional sales, marketing and promotional activities. Should this occur, we may need to seek additional capital earlier than anticipated.
In the event we require additional capital, there can be no assurances that we will be able to raise such capital on acceptable terms, or at all. Failure to generate sufficient revenues or raise additional capital through debt or equity financings, or through collaboration agreements, strategic alliances or marketing and distribution arrangements, could have a material adverse effect on our ability to meet our long-term liquidity needs and achieve our intended long-term business plan. Our failure to obtain such funding when needed could create a negative impact on our stock price or could potentially lead to a reduction in our operations or the failure of our company.
See “Initial public offering” above for details about our IPO.
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Contractual Obligations
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this item.
Extended Transition Period for “Emerging Growth Companies”
We have elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act. This election allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. As a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates. Because our financial statements may not be comparable to companies that comply with public company effective dates, investors may have difficulty evaluating or comparing our business, performance or prospects in comparison to other public companies, which may have a negative impact on the value and liquidity of our common stock.
Off-Balance Sheet Arrangements
ThroughAs of December 31, 2020,2021, we do not have not entered into any off-balance sheetoff-balance-sheet arrangements as defined by applicable SEC regulations.that have, or are reasonably likely to have, a material current or future effect on our results of operations or financial condition, revenues, expenses, results of operations, liquidity, cash requirements or capital resources.
Critical Accounting Policies Significant Judgments and Use of Estimates
Our financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP. The preparation of theseour unaudited condensed consolidated financial statements in conformity with GAAP requires usmanagement to make judgments, estimates and assumptions that affectimpact the amounts reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of thein our consolidated financial statements and the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilitiesaccompanying notes that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered relevant. Actual results may differ from these estimates under different assumptions or conditions. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.
Our critical accounting policies are described underin the 2021 Form 10-K, and the notes to the unaudited condensed consolidated financial statements included in “Part I, Item 1 — Financial Statements” of this Quarterly Report on Form 10-Q. 10-Q and incorporated herein by reference.
During the three and six months ended December 31, 2020, except as described in Note 3 to the unaudited interim condensed financial statements appearing elsewhere in this Quarterly Report on Form 10-Q,2021, there were no material changes to our critical accounting policies from those discussed in our final prospectus filed on December 18, 2020.the 2021 Form 10-K.
RecentRecently issued Accounting Pronouncements
See “Recent Accounting Pronouncements” inFor the impact of recently issued accounting pronouncements on the Company’s consolidated financial statements, see Note 3 to ourthe unaudited condensed consolidated financial statements included elsewhere in “Part I, Item 1 — Financial Statements” of this Quarterly Report on Form 10-Q for additional information.and incorporated herein by reference.
ItemITEM 3. Quantitative and Qualitative Disclosures about Market RiskQUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this item.
ItemITEM 4. Controls and ProceduresCONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q, and have concluded that, based on such evaluation, our disclosure controls and procedures were not effective as of December 31, 2020due to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Controls over Financial Reporting
There were no changesmaterial weakness in our internal control over financial reporting that occurred during the three months endedas of December 31, 20202021 as described below.
Notwithstanding the conclusion that our disclosure controls and procedures were not effective as of the end of the period covered by this report, we believe that our unaudited condensed consolidated financial statements and other information contained in this Quarterly Report on Form 10-Q present fairly, in all material respects, our business, financial condition and results of operations for the interim periods presented.
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Material Weakness
The Company completed the IPO in December 2020. Prior to the IPO, the Company was a private corporation with limited accounting personnel and other supervisory resources necessary to adequately execute its accounting processes and address its internal controls over financial reporting requirements. As a result, previously existing internal controls are no longer sufficient, and the Company is in the process of updating these controls. The design and implementation of internal control over financial reporting for the Company’s post-IPO has required and will continue to require significant time and resources from management and other personnel.
As part of this updating process, our management identified a material weakness in its internal control over financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness identified relates to the fact that the Company has not yet designed and maintained an effective control environment commensurate with its financial reporting requirements, including a) has not yet completed the formally documented policies and procedures with respect to the review, supervision and monitoring of the Company’s accounting and reporting functions, b) lack of evidence to support the performance of controls and the adequacy of review procedures, including the completeness and accuracy of information used in the performance of controls and c) we currently have materially affected, or are reasonably likelylimited accounting personnel and other supervisory resources necessary to materially affect,adequately execute the Company’s accounting processes and address its internal controls over financial reporting requirements.
Remediation Plan
Management is committed to continuing with the steps necessary to remediate the control deficiencies that constituted the above material weakness. Since the IPO, we made the following enhancements to our control environment:
a. | We added accounting and finance personnel to provide additional individuals to allow for segregation of duties in the preparation and review of schedules, calculations, and journal entries that support financial reporting, to provide oversight, structure and reporting lines, and to provide additional review over our disclosures; |
b. | We enhanced our controls to improve the preparation and review over complex accounting measurements, and the application of GAAP to significant accounts and transactions, and our financial statement disclosures; and, |
c. | We are in the process of engaging outside consultants to assist us in our evaluation of the design, implementation, and documentation of internal controls that address the relevant risks, and that provide for appropriate evidence of performance of our internal controls (including completeness and accuracy procedures). |
Under the direction of the audit committee of the board of directors, management will continue to take measures to further remediate the material weakness. As such, we will continue to enhance corporate oversight over process-level controls and structures to ensure that there is appropriate assignment of authority, responsibility, and accountability to enable remediation of our material weakness. We believe that our remediation plan will be sufficient to remediate the identified material weakness and strengthen our internal control over financial reporting.
As we continue to evaluate, and work to improve, our internal control over financial reporting, management may determine that additional measures to address control deficiencies or modifications to the remediation plan are necessary.
Inherent Limitation on the Effectiveness of Internal Controls
The effectiveness of any system of internal control over financial reporting, including ours, is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, in designing and evaluating the disclosure controls and procedures, management recognizes that any system of internal control over financial reporting, including ours, no matter how well designed and operated, can only provide reasonable, not absolute assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs. Moreover, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business but cannot assure you that such improvements will be sufficient to provide us with effective internal control over financial reporting.
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Changes in Internal Controls over Financial Reporting
Other than in connection with the remediation plan described above, there have been no changes to the Company’s internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d 15(f) under the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II—II. OTHER INFORMATION
ItemITEM 1. Legal Proceedings.LEGAL PROCEEDINGS.
From time to time, we may be subject to legal proceedings and claims arising in the ordinary course of business. We are not currently engaged in any material legal proceedings.
Item 1a. Risk FactorsITEM 1A. RISK FACTORS.
We are a smaller reporting company as defined by Rule 12b-2 of
In addition to the Exchange Act and are not required to provideother information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the information otherwise required under this item.factors discussed in the section entitled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021. There have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021.
ItemITEM 2. Unregistered SalesUNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
There were no unregistered sales of Equity Securities and Use of Proceeds.
(b) On December 28, 2020,equity securities during the Company closed its initial public offering (“IPO”) and sold 1,270,589 units, consisting of (a) one share of the Company’s common stock (or, at the purchaser’s election, one share of Series B Convertible Preferred Stock), (b) one Series A warrant (the “Series A Warrants”) to purchase one share of the Company’s common stock at an exercise price equal to $8.50 per share, exercisable until the fifth anniversary of the issuance date, and (c) one Series B warrant (the “Series B Warrants”) to purchase one share of the Company’s common stock at an exercise price equal to $17.00 per share, exercisable until the fifth anniversary of the issuance date and subject to certain adjustment and cashless exercise provisions. The public offering price of the shares sold in the IPO was $17.00 per unit. In aggregate, the units issued in the offering generated $17,732,448 in net proceeds, which amount is net of $1,714,001 in underwriters’ discount and commissions, and $2,153,564 in offering costs (including deferred equity offering cost of $1,863,612). The Company also issued to the underwriter an option, exercisable one or more times in whole or in part, to purchase up to 190,588 additional shares of common stock and/or Series A Warrants to purchase up to an aggregate of 190,588 shares of common stock and/or Series B Warrants to purchase up to an aggregate of 190,588 shares of common stock, in any combinations thereof, from us at the public offering price per security, less the underwriting discounts and commissions, for 45 days after the date of the IPO to cover over-allotments, if any (the “Over-Allotment Option”).period.
Upon the closing of the IPO, all shares of preferred stock then outstanding were automatically converted into 2,810,190 shares of common stock, and all convertible notes then outstanding were automatically converted into 710,548 shares of common stock. Certain of the preferred shareholders were issued warrants that, following the Company’s completed IPO, allow the holder to acquire 2,736,675 shares of common stock at the IPO price during years two through three following the IPO. At exercise date, the shareholder must hold for each warrant to be exercised, one underlying common share to exercise the option. The warrants are not transferable and apply to the number of shares that were subscribed for.
There has been no material change in the planned use of proceeds from our IPO as described in our final prospectus filed with the SEC on December 28, 2020 pursuant to Rule 424(b). No direct or indirect payments were made by us to any of our directors or officers or their associates, to persons owning ten percent or more of our common stock or to their associates, or to our affiliates, other than payments in the ordinary course of business to officers for salaries. Pending the uses described, we intend to invest the net proceeds in short-term, interest-bearing obligations, investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the U.S. government.
ItemITEM 3. Defaults Upon Senior Securities.DEFAULTS UPON SENIOR SECURITIES.
Not applicable.None.
ITEM 4. Mine Safety Disclosures.MINE SAFEY DISCLOSURES.
Not applicable.
ItemITEM 5. Other Information.OTHER INFORMATION.
Not applicable.None.
ItemITEM 6. Exhibits.EXHIBITS.
# Filed herewith.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
GBS Inc. | ||
Date: February | By: | /s/ |
INTERIM CHIEF EXECUTIVE OFFICER AND PRESIDENT | ||
(Principal Executive Officer) | ||
Date: February | By: | /s/ |
SPIRO SAKIRIS | ||
CHIEF FINANCIAL OFFICER | ||
(Principal Financial Officer) |