GBS Inc.

Greetings, and welcome to the GBS Inc. Second Quarter 2022 Earnings Conference Call. Currently, all participants are on a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Tim McCarthy of LifeSci Advisors, Investor Relations for GBS Inc. Thank you. You may begin.

Thank you, Operator, and good afternoon. Joining us today from the company are Dr. Stephen Boyage, Interim CEO and Chairman of the Board, and Spiro Sekiris, Chief Financial Officer. The press release announcing the results and the update was issued this afternoon and is available now on the GBS website. If you haven't received this news release or if you'd like to be added to the company's distribution list, please send an email to investors.relations at gbs.inc. I will now read the company's safe harbor statement. Some of the statements on this conference call are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934, and the Private Securities Litigation Reform Act of 1995, which involve risks and uncertainties. Forward-looking statements on this call include, without limitation, GVS Inc.' 's ability to develop and commercialize its diagnostic tests, realize commercial benefit from its partnerships and collaborations, and secure regulatory approvals, among others. Although GBS Inc. believes that the expectations reflected in such forward-looking statements are reasonable as of the date made, expectations may prove to have been materially different from the results expressed or implied by such forward-looking statements. GBS Inc. has attempted to identify forward-looking statements by terminology including believes, estimates, anticipates, expects, plans, projects, intends, potential, may, could, might, will, should, approximately, or other words that convey uncertainty of future events or outcomes to identify these forward-looking statements. These statements are only predictions and involve known and unknown risks, uncertainties, and other factors included in the company's public filings filed with the Securities and Exchange Commission. Any forward-looking statements contained in this release speak only as of its date. We undertake no obligation to update any forward-looking statements contained in this release to reflect events or circumstances occurring after its date or to reflect the occurrence of unanticipated events. During this conference call, the company may refer to EBITDA, a non-GAAP measure. EBITDA is not and should not be considered an alternative to net income loss income loss from operations, or any other measure for determining operating performance. EBITDA is normally calculated by adding back income tax, depreciation, and amortization to net income loss. I would now like to turn the floor over to Dr. Steven Boyages, Interim CEO of GBS, Inc.

Steven, please go ahead. Thank you, Tim. Good afternoon, and thank you for joining us on our quarterly business and financial call today. We issued our second financial quarter 2022 preliminary financial and operating results after the close of the market today, and I hope you've been able to look at them briefly. On today's call, I'd like to highlight the key developments the GBS team has made this quarter, highlighting specifically our clinical advancements as well as developments in the build-out of our high-tech manufacturing facility. I'll then turn the call over to Spiro for a detailed review of our financials including our preliminary second quarter results and our forecasted cash burn. As GBS discussed in November, we prioritise the product development and manufacturing aspects of growth as we remain focused on advancing our diagnostics platform around the biosensor technology and grow our lead asset for saliva-based glucose testing. Moving on to a quick business overview. GBS remains focused on developing and commercializing innovative biosensors for point-of-care monitoring and diagnostic tests. Our proprietary technologies incorporate saliva-based testing approaches with accuracy and ease of use not available on the market today. As we build our portfolio of validated evidence, we intend to demonstrate accuracy similar to other fluid-based methods such as serum, blood, or urine. Simply put, We believe when offering patients an affordable, convenient and disposable testing option for people with diabetes, we can drive increased compliance and frequency of testing to drive better outcomes for our patients. We want to reiterate, we prioritise the development and manufacturing of our flagship product, the saliva glucose biosensor, towards our commercialisation goal and are actively working with our licensor LSBD toward regulatory approval in both North America and Asia. Now let's review this quarter's key highlights where we made significant advancements. Firstly, in December, GBS announced that its licensed soil life science biosensor diagnostics, LSBD, had filed an application with the US 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. Secondly, the team has submitted the correlation clinical trial protocol for institutional review board approval to the Mills Peninsula Medical Center in California, which will be responsible for executing this initial clinical trial enrolling 40 subjects. The objectives of this key study are to explore the relationship between salivary glucose and plasma glucose, as well as the time course data between the two testing modalities using sophisticated glucose tolerance testing in 40 subjects. This will generate time course data to determine salivary glucose characteristics. This is expected to lead to the development of the algorithm between plasma and salivary glucose. It is anticipated that the first stage of this clinical plan to be completed by July 2022. Turning to our manufacturing advancements, following the recent grant of $4.7 million by the Australian federal government to fund the build-out of a high-tech biosensor manufacturing facility, GBS has begun sourcing the required equipment. This sourcing has the dual purpose of immediately utilising the equipment in the interest 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 equipment is expected to be ordered in April and finalized in June 2022. This non-dilutive capital is incredibly important for this next phase of manufacturing development in which DBS can accelerate product development through the purchase of several important technical machinery and equipment. Discussions are underway between the University of Newcastle and GBS Inc. for the location, build-out and commissioning of the new high-tech manufacturing facility. In response to the Australian Government's announcement of a medical research commercialisation initiative, GBS is in the process of evaluating and preparing expressions of interest towards further Australian Government funding, as we believe the 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 innovation projects with commercial potential. This Medical Research Future Fund will have available to it approximately US$225 million of project funding over the next 10 years of companies that meet the outline criteria now before turning over the call to our cfo spiro securus to discuss the financial second year financial quarter results i feel it important to briefly mention the gbs like the small and micro cap healthcare sector overall experiences volatile equity markets of late And while investors resize valuations and they're needed for capital on an ongoing basis, we remain engaged and committed to driving returns for our stakeholders. Finally, we'd like to thank you for your support and look forward to sharing our successes with you. With that, I would like now to turn the call over to our CFO, Spiro Sekiris, for a more detailed review of our second quarter financials. Spiro.

Thanks, Stephen. I'll provide a brief overview of GBS's second quarter financial results. For the quarter ended 31 December 2021, the company had a preliminary net loss of $3.46 million, or $0.23 per share, compared with a net loss of $1.99 million, or again $0.23 per share, in the same period last year. This is predominantly due to the acceleration of development and commercialisation expenditures, which includes the expensing of 2.6 million of prepaid R&D contributions, which have been funded in the previous year. Government support income was $177,791 for the three months ended 31 December 2021, a decrease of $55,427 for the same period ending 2020. The nature of government support income is in the form of research and development tax offset payments and Australian government MMI grants for the $4.7 million. The revenue for these grants is recognised as qualifying expenditure as the expenditure is incurred. As at December 31, 2021, the company's cash equivalents and marketable securities totaled approximately 11.19 million compared to approximately 12.57 million on 30th of June 2021. As of December 31, 2021, the company had 14.88 million shares outstanding. Despite equity capital market conditions of late, the company continues to be favorably positioned financially and have multiple funding resources and strategies with over 10 million in the bank. Management's continued fiscal responsibility and controlled cash burn provides a calculated runway for the company and we are confident that the markets will recognise this value. GBS is of the view that based on the current operating plan and financial resources, its cash, cash equivalents and marketable securities as of December 31, 2021 will be sufficient to cover expenses and capital requirements into the first half of 2023. With that overview of our financials, I will now turn the call back to the operator to open the line for questions. Operator, please open the floor to questions.

Thank you. Ladies and gentlemen, at this time we will be conducting a question and answer session. If you'd like to ask a question, you may press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment while we poll for questions. Our first question comes from John Van Vandermosten with Zach's Small Capital Research. Please proceed.

Thank you, and good morning, Stephen and Spiro. How are you guys doing? Good morning, John. How are you? I'm doing pretty good. Thanks for the quick rundown on progress on all the fronts. And a few other items I wanted to follow up on are just the partner identification for the Chinese markets. I know that you were making progress there. and wondered if you'd seen any other progress since our last update.

Yeah, look, I'll start off and then hand across to, maybe Spiro, you can answer that too.

Okay, fine. So, yeah, so basically the list as we've identified before, there is a short list there. Discussions are commencing as we identified before, but we're not in a position yet to report anything conclusive as it's staged yet, John.

Okay, very good, very good. And then on the COVID side, I know you're working with the Wyss Institute and progressing some validation efforts there. Any update on how that is coming along?

No update as yet, John. We understand that the progress is excellent, as we announced previously, to the market. We're expecting further announcements within the next quarter, but at this stage, no.

Okay, very good, very good. And you did give us an update on the next step for the glucose sensor, the trial, the 40-person trial. After you complete that, I think you provided a date of July 2022. I guess that's when the study will end, and then results will come out shortly after that. And then after you have results, I guess, will you go into submitting a package to the FDA, or what should we expect following the completion of that? Yes, John, and that's our expectation.

We're very excited by those studies. They're quite detailed studies, and they're about setting up a gold standard for salivary glucose. And we've been talking with our research partners in the US and both on the east side and the west side, west coast, and we're looking at what we call glucose tolerance testing. That's where we give a glucose load to individuals, and we measure both in plasma and capillary blood venous blood, and then saliva, the glucose parameters, so we can set up an effective gold standard. And we're using mass spectrometry to actually be able to validate those measurements at this point in time. So as you indicated, we're expecting results by July 2022. And then you're absolutely correct. Then we'll be looking at further submissions. This is the first stage of about a three-part clinical validation. So there are some ongoing studies beyond that, but they will lead support to our future submissions.

Okay, very good. And then, you know, looking at the study, what's the magnitude of difference that would be acceptable to the FDA between the saliva and plasma glucose? You know, what would they be looking for in terms of numbers there?

Look, it's not going to be a magnitude of difference. It's really going to be on that coefficient of variation. The gold standard for the market is we want to have plus or minus 15%. So when we measure whatever we measure in any body fluid, we want to be confident that that measurement is reproducible. So we know that in saliva, the glucose measurement will be a couple of log orders lower. But as long as we can differentiate between low, normal or high, then the absolute magnitude of difference between blood and saliva won't be an issue. It's really that coefficient of variation.

Yeah, right. Thank you for correcting me on that. Okay, great. And then, you know, we've seen the COVID test numbers spike, you know, with recent Omicron, and then they're kind of rolling over. Do you think we're going to continue to see a lot of variation in the number of tests out there? Any thoughts on kind of how that trend might continue for COVID?

Look, I think as much as all of us are suffering from fatigue from COVID, I don't think it's going to go away rapidly. And I think as we get better understanding of the illness characteristics and the need for understanding who's immune and who's not immune, who's infected, there's going to be a great need for laboratory testing for both COVID antigen and COVID antibodies. So we see strong growth in this market.

Okay, great. I'll hop back in queue and see if there's anyone else who wants to ask questions. Thank you.

Thanks, John.

Our next question comes from Ted Yu with Zach Small Cap Research. Please proceed.

Hey, Steven and Spyro. Thanks for taking our questions. Just to piggyback off of John's questions there, you had submitted a pre-submission package in October of last year. Wondered if there's any update on that and whether you received feedback from the FDA.

Spiro, did you want to answer that one or did you?

Yeah, so basically with the pre-submission, the waiting for response back from FDA in relation to their workload. Their workload's quite, as you can all understand, quite busy in relation to... the COVID, so there's no further progress on that yet.

Okay, excellent. Thank you. Let's see here. Regarding the manufacturing facility, and we're excited to hear updates on that, it appears from your release that this is maybe going to be working a little closer with University of Newcastle than maybe I had anticipated. Could you give a little colour on maybe the extent of this partnership or what the role and relationship with the University of Newcastle is going to look like with GBS-funded facility on University of Newcastle property.

Spiro, you can answer that one. You've been lead on that project.

Yes, so basically what we're doing, the first step is in relation to that, as we mentioned in the announcement, we're looking at getting the first batch of equipment across, which the objective is that we'll install that on Newcastle University's premises. Now, the objective of that will be to expedite the progress of the commercialisation and then at the same time be commissioning that property, the equipment. What happens is once we get that commission and by doing that we're not delaying time in relation to ultimately getting the factory up and going. So whilst we're sourcing the site, finalising the site, we're getting that work done on that equipment and getting the two to run parallel. So we're operating it as efficiently as possible and that's where the University of Newcastle with their

ongoing development that's what we're looking in utilizing that equipment okay excellent yes so just to add to that I mean just in case people aren't aware the the innovation and the founders are actually at the University of Newcastle so co-locating the facility with them will create a lot of efficiencies and increase the rate of development

Yes, and also appreciated the additional color into the existing facility. It sounds like they will run in parallel. And I think that does it for me, and I'll hop back in queue. Thank you, guys. Thank you. Thank you.

Our next question comes, again, from the line of John Vandermosten with Zach Small Cap Research. Please proceed.

Thank you. question was just on the income statement. I noticed that the development and regulatory expenses were a little bit below trend in the first quarter and it seemed to be above trend in the second quarter. I just wanted to see if those were timing issues that led to that. And looking forward, we should just maybe average those two amounts for the second half of the year.

Yeah, John, that's a very good question. The nature of the expenditure is not even. It's very clumpy depending on milestones that have been delivered by the by the research partners. So let's talk specifically about the one we have now. So we have included in that, which I referred to in the announcement and when I was talking, that we do have an expense of some prepaid R&D of about $2.6 million. That R&D was funded in the previous year. We treat it as a prepayment. And then as one's deriving the benefit from the R&D, we put that to the profit and loss. So I would say, look, it's... Difficult to say to average the two to project forward because you're only isolating it to six months and being very clumpy in nature. I'd use that as a start, but then just keep an eye on our reporting and constantly update that as we've got updates on the R&D expenditure.

Okay. Because my forecast actually kind of averaged the first six months and used about the same amount in the second half of the year. So it sounds like I should just keep that based on what you're seeing at this point.

Yeah, keep that on for the time being. And then, like I said, just update it as we do the further releases. Then you'll see what the milestones have been delivered that averages at the R&D expenditure.

Great. All right. Thank you, Spiro. You take care. And thank you again, Stephen, for your answers as well.

Thank you. Once again, ladies and gentlemen, it's Star 1 to ask a question. At this time, there are no further questions. I'd like to turn the floor back over to Dr. Boreages for closing remarks.

Thank you, operator. As I mentioned in my opening remarks, we are extremely pleased with our performance this quarter as we build momentum for a new testing platform. We look forward to seeing everyone at our annual shareholder meeting in the coming months. In closing, I want to thank everybody for joining us tonight and to have a great evening. Thank you.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.