INTELLIGENT BIO SOLUTIONS INC. 10-K

ITEM 9A. CONTROLS 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 Annual Report on Form 10-K, and have concluded that, based on such evaluation, our disclosure controls and procedures were not effective due to the material weakness in our internal control over financial reporting as of June 30, 2021 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 consolidated financial statements and other information contained in this annual report on Form 10-K present fairly, in all material respects, our business, financial condition and results of operations for the interim periods presented. 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) as an emerging growth company we currently have limited accounting personnel and other supervisory resources necessary to 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 remediate the material weakness in 2021. 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. 52 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 Management’s Report on Internal Control Over Financial Reporting This Annual Report on Form 10-K does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report of our independent registered public accounting firm due to a transition period established by the rules of the SEC for newly public companies. Changes in Internal Control Over Financial Reporting 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. ITEM 9B. OTHER INFORMATION. On June 30, 2021, the Company was awarded a $4.7 million (excluding GST/VAT), Australian Federal Government scientific grant to fund the build out of a Biosensor manufacturing facility. This project has been identified as one of six National Manufacturing Priorities identified by the Government under Modern Manufacturing Strategy (MMS). The Medical Products Priority Grant, from the Australian Federal Government’s Department of Industry, Science, Energy and Resources’ Modern Manufacturing Initiative will support the establishment of an Australian high tech medical device manufacturing facility to commence scaled production of the Printable Organic Electronic Biosensor technology for the APAC region. Amounts will be paid under this grant upon GBS achieving certain deliverables ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTION Not applicable. PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The information required by Item 10 will be included in the Registrant’s definitive proxy statement to be filed pursuant to Section 14(a) of the Exchange Act of 1934 and is incorporated herein by reference. 53 ITEM 11. EXECUTIVE COMPENSATION The information required by Item 11 will be included in the Registrant’s definitive proxy statement to be filed pursuant to Section 14(a) of the Exchange Act of 1934 and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS The information required by Item 12 will be included in the Registrant’s definitive proxy statement to be filed pursuant to Section 14(a) of the Exchange Act and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE The information required by Item 13 will be included in the Registrant’s definitive proxy statement to be filed pursuant to Section 14(a) of the Exchange Act and is incorporated herein by reference. ITEM 14. PRINCIPAL ACCOUNTANTING FEES AND SERVICES The information required by Item 14 will be included in the Registrant’s definitive proxy statement to be filed pursuant to Section 14(a) of the Exchange Act and is incorporated herein by reference. PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES (a) Documents filed as part of this Annual Report on Form 10-K: (1) Financial Statements. The financial statements required to be included in this Annual Report on Form 10-K are listed in the Table of Contents to Financial Statements appearing immediately after the signature page of this Form 10-K and are included herein by reference. (2) Financial Statement Schedules. All schedules are omitted because they are not applicable, or the required information is shown in the Financial Statements or notes thereto. (3) See attached Exhibit Index of this Annual Report on Form 10-K. (b) The following exhibits are provided as required by Item 601 of Regulation S-K Exhibit No. Description 3.1 Amended and Restated Certificate of Incorporation ((incorporated by reference to Exhibit 3.4 to the Company’s Amended Registration Statement on Form S-1/A (File No. 333-232557) filed with the Commission on December 21, 2020) 3.2 Amended and Restated By-laws. ((incorporated by reference to Exhibit 3.2 to the Company’s Amended Registration Statement on Form S-1/A (File No. 333-232557 ) filed with the Commission on October 13, 2020) 3.3. Certificate of Designation of Series B Preferred Stock ((incorporated by reference to Exhibit 3.3 to the Company’s Amended Registration Statement on Form S-1/A (File No. 333-232557) filed with the Commission on October 20, 2020.) 4.1 Specimen Common Stock Certificate ((incorporated by reference to Exhibit 4.1 to the Company’s Amended Registration Statement on Form S-1/A (File No. 333-232557) filed with the Commission on September 19, 2019.) 4.2 Form of Series A Warrant ((incorporated by reference to Exhibit 4.2 to the Company’s Amended Registration Statement on Form S-1/A (File No. 333-232557) filed with the Commission on October 20, 2020.) 4.3 Form of Series B Warrant ((incorporated by reference to Exhibit 4.3 to the Company’s Amended Registration Statement on Form S-1/A (File No. 333-232557) filed with the Commission on October 20, 2020.) 4.4 Form of Warrant Agency Agreement ((incorporated by reference to Exhibit 4.4 to the Company’s Amended Registration Statement on Form S-1/A (File No. 333-232557) filed with the Commission on October 20, 2020.) 4.5 Form LSBD Warrant ((incorporated by reference to Exhibit 4.6 to the Company’s Amended Registration Statement on Form S-1/A (File No. 333-232557) filed with the Commission on December 21, 2020) 54 4.6 # Description of Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934. 10.1* 2019 Incentive Equity Plan ((incorporated by reference to Exhibit 10.1 to the Company’s Amended Registration Statement on Form S-1/A (File No. 333-232557) filed with the Commission on August 2, 2019) 10.2 Amended and Restated License Agreement between the Company and Life Science Biosensor Diagnostics Pty Ltd. ((incorporated by reference to Exhibit 10.2 to the Company’s Amended Registration Statement on Form S-1/A (File No. 333-232557 ) filed with the Commission on October 13, 2020) 10.3 Master Services Agreement between the Company and IQ3Corp Limited ((incorporated by reference to Exhibit 10.3 to the Company’s Amended Registration Statement on Form S-1/A (File No. 333-232557) filed with the Commission on August 2, 2019) 10.4 Medical Affairs Services Agreement between the Company and Clinical Research Corporation ((incorporated by reference to Exhibit 10.4 to the Company’s Amended Registration Statement on Form S-1/A (File No. 333-232557) filed with the Commission on August 2, 2019) 10.5* Form of Employment Agreement between the Company and Mr. Simeonidis ((incorporated by reference to Exhibit 10.5 to the Company’s Amended Registration Statement on Form S-1/A (File No. 333-232557) filed with the Commission on August 21, 2019) 10.6* Form of Employment Agreement between the Company and Dr. Becker ((incorporated by reference to Exhibit 10.6 to the Company’s Amended Registration Statement on Form S-1/A (File No. 333-232557) filed with the Commission on August 2, 2019) 10.7* Form of Employment Agreement between the Company and Mr. Sakiris ((incorporated by reference to Exhibit 10.7 to the Company’s Amended Registration Statement on Form S-1/A (File No. 333-232557) filed with the Commission on August 21, 2019) 10.8 Form of Lock-Up Agreement (included in Exhibit 1.1 to Form of Underwriting Agreement.) ((incorporated by reference to Exhibit 1.1 to the Company’s Amended Registration Statement on Form S-1/A (File No. 333-232557) filed with the Commission on October 20, 2020.) 10.9 Letter of Financial Assistance from The iQ Group Global Ltd. ((incorporated by reference to Exhibit 10.2 to the Company’s Amended Registration Statement on Form S-1/A (File No. 333-232557 ) filed with the Commission on October 13, 2020) 10.10 Letter of Financial Assistance from iQX Limited. ((incorporated by reference to Exhibit 10.10 to the Company’s Amended Registration Statement on Form S-1/A (File No. 333-232557 ) filed with the Commission on October 13, 2020) 55 10.11 Form of Letter of Equity Support from iQnovate Limited ((incorporated by reference to Exhibit 10.11 to the Company’s Amended Registration Statement on Form S-1/A (File No. 333-232557) filed with the Commission on August 6, 2020) 10.12 Form of Letter of Equity Support from iQX Limited ((incorporated by reference to Exhibit 10.12 to the Company’s Amended Registration Statement on Form S-1/A (File No. 333-232557) filed with the Commission on August 6, 2020) 10.13 Technology License Agreement between the Company and Life Science Biosensor Diagnostics Pty Ltd. ((incorporated by reference to Exhibit 10.13 to the Company’s Amended Registration Statement on Form S-1/A (File No. 333-232557 ) filed with the Commission on October 13, 2020) 10.14 Material Transfer Agreement between Life Science Biosensor Diagnostics Pty Ltd and Wyss Institute for Biologically Inspired Engineering ((incorporated by reference to Exhibit 10.14 to the Company’s Amended Registration Statement on Form S-1/A (File No. 333-232557 ) filed with the Commission on October 13, 2020) 10.15 Form of Exchange Agreement ((incorporated by reference to Exhibit 10.15 to the Company’s Amended Registration Statement on Form S-1/A (File No. 333-232557) filed with the Commission on December 21, 2020) 10.16 Form of Registration Rights Agreement ((incorporated by reference to Exhibit 10.16 to the Company’s Amended Registration Statement on Form S-1/A (File No. 333-232557) filed with the Commission on December 21, 2020) 10.17 Form of Purchase and Assignment Agreement ((incorporated by reference to Exhibit 10.16 to the Company’s Amended Registration Statement on Form S-1/A (File No. 333-232557) filed with the Commission on December 21, 2020) 10.18 Option Agreement ((incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on April 2, 2021). 14.1 Code of Ethics ((incorporated by reference to Exhibit 14.1 to the Company’s Amended Registration Statement on Form S-1/A (File No. 333-232557) filed with the Commission on August 6, 2020) 21.1 # List of Subsidiaries 31.1 # Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 56 31.2 # Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 # Certification of the Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 # Certification of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101.INS # XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document 101.SCH # XBRL Taxonomy Extension Schema Document. 101.CAL # XBRL Taxonomy Extension Calculation Linkbase Document. 101.DEF # XBRL Taxonomy Extension Definition Linkbase Document. 101.LAB # XBRL Taxonomy Extension Label Linkbase Document. 101.PRE # XBRL Taxonomy Extension Presentation Linkbase Document. 104 # Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) * Indicates management contract or compensatory plan. # Filed herewith. ITEM 16. FORM 10-K SUMMARY. None. 57 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. GBS Inc. Date: September 15, 2021 By: /s/ Harry Simeonidis HARRY SIMEONIDIS CHIEF EXECUTIVE OFFICER AND PRESIDENT (Principal Executive Officer) Date: September 15, 2021 By: /s/ Spiro Sakiris SPIRO SAKIRIS CHIEF FINANCIAL OFFICER (Principal Financial Officer) Pursuant to the requirements of the Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Harry Simeonidis Chief Executive Officer, President and Director September 15, 2021 Harry Simeonidis (Principal Executive Officer) /s/ Spiro Sakiris Chief Financial Officer September 15, 2021 Spiro Sakiris (Principal Financial Officer) /s/ Steven Boyages Dr. Steven Boyages Director September 15, 2021 /s/ Jonathan Sessler Prof. Jonathan Sessler Director September 15, 2021 /s/ Tom Parmakellis Dr. Tom Parmakellis Director September 15, 2021 /s/ Jonathan Hurd Jonathan Hurd Director September 15, 2021 /s/ Leon Kempler Leon Kempler Director September 15, 2021 /s/ George Margelis Dr. George Margelis Director September 15, 2021 /s/ Lawrence Fisher Lawrence Fisher Director September 15, 2021 /s/ Christopher Towers Christopher Towers Director September 15, 2021 58 GBS Inc. Index to the Consolidated Financial Statements REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM F-2 CONSOLIDATED BALANCE SHEETS F-3 CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE LOSS F-4 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY F-5 CONSOLIDATED STATEMENTS OF CASH FLOWS F-6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-7 F- 1 Report of Independent Registered Public Accounting Firm Shareholders and Board of Directors GBS Inc. New York, New York Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of GBS Inc. (the “Company”) as of June 30, 2021 and 2020, the related consolidated statements of operations and comprehensive loss, changes in shareholders’ equity, and cash flows for each of the two years in the period ended June 30, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at June 30, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended June 30, 2021 , in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ BDO Audit Pty Ltd We have served as the Company’s auditor since 2017. Sydney, Australia September 15, 2021 F- 2 GBS Inc. Consolidated Balance Sheets June 30, 2021 June 30, 2020 ASSETS Current assets: Cash and cash equivalents $ 12,573,685 $ 427,273 Deferred charges - 1,863,613 Grant receivable, current portion 2,098,884 - Research and development tax incentive receivable 1,025,455 - Other current assets 2,509,017 49,062 Total current assets 18,207,041 2,339,948 Investment in affiliate - 135,692 Grant receivable, net of current portion 3,148,328 - Other non-current assets 504,000 - TOTAL ASSETS $ 21,859,369 $ 2,475,640 LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT) Current liabilities: Accounts payable and accrued expenses $ 1,570,443 $ 787,469 Related party payables 13,323 1,769,293 Current portion of deferred grant income 2,098,884 - Convertible notes payable - 5,133,706 Total current liabilities 3,682,650 7,690,468 Employee benefit liabilities 21,770 - Long-term deferred grant income 3,148,328 - Total liabilities 6,852,748 7,690,468 Commitments and contingencies (Note 11) - - Shareholders’ equity (deficit): Preferred stock, $0.01 par value, 10,000,000 shares authorized, 1,300,000 and 2,370,891 shares issued and outstanding at June 30, 2021 and 2020, respectively 13,000 23,709 Common stock, $0.01 par value, 100,000,000 shares authorized, 13,582,122 and 8,630,000 shares issued and outstanding at June 30, 2021 and 2020, respectively 135,821 86,300 Additional paid-in capital 38,440,089 10,899,942 Accumulated deficit (22,869,803 ) (15,832,517 ) Accumulated other comprehensive loss (661,260 ) (363,951 ) Total consolidated group equity (deficit) 15,057,847 (5,186,517 ) Non-controlling interest (51,226 ) (28,311 ) Total shareholders’ equity (deficit) 15,006,621 (5,214,828 ) TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 21,859,369 $ 2,475,640 The accompanying notes are an integral part of these consolidated financial statements. F- 3 GBS Inc. Consolidated Statements of Operations and Other Comprehensive Loss Year Ended June 30, 2021 2020 Revenues: Other income: Government support income $ 1,980,484 $ 69,821 Shared services - 118,923 Total revenues 1,980,484 188,744 Operating expenses: General and administrative expenses 3,359,065 2,203,125 Development and regulatory approval expenses 3,835,703 588,206 Prospectus and capital raising expenses 359,198 254,407 Total operating expenses 7,553,966 3,045,738 Loss from operations (5,573,482 ) (2,856,994 ) Other (expense) income: Interest expense (1,093,608 ) (457,745 ) (Loss) income from unconsolidated equity method investment (135,692 ) 121,692 Realized foreign exchange loss (271,225 ) - Interest income 13,806 97 Total other expense (1,486,719 ) (335,956 ) Loss before income taxes (7,060,201 ) (3,192,950 ) Income taxes - - Net loss (7,060,201 ) (3,192,950 ) Net loss attributable to non-controlling interest (22,915 ) (29,174 ) Net loss attributable to GBS, Inc. $ (7,037,286 ) $ (3,163,776 ) Other comprehensive loss, net of tax: Foreign currency translation loss $ (297,309 ) $ (147,081 ) Total other comprehensive loss (297,309 ) (147,081 ) Comprehensive loss (7,357,510 ) (3,340,031 ) Comprehensive loss attributable to non-controlling interest (22,915 ) (29,174 ) Comprehensive loss attributable to GBS, Inc $ (7,334,595 ) $ (3,310,857 ) Net loss per share, basic and diluted $ (0.68 ) $ (0.37 ) Weighted average shares outstanding, basic and diluted 10,414,886 8,510,329 The accompanying notes are an integral part of these consolidated financial statements. F- 4 GBS Inc. Consolidated Statements of Changes in Shareholders’ Equity Additional Other Non- Total shareholders’ Preferred stock Common stock paid in Accumulated comprehensive controlling 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 non-controlling 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 common shares - - 120,000 1,200 898,800 - - - 900,000 Issuance of convertible preferred shares 306,007 3,060 - - 2,291,992 - - - 2,295,052 Issuance costs for common and preferred shares - - - - (116,402 ) - - - (116,402 ) Foreign currency translation loss - - - - - - (147,081 ) - (147,081 ) Net loss - - - - - (3,163,776 ) - (29,174 ) (3,192,950 ) 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 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 - - 59,800 598 507,702 - - - 508,300 Series B warrants exercised to purchase common shares - - 1,400,995 14,010 (14,010 ) - - - - Series A and B warrants acquired - - - - 3,812 - - - 3,812 Conversion of convertible preferred shares into common stock (1,700,000 ) (17,000 ) 1,700,000 17,000 - - - - - Foreign currency translation loss - - - - - - (297,309 ) - (297,309 ) Net loss - - - - - (7,037,286 ) - (22,915 ) (7,060,201 ) 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 The accompanying notes are an integral part of these consolidated financial statements. F- 5 GBS Inc. Consolidated Statements of Cash Flows Year Ended June 30, 2021 2020 Cash flows from operating activities: Net loss $ (7,060,201 ) $ (3,192,950 ) Adjustments to reconcile net loss to net cash used in operating activities: Non-cash loss on foreign currency translation, net (271,225 ) - (Profit)/Loss on investment in affiliate 135,692 (121,692 ) Contingent beneficial conversion feature on convertible notes 905,948 - Money received for which preference shares were issued after year-end - 225,000 Non-cash other operating activities (66,055 ) (36,048 ) Changes in operating assets and liabilities: - Other receivables - 118,056 Research and development tax incentive receivable (1,025,455 ) - Other current assets (2,459,955 ) 99,279 Other non-current assets (504,000 ) - Accounts payable 782,974 (350,200 ) Accounts payable - related party (1,755,970 ) 2,759,937 Other long-term liabilities 21,770 - Net cash used in operating activities (11,296,477 ) (498,618 ) Cash flows from investing activities: Investment in affiliate - (14,000 ) Net cash used in investing activities - (14,000 ) Cash flows from financing activities: Proceeds from issuance of warrants 3,812 - Proceeds from warrant holders for common shares 508,300 - Proceeds from issuance of preferred stock 3,294,745 1,001,250 Payment to convertible note holders - (150,986 ) Proceeds from initial public offering 21,600,013 - Payment of equity issuance costs (2,003,952 ) (116,402 ) Net cash provided by financing activities 23,402,918 733,862 Effect of foreign exchange rates on cash and cash equivalents 39,971 8,089 Increase in cash and cash equivalents 12,146,412 229,333 Cash and cash equivalents, beginning of period 427,273 197,940 Cash and cash equivalents, end of period $ 12,573,685 $ 427,273 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 - Cancellation of common stock in exchange for preferred shares 30,000 - Conversion of preferred shares into common shares 45,102 - Preference shares issued through offsetting the related party loans - 1,102,717 Non-cash deemed dividend - (976,000 ) Common stock issued through offsetting of related party loans - 900,000 Supplemental disclosure of cash flow information: Cash paid for income taxes $ - $ - Cash paid for interest 185,301 327,311 The accompanying notes are an integral part of these consolidated financial statements. F- 6 GBS Inc. Notes to the Consolidated Financial Statements NOTE 1. ORGANIZATION AND DESCRIPTION OF THE BUSINESS GBS Inc. and its wholly owned subsidiary, GBS Operations Inc. were formed on December 5, 2016 under the laws of the state of 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, the “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”). We are a biosensor diagnostic technology company operating across the Asia-Pacific Region (“APAC”) Region and an interest in the USA Region with the biosensor platform comprising of biochemistry, immunology, tumor markers, hormones, and nucleic acid diagnostic modalities, and worldwide with our COV2 test. We were incorporated under the laws of Delaware on December 5, 2016. Our headquarters are located in New York, New York. Our objective is to introduce and launch initially the Saliva Glucose Biosensor (referred to as the “SGB”), the diagnostic test that stems from the Biosensor Platform that we license, in our regions and the COV2 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. GBS Inc. is a 42.6% (as of June 30 2021) owned (by voting rights) affiliate of 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 the Company that technology to introduce and launch the platform in the APAC. 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 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. F- 7 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 the financial statements are issued. 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 $7,037,286 for the year ended June 30, 2021 (net loss of $3,163,776 for the year ended June 30, 2020). At June 30, 2021, the Company has shareholders’ equity of $15,006,621, working capital of $14,524,391, and an accumulated deficit of $22,869,803. 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. The Company’s 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 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 Company be unable to continue as a going concern. As a result of the Company’s initial public offering (see Note 1), the Company believes it has sufficient working capital to finance its operations for the next twelve months, as such, these financial statements are prepared on the going concern basis. NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of presentation The consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”) as of June 30, 2021 and 2020. Principles of consolidation These consolidated financial statements as of and for the years ended June 30, 2021 and 2020 include the accounts of the Company, all wholly-owned and majority-owned subsidiaries in which the Company has a controlling voting interest. Investments in affiliates where the Company does not exert a controlling financial interest are not consolidated. All significant intercompany transactions and balances have been eliminated upon consolidation. F- 8 Equity offering costs The Company complies with the requirements of ASC 340 with regards to offering costs. Prior to the completion of an offering, offering costs were capitalized as deferred offering costs on the balance sheet. The deferred offering costs were charged to shareholders’ equity (deficit) upon the completion of an offering. Offering costs amounting to $nil were capitalized as of June 30, 2021 (June 30, 2020: $1,863,613). This was a result of the balance being charged to shareholders’ equity with completion of its initial public offering in December 2020. 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 within the consolidated statements of operations and other comprehensive loss. In addition to the above, 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 sheets and statements 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. The Company currently does not generate any revenue. Deferred grant income On June 30 2021, GBS 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 $5.24 million upon the completion of deliverables by GBS. Proceeds from the grant will be used primarily to reimburse GBS for costs incurred in the construction of the manufacturing facility. Accounting for the grant does not fall under ASC 606, Revenue 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 Disclosure of Government Assistance by analogy when accounting for the Australian Government grant to GBS. Under IAS 20, government grant is initially recognized when there is reasonable assurance the conditions of the grant will be met and the grant will be received. As of the June 30, 2021, management concluded there is reasonable assurance the grant conditions will be met and all milestone payment received. The total grant value of $5.24 million has been recognized as both a grant receivable and deferred grant income on the Consolidated Balance Sheets. F- 9 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 for which the grant is intended to compensate. Further, IAS 20 permits for recognition in earnings either separately under a general heading such as 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. Research and Development (R & D) tax refund The Company measures the research and development grant income and receivable by considering the time spent by employees on eligible research and development activities and research and development costs incurred to external service providers. The research and development tax refund receivable is recognized as the company believes that it probable that the amount will be recovered in full through a future claim. A total of $1.85 million is recognized as R&D tax refund income within government support income in the consolidated statements of operations and other comprehensive loss for fiscal year ended June 30, 2021 ($1.03 million is receivable as at June 30, 2021 in the consolidated balance sheet). Foreign currency translation Assets and liabilities of foreign subsidiaries are translated from local (functional) currency to reporting 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 Inc. is the United States dollar. Foreign currency movements resulted in a loss of $297,309 and $147,081 for the years ended June 30, 2021 and 2020, respectively. Income taxes In accordance with the provisions of Financial Accounting Standards Board Accounting Standards Codification (FASB 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 June 30, 2021, the Company had no uncertain tax positions that qualified for either recognition or disclosure in the consolidated financial statements. Additionally, the Company had no interest and penalties related to income taxes. The Company 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. Research and development costs During the year, the Company contributed a total of $2,600,000 towards budgeted development and commercialization costs to be incurred by BiosensX (North America) Inc. in which the company has a 50% interest. This represents the Company’s contribution towards such costs budgeted in the Form S-1 relating to the development and preparation for submission of the Saliva Glucose Biosensor connected with regulatory approval for the U.S market by the U.S Food & Drug Administration. This amount is recognized as a prepayment and is being amortized as the expenses are incurred. Under the terms of the R&D agreement with BiosensX North America Inc., dated 20 April 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 million) as included in the Option Agreement dated 31 March 2021 with LSBD (see Notes 5 and 9). F- 10 Net loss per share attributable to common shareholders (“EPS”) The Company calculates earnings per share attributable to common shareholders in accordance with ASC Topic 260, Earning Per 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 accounting pronouncements As the Company is an emerging growth company, it has elected to defer the adoption of new accounting pronouncements until they would apply to private companies. In August 2020, the FASB issued ASU 2020-06, which 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 does not intend to early adopt and continues to evaluate the impact of the provisions of ASU 2020-06 on its consolidated financial statements. 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 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 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. Early adoption is permitted. The Company has not early adopted the standard and continues to evaluate the impact. Concentration of credit risk The Company places its cash and cash equivalents, which may at times be in excess of 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. Related parties The Company has related party transactions with its parent LSBD. See Notes 8 and 9. F- 11 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. LICENSING RIGHTS During the first quarter of the year ended June 30, 2020, the Company had purchased the license right to expand its territorial coverage from Greater China to include the APAC region, from LSBD for an amount of $976,308 in relation to the development and approval process for the Saliva Biosensor Technology. The Company recorded the license at the historical carrying value in the books of LSBD which was $nil and recorded the amount paid as a deemed dividend. The Company has agreed to pay royalties of sales and milestones payments as defined. On September 12, 2019, the Company entered into an amended and restated license agreement 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 June 30, 2021 (June 30, 2020: $nil). On March 31, 2021, GBS entered into an agreement with LSBD to provide GBS an option to acquire an exclusive license to use LSBD’s intellectual property in the treatment or management of diabetes field in North America (the “Option Agreement”). The Option Agreement has a term of two years and the exercise price of $5 million. The fee of $0.5 million incurred for the option has been recognized as an expense and included within ‘Development and regulatory approval expenses’ in the consolidated statement of operations. NOTE 5. OTHER CURRENT ASSETS Other current assets consist of the following: June 30, 2021 June 30, 2020 Goods and services tax receivable $ 83,278 $ 7,509 Prepayments 2,424,143 29,469 Other receivables 1,596 12,084 Total $ 2,509,017 $ 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 is 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 20 April 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 million) as included in the Option Agreement dated 31 March 2021 with LSBD (see Notes 3 and 9). NOTE 6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses consist of the following: June 30, 2021 June 30, 2020 Accounts and other payables $ 1,355,894 $ 483,576 Accruals 112,073 56,894 Related party payables 13,323 1,769,293 Employee liabilities (current and non-current) 124,246 246,999 Total $ 1,605,536 $ 2,556,762 F- 12 NOTE 7. CONVERTIBLE NOTES PAYABLE The Company’s previously outstanding notes mandatorily converted, at a conversion price equal to 85% of 50% of the unit offering price 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 year ended June 30, 2021. NOTE 8. SHAREHOLDERS’ EQUITY 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. As this was a transaction between entities under common control, the $2 million receivable due from LSBD has been recognized as contra-equity. 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 (“Exchange”). 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 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. Each share of Series B Convertible Preferred Stock is convertible into 1 shares 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. Initial public offering In December 2020, the Company completed its initial public offering. See Note 1. Post initial public offering Since completion of the initial public offering in December 2020, Series A and Series B warrants held by certain shareholders were exercised. Each warrant is convertible into 1 share of the Company’s common stock. A total of 59,800 Series A warrants and 1,400,995 Series B warrants were exercised and converted into common stock as of June 30, 2021. A total of 1,700,000 Series B Convertible Preferred Stock was also converted into common stock as of June 30, 2021. Each share of Series B Convertible Preferred Stock is convertible into 1 share of the Company’s common stock. NOTE 9. RELATED PARTY TRANSACTIONS The Company completed certain financing transactions with, LSBD as described in Note 8. F- 13 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, 2020 to June 30, 2021 (FY2020: July 1, 2019 to June 30, 2020): The Company incurred a total of $523,767 (FY2020: $588,206) towards the services in connection with development and regulatory approval pathway for the technology, including payments made or expenses incurred on behalf of the Company. The current year includes a fee of $500,000 that was paid to acquire an option and has been recognized as an expense within development and regulatory approval expenses. On March 31, 2021, GBS entered into an Option Agreement with LSBD to provide GBS the option to acquire an exclusive license for LSBD’s intellectual property. For further details, refer to Note 4. The Company incurred a total of $212,032 (FY2020: $444,374) towards overhead cost reimbursement which includes salaries, rents and other related overheads directly attributable to the Company which are included in general and administration expenses. The Company recognized income of $nil (FY2020: $118,923) in relation to shared labor reimbursement which includes salaries directly attributable to the Company which are included in Shared services revenue in the Consolidated Statements of Operations and Other Comprehensive Loss. During the year ended June 30, 2021, the Company contributed a total of $2,600,000 towards budgeted development and commercialization costs to be incurred by BiosensX (North America) Inc. relating to the development and preparation for submission of the Saliva Glucose Biosensor connected with regulatory approval for the U.S. market by the U.S. Food & Drug Administration. For further details, refer to Notes 3 and 5. During the first quarter of the year ended June 30, 2020, the Company purchased the license right procurement assets from LSBD for an amount of $976,308 in relation to the development and approval process for the Glucose Biosensor Technology. In accordance with FASB ASC 805, this was set to a zero book value, which equals the historical carrying value in the books of LSBD, by use of a deemed dividend (For further details, refer to Note 4). As of June 30, 2021, $13,323 (June 30, 2020: $1,769,293) remains payable to LSBD in relation to overhead reimbursements detailed above. NOTE 10. INVESTMENT IN AFFILIATE On May 29, 2020, LSBD, issued 14,000,000 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% 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 . 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 , 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 June 30, 2021, LSBD holds 42.6% 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 consolidated financial statements: June 30, 2021 June 30, 2020 Investment value $ 135,692 $ 14,000 (Loss) income from the affiliate (135,692 ) 121,692 Carrying amount $ — $ 135,692 F- 14 NOTE 11. 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 $211,795 remains payable as of June 30, 2021. 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 of which $152,344 remains payable as of June 30, 2021. The Company has no material future minimum lease commitments or purchase commitments those discussed above. From time to time, the Company may 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 12. INCOME TAX We compute income taxes using the asset and liability method in accordance with FASB ASC Topic 740, Income Taxes . Under the asset and liability method, we determine deferred income tax assets and liabilities based on the differences between the financial reporting and tax bases of assets and liabilities and measure them using currently enacted tax rates and laws. We provide a valuation allowance for deferred tax assets that, based on available evidence, are more likely than not to be realized. Realization of our net operating loss carryforward was not reasonably assured as of June 30, 2021 and 2020, and we have recorded a valuation allowance of $5,946,731 and $4,175,349, respectively, against deferred tax assets in excess of deferred tax liabilities. The components of net deferred taxes are as follows: As of June 30, 2021 2020 Deferred tax assets (liabilities): Net operating loss – U.S. $ 4,572,130 $ 3,508,533 Net operating loss - Foreign 1,486,444 676,471 Employee Benefits 26,091 5,322 R&D Credit (215,346 ) - Foreign Exchange 77,412 (14,977 ) Total deferred tax assets, net 5,946,731 4,175,349 Less: valuation allowance (5,946,731 ) (4,175,349 ) Net deferred taxes $ - - F- 15 Our statutory income tax rate is expected to be approximately 21%. The provision for income taxes consisted of the following: Years Ended June 30 2021 2020 Current $ - $ Deferred - Total $ - - The reconciliation between the income tax expense (benefit) calculated by applying statutory rates to net loss and the income tax expense reported in the accompanying consolidated financial statements is as follows: Years Ended June 30, 2021 ` U.S. federal statutory rate applied to pretax income (loss) $ (1,540,265 ) $ 691,655 State taxes, net of federal benefit - - Permanent differences Benefit of federal operating loss carryforwards - - Cumulative adjustment to deferred taxes (231,117 ) (9,656 ) Change in state tax rates and other - - Change in valuation allowance $ (1,771,382 ) $ 681,999 $ - - As of June 30, 2021, and 2020, we had federal and foreign income tax net operating loss carryforwards of approximately $28,317,769 and $19,882,612, respectively, which expire at various dates ranging from 2038 through unlimited expiration. NOTE 13. LOSS PER SHARE Basic loss per common share is computed by dividing net loss allocable to common shareholders 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. Year Ended June 30, 2021 2020 Net loss attributable to GBS, Inc. $ (7,037,286 ) $ (3,163,776 ) Basic and diluted net loss per share attributed to common shareholders $ (0.68 ) $ (0.37 ) Weighted-average number of shares outstanding 10,414,886 8,510,329 F- 16 The following outstanding warrants, options and preferred shares were excluded from the computation of diluted net loss per share for the periods presented because their effect would have been anti-dilutive: Year Ended June 30, 2021 2020 Warrants - Series A 1,401,377 - Warrants - Series B 60,182 - Warrants issued to underwriters 63,529 - Pre IPO warrants 2,736,675 2,250,376 Warrants issued to parent entity 3,000,000 - Preferred stock - Series A - 2,323,891 Preferred stock - Series B 1,300,000 - NOTE 14. SUBSEQUENT EVENTS On July 15 20021, the Company signed an agreement with L.E.K. Consulting Hong Kong Pty Limited (“L.E.K. Consulting”) for $ 300,000 to identify and recommend a short list of suitable commercial partners or sub-licensees for distribution in APAC region. Subsequent to June 30, 2021, and through to the date of this filing, the remaining outstanding Series B Convertible Preference Stock was converted into common stock. Subsequent to June 30, 2021 and through to the date of this filing, a total of 400 Series B Warrants were exercised to purchase one Common Stock in a cashless exercise. F- 17