Bionexus Gene Lab Corp. — Form 10-Q Summary
Business Context and Reporting Period
The filing covers the three and six months ended June 30, 2019. Bionexus Gene Lab Corp. is a Wyoming holding company whose principal operating subsidiary is based in Malaysia. The company develops molecular diagnostics using blood analysis, functional genomics, algorithm software, and related technology. Operations include a laboratory in Penang and a blood collection center in Kuala Lumpur.
The interim financial statements are unaudited and prepared under U.S. GAAP. The company reported 74,627,558 common shares outstanding as of August 2019 and is classified as a smaller reporting company and emerging growth company.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 |
|---|---|---|---|---|
| Revenue | $21,645 | $111,296 | $49,733 | $111,296 |
| Gross profit | $4,625 | $25,650 | $13,891 | $13,120 |
| Gross margin | 21% | 23% | 28% | 12% |
| Other income | $7,380 | $2,772 | $14,399 | $269,751 |
| Operating income/(loss) | $(69,219) | $(39,472) | $(129,422) | $178,388 |
| Net income/(loss) | $(70,398) | $(39,472) | $(131,865) | $178,388 |
| Comprehensive income/(loss) | $(72,416) | $(53,916) | $(132,320) | $165,697 |
Basic and diluted loss per share was reported as $0 for both periods, reflecting the company’s share count and rounding conventions.
Financial Position, Cash Flow, Debt, and Liquidity
| Balance Sheet Metric | June 30, 2019 | December 31, 2018 |
|---|---|---|
| Cash and bank balances | $528,248 | $659,235 |
| Fixed deposits | $612,139 | $601,004 |
| Cash and cash equivalents, including fixed deposits | $1,140,387 | $1,260,239 |
| Total assets | $1,512,903 | $1,652,239 |
| Total liabilities | $123,297 | $130,313 |
| Stockholders’ equity | $1,389,606 | $1,521,926 |
| Working capital | $1,106,611 | $1,235,461 |
Cash used in operating activities was $101,496 for the six months ended June 30, 2019, compared with $694,394 used in the prior-year period. Investing activities used $9,204, primarily for plant and equipment. Financing activities used $8,701, including finance lease repayments and payments of director advances; the prior-year period included $1.2 million of financing inflows, primarily from share subscriptions.
The company had a finance lease liability of $74,145, consisting of $19,498 current and $54,647 non-current. Tax payables were $33,983 and deferred tax liabilities were $4,482. Management stated that available cash and operating cash flow are expected to support the current level of operations for at least the next 12 months, although the filing does not provide a detailed liquidity forecast.
Material Changes Versus Prior Comparable Period
- Second-quarter revenue decreased approximately 81% to $21,645, while six-month revenue decreased approximately 55% to $49,733.
- Management attributed the revenue decline to a focus on scientific work, research publications, media interviews, and efforts involving Malaysian governmental and health agencies rather than revenue-generating activity.
- Second-quarter gross margin declined to 21% from 23%, partly due to testing new chips. Management stated that replacing existing chips could reduce cost of revenue by approximately 20% if testing is successful.
- Six-month gross margin improved to 28% from 12%, primarily because of lower laboratory consumable costs.
- General and administrative expenses increased 16% in the quarter and 34% for the six-month period, reflecting office renovations, furniture and fixtures, depreciation, professional fees, marketing, and travel costs.
- Six-month 2018 other income included a $263,001 benefit from the largest shareholder’s waiver of amounts owed in connection with transferred equipment and consumables. No comparable item occurred in 2019.
- The company shifted from a six-month operating profit of $178,388 in 2018 to an operating loss of $129,422 in 2019 and from net income of $178,388 to a net loss of $131,865.
- Cash and cash equivalents declined by approximately $119,852 during the first six months of 2019, compared with a $494,194 increase in the prior-year period.
Guidance, Outlook, Risks, and Unusual Items
No formal revenue, earnings, or profitability guidance was provided. Management was seeking an agreement with the Malaysian National Heart Institute to collect blood samples from heart-attack patients and perform RNA gene-expression analysis, with an anticipated agreement discussed for August 2019. Management cautioned that it could not predict whether an agreement would be reached or whether it would produce profitable operations.
Management identified potential future liquidity uses including additional administrative and marketing personnel, website development, increased advertising and marketing, and the costs of being a public company.
- The company has a limited operating history and limited business growth.
- The efficacy of its blood-screening process remains a business risk.
- The company may face product-liability claims and stated that it has no insurance covering such claims.
- Operations in Malaysia create risks involving local regulation, enforcement of judgments, currency translation, and reliance on the Malaysian subsidiary and management.
- The company reported that its disclosure controls and procedures were not effective as of June 30, 2019.
- Management identified material weaknesses in internal control over financial reporting, including lack of segregation of duties due to reliance on a single individual serving as sole officer and director, and the lack of an effective audit committee and independent board oversight.
- Management stated that remediation may not occur in the near term because of limited financial resources and that the company continues to rely on outside professionals and consultants.
- The filing reported no material pending legal proceedings, no material off-balance-sheet arrangements, no contractual obligations, and no material subsequent events through July 24, 2019.
Investor Verification Checklist
- Verify the sustainability and source of revenue, particularly the sharp decline from 2018 and the company’s dependence on prospective government or healthcare contracts.
- Verify whether the proposed Malaysian National Heart Institute arrangement was finalized and whether it generated revenue or required additional funding.
- Assess the company’s ability to fund recurring operating losses and marketing or development expenditures using its approximately $1.14 million of cash and fixed deposits.
- Review the finance lease terms, repayment schedule, and any additional financing needs.
- Evaluate remediation of the reported material weaknesses and whether disclosure controls and board oversight have improved.
- Distinguish recurring operating income from unusual 2018 other income related to the shareholder debt waiver.
- Confirm the efficacy, regulatory status, commercialization prospects, and liability exposure associated with the company’s blood-screening technology.