Bionexus Gene Lab Corp. — Form 10-Q Summary
Business Context and Reporting Period
Quarterly report for the three and six months ended June 30, 2020, filed August 11, 2020. Bionexus is a Malaysian-operated molecular diagnostics company focused on blood-based RNA screening for disease risk and COVID-19 rRT-PCR testing. The company is a non-accelerated filer, smaller reporting company, and emerging growth company. It had 102,730,891 common shares outstanding as of August 3, 2020.
Key Financial Metrics
| US$ | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 |
|---|---|---|---|---|
| Revenue | $6,541 | $21,645 | $6,541 | $49,733 |
| Gross profit/(loss) | $(10,774) | $4,625 | $(23,767) | $13,891 |
| Gross margin | (164.7%) | 21.4% | (363.1%) | 27.9% |
| Loss from operations | $(66,050) | $(69,219) | $(113,143) | $(129,422) |
| Net loss | $(66,537) | $(70,398) | $(114,490) | $(131,865) |
| Comprehensive loss | $(63,051) | $(87,998) | $(152,681) | $(132,320) |
| Net loss per share | $0.00 | $0.00 | $0.00 | $0.00 |
Six-month operating cash flow was $(97,941), compared with $(101,496) in the prior-year period. Investing cash flow was $0, versus $(9,204) in 2019, and financing cash flow was $(7,975), versus $(8,701). Net cash decreased by $130,586 during the first six months.
At June 30, 2020, cash and bank balances were $250,133 and fixed deposits were $478,357, for total cash and cash equivalents of $728,490. Working capital was $716,301, compared with $830,997 at December 31, 2019. Total assets were $1.06 million and total liabilities were $90,558. Finance lease obligations totaled $57,682, and operating lease liabilities totaled $17,280. No conventional borrowings or material off-balance-sheet arrangements were reported.
Material Changes Versus Prior Comparable Period
- Second-quarter revenue declined approximately 70% year over year, while six-month revenue declined approximately 86.8%.
- Revenue shifted from higher-priced blood-based RNA screening to COVID-19 screening. Management stated that COVID-19 tests generated approximately $40–$70 per test versus approximately $2,500 per RNA-screening customer.
- Gross results changed from profit to loss in both the quarter and year-to-date period, reflecting low revenue and COVID-19 screening kit and reagent costs.
- General and administrative expense decreased to $58,183 in the quarter from $81,224 and to $97,028 year to date from $157,712.
- Quarterly net loss improved modestly from $70,398 to $66,537, while year-to-date net loss improved from $131,865 to $114,490, primarily due to lower operating expenses.
- Foreign currency translation produced a $3,486 quarterly gain versus a $17,600 loss in the prior-year quarter, but a $38,191 year-to-date loss versus a $455 loss in 2019.
- Total assets declined from $1.23 million at December 31, 2019 to $1.06 million at June 30, 2020, and stockholders’ equity declined from $1.12 million to $969,683.
Outlook, Commentary, Risks, and Unusual Items
Management attributed the decline in testing activity to COVID-19, reduced visits to hospitals and clinics, and Malaysia’s Movement Control Order beginning March 18, 2020. The company stated that restrictions were expected to begin relaxing in September 2020 if the pandemic was controlled, but it could not predict when normal RNA testing would resume.
The Ministry of Health approved the company’s COVID-19 rRT-PCR screening on June 15, 2020. Management stated that Ministry testing indicated 100% sensitivity and specificity. The company was promoting the test to insurers and certain small and medium-sized enterprises, but reported no clear indication of customer response. No formal revenue, earnings, or margin guidance was provided.
Management stated that existing cash flow and resources were expected to support the current level of operations for at least the next 12 months. However, operating cash flow remained negative, revenue was sharply lower, and management identified potential liquidity uses including additional personnel, website development, marketing, advertising, and public-company costs.
- Key risks include limited operating history and business growth, uncertainty regarding the efficacy of the blood-screening process, potential product-liability claims without insurance coverage, and risks associated with operating and enforcing judgments in Malaysia.
- Management concluded that disclosure controls and internal control over financial reporting were ineffective and identified a material weakness.
- The material weakness relates to lack of segregation of duties due to reliance on a single individual as sole officer and director, and the lack of a functioning audit committee with sufficient independent members.
- Management stated that remediation may not occur in the near term because of limited financial resources.
- The filing reported no material pending legal proceedings, no registered equity sales during the period, no defaults upon senior securities, and no material subsequent events through July 15, 2020.
Important Facts for Investors to Verify
- Whether COVID-19 testing volumes, pricing, and demand can replace lost higher-margin RNA-screening revenue.
- Whether the stated Ministry of Health test performance results are supported by appropriate validation and regulatory documentation.
- The company’s ability to fund continuing operating cash burn without additional capital or equity issuance.
- Progress and timing of remediation of the disclosed material weakness and formation of an effective independent audit committee.
- The accuracy of management’s liquidity statement given the sharp year-over-year revenue decline and reduced working capital.
- Potential effects of Malaysian pandemic restrictions, foreign-exchange movements, product liability, and enforcement risks on future operations.