BioNexus Gene Lab Corp. — FY2019 Form 10-K Summary
Business context and reporting period
This Form 10-K covers the fiscal year ended December 31, 2019; it is not a quarterly filing despite the requested “2019 Q4” period. BioNexus is an early-stage molecular diagnostics company operating primarily through its Malaysian subsidiary. It markets non-invasive RNA-based blood screening intended to assess risk associated with 11 diseases, including eight cancers, two bowel diseases, and osteoarthritis.
The company began operations in 2017 and has limited operating history. Its principal office and laboratory are in Malaysia. As of March 30, 2020, it had 102,730,891 common shares outstanding and no established public trading market, although FINRA authorized the ticker “BGLC” on March 11, 2020.
Financial performance and key metrics
| US$ | 2019 | 2018 | Change |
|---|---|---|---|
| Revenue | 126,955 | 212,328 | -40.2% |
| Cost of revenue | 71,067 | 183,563 | -61.3% |
| Gross profit | 55,888 | 28,765 | +94.3% |
| Gross margin | 44.0% | 13.5% | +30.5 percentage points |
| Operating expenses | 356,641 | 241,930 | +47.4% |
| Operating loss/(profit) | (275,705) | 59,901 | Unfavorable change |
| Net loss/(profit) | (246,469) | 26,454 | Unfavorable change |
| Comprehensive loss | (236,595) | (14,574) | Unfavorable change |
| Cash flow from operations | (217,273) | (274,080) | Improved, but still negative |
2019 operating margin was approximately negative 217.2%, compared with a positive 28.2% in 2018. Net margin was approximately negative 194.1%, compared with positive 12.5% in 2018. Other income declined to $25,048 from $273,066, primarily because 2018 included a $263,001 related-party debt waiver that did not recur.
Cash, bank balances, and fixed deposits totaled $859,076 at December 31, 2019, down from $1,260,239 at December 31, 2018. Current assets were $882,571 and current liabilities were $51,574, implying working capital of approximately $830,997, compared with approximately $1,235,461 in 2018.
Total assets were $1,231,236 and total liabilities were $108,872 at year-end. Finance-lease obligations totaled $65,287, including $20,201 current and $45,086 non-current. Operating lease liabilities totaled $24,148. The filing does not disclose conventional bank debt.
Material changes versus the prior comparable period
- Revenue declined 40.2%, attributed primarily to fewer patient referrals from local hospitals.
- Gross margin improved substantially because of lower laboratory consumable costs and bulk purchasing, despite the decline in revenue.
- Operating expenses increased, reflecting office renovations, furniture and fixtures, depreciation, professional fees, marketing, travel, and public-company reporting costs.
- The company moved from a $26,454 net profit in 2018 to a $246,469 net loss in 2019.
- Operating cash use improved from $274,080 to $217,273, but the business remained cash-flow negative.
- Shares outstanding increased from 74,627,558 to 102,730,891. The increase included 13,000,000 shares issued to 41 promotional and marketing service providers and stock grants to officers.
- Other income fell sharply because the prior-year waiver of amounts owed to Dr. Liew did not recur.
Guidance, outlook, risks, and unusual items
Management expects to fund current operations from cash flow and existing cash for at least the next 12 months, but acknowledges that additional financing may be required for growth, working capital, operating losses, marketing, personnel, and public-company costs. Financing could involve debt or additional equity and may dilute existing shareholders.
The company plans to expand marketing in Kuala Lumpur and elsewhere in Malaysia, increase corporate-client outreach, and add healthcare-provider relationships. It planned to hire a part-time commission-based marketing director beginning in February 2020. Management also expects to expand to other Malaysian cities before considering broader Asia-Pacific expansion.
In August 2019, the Malaysian subsidiary entered into a research collaboration with Malaysia’s National Heart Institute to develop blood-based genomic signatures for acute myocardial infarction risk prediction. The agreement runs through December 31, 2020, with fees of approximately $1,100 per month. Management hoped the research could support adoption of the screening process by the institute and other hospitals, but no commercial adoption is assured.
- The company states that its screening process has not been supported by broad independent studies proving efficacy. False-positive or false-negative results could create product-liability exposure.
- No product-liability insurance is maintained.
- The company relies primarily on unpatented trade secrets, know-how, software, and confidentiality agreements; it has no patents protecting the screening process.
- Malaysian pathology regulations could be implemented in the future and may increase compliance costs or restrict operations.
- The company has limited operating history, limited resources, limited staffing, and no written employment agreements with its officers.
- Management identified material weaknesses in internal control over financial reporting, including inadequate segregation of duties and the lack of a functioning independent audit committee. Disclosure controls and procedures were also deemed ineffective.
- The independent auditor issued an unqualified opinion on the financial statements but did not provide an opinion on internal control effectiveness because such an attestation was not required.
- There is no established trading market, the shares may be subject to penny-stock restrictions, and the company does not expect to pay dividends in the foreseeable future.
- The board may issue additional common or blank-check preferred shares without shareholder approval, which could dilute existing holders.
Most important facts for an investor to verify
- Reconcile the filing’s inconsistent references to 2019 net loss, operating expenses, tax expense, and foreign-currency gains between the MD&A table and audited financial statements.
- Verify the sustainability and composition of the $859,076 cash and fixed-deposit balance relative to ongoing negative operating cash flow.
- Assess whether the National Heart Institute collaboration produced validated results, regulatory progress, or recurring commercial revenue after the filing date.
- Evaluate independent clinical evidence supporting the accuracy and efficacy of the 11-disease RNA screening process.
- Review the material weaknesses in internal controls and the company’s remediation progress.
- Confirm the terms, valuation, and recipients of the 2019 stock issuances and officer grants, including potential dilution.
- Determine whether an active, liquid trading market, DTC eligibility, and OTC quotation actually developed for BGLC.
- Assess product-liability, data-privacy, Malaysian regulatory, intellectual-property, and additional-financing exposure.