Bionexus Gene Lab Corp. — Form 10-Q Summary
Business context and reporting period
Unaudited quarterly report for the three and nine months ended September 30, 2021, filed November 9, 2021. The company operates through Malaysian subsidiaries in two areas: molecular diagnostics and blood-based RNA screening, and Chemrex, a wholesaler of industrial chemicals. Chemrex was acquired on December 31, 2020 in a common-control transaction and was the principal revenue contributor during the period.
The company had 171,218,152 common shares outstanding as of November 9, 2021. The filing identifies Bionexus as a non-accelerated filer, smaller reporting company and emerging growth company.
Key financial metrics
| US$ | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 |
|---|---|---|---|---|
| Revenue | 3,575,966 | 3,091,012 | 10,117,296 | 7,264,554 |
| Gross profit | 688,099 | 522,222 | 1,738,271 | 1,336,819 |
| Profit from operations | 372,641 | 237,306 | 854,764 | 1,276,862 |
| Net profit | 295,322 | 234,458 | 662,328 | 1,268,261 |
| Comprehensive income | 238,382 | 482,528 | 389,452 | 1,265,193 |
| Net cash used in operating activities | Not separately reported for the quarter | Not separately reported for the quarter | (473,846) | (379,802) |
- Q3 revenue increased 15.7%, gross profit increased 31.8%, operating profit increased approximately 57%, and net profit increased 26.0% year over year.
- Q3 gross margin was approximately 19.2%, compared with 16.9% in the prior-year quarter; net margin was approximately 8.3%, compared with 7.6%.
- Nine-month revenue increased 39.3% and gross profit increased 30.0%, but operating profit declined 33.0% and net profit declined 47.8%.
- Nine-month gross margin was approximately 17.2%, compared with 18.4% in 2020; net margin was approximately 6.5%, compared with 17.5%.
- Nine-month tax expense increased to $183,449 from $1,839, while finance costs were $8,987 versus $6,762.
Balance sheet, cash flow and liquidity
- Cash and bank balances were $672,930 and fixed deposits were $1,027,466 at September 30, 2021, for total cash and cash equivalents of $1,700,396, down from $2,787,692 at the beginning of the year.
- Working capital was $4,737,425, compared with $4,611,896 at December 31, 2020. Current assets were $7,402,248 and current liabilities were $2,664,823.
- Trade receivables were $4,190,746 and inventories were $1,487,680. Management recorded no allowance for expected credit losses and stated that receivables were collectible.
- Total liabilities were $2,713,398, down from $3,453,139. Debt consisted primarily of finance-lease obligations of $38,997 and operating-lease liabilities of $47,242; the filing reports no material conventional borrowings.
- Nine-month operating cash flow was negative $473,846. Investing cash flow was negative $414,285, including $432,293 of purchases of other investments. Financing cash flow was negative $23,263, principally from finance-lease repayment.
- Management stated that cash flow from operations, together with existing resources, should be sufficient to sustain current operations for at least the next 12 months.
Material changes versus the prior comparable period
- Chemrex generated $2,537,372, or approximately 71%, of Q3 revenue, compared with $3,067,541, or 99.2%, in Q3 2020. Its Q3 revenue declined because some customers suspended operations during Malaysia’s COVID-19 movement restrictions.
- BioNexus Malaysia generated $1,038,594 in Q3 revenue versus $23,471 in the prior-year quarter, primarily from outsourced COVID-19 qPCR testing for Malaysia’s Ministry of Health. The company reported no RNA-testing revenue during Q3.
- For the first nine months, Chemrex contributed $8,613,232, or 85.1%, of consolidated revenue, while BioNexus Malaysia contributed $1,504,064, or 14.9%.
- Nine-month other income fell to $159,764 from $779,458, principally because 2020 included a significant gain on disposal of property, plant and equipment.
- General and administrative expense increased 24.3% for the nine months, attributed to public-company costs, additional laboratory technicians, logistics, port charges, travel and professional fees.
- Foreign-currency translation losses were $272,876 for the nine months, compared with $3,068 in the prior-year period, reducing comprehensive income.
- Other investments increased to $670,782 from $281,668, primarily due to $432,293 of additions; the company recorded a $19,952 fair-value loss on those investments.
Outlook, commentary, risks and unusual items
- The filing does not provide formal financial guidance. Management expects the Ministry of Health qPCR testing activity to continue through August 2021, but the reported contracts were substantially completed by September 30, 2021.
- The company reported approximately 13,635 COVID-19 tests completed at an average charge of about $30 per test. Management noted that COVID-19 testing has substantially lower pricing and margins than its RNA screening business.
- COVID-19 restrictions adversely affected hospital and clinic access for RNA screening and temporarily affected Chemrex customers. The filing states that Chemrex was not materially affected by COVID-19 during the current nine-month period, although Q3 customers were affected by movement restrictions.
- Key disclosed risks include limited operating history and growth, uncertainty regarding the efficacy of the blood-screening process, potential product-liability claims without insurance coverage, and risks of operating and enforcing judgments in Malaysia.
- Management concluded that disclosure controls and internal control over financial reporting were ineffective and identified a material weakness related to the lack of a functioning audit committee with a majority of independent members and outside directors. Remediation may not occur in the near term because of limited resources.
- There were no material pending legal proceedings reported, no unregistered equity sales, and no defaults upon senior securities.
Important facts for investors to verify
- Whether qPCR testing revenue continued after the reported contracts were substantially completed and whether the company can restore higher-margin RNA-screening revenue.
- The collectability and aging of the $4.19 million trade-receivables balance, given that no credit-loss allowance was recorded.
- The sustainability and liquidity impact of negative operating cash flow, declining cash balances and continued investment purchases.
- The extent to which the nine-month earnings decline reflects the nonrecurring 2020 property-disposal gain, higher taxes, foreign-exchange losses and weaker margins.
- Progress toward correcting the disclosed material weakness and establishing an independent audit committee.
- The concentration and continuity of Chemrex customers and suppliers, including the reported supplier concentration of approximately 53.2% of nine-month purchases among four vendors.