Business Context and Reporting Period
BioNexus Gene Lab Corp. filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2021. The company operates through Malaysian subsidiaries: BioNexus Gene Lab, focused on molecular diagnostics and blood-based genomic screening, and Chemrex, a wholesaler of industrial chemicals. Chemrex was acquired on December 31, 2020 in a common-control transaction and generated the majority of consolidated revenue.
The company had 171,218,152 common shares outstanding as of August 9, 2021. It is a non-accelerated filer, smaller reporting company, and emerging growth company.
Financial Highlights
| Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 |
|---|---|---|---|---|
| Revenue | $3,092,171 | $1,103,516 | $6,541,330 | $4,173,542 |
| Gross profit | $467,607 | $159,290 | $1,050,172 | $814,597 |
| Operating profit/(loss) | $139,990 | $(33,974) | $482,123 | $1,039,556 |
| Net profit/(loss) | $28,262 | $(35,841) | $367,006 | $1,033,803 |
| Comprehensive income | $20,794 | $7,717 | $151,070 | $782,665 |
- Second-quarter revenue increased approximately 180.2%; six-month revenue increased approximately 56.7%.
- Gross margin was approximately 15.1% in the second quarter and 16.1% for the six-month period, compared with approximately 14.4% and 19.5%, respectively, in the comparable periods.
- Net margin was approximately 0.9% in the second quarter and 5.6% for the six-month period, compared with a net loss margin of approximately 3.2% in the second quarter of 2020 and a net margin of approximately 24.8% for the six months ended June 30, 2020.
- Six-month results included $112,916 of other income versus $770,370 in 2020, which included a substantial gain from disposal of property, plant and equipment. The 2021 period also included a $108,280 tax expense versus $1,347 in 2020.
Revenue and Segment Performance
- Chemrex generated $2,724,064, or 88.1% of second-quarter revenue, and $6,075,860, or 92.9% of six-month revenue.
- BioNexus Malaysia generated $368,107 in second-quarter revenue and $465,470 for the six-month period, primarily from COVID-19 qPCR testing outsourced to Malaysian public hospitals and clinics. The company reported approximately 13,635 tests completed through June 30, 2021 at an average charge of approximately $30 per test.
- BioNexus Malaysia reported no RNA-testing revenue during the second quarter. Management stated that COVID-19 tests have substantially lower charges and margins than the company’s RNA screening tests.
Cash Flow, Liquidity, and Debt
| Metric | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 |
|---|---|---|
| Net cash used in operating activities | $(819,892) | $(1,134,546) |
| Net cash used in investing activities | $(325,528) | $1,732,109 |
| Net cash used in financing activities | $(17,182) | $(9,389) |
| Net change in cash and cash equivalents | $(1,304,987) | $428,035 |
| Cash and cash equivalents at period end | $1,482,705 | $1,287,111 |
- Working capital was $4,522,777 at June 30, 2021, compared with $4,611,896 at December 31, 2020.
- Current assets were $7,098,570 and current liabilities were $2,575,793. Cash and fixed deposits totaled $1,482,705, while trade receivables were $3,880,647 and inventories were $1,703,136.
- Total liabilities were $2,634,899, including $44,995 of finance-lease obligations and $52,157 of operating-lease liabilities. The filing does not report conventional bank debt.
- Management stated that cash flow from operations is expected to be sufficient to sustain the current level of operations for at least the next 12 months, although operating cash flow was negative during the period.
Material Changes Versus the Prior Comparable Period
- Revenue growth primarily reflected the inclusion and expansion of Chemrex and the recovery of Chemrex sales from COVID-19-related movement restrictions in 2020.
- BioNexus Malaysia’s revenue increased sharply due to the Malaysian Ministry of Health qPCR testing arrangement, but the filing states that testing carries lower per-test revenue and margins than RNA screening.
- Six-month operating profit and net profit declined materially despite higher revenue because the 2020 period benefited from a property-disposal gain of approximately $707,618 and substantially higher other income.
- Operating cash flow remained negative, and cash declined by $1,304,987 during the first six months. Inventories increased by $526,966 and trade payables declined by $834,925 in the operating cash-flow reconciliation.
- Total assets declined to $9,448,123 from $10,115,293 at year-end 2020, while total liabilities declined to $2,634,899 from $3,453,139.
- Foreign-currency translation produced a six-month loss of $215,936, compared with a loss of $251,138 in the prior-year period.
Guidance, Outlook, Risks, and Unusual Items
- No quantitative revenue or earnings guidance is provided. Management expected the Ministry of Health testing protocol to continue through August 2021, when it expected the pandemic curve to flatten.
- COVID-19, Malaysian movement-control measures, hospital and clinic access, and demand for testing remain material operating risks. The filing states that the pandemic adversely affected the RNA-screening business.
- Principal disclosed 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 in Malaysia and enforcing judgments there.
- The company identified ineffective disclosure controls and a material weakness in internal control over financial reporting, attributed to the lack of a functioning audit committee with a majority of independent members and the resulting lack of effective oversight. Management stated that remediation may not occur in the near term because of limited financial resources.
- Four suppliers accounted for 58.6% of six-month purchases and $1,816,483 of trade payables at June 30, 2021, indicating supplier concentration.
- Trade receivables of $3,880,647 had no allowance for expected credit losses because management determined they were collectible. This assessment should be monitored given the receivable balance and negative operating cash flow.
- No material pending legal proceedings, defaults, unregistered equity sales, or subsequent events requiring disclosure were reported through August 9, 2021.
Important Facts for Investors to Verify
- Whether Ministry of Health qPCR testing continued after August 2021 and its effect on revenue, margins, and cash flow.
- The sustainability and margins of Chemrex revenue, which represented more than 90% of six-month consolidated revenue.
- Whether BioNexus’s higher-margin RNA-screening business resumes and whether COVID-19 testing displaces or complements it.
- Collection of the $3.88 million trade-receivables balance and the adequacy of the company’s zero-credit-loss allowance.
- Remediation of the reported material weakness and establishment of an effective audit committee and stronger segregation of duties.
- Liquidity requirements given negative operating cash flow, planned administrative and marketing spending, public-company costs, and continued investment outlays.