Bon Natural Life Limited — FY2023 Form 20-F
Reporting period: Fiscal year ended September 30, 2023; this is an annual report, not a standalone 2023 fourth-quarter filing. Financial statements are prepared under U.S. GAAP and audited by YCM CPA, Inc., which issued an unqualified opinion. The company is a Cayman Islands holding company whose operating business is conducted in China. It makes natural fragrance compounds, health-supplement powder drinks, and bioactive food ingredients.
Key financial results
| Metric | FY2023 | FY2022 | Change |
|---|---|---|---|
| Revenue | $29.52 million | $29.91 million | Down 1.3% |
| Gross profit | $8.84 million | $9.42 million | Down 6.2% |
| Gross margin | 29.9% | 31.5% | Down 1.6 percentage points |
| Operating expenses | $2.92 million | $2.88 million | Up 1.3% |
| Operating income | $5.92 million | $6.54 million | Down 9.5% |
| Net income | $4.55 million | $6.24 million | Down 27.1% |
| Basic / diluted EPS | $0.50 / $0.50 | $0.75 / $0.74 | Lower year over year |
| Operating cash flow | $(0.65) million | $(0.19) million | Greater cash use |
Revenue mix shifted: fragrance compounds generated $14.32 million (48.5% of sales), powder drinks $8.70 million (29.5%), and bioactive ingredients $6.50 million (22.0%). Powder-drink revenue rose 21.8%; fragrance revenue rose 4.4%; bioactive-ingredient revenue fell 28.2%. Sales volumes increased across categories, but lower average selling prices and product mix limited overall revenue. Management attributed the bioactive decline in part to raw-material shortages and a shift toward lower-value apple products following frost damage to apple crops.
Balance sheet and liquidity at September 30, 2023: Cash was $112,751; current assets were $24.18 million and current liabilities $9.61 million. Current assets included $15.12 million of advances to suppliers and $4.60 million of net receivables, so cash available was a small portion of reported current assets. Total assets were $46.56 million, total liabilities $10.57 million, and equity $35.98 million. Bank debt was about $3.80 million, including $2.51 million of short-term loans, $0.42 million current long-term debt, and $0.87 million long-term debt. Taxes payable totaled $2.72 million, including income tax and VAT.
Operating cash outflow reflected, among other items, an $11.51 million increase in supplier advances. Investing cash outflow was $1.19 million; financing provided $1.16 million. Cash declined by $0.73 million during the year. The company reported that approximately $3.5 million, or 75.8%, of year-end receivables had been collected by the filing date.
Material changes and significant items
- Gross margin declined as the product mix and selling prices changed; lower-value bioactive products and supply constraints weighed on that segment’s revenue and profit.
- Other income shifted from $0.97 million of net income in FY2022 to a $0.36 million net expense in FY2023. Government subsidies fell sharply, from $1.31 million to $25,415, contributing to the decline in net income.
- Shares outstanding increased from 8,396,226 to 11,738,662 during FY2023, including 2.75 million shares issued in a January 2023 private placement for $2.2 million gross proceeds, alongside warrants to buy another 2.75 million shares at $0.88 each.
- The company’s Tongchuan plant began production in December 2022. The Yumen facility remained under construction, with completion estimated for December 2024 and approximately $5.0 million of minimum capital expenditures stated for the following 12 months. A separate note says the project budget increased substantially; the filing does not clearly reconcile the project’s total budget with the remaining commitment.
- In October 2023, after year-end, the company issued 1.55 million shares to employees and consultants under its equity plan, including 100,000 shares to the CEO. This is a subsequent event and may increase dilution.
Outlook, risks and contingencies
- Management gave no specific consolidated revenue or earnings forecast. Its stated strategy includes a target compound annual growth rate of at least 30% for the raw-materials and ingredients business over the next two to three years, expansion of capacity and sales channels, and development of functional-health products.
- Management said available funding—including cash, private-placement proceeds and credit facilities—should cover tax payments and liquidity and construction needs for at least 12 months. However, the filing also reports low cash, negative operating cash flow, $2.72 million of taxes payable, and $5.0 million of near-term project commitments. Disclosed descriptions of available credit and financing differ across sections.
- The company estimates expansion capital needs of approximately $40 million and says additional financing may be needed. There is no assurance that financing will be available on acceptable terms.
- Nasdaq notified the company in June 2023 that it was below the $1.00 minimum bid-price requirement. The extended compliance period ran to June 10, 2024; the company said it might use a reverse split to regain compliance. Failure to meet the requirement could result in delisting.
- Management and the auditor identified material weaknesses in internal control over financial reporting, citing insufficient accounting staff and U.S. GAAP and SEC-reporting expertise. Management concluded disclosure controls and ICFR were ineffective as of September 30, 2023; remediation was not complete, with a framework targeted for completion by December 31, 2024. The auditor did not attest to ICFR.
- Key exposures include concentrated customers and suppliers, reliance on advance payments to suppliers, raw-material availability and weather, product quality and liability, and the fact that health products have not been clinically proven or approved to treat or prevent disease. The filing’s customer-concentration figures are not consistent across sections.
- Additional risks include PRC regulatory and foreign-exchange controls, restrictions on moving cash out of China, uncertain application of overseas-listing filing rules, currency translation exposure, and the holding-company structure. No dividends have been paid, and none are expected in the foreseeable future.
- The company disclosed no material legal proceedings. It did disclose potential compliance exposures involving unregistered leases, labor and social-insurance contributions, and construction permits and filings for certain leased-site buildings. No material off-balance-sheet arrangements were reported.
Most important facts for investors to verify
- Reconcile the filing’s inconsistent figures for certain FY2023 gross-profit totals, cost-of-revenue amounts, other income, and customer concentration; the audited income statement reports gross profit of $8.84 million and net income of $4.55 million.
- Assess the recoverability and timing of the $15.12 million supplier advances, the remaining year-end receivables, and the $1.0 million acquisition deposit; confirm subsequent receipts, deliveries, refunds, or impairment assessments.
- Confirm the company’s current cash, unused credit availability, loan renewals, tax settlements, and ability to fund the Yumen project without additional capital.
- Track the Yumen project’s revised budget, completion schedule, permits and construction status, and whether the stated $5.0 million near-term commitment remains current.
- Review progress in remediating material weaknesses and the accuracy and consistency of subsequent SEC filings.
- Verify current Nasdaq listing compliance and the effect of the October 2023 share issuance and outstanding warrants on dilution.
- Check customer and supplier concentration, raw-material sourcing resilience, and the status of required PRC licenses and regulatory filings.