Bionexus Gene Lab Corp. — Form 10-Q Summary
Business context and reporting period
Quarterly report for the period ended September 30, 2020, filed November 3, 2020. Bionexus is a Wyoming holding company with Malaysian operations focused on molecular diagnostics and blood-based RNA screening for disease risk, including cancers and other diseases. During the quarter, the company also conducted COVID-19 rRT-PCR testing using its RNA platform.
The unaudited interim financial statements were prepared under U.S. GAAP. The company is a non-accelerated filer, smaller reporting company, and emerging growth company. It reported 102,730,891 common shares outstanding as of November 3, 2020.
Financial performance and key metrics
| Metric | Three months ended September 30, 2020 | Three months ended September 30, 2019 | Nine months ended September 30, 2020 | Nine months ended September 30, 2019 |
|---|---|---|---|---|
| Revenue | $23,471 | $24,173 | $30,012 | $73,906 |
| Cost of revenue | $15,253 | $16,499 | $45,561 | $52,341 |
| Gross profit/(loss) | $8,218 | $7,674 | $(15,549) | $21,565 |
| Gross margin | 35.0% | 31.8% | (51.8%) | 29.2% |
| Loss from operations | $(59,543) | $(50,138) | $(172,686) | $(179,560) |
| Net loss | $(60,035) | $(22,028) | $(174,525) | $(153,892) |
| Comprehensive loss | $(38,093) | $(32,830) | $(190,774) | $(165,148) |
Quarterly revenue declined approximately 3%, while nine-month revenue declined approximately 59%. The quarterly gross margin improved to approximately 35% because COVID-19 testing supplies generated better margins than the company’s RNA screening supplies. The nine-month gross loss principally reflected complimentary RNA testing provided to 20 shareholders and the adverse effects of the pandemic. The filing’s MD&A contains minor numerical inconsistencies, including a quarterly gross profit reference to $8,212 and a nine-month cost-of-revenue reference to $45,461; the financial statements report $8,218 and $45,561, respectively.
General and administrative expense was $70,658 in the quarter, up from $63,097, partly due to complimentary shareholder testing. Nine-month general and administrative expense decreased to $167,685 from $220,809 because of reduced rent and travel costs. Interest income declined to $2,897 for the quarter and $10,548 for the nine-month period, reflecting lower deposit balances and interest rates.
Basic and diluted loss per share was reported as $0 for both comparable periods, with weighted-average shares of 102,730,891 in 2020 versus 80,283,110 in 2019.
Balance sheet, cash flow, debt, and liquidity
| Balance sheet item | September 30, 2020 | December 31, 2019 |
|---|---|---|
| Cash and bank balances | $264,519 | $366,038 |
| Fixed deposits | $422,684 | $493,038 |
| Total cash and cash equivalents | $687,203 | $859,076 |
| Total assets | $1,013,219 | $1,231,236 |
| Total liabilities | $81,629 | $108,872 |
| Stockholders’ equity | $931,590 | $1,122,364 |
| Working capital | $682,052 | $830,997 |
- Operating cash flow was negative $154,909 for the first nine months of 2020, compared with negative $158,911 in 2019.
- There was no investing cash outflow in 2020; 2019 included $5,672 of plant and equipment purchases.
- Financing cash flow was negative $5,599, primarily reflecting $5,901 of finance lease repayments and $302 of advances from directors.
- Net cash decreased by $171,873 during the first nine months, ending at $687,203, compared with $977,149 at September 30, 2019.
- Finance lease obligations totaled $59,386, including $19,886 current and $39,500 non-current, and mature through January 2023 at an effective interest rate of 5.99%.
- Operating lease liabilities totaled $15,118, including $11,152 current and $3,966 non-current.
Material changes, outlook, and risks
- COVID-19 and Malaysia’s Movement Control Order materially reduced the company’s traditional RNA screening activity. COVID-19 testing replaced much of the RNA screening revenue during the period but carried substantially lower pricing of approximately $40–$60 per test versus approximately $2,500 per RNA screening customer, with lower margins.
- The company’s COVID-19 rRT-PCR test was approved by Malaysia’s Ministry of Health on June 15, 2020. Management was promoting the test to insurers and small and medium-sized enterprises, but disclosed no clear indication of market response.
- No formal revenue, earnings, or margin guidance was provided. Management stated that cash flow from operations, together with existing resources, was expected to support the current level of operations for at least the next 12 months, although continued losses and cash usage present liquidity risk.
- Management identified potential future liquidity pressures from hiring administrative and marketing personnel, website development, increased advertising and marketing, and public-company costs.
- Key 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 legal and operating risks associated with Malaysia.
- The company had no material pending legal proceedings, no material off-balance-sheet arrangements, and no contractual obligations reported beyond those reflected in the financial statements.
- Disclosure controls and internal control over financial reporting were determined to be ineffective. Material weaknesses included lack of segregation of duties due to reliance on a single individual as sole officer and director and lack of a functioning audit committee with sufficient independent members. Management stated remediation may not occur in the near term because of limited financial resources.
- No material subsequent events were identified through October 15, 2020.
Important facts for investors to verify
- Whether COVID-19 testing demand and pricing can offset the loss of higher-priced RNA screening revenue.
- The company’s ability to reduce recurring cash burn and sustain operations without additional financing or equity issuance.
- The accuracy and commercial validation of the blood-based disease-screening technology and the regulatory status of its tests.
- The effect of complimentary shareholder testing on revenue, gross loss, and operating expenses.
- Progress in remediating the disclosed material weaknesses in internal controls and establishing independent board and audit committee oversight.
- Potential foreign-exchange effects from Malaysian operations and the company’s ability to service its finance and operating lease obligations.