Bionexus Gene Lab Corp. — Form 10-Q Summary
Reporting period: Three and six months ended June 30, 2022; amounts are in U.S. dollars and interim financial statements are unaudited. The company is a Wyoming corporation with wholly owned Malaysian subsidiaries, Bionexus Gene Lab Sdn. Bhd. and Chemrex Corporation Sdn. Bhd. BioNexus operates molecular testing and genomic screening activities, while Chemrex distributes industrial chemicals in the ASEAN region.
Financial Performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $2.485 million | $3.092 million | $5.514 million | $6.541 million |
| Gross profit | $243,322 | $467,607 | $576,861 | $1.050 million |
| Gross margin | 9.8% | 15.1% | 10.5% | 16.1% |
| Operating income/(loss) | $(137,964) | $139,990 | $(103,273) | $482,123 |
| Net income/(loss) | $(138,662) | $28,262 | $(121,596) | $367,006 |
| Comprehensive income/(loss) | $(456,422) | $20,794 | $(508,132) | $151,070 |
| Cash used in operating activities | — | $(237,593) | $(789,715) |
Liquidity, Capitalization and Cash Flow
- June 30, 2022 cash and cash equivalents were $1.340 million, consisting of $490,587 in cash and $849,744 in fixed deposits, compared with $2.124 million at December 31, 2021.
- Working capital was $4.264 million, down from $4.821 million at December 31, 2021.
- Total assets were $8.369 million and total liabilities were $1.547 million at June 30, 2022. Stockholders’ equity was $6.822 million.
- Trade receivables were $2.829 million and inventories were $1.512 million. Management recorded no allowance for doubtful accounts and stated that receivables were collectible.
- The company had no outstanding finance-lease obligations at June 30, 2022. Operating lease liabilities totaled $31,726, including $14,034 current and $17,692 non-current.
- Investing activities used $418,955, primarily for $404,793 of additional investments and $33,484 of property and equipment purchases.
- Financing activities generated $115,962, including $150,000 from the issuance of 2.5 million common shares, partly offset by $34,038 of finance-lease repayment.
- Foreign-currency translation reduced cash by $243,002 during the six months. The company also reported a $386,536 foreign-currency translation loss in other comprehensive income.
- 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 the filing does not provide a quantified liquidity forecast.
Material Changes Versus the Prior Comparable Period
- Second-quarter revenue declined 19.6%; six-month revenue declined 15.7%.
- Chemrex generated 99.6% of second-quarter revenue and 99.4% of six-month revenue. Chemrex revenue declined 9.1% in the quarter and 9.8% year to date, which management attributed to inflation, weaker customer demand, excess competitor inventory and higher material and international freight costs.
- BioNexus Malaysia revenue fell 97.5% in the quarter and 92.8% year to date. Management attributed the decline to the end of the Ministry of Health COVID-19 PCR testing contract in December 2021 and reduced testing demand after Malaysia discontinued movement restrictions and travel testing requirements.
- Gross margin contracted to 9.8% in the quarter and 10.5% year to date, from 15.1% and 16.1%, respectively, in the prior-year periods.
- General and administrative expense increased 14.8% in the quarter and 14.4% year to date. The filing cites employee, professional, marketing, travel, consultant, independent-director and VC International club membership costs.
- The company moved from operating profit to operating loss and from net income to net loss in both the quarter and first six months.
- Shares outstanding increased by 2.5 million to 173,718,152 at June 30, 2022. The issuance was to Keith Wong at $0.06 per share under an exemption from registration.
Outlook, Risks and Unusual Items
- No formal revenue, earnings or margin guidance was provided.
- Management expects the business to require additional administrative and marketing personnel, website development, advertising and marketing expenditures, and ongoing public-company costs.
- The business remains highly dependent on Chemrex, while the molecular-testing business has experienced a substantial post-pandemic decline in testing revenue.
- Reported results are exposed to Malaysian ringgit/U.S. dollar fluctuations. The quarter included a $317,760 foreign-currency translation loss, compared with $7,468 in the prior-year quarter.
- Other investments totaled $1.039 million at June 30, 2022. The company recorded a $63,202 fair-value loss and invested $404,793 in additional shares during the first six months.
- Management identified a material weakness in internal control over financial reporting, citing inadequate monitoring and insufficient segregation of duties. The company is expanding its board, separating executive and financial responsibilities and relying on outside professionals; remediation was not complete as of the filing.
- Disclosure controls and procedures were deemed effective, but the internal-control material weakness remains an important reporting risk. No auditor attestation report was required for the company as a smaller reporting company.
- The filing reports no pending or threatened material legal proceedings and no defaults upon senior securities.
- Keith Wong entered into an 18-month consulting agreement beginning April 1, 2022, with a monthly fee of $8,000. The filing contains inconsistent references to the individual’s first name in certain exhibits.
Investor Verification Items
- Verify the collectibility and aging of the $2.829 million trade-receivables balance, given the absence of a doubtful-account allowance.
- Assess whether Chemrex can maintain revenue and margins amid inflation, weak customer demand, competitor discounting and higher freight costs.
- Determine whether BioNexus Malaysia has a viable replacement for the discontinued COVID-19 testing contract and whether genomic-testing revenue can recover.
- Review the valuation, liquidity and concentration of the $1.039 million investment portfolio and the impact of further fair-value or currency losses.
- Monitor cash burn, working-capital deterioration and the credibility of management’s statement that existing resources will support at least 12 months of operations.
- Track remediation of the material weakness in internal control and the effect of additional personnel, board changes and professional fees on future expenses.
- Confirm the terms, related-party implications and share dilution associated with the 2.5 million-share issuance and consulting agreement.