BioNexus Gene Lab Corp. 2021 Form 10-K Summary
Business Context and Reporting Period
BioNexus Gene Lab Corp. is a Wyoming holding company with two Malaysian subsidiaries: BioNexus Malaysia, which provides RNA-based genomic screening and COVID-19 qPCR testing, and Chemrex, which distributes industrial chemicals and composite-material products in Southeast Asia. This Form 10-K covers the fiscal year ended December 31, 2021. The audited financial statements are prepared under U.S. GAAP and presented in U.S. dollars.
Chemrex was acquired in a share exchange for 68,487,261 common shares. The filing states that the transaction was completed on December 31, 2020, although certain narrative references contain inconsistent dates. The 2021 results include Chemrex, while the 2020 comparison in management’s discussion generally excludes Chemrex, limiting comparability.
Key Financial Metrics
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Revenue | $13.363 million | $11.390 million | 17.3% increase |
| Gross profit | $2.194 million | $1.720 million | 27.6% increase |
| Gross margin | 16.4% | 15.1% | Improved |
| Operating profit | $1.056 million | $1.274 million | 17.1% decrease |
| Operating margin | 7.9% | 11.2% | Declined |
| Net profit | $751,571 | $1.094 million | 31.3% decrease |
| Net margin | 5.6% | 9.6% | Declined |
| Comprehensive income | $517,625 | $1.245 million | Declined |
| Basic and diluted EPS | $0.003 | $0.012 | Declined |
Revenue consisted of $11.847 million from Chemrex and $1.516 million from BioNexus Malaysia. BioNexus Malaysia’s revenue increased substantially from $134,095 in 2020, primarily from Malaysian government-outsourced COVID-19 PCR contracts totaling approximately $1.409 million. Chemrex accounted for approximately 88.7% of consolidated revenue.
Cost of revenue was $11.169 million, up 15.5%, primarily due to increased purchases of qPCR kits and reagents. General and administrative expenses declined 9.6% to $1.204 million. Other income fell to $66,491 from $886,942, largely because 2020 included a significant gain on disposal of property.
Cash Flow, Liquidity, Debt and Balance Sheet
| Metric | December 31, 2021 | December 31, 2020 |
|---|---|---|
| Cash and cash equivalents | $2.124 million | $2.788 million |
| Current assets | $7.150 million | $7.985 million |
| Current liabilities | $2.329 million | $3.374 million |
| Working capital | $4.821 million | $4.612 million |
| Total assets | $9.574 million | $10.115 million |
| Total liabilities | $2.395 million | $3.453 million |
| Stockholders’ equity | $7.180 million | $6.662 million |
Cash generated from operating activities was only $9,161, compared with $552,680 in 2020, reflecting working-capital uses including inventory growth and a substantial reduction in trade payables. Investing activities used $490,574, principally for acquisitions of investments. Financing activities used $28,222, primarily for finance-lease repayments. The filing identifies finance-lease obligations of $34,038 and operating-lease liabilities of $42,909 at year-end; it does not disclose material conventional bank debt.
Management stated that cash flow from operations, together with available resources, should be sufficient to sustain the current level of operations for at least the next 12 months. However, management also states that additional financing may be required to fund growth, working capital and potential operating losses.
Material Changes Versus the Prior Comparable Period
- Revenue increased 17.3%, driven by higher Chemrex selling prices and COVID-19 PCR testing contracts.
- BioNexus Malaysia shifted from a $57,951 net loss in 2020 to a $263,471 net profit in 2021.
- Chemrex net profit declined to $615,994 from $1.289 million, primarily because 2020 included a large property-disposal gain.
- Consolidated net profit declined despite higher revenue because other income fell sharply, taxes increased, and foreign-currency translation changed from a $150,787 gain to a $233,946 loss.
- Cash and cash equivalents declined by approximately $664,000, while reported working capital increased by approximately $209,000 due principally to operating profitability and lower current liabilities.
- Total liabilities declined by approximately $1.059 million, largely due to lower trade payables and reduced lease obligations.
Guidance, Outlook, Risks and Unusual Items
The company provides no formal numerical revenue, earnings or margin guidance. Management plans to expand genomic screening through additional healthcare-provider relationships, marketing, corporate clients and new Malaysian regions. It does not expect expansion beyond Malaysia until fiscal 2022 and beyond. Existing laboratory capacity is stated at up to 94 patients per day; management estimates that more than 200 daily patients would require additional personnel and approximately $200,000 of equipment.
The company is conducting a research collaboration with Malaysia’s National Heart Institute to develop an RNA-based acute myocardial infarction risk-prediction panel. The project was extended beyond March 31, 2022, with fees of approximately $1,100 per month. Management hopes the screening could be incorporated into regular screening processes after completion of the study, expected in the third quarter of 2022.
- The genomic screening process has not been supported by broad independent studies, creating efficacy, false-positive and false-negative risks.
- BioNexus Malaysia does not maintain product-liability insurance despite potential claims relating to inaccurate diagnoses or patient-data mix-ups.
- The company relies primarily on unpatented trade secrets and know-how; its software and screening process are not patent protected.
- Future implementation of Malaysia’s Pathology Laboratory Act or other regulations could increase costs or restrict operations.
- COVID-19 testing revenue may not be recurring, carries lower per-test pricing and margins than the company’s genomic screening services, and depends partly on government outsourcing.
- Revenue and operations are concentrated in Malaysia, while Chemrex depends on a limited number of major suppliers. Four suppliers represented 57.7% of 2021 purchases.
- Management identified material weaknesses in internal control over financial reporting related to inadequate segregation of duties and ineffective oversight. Disclosure controls and procedures were also concluded to be ineffective as of December 31, 2021.
- The company is an emerging growth company and smaller reporting company, with reduced disclosure and audit-attestation requirements.
- The common stock trades on OTCQB, with limited and sporadic trading volume. The company does not intend to pay cash dividends in the foreseeable future.
The independent auditor issued an unqualified opinion on the consolidated financial statements and reported no critical audit matters. The filing reports no pending legal proceedings and no material subsequent events through March 24, 2022.
Important Facts for Investors to Verify
- Determine the recurring level of revenue and profitability excluding COVID-19 PCR contracts and other potentially nonrecurring items.
- Reconcile the presentation and comparability of Chemrex results, including the inconsistent acquisition-date references in the filing.
- Assess the collectibility of the $3.357 million trade-receivables balance and the sustainability of the company’s very low operating cash flow.
- Monitor remediation of the disclosed material weaknesses and ineffective disclosure controls.
- Validate independent clinical evidence, regulatory status and liability protections for the RNA-based screening process.
- Review the company’s funding needs, potential equity dilution and the availability of additional financing.
- Evaluate Chemrex’s supplier concentration, inventory exposure and sensitivity to industrial-chemical pricing and demand.
- Consider OTCQB liquidity, foreign-exchange exposure, concentrated insider ownership and the absence of a dividend policy.