BioNexus Gene Lab Corp: Form 10-Q for the period ended Mar 31, 2024

Description of Business

As used herein, unless the context otherwise indicates, references to the “Company,” “we,” “our,” “us,” “BioNexus” refer to BioNexus Gene Lab Corp., a Wyoming company (“BGLC”), and its wholly owned subsidiaries, MRNA Scientific Sdn. Bhd. (“MRNA Scientific Malaysia”), and Chemrex Corporation Sdn. Bhd. (“Chemrex”), both are Malaysian companies.

BGLC is an emerging molecular lab focused on the application of functional genomics to enable early detection of infectious diseases and cancers. On August 23, 2017, we acquired all of the outstanding capital stock of MRNA Scientific Malaysia, which was incorporated in Malaysia on April 7, 2015. MRNA Scientific Malaysia owns algorithm software, technology, and know-how related to the detection of common diseases through blood analysis which we use in our business. Our non-invasive blood screening tests analyze changes in ribonucleic acid (or RNA) to Coronavirus, Dengue, HIV, HPV and the risk potentiality of cancers diseases. This unique blood genomic biomarker approach is based on the scientific observation that circulating blood reflects, in a detectable way, what is occurring throughout the body currently.

The corporate and principal office address of the Company and MRNA Scientific Malaysia is Unit 02, Level 10, Tower B, Avenue 3, The Vertical Business Suite II, Bangsar South, No. 8 Jalan Kerinchi, Kuala Lumpur, Malaysia., our lab is located at Lab 353, Chemical Science Centre, University Science Malaysia, George Town, Penang, Malaysia. Another lab focuses on Covid-19 and Colon cancer screening is located at 4th floor, Lifecare Diagnostic Centre, Kuala Lumpur, Malaysia. Our telephone number is (+60) 18-2218762 and our website is www.bionexusgenelab.com (http://www.bionexusgenelab.com).

Chemrex is a wholesaler of industrial chemicals for the manufacture of industrial, medical, appliance, aero, automotive, mechanical and electronic industries in Asean region. On December 31, 2020, we acquired all of the outstanding capital stock of Chemrex, which was incorporated in Malaysia on September 29, 2004.

Chemrex’s corporate office and distribution and storage center is located at 4 Jalan CJ 1/6 Kawasan Perusahaan Cheras Jaya, Selangor, Malaysia. Its phone number is (+60) 1922-23815 and website is www.chemrex.com.my (http://www.chemrex.com.my).

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The results of operations of our subsidiary, MRNA Scientific-Malaysia , with respect to its RNA screening process have been adversely impacted by the onset of the Covid-19 pandemic followed by a number of prominent variants, including Alpha, Beta, Delta, and Omicron. Although new variants are an expected part of the evolution of viruses, new variant is more aggressive, highly transmissible, vaccine-resistant, able to cause more severe disease in Malaysia. We believe that most people were reluctant to visit hospitals and clinics in view of the post Covid-19 Omicron and its subvariants for fear of transmission from other patients or medical staff. Since our RNA screening is administered at a diagnostic center, our business has been adversely affected as a result.

The results of operations for Chemrex were adversely impacted during fiscal year 2023 and the slow recovery into 2024 as the businesses of Chemrex customers especially manufacturers continue to suffer from the lingering impact of Covid. Many customers across Malaysia saw their supply chains interrupted, demand for their products and services decline and experienced shortages in supplies and inputs.

Recent Developments.

(a) Public Offering and Nasdaq Listing

On July 20, 2023, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Network 1 Financial Securities, Inc., as underwriter (the “Underwriter”) pursuant to which the Company agreed to issue and sell, in a firm commitment underwritten public offering by the Company (the “Offering”) of 1,250,000 shares of common stock, no par value, priced at a public offering price of $4.00 per share.

In addition, pursuant to the Underwriting Agreement, the Underwriter was granted a 45-day option (the “Over-Allotment Option”) to purchase up to an additional 187,500 shares of common stock at the public offering price of $4.00 per share. The Underwriter fully exercised the Over-Allotment Option on July 24, 2023.

The securities were offered by the Company pursuant to the registration statement on Form S-1 (File No. 333-269753), which was originally filed with the U.S. Securities and Exchange Commission (the “Commission”) under the Securities Act of 1933, as amended, on February 14, 2023, and declared effective by the Commission on July 19, 2023.

On July 24, 2023, the Offering closed, and the Company issued and sold 1,437,500 shares of common stock, including 187,500 shares sold pursuant to the exercise of the Over-Allotment Option. The Offering was priced at $4.00 per share for total gross proceeds of $5.75 million before deducting underwriting discounts, commissions, and offering expenses. Pursuant to the Underwriting Agreement, the Underwriter received an 8% underwriting discount on the public offering price for the shares common stock. The Company will therefore receive net proceeds, before expenses, of $5,290,000 from the sale of the common stocks. In addition, the Company issued to the Underwriter warrants to purchase up to an aggregate of 115,000 shares of the Company’s common stock (the “Underwriter’s Warrants”) at an exercise price of $4.40 per share. The Underwriter’s Warrants are exercisable from July 24, 2023 until July 24, 2028.

On August 2023, there was an issuance of shares of 759,299 and 75,000 respectively as part of Contractual Agreements relating to the uplisting of our Common Stock onto the NASDAQ stock exchange, subsequently followed by the cancellation of 125,000 shares. Please see Note 10.

(b) Reverse stock split

On June 5, 2023, the Company filed an Article of Amendment to the Articles of Incorporation with the Wyoming Secretary of State to modify the ratio of the Reverse Stock Split from one-for-ten (10) to one-for-twelve (12) (the “Revised Reverse Stock Split”). Upon effectiveness of the Revised Reverse Stock Split, every twelve (12) outstanding shares of common stock were combined into and automatically become one share of common stock. No fractional shares were issued in connection with the Revised Reverse Stock Split and all such fractional shares or odd lots (less than 100 shares to any record or beneficial holder) issuable in the Revised Reverse Stock Split were rounded up to 100 shares.

The Revised Reverse Stock Split was approved and authorized by a majority of the Company’s stockholder in lieu of a shareholder vote on May 8, 2023 and by the Board of Directors of the Company on May 8, 2023.

On July 19, 2023, the Financial Industry Regulatory Authority announced the Revised Reverse Stock Split in conjunction with the aforementioned Nasdaq listing.

An total of 1,044,351 round-up shares issued after reversal of stock split exercised. Please refer Note 10.

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(c) Strategic Investment into Ascension Innovation Sdn Bhd. by our subsidiary, MRNA Scientific Sdn. Bhd.

Pursuant to a Form 8-K filed on April 18, 2024, the Company announced a strategic investment in Ascension Innovation Sdn Bhd (AISB), a privately held Malaysian company. Please refer to that filing for more information on the investment.

(d) Notification of granting of an additional 180 days to regain compliance with Rule 5550(a)(2) by Nasdaq Staff

On November 6, 2023, the Company reported that it received a letter from the Listing Qualifications Department of the Nasdaq Stock Market (“Nasdaq”) regarding the Company’s failure to comply with Nasdaq Continued Listing Rule (“Rule”) 5550(a)(2), which requires listed securities to maintain a minimum bid price of $1.00 per share. A failure to comply with Rule 5550(a)(2) exists when listed securities fail to maintain a closing bid price of at least $1.00 per share for 30 consecutive business days.

Under Rule 5810(c)(3)(A), the Company automatically was provided a period of 180 calendar days, until May 6, 2024, to regain compliance.

The Company then applied to NASDAQ to receive an additional 180 calendar days to regain compliance. On May 8, 2024, the Company received notification from NASDAQ that the compliance period has been extended to November 4, 2024. If at any time during this 180-day period the closing bid price of the Company’s securities is at least $1.00 for a minimum of ten consecutive business days, the Company’s compliance will be regained.

Translation of amounts from MYR into US$1.00 has been made at the following exchange rates for the respective period and year:

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Results of Operations

Three Months Ended March 31, 2024 Compared with the Three Months Ended March 31, 2023.

The following table sets forth key selected financial data for the three months ended March 31, 2024 and 2023.

Consolidated

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Segmented Information

Revenue. For the quarter ended March 31, 2024, we had total revenue of $2,381,851 as compared to total revenue of $2,377,205 for the quarter ended March 31, 2023, increased by 0.2% from the prior quarter due to slight increase in purchases mainly from Chemrex customers.

Chemrex contributed $2,378,686 (99.9%) of the total revenue for the current quarter ended March 31, 2024 as compared to $2,369,769 (99.7%) of the total revenue for the quarter ended March 31, 2023. Chemrex’s revenues had the increase of 0.38% from prior quarter. The revenue increased in first quarter of 2023 was due to increase in purchases from its customers.

MRNA Scientific-Malaysia contributed $3,165 (0.1%) of the total revenue for the quarter ended March 31, 2024 as compared to revenue of $7,436 (0.3%) of the total revenue from the quarter ended March 31, 2023. Revenues had decreased by 57.4% due to RNA machine breakdowns which occurred during the current period.

Cost of Revenue. For the quarter ended March 31, 2024, we incurred $2,016,820 in cost of revenues, as compared to $2,008,308 for the quarter ended March 31, 2023, a slight increase of 0.4% was due to reason as stated below.

Chemrex had incurred $2,014,568 (99.9%) of the total cost of revenue during the current quarter period ended March 31, 2024 as compared to the quarter ended March 31, 2023 wherein Chemrex had incurred $2,002,961 (99.7%) of the total cost of revenue. The slightly increase in Chemrex’s cost of revenues of 0.58% for the current period was due to its increased revenues for the current period.

MRNA Scientific-Malaysia had incurred $2,252 (0.1%) of the total cost of revenues during the current quarter period ended March 31, 2024 as compared to $5,347 (0.3%) for the quarterly period ended March 31, 2023. Cost of revenue had decreased by 57.9% from prior quarter due to decreased revenues for the current period.

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Gross Profit. For the quarterly period ended March 31, 2024, we had total gross profit of $365,031 as compared to gross profit of $368,897 for the quarterly period ended March 31, 2023, a decrease by approximately 1% from the prior period.

Chemrex contributed $364,118 (99.7%) of the total gross profit for the current quarter ended March 31, 2024 as compared to $366,808 (99.4%) of the total gross profit for the quarter ended March 31, 2023. Chemrex’s gross profit decreased slightly by $2,690 from the prior quarter, an approximately 0.73% decrease. The gross profit decrease for Chemrex in current quarter compared to the last quarter, was due to selling new stock purchased at higher prices, compared to previously selling old stock at lower prices.

MRNA Scientific-Malaysia contributed $913 (0.3%) of the total gross profit of $365,031 for the current quarter ended March 31, 2024 as compared to gross profit of $2,089 (0.6%) of the total gross profit from the quarter ended March 31, 2023. The decrease by approximately 56.3% from the prior period due to its decreased revenues for the current period.

Other Income. For the quarterly period ended March 31, 2024, we had of $201,847 as compared to of $117,344 for the quarterly period ended March 31, 2023, an increase of approximately 72%.

Chemrex contributed $163,153 (80.8%) of other income for the current quarter ended March 31, 2024 as compared to $116,218 (99%) of the other income for the quarter ended March 31, 2023. Chemrex’s other income increased by 40.39% due to dividends received from investments, gain on fair value of investment, recovery of expected credit losses and gains on foreign exchange rates.

MRNA Scientific-Malaysia contributed $38,694 (19.2%) of other income for the current quarter ended March 31, 2024 as compared to $1,126 (1%) of the other income for the quarter ended March 31, 2023. The increase of 3336.4% due to increase funds in the fixed deposits earning interest and unrealized gain on foreign exchange rates from foreign currency accounts in Malaysia..

Operating Expenses. For the quarter ended March 31, 2024, we had total operating expense of $645,906 as compared to total operating expenses of $536,872 for the quarter ended March 31, 2023, the increase by approximately 20.3%. It was due to general and administrative expenses which includes depreciation of fixed assets, employee compensation, professional fees and provision for losses on accounts receivable.

Chemrex had incurred $415,629 (64.3%) of the total operating expenses for the current quarter ended March 31, 2024 as compared to $383,177 (71.4%) of the total operating expenses for the quarter ended March 31, 2023, an increase of 8.47.%. The increase in operating expenses was due to provision for losses on accounts receivable and loss on fair value of share investment.

MRNA Scientific-Malaysia had incurred $ 80,855 (12.5%) of the total operating expenses for the current quarter ended March 31, 2024 as compared to $46,255 (8.6%) of the total operating expenses for the quarter ended March 31, 2023, an increase of 74.8%. The increase in operating costs of the current quarter was due to the hire of new staff for marketing & business development, director fees, increase of motor vehicle and business travel expenses.

BGLC, the holding company had incurred $149,422 (23.1%) of total operating expenses for the current quarter ended March 31, 2024 as compared to $107,440 (20%) of the total operating expenses for the quarter ended March 31, 2023. The increase approximately 39.07% in operating costs for the quarter ended March 31, 2024 was due to increase of legal fees, audit fees, directors fees and payement of the Nasdaq annual fee and directors bonuses.

Loss from Operations. We had a loss from operations of $79,028 for the quarter ended March 31, 2024 as compared to a loss of $50,631 for the quarter ended March 31, 2023, an increase of losses by approximately 56.1% from the prior period, for the reasons discussed above.

Income tax expense. For the quarter ended March 31, 2024, we had a tax expense of $20,068 as compared to tax expenses of $15,990 for the quarter ended March 31, 2023 for Chemrex. There was no tax provision for MRNA Scientific-Malaysia for the quarters ended March 31, 2024 and 2023.

Foreign currency exchange loss. We are exposed to fluctuations in foreign exchange rates on the revaluation of monetary assets and liabilities denominated in currencies other than the US Dollar. Therefore, any change in the relevant exchange rate would require us to recognize a transaction gain or loss on revaluation. For the three-month period ended March 31, 2024, we experienced a foreign currency loss of $209,908 as compared with a foreign currency loss of $39,039 for the three-month period ended March 31, 2023.

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LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 2024, we had working capital of $6,188,903 compared with working capital of $6,415,877 as of December 31, 2023. The decrease in working capital as of March 31, 2024 from December 31, 2023 was due principally to losses incurred during the quarter ended March 31, 2024.

Our primary uses of cash had been for operations. The main sources of cash were generated from operational revenues, the private placement of our common stock, and the proceeds of our public offering. The following trends could result in a material decrease in our liquidity over the near to long term:

• Addition of administrative and marketing personnel as the business grows,
• Development of a Company website,
• Increases in advertising and marketing in order to attempt to generate more revenues, and
• The cost of being a public company.

The Company believes that cash flow from operations together will be sufficient to sustain its current level of operations for at least the next 12 months of operations.

The following is a summary of the Company’s cash flows (used in) / generated from operating, investing, and financing activities for the three months ended March 31, 2024 and 2023:

Operating Activities

During the three months ended March 31, 2024, the Company incurred a net loss of $103,757 which, after adjusting for amortization, depreciation, dividend income, fair value loss on share investment, allowances for expected credit losses, recovery for expected credit losses, gain on disposal on share investment, an increase in inventories and advance payment from customer, a decrease in trade receivables and a substantial reduction in trade payables, operating lease liabilities, resulted in net cash of $34,442 being used in operating activities during the three months ended March 31, 2024. By comparison, during the three months ended March 31, 2023, the Company had a net loss of $69,066 which, after adjusting for amortization, depreciation, dividend income, fair value gain on share investment, a decrease in inventories, trade receivables and a substantial reduction in trade payables, operating lease liabilities, advance payment from customer, resulted in net cash of $116,518 being used in activities during the quarter ended 2023.

Investing Activities

During the three months ended March 31, 2024, the Company had net cash of $24,098 generated from investment activities from acquisition of share investment of $174,247, purchase of plant & equipment of $21,945, proceeds from disposal of share investments of $211,344 and receiving dividend income of $8,946. By comparison during the three months ended March 31, 2023, the Company had net cash from acquisition of share investment of $13,646, purchase of plant and equipment of $102 and receiving dividend income of $8,692, resulting in net cash used in investing activities of $5,056.

Financing Activities

During the three-month ended March 31, 2024, the Company had net cash of $24,219 generated from financing activities for advances from directors of $26,930 and used for interest of $2,711. By comparison during the three months ended March 31, 2023, we had net cash of $1,779 used in financing activities for interest.

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this item.

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Evaluation of Disclosure Controls and Procedures

In connection with the preparation of this quarterly report, an evaluation was carried out by the Company’s management, with the participation of the principal executive officer and the principal financial officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(c) and 15d-15(e) under the Exchange Act (“Exchange Act”) as of March 31, 2024. Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Commission’s rules and forms, and that such information is accumulated and communicated to management, including the principal executive officer and the principal financial officer, to allow timely decisions regarding required disclosures.

Based on that evaluation, the Company’s management concluded, as of the end of the period covered by this report, that the Company’s disclosure controls and procedures were effective in recording, processing, summarizing, and reporting information required to be disclosed, within the time periods specified in the Commission’s rules and forms, and that such information was accumulated and communicated to management, including the principal executive officer and the principal financial officer, to allow timely decisions regarding required disclosures.

Management’s Report on Internal Control over Financial Reporting

The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is a process, under the supervision of the principal executive officer and the principal financial officer, designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external purposes in accordance with United States generally accepted accounting principles (GAAP). Internal control over financial reporting includes those policies and procedures that:

i) Pertain to the maintenance of records that is in reasonable detail accurately and fairly reflect the transactions and dispositions of the Company’s assets;

ii) Provide reasonable assurance that transactions are recorded as necessary to permit preparation of the financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with the authorizations of management and the board of directors; and

iii) Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

The Company’s management had assessed the effectiveness of our internal control over financial reporting as of March 31, 2024, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, which assessment identified material weaknesses in internal control over financial reporting had improved. A material weakness could create reasonable possibility that a material misstatement in annual or interim financial statements. The management considers its internal control over financial reporting required further improvement.

This quarterly report does not include an attestation report of our registered public accounting firm regarding our internal controls over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to Section 404(c) of the Sarbanes-Oxley Act that permit us to provide only management’s report in this annual report.

Changes in Internal Controls over Financial Reporting

During the period ended March 31, 2024, there had been no change in internal control over financial reporting that had materially affected or was reasonably likely to materially affect our internal control over financial reporting.

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