Item 1A. Risk Factors

RISK FACTORS

An investment in our common stock involves a number of very significant risks. You should carefully consider the following known material risks and uncertainties in addition to other information in this Form 10-K in evaluating our company and its business before purchasing shares of our company’s common stock. You could lose all or part of your investment due to any of these risks.

Risk Factors Related to Our Financial Prospects and Capitalization

BioNexus is an early, commercial-stage company and have a limited operating history, which may make it difficult to evaluate our current business and predict our future performance.

BioNexus is an early commercial-stage company and have a limited operating history. BioNexus’ limited operating history may make it difficult to evaluate our current business and this makes predictions about our future success or viability subject to significant uncertainty. In combination with other anticipated increased operating expenses in connection with becoming a public company, these anticipated changes in our operating expenses may make it difficult to evaluate our current business, assess our future performance relative to prior performance and accurately predict BioNexus’ future performance.

BioNexus will continue to encounter risks and difficulties frequently experienced by early commercial-stage companies, including those associated with increasing the size of BioNexus’ organization and the prioritization of BioNexus’ commercial, research, and business development activities. If BioNexus does not address these risks successfully, BioNexus’ business could suffer.

BioNexus’ growth (organic and inorganic) may require substantial capital and long-term investments. 

BioNexus’ competitiveness and growth depend on our ability to fund our capital expenditures. BioNexus cannot assure you that it will be able to fund our capital expenditures at reasonable costs due to adverse macroeconomic conditions, our performance or other external factors.

In the future, BioNexus expects to incur significant costs in connection with its operations. BioNexus intends to expand BioNexus’ business through increased marketing efforts of BioNexus Malaysia and Chemrex. These development activities generally require a substantial investment before BioNexus can determine commercial viability, and the proceeds of this offering will not be sufficient to fully fund these activities. BioNexus expects to need to raise additional funds through public or private equity or debt financings, collaborations or licensing arrangements to continue to fund or expand BioNexus’ operations.

BioNexus’ actual liquidity and capital funding requirements will depend on numerous factors, including:

The availability of additional capital, whether from private capital sources (including banks) or the public capital markets, fluctuates as BioNexus’ financial condition and market conditions in general change. There may be times when the private capital sources and the public capital markets lack sufficient liquidity or when BioNexus’ securities cannot be sold at attractive prices or at all, in which case BioNexus would not be able to access capital from these sources. In addition, a weakening of BioNexus’ financial condition or deterioration in its credit ratings could adversely affect BioNexus’ ability to obtain necessary funds. Even if available, additional financing could be costly or have adverse consequences.

BioNexus may incur net losses in the near future.

BioNexus has devoted substantial resources to the development and commercialization of the products of BioNexus Malaysia and Chemrex. BioNexus might not remain profitable for any period. BioNexus’ failure to achieve profitability would negatively affect BioNexus’ business, financial condition, results of operations, and cash flows. If BioNexus is unable to execute BioNexus’ sales and marketing strategy and BioNexus’ products are unable to gain sufficient acceptance in the market, BioNexus may be unable to generate sufficient revenues to sustain BioNexus’ business.

Any additional capital BioNexus raises may not be available on satisfactory terms and may adversely affect stockholders’ holdings or rights.

Additional capital, if needed, may not be available on satisfactory terms or at all. In addition, the terms of any financing may adversely affect stockholders’ holdings or rights. Debt financing, if available, may include restrictive covenants. To the extent that BioNexus raises additional funds through collaborations and licensing arrangements, it may be necessary to relinquish some rights to BioNexus’ technologies or grant licenses on terms that may not be favorable to us.

If BioNexus is not able to obtain adequate funding when needed, BioNexus may be required to delay development programs or sales and marketing initiatives. If BioNexus is unable to raise additional capital in sufficient amounts or on satisfactory terms, BioNexus may have to make reductions in BioNexus’ workforce and may be prevented from continuing BioNexus’ discovery, development, and commercialization efforts and exploiting other corporate opportunities. In addition, it may be necessary to work with a partner on one or more of BioNexus’ tests or products under development, which could lower the economic value of those products to us. Each of the foregoing may harm BioNexus’ business, operating results, and financial condition and may impact BioNexus’ ability to continue as a going concern.

Raising additional capital may lead to dilution of shareholdings by BioNexus’ existing shareholders, restrict BioNexus’ operations, and may further result in fair value loss, adversely affecting BioNexus’ financial results.

BioNexus may seek additional funding through a combination of equity and debt financings and collaborations. To the extent that BioNexus raises additional capital through the sale of equity or convertible debt securities, the ownership interest of existing holders of BioNexus’ shares will be diluted, and the terms may include liquidation or other preferences that adversely affect the rights of BioNexus’ existing shareholders.

The incurrence of additional indebtedness or the issuance of certain equity securities could result in increased fixed payment obligations and could also result in certain additional restrictive covenants, such as limitations on BioNexus’ ability to incur additional debt or issue additional equity, limitations on BioNexus’ ability to acquire or license IP rights and other operating restrictions that could adversely impact BioNexus’ ability to conduct its business.

Risk Factors Related to Our Business and Industry

General Business and Industry Risks

BioNexus is unable to predict the duration of current economic conditions.

Future economic downturns, prolonged slow growth or stagnation in the economy could materially adversely affect BioNexus’ business, results of operations, financial condition and cash flows.

Global economic conditions could materially adversely impact demand for BioNexus’ products and services.

BioNexus’ operations and performance depend significantly on economic conditions. Global financial conditions continue to be subject to volatility arising from international geopolitical developments and global economic phenomenon, as well as general financial market turbulence and natural phenomena such as the COVID-19 pandemic. Uncertainty about global economic conditions could result in

Access to public financing and credit can be negatively affected by the effect of these events on Malaysian, U.S. and global credit markets. The health of the global financing and credit markets may affect its ability to obtain equity or debt financing in the future and the terms at which financing or credit is available to us. These instances of volatility and market turmoil could adversely affect its operations and the trading price of its common stock.

BioNexus’ risk management programs, processes, or procedures for identifying and addressing risks in BGL’s business may not be adequate or effectively applied, and this may adversely impact its businesses.

BGL relies on a combination of technical and human factors to protect us against risks. BGL policies, procedures and practices are used to identify, monitor and control a variety of risks, including risks related to human error and hardware and software errors. The administration and results of each test are reviewed by a physician and a scientist in Malaysia before the results are released to the patient. The Company’s standard of operations has been developed internally primarily by Dr. Liew. These risk-management methods may not adequately prevent losses and may not protect us against all risks, in which case BioNexus’ business, economic conditions, operations and cash flows may be materially adversely affected.

BioNexus has risk-management policies, control systems and compliance manuals in place; however, there is no guarantee that such policies, systems, and manuals will be effectively applied in every circumstance by BioNexus’ staff. For example, employees could override the system technology and theoretically waive requirements, thereby exposing the company accurately conduct its quality control.

BioNexus may be adversely impacted by changes in laws and regulations, or in their application.

Currently, there are no governmental regulations that materially restrict BioNexus’s screening business in Malaysia.  BGL’s laboratory in Malaysia was established through an invitation by the Malaysian Health Minister alongside a government grant of $1,250,000. BGL’s screening tests have gone through preclinical and clinical trials involving private hospitals and government agencies including the Institute of Medical Research (IMR), Malaysian Biotechnology Corporation (BiotechCorp) and the Clinical Research Centre (CRC). The findings of the preclinical and clinical trials are published in peer reviewed journals such as the Journal of Molecular and Cellular Cardiology, and Physiological Genomics. Once published, BGL would do confirmational tests before applying for commercialization. BGL’s Malaysian lab is currently national operating under an operating license granted by the city of Kuala Lumpur.

The Malaysian government passed the Pathology Laboratory Bill of 2007 (“Pathology Act”). However, since 2007, the government has not implemented the regulations underlying the legislation nor has the government enforced the Pathology Act. Any such regulations could establish criteria for the various classes and specialties of laboratories, the organization and management system of the laboratory, the qualification and experience of the person-in-charge, the qualification and competence of pathologists, scientific and technical staff engaged to conduct tests, and the standards of laboratory practice. BGL cannot predict whether it would be able to comply with the Pathology Act and its regulations, if implemented. In addition, there also is a risk that the regulations arising from the Pathology Act or new legislation or regulations could increase BGL’ costs of doing business or otherwise prevent BioNexus from carrying out the expansion of its business. Accordingly, BioNexus’ business may be harmed if BioNexus is not able to comply with any future governmental legislation or regulations, including the Pathology Act.

BGL is currently operating under an operating license granted by the City Hall of Kuala Lumpur, Malaysia. Under Malaysian and local laws, BioNexus may continue to operate under its current operating license which BioNexus Malaysia currently has. BioNexus cannot predict whether there will be future regulations which may impact its ability to conduct its business.

Currently, there are no governmental regulations that affect Chemrex’s business in Malaysia and it may continue to operate under an operating license granted by the Kajang Town Hall of Selangor, Malaysia. Future legislation or regulations could increase Chemrex’s costs of doing business or otherwise prevent BioNexus from carrying out the expansion of its business.

Business disruptions could seriously harm BioNexus’ future revenue and financial condition and increase its costs and expenses.

BioNexus’ operations could be subject to power shortages, telecommunications failures, wildfires, water shortages, floods, earthquakes, hurricanes, typhoons, fires, extreme weather conditions, medical epidemics and other natural or man-made disasters or business interruptions. The occurrence of any of these business disruptions could seriously harm BGL’ operations and financial condition and increase BGL’ costs and expenses. Unfavorable global economic conditions could adversely affect BioNexus’ business, financial condition, or results of operations.

BioNexus do not carry insurance for all categories of risk that BioNexus’ business may encounter. Although BGL intend to obtain some form of business interruption insurance in the future, there can be no assurance that BioNexus will secure adequate insurance coverage or that any such insurance coverage will be sufficient to protect BioNexus operations to significant potential liability in the future. Any significant uninsured liability may require us to pay substantial amounts, which would adversely affect BioNexus’ financial position and results of operations.

Our lack of insurance could expose us to significant costs and business disruption.

We currently do not have any product liability or disruption insurance to cover our operations in Malaysia or overseas. We have determined that the costs of insuring for these risks and the difficulties associated with acquiring such insurance on commercially reasonable terms make it impractical for us to have such insurance. If we suffer any losses, damages or liabilities in the course of our business operations, we may not have adequate insurance coverage to provide sufficient funds to cover any such losses, damages or product claim liabilities. Therefore, there may be instances when we will sustain losses, damages and liabilities because of our lack of insurance coverage, which may in turn materially and adversely affect our financial condition and results of operations.

Our internal controls are progressively improved with additional independent directors coming on board and audit committee appointed which could cause our financial reporting to be reasonably reliable.

Our management, including our chief executive officer and chief financial officer, is responsible for establishing and maintaining adequate internal control over our financial reporting. As defined in Exchange Act Rule 13a-15(f), internal control over financial reporting is a process designed by, or under the supervision of, the principal executive and principal financial officer and effected by the board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America and includes those policies and procedures that: pertain to the maintenance of records in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and/or directors of the Company; and 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.

In connection with the audits of our consolidated financial statements as of December 31, 2022 and 2021, we identified these “material weaknesses,” were rectified with independent directors and audit committee be included in 2022 significant improvement in our internal control over financial reporting.

We will expand our current board of directors to include additional individuals from US public company in the near term due to our limited financial resources. Until such remedial actions can be fully realized, we will continue to rely on the advice of outside professionals and consultants.

As a public company, we may become subject to the Section 404 of the Sarbanes-Oxley Act, or SOX 404, which requires that we include a report from management on the effectiveness of our internal control over financial reporting in our annual report on Form 10-K and in our quarterly report on Form 10-Q if we are qualified as an accelerated filer.

We are currently a “smaller reporting company”, meaning that we are not an investment company, an asset- backed issuer, or a majority-owned subsidiary of a parent company that is not a smaller reporting company and annual revenues of less than $50.0 million during the most recently completed fiscal year. In the event that we are still considered a “smaller reporting company,” at such time as we cease being an “emerging growth company,” we will be required to provide additional disclosure in our SEC filings. However, similar to an “emerging growth companies”, “smaller reporting companies” are able to provide simplified executive compensation disclosures in their filings; are exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that independent registered public accounting firms provide an attestation report on the effectiveness of internal control over financial reporting; and have certain other decreased disclosure obligations in their SEC filings, including, among other things, only being required to provide two years of audited financial statements in annual reports. Decreased disclosures in our SEC filings due to our status as a “smaller reporting company” may make it harder for investors to analyze our results of operations and financial prospects.

Our independent registered public accounting firm may be required to attest to and report on the effectiveness of our internal control over financial reporting. Our management may conclude that our internal control over financial reporting is not effective. Moreover, even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm, after conducting its own independent testing, may issue a report that is qualified if it is not satisfied with our internal controls or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us. In addition, after we become a public company, our reporting obligations may place a significant strain on our management, operational and financial resources and systems for the foreseeable future. We may be unable to timely complete our evaluation testing and any required remediation.

During the course of documenting and testing our internal control procedures, in order to satisfy the requirements of SOX 404, we may identify other weaknesses and deficiencies in our internal control over financial reporting. In addition, if we fail to maintain the adequacy of our internal control over financial reporting, as these standards are modified, supplemented or amended from time to time, we may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with SOX 404. If we fail to achieve and maintain an effective internal control environment, we could suffer material misstatements in our financial statements and fail to meet our reporting obligations, which would likely cause investors to lose confidence in our reported financial information. This could in turn limit our access to capital markets, harm our results of operations, and lead to a decline in the trading price of our shares. Additionally, ineffective internal control over financial reporting could expose us to increased risk of fraud or misuse of corporate assets and subject us to potential delisting from the stock exchange on which we list, regulatory investigations and civil or criminal sanctions. We may also be required to restate our financial statements from prior periods.

Fluctuations in foreign currency exchange rates could have a material adverse effect on our financial results.

We earn revenues, pay expenses, own assets and incur liabilities in countries using Malaysian Ringgit (“RM”) other than the U.S. dollar (“$”). Since our consolidated financial statements are presented in U.S. dollars, we must translate revenues, income and expenses, as well as assets and liabilities, into U.S. dollars at exchange rates in effect during or at the end of each reporting period. Therefore, increases or decreases in the value of the U.S. dollar against Malaysian currency affect our net operating revenues, operating income and the value of balance sheet items denominated in foreign currencies. We cannot assure you that fluctuations in foreign currencies exchange rates, particularly the strengthening or weakening of the U.S. dollar against Malaysian currency would not materially affect our financial results.

Risk Related to BGL’s Business and Industry 

Exponential growth in Biotechnology

Biotechnology is a rapidly changing field that continues to transform both in scope and impact. Well-funded established molecular labs are gathering big data on health records, genomics, lifestyle information that led to new health solutions. Digitization is revolutionizing health care, allowing for patient reported symptoms, health outcome to be captured as mineable data. BGL could lose out to its competitors’ exponential growth if we unable to establish network with medical centers, pharmaceutical groups and other molecular laboratories synergistically in sharing customers and big data.

BGL’s inability to manage growth could harm its business.

BGL expects to continue to add personnel in the areas of sales and marketing, research & development, laboratory operations, finance, quality assurance and compliance. As BGL builds its commercialization efforts and expands research and development activities, operating expenses and capital requirements will increase, and BGL expects that they will continue to increase, significantly. BGL’s ability to manage its growth effectively requires us to forecast expenses accurately, and to properly forecast and expand operational and testing facilities, if necessary, to expend funds to improve our operational, financial and management controls, reporting systems and procedures. As BGL moves forward in marketing our tests and developing our test portfolio, the company will also need to effectively manage its growing manufacturing, laboratory operations and sales and marketing needs. If BGL is unable to manage its anticipated growth effectively, BGL’s future business could be harmed.

BGL’s financial prospects depend substantially upon the successful commercialization of the Company’s services and products in the future, which may fail or experience significant delays.

BGL’s future success depends upon BGL’s ability to continuously develop technologies and successfully market its existing cancer genetic offerings to customers within Malaysia and expand overseas. BGL’s ability to generate significant revenue in the next several years will depend primarily on the successes of each key stage of its business, including pre-clinical research and development, clinical trials, regulatory approval, manufacture, marketing and commercialization of its services and products, which is subject to significant uncertainty. BGL’s ability to generate sales revenue from its products and services and its future profitability depends on several factors, including its ability to:

The marketing, sale and use of BGL’s products and services could result in substantial damages arising from products or service liability or professional liability claims, that exceed BGL’s resources.

Due to the nature of BGL’s business, it may face claims for products or service liability. These claims may arise from the inaccurate or erroneous diagnosis of patient information or the mix-up of patient information whereby a patient receives the wrong diagnostic information. While the company feels confident in its quality control measures to ensure the safeguard of patient and client information, it cannot provide assurances that products or service liability claims will arise in the future.

Moreover, litigation or adverse publicity resulting from these allegations could materially and adversely affect BGL’s business, regardless of whether the allegations are valid or whether the company is liable. Currently BGL has no products and service liability insurance coverage, and even if there was such coverage, such coverage might not be sufficient to properly protect BGL. Further, claims of this type, whether substantiated or not, may divert BGL’s financial and management resources from revenue generating activities and the business operation.

BGL may face technology transfer challenges and expenses in adding new tests to its portfolio and in expanding its reach into new geographical areas.

BGL’s plan for expanding its business includes developing and acquiring additional tests or additional biomarkers that can be transferred into its current and future diagnostic product portfolio and distributed in target markets. Due to differences in the hardware and software platforms available at different laboratories for running molecular tests, BGL’s may need to adjust the configuration of the reagents and there may be changes to the related software in order for the tests to be performed on particular hardware platforms. Making any such adjustments could take a considerable amount of time and expense, and BGL’s might not will succeed in running its tests on the hardware and software that it may encounter in different laboratories. To manage this issue, BGL’s may license or acquire additional instruments and software from another company that will be compatible with its tests. This may include additional licenses and license fees needed for reagents or components required hereto as well.

BGL’s biomarkers have not undergone clinical trials.

As there are no governmental regulations that materially restrict our screening business in Malaysia, BGL has not conducted clinical trials on its biomarkers. While BGL believes that its tests help detect the potential risk of different diseases, the specificity and sensitivity of those tests have not been determined in clinical trials let alone those that meet the scope or standards of clinical trials that would satisfy regulators in the United States or the European Union. If BGL were to conduct such clinical trials, the results might prove to be less successful than we anticipate, and such tests might not be approved for sale in markets that require such clinical trials.

BGL currently receives and expects to continue to receive a significant portion of its revenues from its genomic screening products, and if its efforts to further increase the use and adoption of these products fail, its business will be harmed.

BGL currently receives and expects to continue to receive a significant portion of its revenues from its screening tests. BGL undertakes efforts to increase the awareness and adoption of its tests among laboratories, clinics, clinicians, physicians, payors, and patients in new markets. Continued and additional market acceptance and its ability to attract new customers are key elements to its future success.

BGL’s ability to increase sales of its services and establish greater levels of adoption and reimbursement for its tests is uncertain for many reasons, including, among others:

If the market and its market share for its genomic products fail to grow or grow more slowly than expected, its business, operating results, and financial condition would be adversely affected.

BGL’s success depends on their ability to improve and enhance its current tests and new test candidates, which is complex and costly, and the results are uncertain.

Effective execution of research and development activities and the timely introduction of enhanced, improved, or new tests and test candidates to the market are important elements of BGL’s business strategy. For example, BGL is currently collaborating with the National Heart Institute in Malaysia to identify genomic signatures in acute myocardial infarctions. However, the development of enhanced, improved, or new heart attack risks is complex, costly, and uncertain and requires us to, among other factors, accurately anticipate patients’, clinicians’, and payors’ needs, and emerging technology trends.

In the development of enhanced, improved, or new test and test candidates, BioNexus can provide no assurance that:

These and other factors beyond BGL’s control could delay its launch of enhanced, improved, or new test and test candidates.

The research and development process in the biotechnology industry generally requires a significant amount of time from the research and design stage through commercialization. The launch of such new test requires the completion of certain clinical development and/or assay validations in the commercial laboratory. This process is conducted in various stages, and each stage presents the risk that BGL will not achieve its goals and will not be able to complete clinical development for any planned test in a timely manner. Such development and/or validation failures could prevent or significantly delay its ability to obtain FDA clearance or approval as may be necessary or desired, obtain approval by entities that provide oversight over laboratory diagnostic tests in the localities BGL operate in, or launch any of its planned tests and test candidates. At times, it may be necessary for us to abandon a product in which BGL has invested substantial resources. Without the timely introduction of new test candidates and improvements or enhancements of its current tests, its tests may become obsolete over time and its competitors may develop tests that are more competitive, in which case its business, operating results, and financial condition will be harmed.

BGL faces challenges from the evolving regulatory environment and increasing public awareness on privacy, personal data protection and cyber security. Actual or alleged failure to comply with privacy, cybersecurity and data protection-related laws and regulations could adversely affect BGL’s business and reputation.

BGL face risks inherent in handling large volumes of data and in protecting the security of such data. In particular, BGL face a number of challenges relating to data inter-connected with regional labs, including:

As the company’s operations expand, it may be subject to these laws in other jurisdictions where its customers and other participants are located. The laws, rules and regulations of other jurisdictions may impose more stringent or conflicting requirements and penalties than those in Malaysia, compliance with which could require significant resources and costs. BGL’s privacy policies and practices concerning the collection, use and disclosure of user data are posted on its websites. Any failure, or perceived failure, by us to comply with BGL’s posted privacy policies or with any regulatory requirements or privacy protection-related laws, rules and regulations could result in proceedings or actions against us by authorities or others. These proceedings or actions may subject us to significant penalties and negative publicity, require BGL to change its business practices, increase its costs and severely disrupt its business.

 BGL’s software is highly complex and may contain undetected errors.

BGL’s proprietary software underlying its diagnosis is highly complex and may contain undetected errors or vulnerabilities, some of which may only be discovered after a diagnosis. This may result in an inaccurate diagnosis which could expose us to substantial liability due to the misdiagnosis. Any errors or vulnerabilities discovered in BGL’ software could result in damage to BioNexus’ reputation, loss of clients, loss of revenue or liability for damages, any of which could adversely affect BioNexus’ growth prospects and its business.

BGL’s use of “open source” software could subject its proprietary software to general release, adversely affect its ability to sell its tests and subject the company to possible litigation.

 A portion of the screenings by BGL incorporate so-called “open-source” software and BGL may incorporate open-source software into other tests and technologies in the future. Such open-source software generally is licensed by its authors or other third parties under open-source licenses. Some open-source licenses may contain certain unfavorable conditions, such as requirements that BGL disclose source code for modifications or derivative works that the company makes to the open-source software and that the company license such modifications or derivative works to third parties at no cost or under the terms of the particular open-source license. BGL monitors its use of open-source software in an effort to avoid uses in a manner that would require it to disclose or grant licenses under its proprietary source code; however, there can be no assurance that such efforts will be successful. Open-source license terms are often ambiguous and such use could inadvertently occur. There is little legal precedent governing the interpretation of many of the terms of these licenses, and the potential impact of these terms on BioNexus’ business may result in unanticipated obligations regarding its technologies. If an author or other third party that distributes such open-source software were to allege that BGL had not complied with the conditions of an open-source license, the company could incur significant legal costs defending itself against such allegations. In the event such claims were successful, BGL could be subject to significant damages or be enjoined from the distribution of the infringing product. These risks could be difficult to eliminate or manage, and, if not addressed, could harm BioNexus’ business, financial condition and results of operations.

BGL currently only uses open-source software for Covid- 19, HPV, HIV, and Dengue screenings. For screening process on cancers, inflammatory diseases and osteoarthritis, BGL uses company proprietary algorithm software for data analysis and interpretation established by Co-founder Professor CC Liew.

BGL may face competition from other biotechnology competitors and its operating results will suffer if BGL fail to compete effectively.

BGL competes with companies worldwide that specialize in RNA blood analysis to detect disease. Laboratories in universities and research institutions that are attempting to extend their research from DNA into RNA screening could become competitors if they succeed. Many of BGL’ competitors and potential competitors may have stronger financial resources than the company. Their discovery and development of novel protocols could make BGL’s screening obsolete. As a result of these factors, BGL’s competitors may succeed in obtaining patent protection and/or FDA approval or discovering, developing and commercializing screening process for cancer, inflammation, osteoarthritis and many more indications.

In addition, smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large, established companies. In addition, many universities and private and public research institutes may become active in BGL’s target disease areas.

If BGL’s competitors market products that are more effective, safer or less expensive or that reach the market sooner than BGL’s future tests, if any, BioNexus may not achieve commercial success. In addition, because of BGL’s limited resources, it may be difficult for us to stay abreast of the rapid changes in each technology. If BGL fails to stay at the forefront of technological change, BGL may be unable to compete effectively. Technological advances or products developed by BGL’s competitors may render BGL’s technologies or test candidates obsolete, less competitive or not economical.

Security breaches, loss of data, and other disruptions could compromise sensitive information related to BGL’s business or prevent us from accessing critical information and expose us to liability, which could adversely affect BGL’s business and its reputation.

In the ordinary course of BGL’s business, BGL collect and store sensitive data, including protected health information, personally identifiable information, financial information, intellectual property, and proprietary business information owned or controlled by the company or its customers, payers, and other parties. BGL manages and maintains its applications and data utilizing a combination of on-site systems and cloud-based data centers. The company utilize external security and infrastructure vendors to manage parts of its data centers. BGL also communicates sensitive data, including patient data, electronically, and through relationships with multiple third-party vendors and their subcontractors. These applications and data encompass a wide variety of business-critical information, including research and development information, patient data, commercial information, and business and financial information. BGL faces a number of risks relative to protecting this critical information, including loss of access risk, inappropriate use or disclosure, inappropriate modification, and the risk of the company being unable to adequately monitor, audit, and modify its controls over critical information. This risk extends to the third-party vendors and subcontractors BGL uses to manage this sensitive data.

The secure processing, storage, maintenance, and transmission of this critical information are vital to BGL’s operations and business strategy, and BGL devote significant resources to protecting such information. Although BGL takes measures to protect sensitive data from unauthorized access, use or disclosure, BGL’s information technology and infrastructure may be vulnerable to attacks by hackers or viruses or breached due to employee error, malfeasance, or other malicious or inadvertent disruptions. In addition, while BGL has implemented security measures and a formal, dedicated enterprise security program to prevent unauthorized access to patient data, such data is currently accessible through multiple channels, and there is no guarantee BGL can protect its data from breach. Unauthorized access, loss, or dissemination could also result in delays of BGL’s services and tests development and commercialization as well as damage BGL’s reputation, including BGL’s ability to conduct its analysis, deliver test results, process claims and appeals, provide customer assistance, conduct research and development activities, collect, process, and prepare company financial information, provide information about BGL’s tests and other patient and physician education and outreach efforts through its website, and manage the administrative aspects of its business.

Any such unauthorized access, loss, or dissemination of information could also result in legal claims or proceedings, liabilities under Malay laws and regulations in relation to the protection of personal information and cybersecurity as well as those specifically governing patient and medical data. BGL shall establish, maintain and execute internal systems to safeguard relevant personal healthcare data. Any failure to comply with above-mentioned regulation would result in administrative liabilities including but not limited to informed criticism.

BGL plans to expand its tests and services to multiple countries exposes us to risks associated with doing business outside of Malaysia. The expansion may not be successful, which could limit BGL’s ability to grow its revenue, net income, and profitability.

As BGL plan to set up RNA screening labs operations in Indonesia, Middle East, USA, China and Germany, if approved, its businesses are subject to risks associated with doing business outside Malaysia including an increase in BioNexus’ expenses, diversion of BioNexus’ management’s attention from the research and development of additional diseases/disorders risk detection or forgoing profitable licensing opportunities in these economies. Additionally, Chemrex currently offers and sells chemical raw materials to customers in Southeast Asia markets outside of Malaysia.

Accordingly, the Company’s business and financial results in the future could be adversely affected due to a variety of factors including the risks associated with expanding into markets in which the Company has limited or no experience and in which the company may be less well-known. The Company may be unable to attract a sufficient number of customers and other participants, fail to anticipate competitive conditions or face difficulties in operating effectively in these new markets. The expansion of the Company’s cross-border business will also expose us to risks relating to staffing and managing cross-border operations, increased costs to protect intellectual property, tariffs and other trade barriers, differing and potentially adverse tax consequences, increased and conflicting regulatory compliance requirements, lack of acceptance of the Company’s product and service offerings, challenges caused by distance, language and cultural differences, exchange rate risk and political instability. Accordingly, any efforts the Company make to expand its cross-border operations may not be successful, which could limit the Company’s ability to grow its revenue, net income and profitability.

Risk Related to Chemrex’s Business and Industry

The chemical raw material industry is cyclical and both recessions and prolonged periods of slow economic growth could have an adverse effect on Chemrex’s business.

Demand for most of Chemrex’s products is cyclical in nature and sensitive to general economic conditions. Chemrex’s business supports cyclical industries such as the construction, energy, appliance and medical devices. As a result, downturns in the Malaysian economy, the global economy or any of these industries could materially adversely affect Chemrex’s results of operations, financial condition and cash flows. The global economy is recovering from its lows during the third quarter of 2022, but the pace of the recovery in 2023 will likely depend on how quickly normal activities can resume as well as government stimulus programs or infrastructure spending. We expect that Chemrex can do better in 2023 if investments and visitors (especially from China) resume their entry into Malaysia as was the same pre-pandemic. The boosts in the tourism and public transportation industry will push up the FRP material usage for industrial needs. Nonetheless, even with this economic recovery, challenges from ongoing uncertainties, both in Malaysia and in other regions of the world, remain. However, we believed that Chemrex's customers in the manufacturing, construction, and oil and gas sectors would resume their normal operations from the second or third quarter of 2023.

BioNexus is unable to predict the duration of current economic conditions. Future economic downturns, prolonged slow growth or stagnation in the economy, or a sector-specific slowdown in one of its key end-use markets, such as non-residential construction, could materially adversely affect Chemrex’s business, results of operations, financial condition and cash flows, especially considering the capital-intensive nature of Chemrex’s business.

The results of Chemrex’s operations are sensitive to volatility in the cost of raw materials, particularly fibre reinforced plastics.

Chemrex, as a reseller, rely on outside vendors to supply us with raw materials, including fibre reinforced plastics. Chemrex purchase most of its primary raw material, from numerous other sources located throughout Malaysia and internationally.

Prices of these chemical raw materials are volatile and are influenced by changes exports in response to demands of Chemrex’s global competitors and customers, as well as currency fluctuations. At any given time, BioNexus may be unable to obtain an adequate supply of these chemical raw materials with price and other terms acceptable to us. The availability and prices of raw materials may also be negatively affected by new laws and regulations, allocation by suppliers, interruptions in production, accidents or natural disasters, changes in exchange rates, worldwide price fluctuations, and the availability and cost of transportation.

If Chemrex’s suppliers increase the prices of its chemical raw materials, BioNexus may not have alternative sources of supply. In addition, to the extent that Chemrex has quoted prices to its customers and accepted customer orders for its products prior to purchasing necessary raw materials, it may be unable to raise the price of its products to cover all or part of the increased cost of the materials. Also, if Chemrex are unable to obtain adequate and timely deliveries of its chemical raw materials, it may be unable to timely deliver orders of its products. This could cause Chemrex to lose sales, incur additional costs or suffer harm to its reputation.

Disruptions in the supply of chemicals that we distribute or in the operations of our customers could adversely affect our business.

Our business depends on access to adequate supplies of the chemicals that our customers purchase from us. From time to time, we may be unable to access adequate quantities of certain chemicals because of supply disruptions due to natural disasters (including hurricanes and other extreme weather), industrial accidents, scheduled production outages, high demand leading to allocation, port closures and other transportation disruptions and other circumstances beyond our control, or we may be unable to purchase chemicals that we are obligated to deliver to our customers at prices that enable us to earn a profit. In addition, unpredictable events may have a significant impact on the industries in which many of our customers operate, reducing demand for products that we normally distribute in significant volumes.

Significant changes in the business strategies of our suppliers could also disrupt our supply. Large chemicals manufacturers may elect to distribute certain products (or products in certain regions) directly to end user customers, instead of relying on independent distributors such as us. While we do not believe that our results depend materially on access to any individual producer’s products, a reversal of the trend toward more outsourced distribution of chemicals would likely result in increasing margin pressure or products becoming unavailable to us. Any of these developments could have a material adverse effect on our business, financial condition and results of operations.

We have non-written contracts with suppliers and customers, which are generally terminable upon notice, and the termination of our relationships with suppliers and customers contracts could negatively affect our business.

Our purchases and sales of chemicals are typically made pursuant to verbal purchase orders rather than written contracts. Many of our contracts with both customers and suppliers are terminable without cause upon 30 days’ notice to us from the supplier or customer. Our business relationships and reputation may suffer if we are unable to meet our delivery obligations to customers which may occur because many of our suppliers are not subject to contracts or can terminate contracts on short notice. In addition, renegotiation of purchase or sales terms to our disadvantage could reduce our sales margins. Any of these developments could adversely affect our business, financial condition, and results of operations.

We may lose customers and suffer damage to our reputation if we are unable to meet customer demand for a particular product.

We face the risk of dissatisfied customers and damage to our reputation if we cannot meet customer demand for a particular chemical because we are short on inventories. In addition, particularly in cases of pronounced cyclicality in the end market, it can be difficult to anticipate our customers’ requirements for particular chemicals, and we could be asked to deliver larger-than-expected quantities of a particular chemical on short notice. If for any reason we experience widespread, systemic difficulties in filling customer orders, our customers may be dissatisfied and discontinue their relationship with us or we may be required to pay a higher price to obtain the needed chemical on short notice, thereby adversely affecting our margins.

We may be exposed to product returns and product liability claims and latent defect liability claims.

Our FRP and other raw materials are used to produce a wide variety of goods including handrails, bench tops, automotive and aero parts, cleanroom panels, and covers for various instruments used in manufacturing. We are exposed to potential product returns and latent defect liability claims from our customers and the end-users of goods and products. Although we have put in place stringent quality control measures, including the setting up of different teams for incoming quality control, quality control and quality assurance which monitor the quality of the raw material, semi-finished products as well as finished products, there may be undetected flaws or manufacturing defects or other irregularities that may be subsequently detected at any point in the life of our products. We have adopted return policy on products with manufacturing defects to accommodate our customers. If after any checkup or analysis by our laboratory the defect of a product is found to be manufacturing defect, return and replacement of products will be made. Therefore, if undetected flaws or manufacturing defects or other irregularities from either the design or manufacture of our products are to occur, additional costs and expenses which we may not recoup may incur, and our revenue and costs control can be negatively impacted.

In addition, if our defective or sub-standard products cause bodily injuries or property damage, our suppliers may face latent defect liability claims from our customers or the end-users of goods and products made with our products and regardless of the merits or the outcome of these claims, we may be required to address and, if necessary, and divert management attention and other resources from our business and operations. We may also face adverse publicity associated with such claims, which could have an adverse effect on our business, results of operations and financial condition.

Risks Related to Its Operations

BioNexus’ officers and directors may in future have outside business activities. As a result, there may be potential conflicts of interest and negatively impact the amount of time they will be able to dedicate to the company.

Currently BioNexus’ officers, who are also directors, have been working on promoting business for the Company. A potential conflict of interest may arise in the future that may cause BioNexus’ business to fail, including conflicts of interest in allocating their time to the company and their other business interests. While the company’s officers have verbally agreed to devote sufficient time and attention to the affairs of the Company, it has no written arrangement with BioNexus’ officers regarding this matter. As a result, BioNexus may face conflicts between business decisions that they may have to make regarding its operations and that of their other business interests.

BioNexus may not be able to attract and retain key senior management members and research and development personnel.

BioNexus’ future success depends upon the continuing services of members of its senior management team and key research and development personnel and consultants. Although BioNexus typically requires BioNexus’ key personals to enter into non-compete and confidentiality agreement with us, BioNexus cannot prevent they join the company’s competitor after the non-compete period. The loss of their services could adversely impact its ability to achieve its business objectives. If one or more of BioNexus’ senior management or key clinical and scientific personnel are unable or unwilling to continue in their present positions or joins a competitor or forms a competing company, the company may not be able to replace them in a timely manner or at all, which will have a material and adverse effect on its business, financial condition and results of operations.

In addition, the continued growth of BioNexus’ business depends on its ability to hire additional qualified personnel with expertise in molecular biology, chemistry, biological information processing, software, engineering, sales, marketing, and technical support. BioNexus compete for qualified management and scientific personnel with other life science and technology companies, universities, and research institutions in Malaysia and overseas. Competition for these individuals is intense, and the turnover rate can be high. Failure to attract and retain management and scientific and engineering personnel could prevent the company from pursuing collaborations or developing its services and products or technologies. 

BioNexus may be unable to protect the company’s intellectual property adequately.

BioNexus’ software intellectual property is an essential asset of its business. To establish and protect its intellectual property rights, BioNexus relies primarily upon trade secrets, and to a lesser extent, contractual provisions with current and future employees. As a result, BioNexus’ efforts to protect its intellectual property may not be sufficient or effective. If these measures do not protect its intellectual property rights, third parties could use the Company’s technology, and its ability to compete in the market would be reduced significantly.

In addition, BioNexus may not be effective in policing unauthorized use of the company’s intellectual property. Even if BioNexus does detect violations, BioNexus may need to engage in litigation to enforce its intellectual property rights. Any enforcement efforts BioNexus undertake, including litigation, could be time-consuming and expensive and could divert BioNexus’ management’s attention. In addition, BioNexus’ efforts may be met with defenses and counterclaims challenging the validity and enforceability of its intellectual property rights or may result in a court determining that its intellectual property rights are unenforceable. If BioNexus is unable to cost-effectively protect its intellectual property rights, then its business could be harmed.

BioNexus may be subject to intellectual property claims, which are extremely costly to defend, could require us to pay significant damages and could limit the company’s ability to use certain technologies in the future.

Companies in bio-medical or bio-technology industries are frequently subject to litigation based on allegations of infringement or other violations of intellectual property rights. To the extent BioNexus gain greater public recognition, BioNexus may face a higher risk of being the subject of intellectual property claims. Third-party intellectual property rights may cover significant aspects of BioNexus’ technologies or business methods or block us from expanding its offerings. Any intellectual property claims against us, with or without merit, could be time consuming and expensive to settle or litigate and could divert the attention of its management. Litigation regarding intellectual property rights is inherently uncertain due to the complex issues involved, and the company may not be successful in defending itself in such matters.

In addition, some of BioNexus’ competitors have extensive portfolios of issued patents. Many potential litigants, including some of BioNexus’ competitors and patent holding companies, have the ability to dedicate substantial resources to enforcing their intellectual property rights. Any claims successfully brought against us could subject us to significant liability for damages and BioNexus may be required to stop using technology or other intellectual property alleged to be in violation of a third party’s rights. BioNexus also might be required to seek a license for third-party intellectual property. Even if a license is available, BioNexus could be required to pay significant royalties or submit to unreasonable terms, which would increase its operating expenses. BioNexus may also be required to develop alternative non-infringing technology, which could require significant time and expense. If BioNexus cannot license or develop technology for any allegedly infringing aspect of its business, BioNexus would be forced to limit its service and may be unable to compete effectively. Any of these results could harm BioNexus’ business.

BioNexus may pursue collaborations, in-licensing or out-license arrangements, joint ventures, strategic alliances, partnerships or other strategic investments or arrangements, which may fail to produce anticipated benefits and adversely affect the company’s operations.

BioNexus may pursue opportunities for collaboration, in-licensing, out-license, joint ventures, acquisitions of products, assets or technology, strategic alliances, or partnerships that BioNexus believes would be complementary to or promote BioNexus’ existing business. Proposing, negotiating and implementing these opportunities may be a lengthy and complex process. Other companies, including those with substantially greater financial, marketing, sales, technology, or other business resources, may compete with us for these opportunities or arrangements. BioNexus may not be able to identify, secure, or complete any such transactions or arrangements in a timely manner, on a cost-effective basis, on acceptable terms, or at all.

BioNexus has limited experience with respect to these business development activities. Management and integration of a licensing arrangement, collaboration, joint venture or other strategic arrangement may disrupt BioNexus’ current operations, decrease its profitability, result in significant expenses, or divert management resources that otherwise would be available for its existing business. BioNexus may not realize the anticipated benefits of any such transaction or arrangement.

Furthermore, partners, collaborators, or other parties to such transactions or arrangements may fail to fully perform their obligations or meet its expectations or cooperate with us satisfactorily for various reasons and subject us to potential risks, including the followings:

Any such transactions or arrangements may also require actions, consents, approval, waiver, participation or involvement of various degrees from third parties, such as regulators, government authorities, creditors, licensors or licensees, related individuals, suppliers, distributors, shareholders or other stakeholders or interested parties. There is no assurance that such third parties will be cooperative as BioNexus desires, or at all, in which case BioNexus may be unable to carry out the relevant transactions or arrangements.

Risks Related to Doing Business in the Southeast Asia Region

Changes in policies in Malaysia and other Southeast Asian countries could have a significant impact upon the company’s ability to operate profitably in Malaysia and the Southeast Asia region. 

Changes in the political and economic policies of Malaysia and other governments in Southeast Asia may materially and adversely affect BioNexus’ business, financial condition and results of operations and may result in its inability to sustain its growth and expansion strategies. Accordingly, BioNexus’ financial condition and results of operations are affected to a significant extent by economic, political and legal developments in Southeast Asia region.

The Southeast Asia economy differs from the economies of most developed countries in many respects, including the extent of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. In addition, the government continues to play a significant role in regulating industry development by imposing industrial policies. The government also exercises significant control over economic growth by allocating resources, controlling payment of foreign currency-denominated obligations, setting monetary policy, regulating financial services and institutions and providing preferential treatment to particular industries or companies.

Local governments have implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures may benefit the overall economy, but may also have a negative effect on us. BioNexus’ financial condition and results of operation could be materially and adversely affected by government control over capital investments or changes in tax regulations that are applicable to us. In addition, the government has implemented in the past certain measures, including interest rate increases, to control the pace of economic growth. These measures may cause decreased economic activity, which in turn could lead to a reduction in demand for its services and consequently have a material adverse effect on its businesses, financial condition and results of operations.

Developments in the social, political, regulatory and economic environment in Malaysia may have a material adverse impact on us.

BioNexus’ business, prospects, financial condition and results of operations may be adversely affected by social, political, regulatory and economic developments in Malaysia. Such political and economic uncertainties include, but are not limited to, the risks of war, terrorism, nationalism, nullification of contract, changes in interest rates, imposition of capital controls and methods of taxation.

All sectors of the economy in 2022 across Malaysia saw their supply chains interrupted, demand for their products and services decline, shortages in supplies and inputs. We will emerge in a very different world compared to the one before the outbreak. All organizational functions are intended to prioritize and optimize spending or postpone tasks that will not bring value in the current environment. It created serious consequences because various businesses are facing massive losses due to their declining activities and the accompanying unpredictable future of many businesses. A substantial decrease has been observed in overall spending, which resulted in an array of estimated long-term uncertainty impacts. Consequently, many businesses and firms closed, and employees were dismissed. Towards a new recovery phase in 2022, most businesses and organizational functions were prioritizing our spending or postpone any tasks and events that do not bring any value to the current situation because even when the challenges are successfully addressed, this will not guarantee any promising future. Hence, we were alerted about the available survival strategies to sustain us throughout this unforeseen circumstance and in the future. A “new normal” indicates how we should digest the current situation and initiate a business growth pattern. Returning to the pre-pandemic business pattern will take time and depends on the government’s response to the population health and socioeconomic demands arising due to the pandemic.

Although the overall Malaysian economic environment (in which BioNexus predominantly operate) appears to be positive, there can be no assurance that this will continue to prevail in the future. Economic growth is determined by countless factors, and it is extremely difficult to predict with any level of absolute certainty.

You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing actions in Malaysia against the company or its management based on foreign laws, and the ability of U.S. authorities to bring actions in Malaysia may also be limited.

The company’s operating subsidiaries are incorporated in Malaysia and conduct substantially all of its operations in Southeast Asia. All of BioNexus’ executive officers and directors reside outside the United States, and all their assets are located outside of the United States. As a result, it may be difficult or impossible for shareholders to bring an action against us or against these individuals in Malaysia in the event that you believe that your rights have been infringed under the securities laws of the United States or otherwise.  Even if you are successful in bringing an action of this kind, the laws of Malaysia may render you unable to enforce a judgment against BioNexus’ assets or the assets of BioNexus’ directors and officers. There is no statutory recognition in Malaysia of judgments obtained in the United States, although the courts of Malaysia will generally recognize and enforce a non-penal judgment of a foreign court of competent jurisdiction without retrial on the merits. The rights of shareholders to take legal action against us and BioNexus’ directors, actions by minority shareholders and the fiduciary responsibilities of its directors are to a large extent governed by the common law of Malaysia. The common law of Malaysia is derived in part from comparatively limited judicial precedent in Malaysia as well as from English common law, which provides persuasive, but not binding, authority in a court in Malaysia. The rights of BioNexus’ shareholders and the fiduciary responsibilities of its directors under Malaysian law are not as clearly established as they would be under statutes or judicial precedents in the United States. Malaysia has a less developed body of securities laws than the United States and provides significantly less protection to investors. As a result, BioNexus’ public shareholders may have more difficulty in protecting their interests through actions against us, its management, its directors or its major shareholders than would shareholders of a corporation incorporated in a jurisdiction in the United States. In addition, to receive any form of remedy, the shareholders would have to engage Malaysian counsel regarding the process to receive any such remedy.

BioNexus is subject to foreign exchange control policies in Malaysia.

The ability of BioNexus’ subsidiaries to pay dividends or make other payments may be restricted by the foreign exchange control policies in the countries where they operate. For example, there are foreign exchange policies in Malaysia which support the monitoring of capital flows into and out of the country in order to preserve its financial and economic stability. The foreign exchange policies are administered by the Foreign Exchange Administration, an arm of Bank Negara Malaysia (“BNM”), the central bank of Malaysia. The foreign exchange policies monitor and regulate both residents and non-residents. Under the current Foreign Exchange Administration rules issued by BNM, non-residents are free to repatriate any amount of funds from Malaysia in foreign currency other than the currency of Israel at any time (subject to limited exceptions), including capital, divestment proceeds, profits, dividends, rental, fees and interest arising from investment in Malaysia, subject to any withholding tax. In the event BNM or any other country where BioNexus operates introduces any restrictions in the future, it may be affected in its ability to repatriate dividends or other payments from BioNexus’ subsidiaries in Malaysia or in such other countries. Since BioNexus rely principally on dividends and other payments from its subsidiaries for its cash requirements, any restrictions on such dividends or other payments could materially and adversely affect its liquidity, financial condition and results of operations.