Doubt Over Going Concern in Last Year's Audit Report
Promoting US Export of COVID-19 Test Kits to Boost Sales
Underwriter to Acquire Unsubscribed Shares... 20% Fee for Unsubscribed Share Acquisition
[Asia Economy Reporter Hyungsoo Park] DNA Link, a genome-based precision medicine specialist company, is putting all its efforts into a rights offering to maintain its viability as a going concern. Concerns over financial stability are growing as losses continue. Since the previous year's audit report pointed out accumulated deficits, improving performance is urgent.
According to the Financial Supervisory Service's electronic disclosure system on the 27th, DNA Link is conducting a paid-in capital increase by rights offering with a general public offering of unsubscribed shares, allocating 0.18 new shares per 1 existing share. The planned issue price per new share is 14,250 KRW, and a total of 2.5 million shares will be issued.
It plans to raise 35.6 billion KRW to be used for ▲facility funds to expand diagnostic business including COVID-19 diagnostic kits ▲personnel and initial outsourcing production costs for COVID-19 diagnostic kit production and development ▲analysis equipment and server construction costs for participation in the national bio big data main project.
DNA Link is promoting new businesses focusing on COVID-19 antibody rapid diagnostic kits and antigen rapid diagnostic kits. The antibody rapid diagnostic kit has obtained export approval from the Korean Ministry of Food and Drug Safety, European certification (CE), and is awaiting Emergency Use Authorization (EUA) from the U.S. Food and Drug Administration (FDA). The antigen rapid diagnostic kit is striving to obtain export approval from the Korean MFDS and European certification (CE). This year, sales of COVID-19 rapid diagnostic kits amount to 456 million KRW, and it is expected that overseas sales will increase once the U.S. FDA grants EUA. The estimated U.S. sales of the antibody rapid diagnostic kit next year are 60 billion KRW, representing the largest portion of DNA Link’s sales growth plan.
For the 2019 fiscal year, DNA Link’s auditor raised significant doubts about the company’s ability to continue as a going concern due to accumulated deficits. The going concern status can be determined based on whether financial structure improvements, including management improvement plans to achieve stable operating profit and net income, are realized. This year, the auditor changed to Samduck Accounting Corporation. The audit fee increased from 700 million KRW last year to 1.55 billion KRW. It is expected that the auditor will thoroughly review improvements related to previous year’s issues.
As of the first half of the year, DNA Link’s accumulated deficit stands at 46.55 billion KRW. With a decrease in total equity, the debt ratio rose from 5.96% in 2017 to 168.05% in 2019. In 2019, DNA Link recorded a loss from continuing operations before income tax exceeding 50% of its equity. According to the 'KOSDAQ Market Listing Regulations,' if a loss from continuing operations before income tax exceeding 50% of equity occurs in two out of the last three fiscal years, the company is classified as a management item. If DNA Link succeeds in the capital increase, the possibility of being classified as a management item will decrease due to an increase in total equity.
DNA Link has signed an unsubscribed share purchase agreement with Ebest Investment & Securities. The underwriting fee for unsubscribed shares is 20%. Considering that the average underwriting fee rate for 53 out of 54 rights offerings resolved by boards this year, excluding one withdrawal, is about 13%, DNA Link’s urgency can be inferred. However, since there is a large gap between the current DNA Link stock price and the planned new share issue price, the likelihood of a large volume of unsubscribed shares occurring is low.
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