KRX suspends EDGC trading due to audit result controversy

The Korea Exchange (KRX) has suspended stock trading of EONE-Diagnomics Genome Center (EDGC), a Kosdaq-listed genomic analysis company, due to unverified rumors that the company received a disclaimer of opinion during its audit process.

The suspension took effect when the market opened Monday, with KRX regulators demanding clarification on the rumors by 6 p.m. Tuesday. If the inquiry results remain unconfirmed, the suspension of trading may be extended until the reasons for the rumors are resolved.

Under the Korean law on external audits, listed companies must submit their audit reports one week before the annual general meeting. Typically, companies that close their books in December hold their annual general meetings at the end of March, which means the audit reports should have been disclosed by March 22, seven days before the last trading day of the month.

However, EDGC has yet to disclose its audit results as of April 8. 

EDGC has been embroiled in financial difficulties despite showing robust activity among Korean diagnostic firms.

The company successfully completed its acquisition of GDXLab, a CLIA (Clinical Laboratory Improvement Amendments) certified lab located in the southern part of Denver, Colorado, in October last year.

CLIA is a U.S. standard certification system that verifies the accuracy, reliability, and appropriateness of tests for laboratories that perform clinical tests to diagnose, prevent, and treat diseases.

CLIA-accredited laboratories can perform laboratory-developed tests and clinical testing services without FDA approval and provide test results to healthcare providers in the U.S.

Additionally, the company received additional CLIA certification for its laboratory in Incheon.

Besides CLIA certification, the company announced its participation in the Cancer Moonshot Initiative, which aims to reduce the death rate from cancer by more than 50 percent over the next 25 years, propelled by U.S. President Joe Biden's administration.

Despite the company's active business, the company's financial woes have been deepening.

As of the end of the third quarter, EDGC's debt-to-equity ratio stands at 620.7 percent.

It is commonly accepted in the industry that when the debt-to-equity ratio exceeds 300 percent, it becomes difficult to cover interest expenses with operating income.

The company's debt-to-asset ratio is also high, at 57.7 percent, meaning that over half of its assets were financed through debt that incurs interest.

During the same period, the company reported sales of 73.5 billion won ($54.2 million) and an operating loss of 7.4 billion won.

Although biotech companies often cover losses through capital increases and raising funds in the capital markets, this is contingent on the company's ability to maintain trust in the capital markets.

This has not been the case for EDGC, as a paid-in capital increase effort in October last year resulted in a dismal subscription rate of only 32.3 percent, even after a public offering.

Although the company aimed to raise 68.7 billion won, it only secured about 16.3 billion won in the end.

Most recently, Kringtech, a local software company, emerged as a savior for EDGC, facing financial difficulties as the company was assigned as the sole investor for convertible bonds (CB) exceeding the stake of the existing largest shareholders of EDGC.

EDGC's largest shareholder is Lim Kyung-suk, chairman of the Eone Laboratories, holding 11.25 percent of the shares. The combined stake of the Lim and current management is 20.03 percent.

The issue now is whether this CB issuance will affect the change in the largest shareholder. If Kringtech converts all its CBs to stock, its stake will increase to 21 percent, making it the company's largest shareholder.