Warnex Inc.

Warnex Inc.

August 11, 2005 16:31 ET

Warnex Reports Second Quarter 2005 Results

LAVAL, QC, Aug. 11 - Warnex Inc. (TSX:WNX) today announced
financial results for the second quarter ended June 30, 2005.

Selected Highlights



- Added new Warnex™ Rapid Pathogen Detection System customers Dakota
Turkey Growers and Laboratoires d'analyses S.M.
- Existing Warnex System customer, West Liberty Foods, committed to an
additional system
- Record quarterly revenue and third consecutive quarter with revenue
exceeding $4 million
- Revenue growth reported in every operating division
- Reduced net loss per share by 50% compared to Q2 2004
- Improved EBITDA by 77% compared to Q2 2004


Consolidated revenue for the three-month period ended June 30, 2005,
increased by 62% to $4.2 million compared with $2.6 million over the same
period a year ago. On a six-month basis, revenue grew 71% to $8.3 million from
$4.8 million in the same period a year ago. The net loss for the quarter
decreased by 27% to $1.2 million or $0.02 per share from a net loss of
$1.6 million or $0.04 per share in the corresponding quarter a year earlier.
For the six-month period, net loss decreased by $0.8 million from $3.2 million
or $0.07 per share in 2004 to $2.3 million or $0.05 per share in 2005.

"In the second quarter, we continued to generate strong results in each
of our operating divisions, strengthening the foundation that will support our
future growth," said Mark Busgang, President and CEO of Warnex. "Most
encouraging was the realization of expanded business from existing Rapid
Pathogen Detection customers this quarter, which, combined with the hard work
we put into raising awareness of our technology and the evaluations currently
underway, should translate into both increased system and reagent revenue in
the second half of the year."

Operating Highlights

During the quarter, the Company continued to make progress with the
commercial rollout of its Rapid Pathogen Detection System. Dakota Turkey
Growers joined Warnex's portfolio of industry leading customers and will use
the Warnex technology to test for Salmonella and Listeria. Laboratoires
d'analyses S.M., a division of the S.M. Group International, purchased two
systems to enhance its food safety testing services, which it offers to a
diverse client base. Existing customer, West Liberty Foods, a leading producer
of ready-to-eat meats, committed to a second system and Santi & C. S.P.A.,
after an extensive evaluation, intends to broadly rolling out the system to
its production facilities.

In the services group, both the Analytical and Bioanalytical divisions
generated increased revenue this quarter over the same period last year,
reporting increases of 25% and 36% respectively. These groups continue to
deliver good results and the bioanalytical group added key new customers
during the quarter. The Clinical Services division, acquired in June 2004,
continues to perform on target and the Company is pursuing opportunities to
expand the market for diagnostic testing.

Additional Financial Review

For the quarter, gross margin was $1.3 million compared with $1.0 million
in the same quarter of the previous year. This increase is principally a
result of the higher revenues. For the six-month period, gross margin
increased to $2.5 million in 2005 from $1.7 million in 2004.

For the quarter, selling, administrative and financial expenses were
$1.9 million, similar to the corresponding quarter in 2004. We continued to
invest in sales and marketing efforts to create awareness for the Company's
pathogen detection technology. As a percentage of revenue, this expense
category decreased in the second quarter of 2005 to 44% from 72% in the second
quarter of 2004. For the first half of the year, selling, administrative and
financial expenses were $3.8 million versus $3.5 million for the corresponding
period in 2004.

Research and development expenses decreased from $0.7 million in the
second quarter ended June 30, 2004, to $0.6 million in the current quarter.
For the sixth-month period ended June 30, 2005, R&D expenses were $1.1 million
compared to $1.4 million a year ago. In 2004, the Company incurred higher R&D
expenses as it was actively engaged in acquiring regulatory approvals for its
Rapid Pathogen Detection tests.

Earnings before interest, taxes and depreciation (EBITDA) for the quarter
was $(0.3) million versus $(1.1) million in the same quarter of the previous
year, an improvement of 77%. In addition, $105,378 of non-cash compensation
costs relating to stock options were expensed in the quarter. For the six-
month period ended June 30, 2005, EBITDA was $(530,942), compared to
$(2,243,274) in 2004, an improvement of $1.7 million. In addition, $178,809 of
non-cash compensation costs relating to stock options were expensed in the
first six months. This improved metric reflects the growing revenue base and
the Company's commitment to be EBITDA positive for the year 2005.

As at June 30, 2005, the Company had $5.5 in cash and cash equivalents,
and $0.4 million of R&D tax credits. In addition, Warnex has access to
$1.2 million in unused banking facilities.

Detailed financial statements and the MD&A are available at
www.warnex.ca.

Conference Call Information

The Company will host a conference call on Friday, August 12, at 10:00 am
EST. A live audio webcast of the conference call will be available through
www.warnex.ca. A replay of the webcast will be available for 90 days at
www.warnex.ca.

About Warnex

Warnex (www.warnex.ca) is a publicly traded (TSX: WNX) Canadian
biotechnology company devoted to protecting public health by providing
advanced diagnostic and quality control products and services to the
pharmaceutical, agri-food, and healthcare sectors. Warnex's genomics-based
technology offers a versatile detection platform that produces accurate
results rapidly, using Real-Time PCR technology combined with unique genetic
markers and software. Applications range from pathogen detection in foods and
GMO testing to farm-to-fork traceability using Molecular Bar Codes. Our
development pipeline includes applications in the detection of viruses,
toxins, yeasts and molds, as well as meat speciation and bioterrorism.
Warnex's profitable and growing analytical, bioanalytical, and clinical
service groups offer a variety of quality control services, method development
and validation, contract R&D, bioavailability and bioequivalence studies for
clinical trials, and medical laboratory testing.

CAUTION REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained in this news release are forward-looking and
are subject to numerous risks and uncertainties, known and unknown. For
information identifying known risks and uncertainties, such as market
conditions, currency, technological, financial, competitive and other
important factors that could cause actual results to differ materially from
those anticipated in the forward-looking statements, please refer to Warnex's
Annual Report under the heading Risks and Uncertainties in the Management's
Discussion and Analysis section. Consequently, actual results may differ
materially from the anticipated results expressed in these forward-looking
statements. Warnex disclaims any intention or obligation to update any
forward-looking statements, whether as a result of new information or
otherwise.

Financial statements to follow.




WARNEX INC.
INTERIM CONSOLIDATED BALANCE SHEET
(Unaudited)

June 30th December 31
2005 2004
-------------------------------------------------------------------------
Assets
Current
Cash and cash equivalents $ 5,455,562 $ 7,788,504
Accounts receivable 2,609,543 2,602,132
Inventory 833,095 417,127
Investment tax credits receivable 441,069 789,969
Prepaid expenses 226,276 197,921
-------------------------------------------------------------------------
-------------------------------------------------------------------------
9,565,545 11,795,653

Long-term receivables 104,229 -
Property, plant and equipment 10,639,802 10,790,940
Intangible assets 2,376,646 2,627,667
Goodwill 8,407,083 8,407,083
-------------------------------------------------------------------------

$ 31,093,305 $ 33,621,343
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Liabilities
Current
Bank loan $ 760,000 $ -
Accounts payable 2,292,636 3,080,672
Deferred revenue 330,675 263,062
Current portion of long-term debt 912,698 893,987
Current portion of convertible
debentures 71,605 71,605
-------------------------------------------------------------------------
4,367,614 4,309,326

Long-term debt 1,257,048 1,634,328
Liability component of convertible
debentures 9,005,279 9,041,082
-------------------------------------------------------------------------

14,629,941 14,984,736
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Shareholders' equity
Capital stock 34,770,656 34,734,656
Equity component of convertible
debentures 982,932 982,932
Contributed surplus 730,145 551,336
Deficit (20,020,369) (17,632,317)
-------------------------------------------------------------------------
16,463,364 18,636,607
-------------------------------------------------------------------------
-------------------------------------------------------------------------

$ 31,093,305 $ 33,621,343
-------------------------------------------------------------------------
-------------------------------------------------------------------------



WARNEX INC.
INTERIM CONSOLIDATED STATEMENT OF EARNINGS
(Unaudited)

Three months ended Six months ended
June 30th June 30th
2005 2004 2005 2004
-------------------------------------------------------------------------

Revenue $ 4,245,295 $ 2,623,071 $ 8,294,305 $ 4,849,165

Cost of goods sold 2,969,001 1,609,232 5,759,712 3,100,265
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Gross margin 1,276,294 1,013,839 2,534,593 1,748,900
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Operating expenses
Selling,
general and
administrative 1,631,790 1,738,097 3,325,590 3,264,321
Finance charges 243,794 147,562 487,267 261,626
Research and
development, net
of tax credits 568,062 740,192 1,066,836 1,400,767
-------------------------------------------------------------------------
2,443,646 2,625,851 4,879,693 4,926,714
-------------------------------------------------------------------------

Net loss $ 1,167,352 $ 1,612,012 $ 2,345,100 $ 3,177,814
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Basic and fully
diluted net loss
per share $ 0.02 $ 0.04 $ 0.05 $ 0.07
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Weighted average
number of shares
outstanding 48,676,658 43,820,491 48,685,698 43,747,437
-------------------------------------------------------------------------
-------------------------------------------------------------------------



WARNEX INC.
INTERIM CONSOLIDATED STATEMENT OF DEFICIT
(Unaudited)

Three months ended Six months ended
June 30th June 30th
2005 2004 2005 2004
-------------------------------------------------------------------------
Balance, beginning
of period
As previously
reported $ 18,831,481 $ 13,036,642 $ 17,632,317 $ 11,230,704

Change in
accounting
policy
regarding
stock-based
compensation - - - 229,140
-------------------------------------------------------------------------

As restated 18,831,481 13,036,642 17,632,317 11,459,844

Interest on
equity component
of convertible
debentures 21,536 10,936 42,952 21,932

Net loss 1,167,352 1,612,012 2,345,100 3,177,814
-------------------------------------------------------------------------

Balance, end of
period $ 20,020,369 $ 14,659,590 $ 20,020,369 $ 14,659,590
-------------------------------------------------------------------------
-------------------------------------------------------------------------



WARNEX INC.
INTERIM CONSOLIDATED STATEMENT OF CONTRIBUTED SURPLUS
(Unaudited)

Three months ended Six months ended
June 30th June 30th
2005 2004 2005 2004
-------------------------------------------------------------------------
Balance, beginning
of period
As previously
reported $ 624,767 $ 297,041 $ 551,336 $ -

Change in
accounting
policy
regarding
stock-based
compensation - - - 229,140
-------------------------------------------------------------------------

As restated 624,767 297,041 551,336 229,140

Compensation
cost for stock
options granted
during the period 105,378 73,347 178,809 141,248
-------------------------------------------------------------------------

Balance, end of
period $ 730,145 $ 370,388 $ 730,145 $ 370,388
-------------------------------------------------------------------------
-------------------------------------------------------------------------



WARNEX INC.
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)

Three months ended Six months ended
June 30th June 30th
2005 2004 2005 2004
-------------------------------------------------------------------------
Operations
Net loss $ (1,167,352) $ (1,612,012) $ (2,345,100) $ (3,177,814)
Items not
affecting
cash:
Amortization
of property,
plant and
equipment 530,198 352,811 1,044,065 655,041
Amortization
of intangible
assets 141,591 9,135 282,826 17,873
Compensation
cost for stock
options credited
to contributed
surplus 105,378 73,347 178,809 141,248
Loss on disposal
of property,
plant and
equipment - - 9,553 -
Interest on
equity component
of convertible
debentures (21,536) (10,936) (42,952) (21,932)
-------------------------------------------------------------------------
(411,721) (1,187,655) (872,799) (2,385,584)

Net change in
non-cash working
capital items (553,282) (514,413) (823,257) 428,443
-------------------------------------------------------------------------
(965,003) (1,702,068) (1,696,056) (1,957,141)
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Investing activities
Increase in
long-term
receivables (3,045) - (104,229) -
Decrease in
marketable
securities - 2,897,743 - 4,145,429
Acquisition
of property,
plant and
equipment (548,217) (476,937) (950,346) (1,567,362)
Proceeds on
disposal of
property,
plant and
equipment - - 47,866 -
Acquisition of
intangible
assets (17,323) (1,560,616) (31,805) (1,560,616)
Acquisition of
goodwill - (784,000) - (784,000)
-------------------------------------------------------------------------
(568,585) 76,190 (1,038,514) 233,451
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Financing activities
Bank loan 760,000 - 760,000 -
Proceeds from
long-term debt 86,260 700,000 86,260 700,000
Repayment of
long-term debt (223,200) (1,252,399) (444,829) (1,306,937)
Equity component
of convertible
debentures - 650,932 - 650,932
Liability component
of convertible
debentures (17,901) 6,176,167 (35,803) 6,152,298
Issue of shares 18,000 5,012,750 36,000 5,012,751
Costs of issuance - (388,454) - (388,454)
-------------------------------------------------------------------------
623,159 10,898,996 401,628 10,820,590
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Decrease in
cash and cash
equivalents (910,429) 9,273,118 (2,332,942) 9,096,900

Cash and cash
equivalents,
beginning of
period 6,365,991 2,671,155 7,788,504 2,847,373
-------------------------------------------------------------------------

Cash and cash
equivalents,
end of period $ 5,455,562 $ 11,944,273 $ 5,455,562 $ 11,944,273
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-------------------------------------------------------------------------

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