Warnex Inc.

Warnex Inc.

August 09, 2007 17:00 ET

Warnex Reports Second Quarter 2007 Results

LAVAL, QC, Aug. 9 - Warnex Inc. (TSX:WNX) today announced
financial results for the second quarter ended June 30, 2007.



Operating Highlights

- Achieved record second quarter revenue of $5.8 million
- Concluded the sale of the pathogen detection business to AES
Laboratoire for a total price of $900,000
- Positive EBITDA from continuing operations for a third consecutive
quarter
- Initiated a review of various strategic options for its ongoing
laboratory services business in order to enhance shareholder value
- Successfully passed an FDA inspection of the Company's bioanalytical
facilities
- Signed an agreement to perform pharmacogenetic and bioanalytical
services for Novartis Pharmaceuticals Canada Inc.


Consolidated revenue for the second quarter ended June 30, 2007, was
$5.8 million, 59% higher than the consolidated revenue of $3.7 million in the
corresponding quarter in 2006. Acquisitions contributed $1.9 million of
revenue during the quarter, representing 51% of revenue growth. These results
are mainly attributed to the performance of the Analytical and Bioanalytical
divisions. During the quarter, the Analytical division increased its revenue
by 94%, from $1.7 million for the same period in 2006 to $3.2 million in 2007,
due to the Neopharm analytical laboratory acquired last September. The
Bioanalytical division increased its revenue by 73% from $1.1 million in 2006
to $1.9 million in 2007. For the six-month period ended June 30, 2007, revenue
from continuing operations reached $12.0 million (2006 - $8.0 million), an
increase of 50% over last year.

The net loss for the quarter was $0.9 million from continuing operations
(2006 - $1.5 million) and a net profit of $0.9 million from discontinued
operations (2006 - loss of $1.5 million) for a total net loss of $0.0 million
(2006 - $3.0 million). The net loss per share was $0.02 from continuing
operations (2006 - $0.03) and earnings were $0.02 per share from discontinued
operations (2006 - loss of $0.03) for a total net loss of $0.00 per share
(2006 - $0.06). For the six-month period ended June 30, 2007, the net loss was
$1.2 million from continuing operations (2006 - $1.9 million) and a net profit
of $0.4 million from discontinued operations (2006 - net loss of
$2.7 million), for a total net loss of $0.9 million (2006 - $4.6 million). The
net loss per share was $0.02 from continuing operations (2006 - $0.04) and
earnings were $0.00 per share from discontinued operations (2006 - loss of
$0.05) for a total net loss of $0.02 per share (2006 - $0.09).

For the three-month period ended June 30, 2007, earnings before
interests, taxes, depreciation and amortization (EBITDA) from continuing
operations amounted to $0.1 million (2006 - a loss of $0.6 million), an
increase of $0.7 million over last year. Total EBITDA including discontinued
operations was $0.3 million for the quarter compared with a loss of
$2.0 million in the corresponding quarter in 2006. For the six-month period
ended June 30, 2007, EBITDA from continuing operations, amounted to
$0.7 million (2006 - loss of $44,000), an increase of $0.7 million over last
year. Total EBITDA including discontinued operations was $0.4 million compared
with a loss of $2.6 million in the corresponding period in 2006.

"Our strategy to divest from the pathogen detection business, to focus on
our laboratory services and grow our existing operations is having a positive
impact on our revenue growth and bottom line," said Mark Busgang, President
and CEO of Warnex. "In order to maintain our commitment to providing a high
quality comprehensive service offering to the pharmaceutical industry, we will
continue leveraging our developed expertise and capabilities and complement
our existing services by continuing to invest in the laboratory services
sector."

Additional Financial Review

The transfer of assets resulting from the sale of the pathogen detection
business unit to AES Laboratoire resulted in a gain on disposal of assets of
$732,293.

Gross margins for the three-month period ended June 30, 2007, amounted to
$0.9 million or 15.7% of sales (2006 - $0.4 million or 11.0% of sales). The
increase in gross margin is mainly explained by the improvement in the
Bioanalytical division's gross margin over last year. More revenue was
generated this year while labour costs remained similar to last year. Gross
margins in the Medical division decreased by $116,788 due to a decrease in
Prenatest® revenue, and gross margins in the Analytical division remained
stable compared to last year. Gross margins for the six-month period ended
June 30, 2007, amounted to $2.5 million or 20.8% of sales (2006 - $1.7 million
or 21.9% of sales), an increase of $0.8 million.

Selling and administrative expenses (SG&A) amounted to $1.4 million for
the three-month period ended June 30, 2007 (2006 - $1.7 million). In
proportion of revenue, SG&A are less than last year at 24.5% in 2007 (2006 -
45.3%). For the six-month period ended June 30, 2007, selling and
administrative expenses amounted to $2.8 million (2006 - $3.1 million), a
decrease of $0.3 million.

Financial expenses for the quarter increased by $164,694 to $437,661
(2006 - $272,967) principally due to $151,133 in interest on the October 2006
debenture. For the six-month period, financial expenses amounted to $873,452
(2006 - $527,101), an increase of $346,351.

As of June 30, 2007, the Company had working capital of $(5.3 million)
compared to $2.5 million at December 2006, due to the debenture maturing
June 25, 2008, fully becoming current. As at June 30, 2007, the Company has
$3.4 million invested in cash and in such securities and $0.4 million of R&D
tax credits. In addition, the Company had $0.4 million in unused banking
facilities. The Company is pursuing financing alternatives and believes that
it will identify long-term financing before the maturity date of the
convertible debentures, in the context that the laboratory divisions of the
Company will generate positive EBITDA in 2007 and beyond following the sale of
the pathogen detection division.

Conference Call Information

The Company will host a conference call on Friday, August 10, 2007, at
10:00 am EDT. 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 life sciences company devoted to protecting
public health by providing laboratory services to the pharmaceutical and
healthcare sectors. Warnex's analytical services division provides
pharmaceutical and biotechnology companies with a variety of quality control
services, including traditional chemistry, chromatography, microbiology,
method development and validation, and stability studies. Warnex's
bioanalytical services division specializes in bioequivalence and
bioavailability studies for clinical trials. Warnex's medical laboratories
division focuses on genetic and biochemical testing for the healthcare
industry and has extensive expertise in genetic testing for human
identification, molecular diagnostics, and pharmacogenetics.

Prenatest is a registered trademark of Warnex Inc. Laval, Quebec.

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, relating to the
integration of acquisitions, laboratory facilities, suppliers, key employees,
key customers and business partners, financial resources and credit risk,
government regulations, foreign currency risk, volatility of share price,
strategic options for the Company, and other important factors that could
cause actual results to differ materially from those anticipated in the
forward-looking statements, please refer to the heading Risks and
Uncertainties in the Management's Discussion and Analysis for the second
quarter ended June 30, 2007, which can be found at www.sedar.com.
Consequently, actual results may differ materially from the anticipated
results expressed in these forward-looking statements.



Interim Consolidated Balance Sheets
(Unaudited)
June 30 December 31
2007 2006
-------------------------------------------------------------------------
Assets
Current
Cash and cash equivalents $ 3,436,267 $ 4,050,288
Accounts receivable 4,524,707 5,212,078
Work-in-progress 1,184 98,732
Inventory 88,222 79,368
Investment tax credits receivable 437,791 437,791
Prepaid expenses 241,867 207,984
Current assets held for sale - 349,267
-------------------------------------------------------------------------
8,730,038 10,435,508

Long-term receivables 550,000 250,000
Property, plant and equipment 8,687,134 9,574,868
Intangible assets 294,130 326,677
Goodwill 937,695 937,695
-------------------------------------------------------------------------

$ 19,198,997 $ 21,524,748
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Liabilities
Current
Bank indebtedness $ 600,000 $ -
Accounts payable 3,449,421 3,842,140
Deferred revenue 580,580 1,012,717
Current portion of long-term debt 1,392,187 1,765,581
Current portion of debentures 7,968,885 1,349,014
-------------------------------------------------------------------------
13,991,073 7,969,452

Long-term debt 1,697,840 2,275,092
Liability component of debentures 3,253,217 10,234,037
-------------------------------------------------------------------------

18,942,130 20,478,581
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Shareholders' equity
Capital stock 38,705,849 38,705,849
Equity component of debentures 1,428,114 1,428,114
Contributed surplus 1,209,252 1,080,728
Deficit (41,086,348) (40,168,524)
-------------------------------------------------------------------------
256,867 1,046,167
-------------------------------------------------------------------------
-------------------------------------------------------------------------

$ 19,198,997 $ 21,524,748
-------------------------------------------------------------------------
-------------------------------------------------------------------------


Interim Consolidated Statements of Contributed Surplus
(Unaudited)
Three months ended Six months ended
June 30 June 30
2007 2006 2007 2006
-------------------------------------------------------------------------
Balance,
beginning
of period $ 1,145,996 $ 843,665 $ 1,080,728 $ 746,153
Compensation cost
for stock
options granted 63,256 96,471 128,524 193,983
-------------------------------------------------------------------------
Balance, end
of period $ 1,209,252 $ 940,136 $ 1,209,252 $ 940,136
-------------------------------------------------------------------------
-------------------------------------------------------------------------


Interim Consolidated Statements of Deficit
(Unaudited)
Three months ended Six months ended
June 30 June 30
2007 2006 2007 2006
-------------------------------------------------------------------------
Balance,
beginning
of period $ 41,031,620 $ 23,761,718 $ 40,168,524 $ 22,185,199
Interest on equity
component of
debentures 31,624 20,337 65,783 40,705
Net loss 23,104 3,045,703 852,041 4,601,854
-------------------------------------------------------------------------
Balance, end
of period $ 41,086,348 $ 26,827,758 $ 41,086,348 $ 26,827,758
-------------------------------------------------------------------------
-------------------------------------------------------------------------


Interim Consolidated Statements of Earnings
(Unaudited)
Three months ended Six months ended
June 30 June 30
2007 2006 2007 2006
-------------------------------------------------------------------------
Revenue $ 5,792,277 $ 3,651,667 $ 11,954,288 $ 7,956,069
Cost of goods sold 4,880,294 3,251,702 9,472,371 6,214,433
-------------------------------------------------------------------------
Gross margin 911,983 399,966 2,481,917 1,741,636
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Operating expenses
Selling, general
and
administrative 1,420,126 1,656,302 2,845,414 3,082,092
Finance charges 437,661 272,967 873,452 527,101
-------------------------------------------------------------------------
1,857,787 1,929,269 3,718,866 3,609,193
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Loss from
continuing
operations (945,804) (1,529,303) (1,236,949) (1,867,557)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earning (loss)
from discontinued
operations 922,700 (1,516,400) 384,908 (2,734,297)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net loss $ (23,104) $ (3,045,703) $ (852,041) $ (4,601,854)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Basic and fully
diluted net loss
per share from
continuing
operations $ (0.02) $ (0.03) $ (0.02) $ (0.04)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Basic and fully
diluted net loss
per share $ 0.00 $ (0.06) $ (0.02) $ (0.09)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Weighted average
number of shares
outstanding 51,973,875 51,973,875 51,973,875 51,973,875
-------------------------------------------------------------------------
-------------------------------------------------------------------------


Interim Consolidated Statements of Cash Flows (Unaudited)

Three months ended Six months ended
June 30 June 30
2007 2006 2007 2006
-------------------------------------------------------------------------
Operations
Net loss $ (945,804) $ (1,529,303) $ (1,236,949) $ (1,867,557)
Items not
affecting cash:
Amortization
of property,
plant and
equipment 525,280 505,855 1,005,201 965,934
Amortization
of intangible
assets 16,871 136,365 32,655 272,438
Accretion of
interest 84,069 45,833 174,853 45,833
Gain on
disposal of
property,
plant and
equipment - - - (10,750)
Foreign currency
fluctuation 112,222 47,215 135,833 28,459
Compensation
cost for stock
options 63,256 96,471 128,524 193,983
Interest on
equity
component of
debentures (31,624) (20,337) (65,783) (40,706)
-------------------------------------------------------------------------
(1,757,730) (717,901) 174,334 (412,366)
Net change
in non-cash
working
capital items (496,637) 408,801 (143,637) 1,554,321
-------------------------------------------------------------------------
Net cash
provided by
(used in)
continuing
operating
activities (672,367) (309,100) 30,697 1,141,955
Net cash
provided by
(used in)
discontinued
activities 301,315 (1,465,744) 1,882 (2,513,202)
-------------------------------------------------------------------------
(371,052) (1,774,844) 32,579 (1,371,247)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Investing
activities
Increase in
long-term
receivables (300,000) 5,986,895 (300,000) 5,940,680
Acquisition
of property,
plant and
equipment (95,620) (532,398) (117,467) (681,344)
Proceeds on
disposal of
property,
plant and
equipment - - - 10,750
Acquisition
of intangible
assets (108) (2,045) (108) (8,788)
Acquisition
of goodwill - (817,864) - (817,864)
-------------------------------------------------------------------------
Net cash
provided by
(used in)
continuing
investing
activities (395,728) 4,634,588 (417,575) 4,443,434
Net cash
provided by
(used in)
discontinued
investing
activities 732,293 (9,399) 732,293 (68,680)
-------------------------------------------------------------------------
Net cash
provided by
investing
activities 336,565 4,625,189 314,718 4,374,754
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Financing
activities
Increase in
bank loan 140,000 - 600,000 -
Repayment of
long-term
debt (464,621) (533,843) (950,646) (913,828)
Repayment of
liability
component of
debentures (517,901) (17,901) (535,802) (35,802)
-------------------------------------------------------------------------
Net cash used
in financing
activities (842,522) (551,744) (886,448) (949,630)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Foreign exchange
loss on cash
held in foreign
currencies (72,495) (24,914) (74,870) (24,467)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Increase
(decrease) in
cash and cash
equivalents (949,504) 2,273,687 (614,021) 2,029,410
Cash and cash
equivalents,
beginning of
period 4,385,771 2,010,402 4,050,288 2,254,679
-------------------------------------------------------------------------
Cash and cash
equivalents,
end of period $ 3,436,267 $ 4,284,089 $ 3,436,267 $ 4,284,089
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Contact Information

  • Mark J. Busgang, President & CEO, Warnex Inc.,
    Tel: (450) 663-6724 x.310, mbusgang@warnex.ca