Warnex Inc.
TSX : WNX

Warnex Inc.

November 07, 2007 17:00 ET

Warnex Reports Third Quarter 2007 Results

Record Third Quarter Revenue and Positive EBITDA

LAVAL, QUEBEC--(Marketwire - Nov. 7, 2007) - Warnex Inc. (TSX:WNX) today announced financial results for the third quarter ended September 30, 2007.



Operating Highlights

- Record third quarter revenue of $6.0 million

- Positive EBITDA from continuing operations for a fourth consecutive
quarter

- Net loss of $175,000 or $0.00 per share

- Ongoing review of various strategic options for its laboratory services
business

- Exclusive licence with Ipsogen to market a molecular diagnostic service
for leukemia in Canada

- Agreement with Organon Canada to provide bioavailable testosterone
testing to their customers across Canada


Consolidated revenue for the third quarter ended September 30, 2007, was $6.0 million compared to $4.7 million in the corresponding quarter in 2006, an increase of 27% over last year. Acquisitions contributed $1.8 million of revenue during the quarter, representing 24% of revenue growth. During the quarter, the Analytical division increased its revenue by 68%, from $1.9 million in 2006 to $3.2 million in 2007, mainly due to the Neopharm analytical laboratory acquired last September. The Bioanalytical division increased its revenue by 5% from $1.8 million in 2006 to $1.9 million in 2007. For the nine-month period ended September 30, 2007, revenue from continuing operations reached $17.9 million compared to $12.7 million in 2006, an increase of 42% over last year.

The net loss for the quarter was $0.1 million from continuing operations (2006 - $0.7 million) and $0.1 million from discontinued operations (2006 - $0.9 million) for a total net loss of $0.2 million (2006 -$1.6 million). The net loss per share was $0.00 from continuing operations (2006 - $0.01) and $0.00 per share from discontinued operations (2006 - $0.02) for a total net loss of $0.00 per share (2006 - $0.03) . For the nine-month period ended September 30, 2007, the net loss was $1.3 million from continuing operations (2006 - $2.6 million) and a net profit of $0.3 million from discontinued operations (2006 - net loss of $3.6 million), for a total net loss of $1.0 million (2006 - $6.2 million). The net loss per share was $0.03 from continuing operations (2006 - $0.05) and earnings were $0.01 per share from discontinued operations (2006 - loss of $0.07) for a total net loss of $0.02 per share (2006 - $0.12).

For the three-month period ended September 30, 2007, earnings before interests, taxes, depreciation and amortization (EBITDA) from continuing operations amounted to $0.8 million (2006 - $0.3 million), an increase of $0.5 million over last year. Total EBITDA including discontinued operations was $0.8 million for the quarter compared with a negative $0.5 million in the corresponding quarter in 2006. For the nine-month period ended September 30, 2007, EBITDA from continuing operations, amounted to $1.6 million (2006 - $0.3 million), an increase of $1.3 million over last year. Total EBITDA including discontinued operations was $1.2 million compared with a negative $3.1 million in the corresponding period in 2006.

"We continue to improve our results as we focus on laboratory services, as demonstrated by the fact that we came close to breaking even for a second consecutive quarter. By improving the efficiency of our laboratory operations in the Analytical and Bioanalytical divisions, we have significantly improved our gross margins while maintaining steady revenue growth," said Mark Busgang, President and CEO of Warnex. "Our Medical division continues to expand its service offering and enhance its market position by obtaining an exclusive licence from Ipsogen for the exclusivity for JAK2 clinical testing performed in Canada, as well as an agreement with Organon Canada to provide bioavailable testosterone testing to their customers across Canada."

Additional Financial Review

Gross margins for the three-month period ended September 30, 2007, amounted to $1.7 million or 28.0% of sales (2006 - $1.0 million or 22.0% of sales). The increase in gross margin is mainly explained by improvements in the gross margins of the Analytical and Bioanalytical divisions. Gross margins in the Medical division decreased by $0.1 million due to a decrease in Prenatest® screening revenue. Gross margins for the nine-month period ended September 30, 2007, amounted to $4.2 million or 23.2% of sales (2006 - $2.8 million or 21.9% of sales), an increase of $1.4 million.

Selling and administrative expenses (SG&A) amounted to $1.4 million for the three-month period ended September 30, 2007 (2006 - $1.5 million). In proportion of revenue, SG&A are less than last year at 23.3% in 2007 (2006 - 31.3%). For the nine-month period ended September 30, 2007, selling and administrative expenses amounted to $4.2 million (2006 - $4.5 million), a decrease of $0.3 million.

Financial expenses for the quarter increased by $102,109 to $377,914 (2006 - $275,805) principally due to $123,690 in interest on the October 2006 debenture. For the nine-month period, financial expenses amounted to $1.3 million (2006 - $0.8 million).

As of September 30, 2007, the Company had $3.1 million in cash and working capital of $(8.6) million due to the debentures maturing on June 25, 2008, and July 9, 2008, fully becoming current.

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 strategic options for the Company, financial resources and credit risk, laboratory facilities, suppliers, government regulations, key employees, key customers and business partners, foreign currency risk, volatility of share price, 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 third quarter ended September 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)

September 30 December 31
2007 2006
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Assets
Current
Cash and cash equivalents $3,138,687 $4,050,288
Accounts receivable 4,087,061 5,212,078
Work-in-progress 75,783 98,732
Inventory 95,168 79,368
Investment tax credits receivable 437,791 437,791
Prepaid expenses 242,395 207,984
Current assets held for sale - 349,267
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8,076,885 10,435,508

Long-term receivables 125,000 250,000
Property, plant and equipment 8,199,167 9,574,868
Intangible assets 310,614 326,677
Goodwill 937,695 937,695
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$17,649,361 $21,524,748
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Liabilities
Current
Bank indebtedness $750,000 $-
Accounts payable 2,664,535 3,842,140
Deferred revenue 677,393 1,012,717
Current portion of long-term debt 1,751,860 1,765,581
Current portion of debentures 10,776,233 1,349,014
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16,620,021 7,969,452

Long-term debt 922,637 2,275,092
Liability component of debentures - 10,234,037
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17,542,658 20,478,581
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Shareholders' equity
Capital stock 38,705,849 38,705,849
Equity component of debentures 1,428,114 1,428,114
Contributed surplus 1,262,390 1,080,728
Deficit (41,289,650) (40,168,524)
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106,703 1,046,167
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$17,649,361 $21,524,748
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Interim Consolidated Statements of Contributed Surplus
(Unaudited)

Three months ended Nine months ended
September 30 September 30
2007 2006 2007 2006
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Balance, beginning
of period $1,209,252 $940,136 $1,080,728 $746,153
Compensation cost for
stock options granted 53,138 105,138 181,662 299,121
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Balance, end of period $1,262,390 $1,045,274 $1,262,390 $1,045,274
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Interim Consolidated Statements of Deficit
(Unaudited)

Three months ended Nine months ended
September 30 September 30
2007 2006 2007 2006
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Balance, beginning
of period $41,086,348 $26,827,758 $40,168,524 $22,185,199
Interest on equity
component of debentures 28,537 20,276 94,320 60,981
Net loss 174,765 1,606,495 1,026,806 6,208,349
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Balance, end of period $41,289,650 $28,454,529 $41,289,650 $28,454,529
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Interim Consolidated Statements of Earnings
(Unaudited)

Three months ended Nine months ended
September 30 September 30
2007 2006 2007 2006
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-------------------------------------------------------------------------
Revenue $5,990,729 $4,702,364 $17,945,017 $12,658,433
Cost of goods sold 4,310,604 3,667,400 13,782,975 9,881,833
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Gross margin 1,680,125 1,034,964 4,162,042 2,776,600
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Operating expenses
Selling, general and
administrative 1,394,723 1,471,861 4,240,137 4,553,953
Finance charges 377,914 275,805 1,251,366 802,906
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1,772,637 1,747,666 5,491,503 5,356,859
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Loss from continuing
operations (92,512) (712,702) (1,329,461) (2,580,259)
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Earning (loss) from
discontinued operations (82,253) (893,793) 302,655 (3,628,090)
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Net loss $(174,765) $(1,606,495) $(1,026,806) $(6,208,349)
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Basic and fully diluted
net loss per share from
continuing operations $0.00 $(0.01) $(0.03) $(0.05)
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Basic and fully diluted
net loss per share $0.00 $(0.03) $(0.02) $(0.12)
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Weighted average number
of shares outstanding 51,973,875 51,973,875 51,973,875 51,973,875
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Interim Consolidated Statements of Cash Flows
(Unaudited)

Three months ended Nine months ended
September 30 September 30
2007 2006 2007 2006
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Operations
Net loss $(92,512) $(712,702) $(1,329,461) $(2,580,259)
Items not affecting cash:
Amortization of
property, plant and
equipment 507,696 533,468 1,512,897 1,499,405
Amortization of
intangible assets 16,896 136,437 49,551 408,875
Accretion of interest 72,033 - 246,886 -
Gain on disposal of
property, plant and
equipment - - - (10,750)
Foreign currency
fluctuation (86,607) (42,265) 49,226 (13,806)
Compensation cost for
stock options 53,138 105,138 181,662 299,121
Interest on equity
component of debentures (28,537) (20,275) (94,320) (60,981)
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442,107 (199) 616,441 (458,395)
Net change in non-cash
working capital items (337,572) (1,317,765) (481,209) 236,555
-------------------------------------------------------------------------
Net cash provided by
(used in) continuing
operating activities 104,535 (1,317,964) 135,232 (221,840)
Net cash used in
discontinued activities (82,253) (1,016,077) (80,371) (3,529,279)
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Net cash provided by
(used in) operations 22,282 (2,334,041) 54,861 (3,751,119)
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Investing activities
Increase in marketable
securities - - - 5,940,680
Increase in long-term
receivables 425,000 125,000 125,000 125,000
Acquisition of property,
plant and equipment (19,729) (1,238,636) (137,196) (1,919,980)
Proceeds on disposal of
property, plant and
equipment - 66,863 - 77,613
Acquisition of
intangible assets (33,380) (1,520) (33,488) (10,308)
Acquisition of goodwill - (119,831) - (937,695)
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Net cash provided by
(used in) continuing
investing activities 371,891 (1,168,124) (45,684) 3,275,310
Net cash provided by
(used in) discontinued
investing activities - 15,760 732,293 (52,920)
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Net cash provided by
(used in) investing
activities 371,891 (1,152,364) 686,609 3,222,390
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-------------------------------------------------------------------------
Financing activities
Increase in bank loan 150,000 280,000 750,000 280,000
Proceeds from long-term
debt - 16,599 - 62,432
Repayment of long-term
debt (415,530) (497,018) (1,366,176) (1,410,846)
Repayment of liability
component of
debentures (517,902) (17,901) (1,053,704) (53,703)
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Net cash used in
financing activities (783,432) (218,320) (1,669,880) (1,122,117)
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Foreign exchange loss
(gain) on cash held in
foreign currencies 91,679 24,347 16,809 (120)
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Decrease in cash and
cash equivalents (297,580) (3,680,378) (911,601) (1,650,966)
Cash and cash
equivalents, beginning
of period 3,436,267 4,284,089 4,050,288 2,254,679
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Cash and cash
equivalents, end
of period $3,138,687 $603,711 $3,138,687 $603,713
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