Warnex Inc.

Warnex Inc.

May 10, 2007 16:30 ET

Warnex reports first quarter 2007 results

Attention Business/Financial Editors: Record First Quarter Revenue and Positive EBITDA

LAVAL, QC, May 10 - Warnex Inc. (TSX:WNX) today announced
financial results for the first quarter ended March 31, 2007.



Operating Highlights

- Record first quarter revenue of $6.2 million
- Positive EBITDA from continuing operations for a second consecutive
quarter
- Signed an agreement to develop new pharmacogenetic assays and serve
as a central laboratory for several clinical studies of Schering-
Plough Canada
- Announced in April the initiation of a review of various strategic
options in order to enhance shareholder value
- Reported the favourable outcome from a U.S. Food and Drug
Administration (FDA) inspection of bioanalytical laboratories,
quality control systems and several studies in April
- Announced in April an agreement to provide pharmacogenetic and
bioanalytical services for Novartis Pharmaceuticals Canada Inc.'s
Blood Level Monitoring Program for Gleevec®
- Received a Dunamis Award from the Laval Chamber of Commerce and
Industry in the category of Human Resources Management


Consolidated revenue for the first quarter ended March 31, 2007, was
$6.2 million, 43% higher than the consolidated revenue of $4.3 million in the
corresponding quarter in 2006. Acquisitions contributed $1.7 million of
revenue during the quarter, representing 39% of revenue growth. The net loss
for the quarter was $0.3 million from continuing operations (2006 -
$0.3 million), $0.5 million from discontinued operations (2006 - $1.2 million)
for a total net loss of $0.8 million (2006 - $1.6 million). The net loss per
share was $0.01 from continuing operations (2006 - $0.01), $0.01 from
discontinued operations (2006 - $0.02) for a total net loss of $0.02 per share
(2006 - $0.03).

Earnings before interest, taxes, depreciation and amortization (EBITDA)
from continuing operations for the quarter amounted to $666,670 versus
$530,012 for the same quarter a year ago. Total EBITDA including discontinued
operations was $155,449 for the quarter compared with $(604,568) in the
corresponding quarter in 2006.

"Revenue growth in the first quarter was driven by our increased presence
in the laboratory services market as a result of the two acquisitions we
concluded in 2006 as well as our continued commitment to quality at all levels
of our organization, as demonstrated by the recent positive FDA inspection of
our bioanalytical facilities and studies" said Mark Busgang, President and CEO
of Warnex. "Furthermore, our recent contracts with Schering and Novartis
validate our strategy to enter the growing pharmacogenetics market and
demonstrate our ability to leverage our genomic expertise and bioanalytical
capabilities to provide a unique, comprehensive service offering to
pharmaceutical companies."

Additional Financial Review

Gross margin for the quarter was $1.6 million or 25.5% of sales compared
with $1.3 million or 31.2% of sales in the same quarter of the previous year.
The increase in gross margin is explained mainly by the additional revenue in
the Bioanalytical division, therefore improving efficiency and the ratio of
labour cost, since gross margins in the Analytical and Medical divisions are
similar to last year. The decrease in gross margin percentage is explained by
the newly acquired Neopharm operations, which contribute to revenue but not
yet significantly to margin. As the Neopharm operations begin to generate
improved gross margins, the Company anticipates improving gross margin
percentages in the coming quarters.

Selling, general and administrative (SG&A) expenses for the quarter ended
March 31, 2007, were $1.4 million, virtually unchanged from $1.4 million in
the corresponding quarter in 2006.

As of March 31, 2007, the Company had working capital of $1.5 million.
With $4.4 million in cash and marketable securities and $1.5 million in unused
banking facilities, the Company has access to $5.9 million.

Conference Call Information

The Company will host a conference call on Friday, May 11, 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 group 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.

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 early
commercialization of Warnex products, intellectual property and licensing, R&D
of new Warnex products, integration of acquisitions, manufacturing and
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 alternatives for the
pathogen detection division, 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 first quarter ended March 31, 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.

Financial statements to follow.



Interim Consolidated Balance Sheets (Unaudited)

March 31 December 31
2007 2006
-------------------------------------------------------------------------
Assets
Current
Cash and cash equivalents $ 4,385,771 $ 4,050,288
Accounts receivable 4,887,916 5,212,078
Work-in-progress 139,403 98,732
Inventory 75,127 79,368
Investment tax credits receivable 468,330 437,791
Prepaid expenses 336,396 207,984
Current assets held for sale 132,726 349,267
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10,425,669 10,435,508

Long-term receivables 250,000 250,000
Property, plant and equipment 9,095,528 9,574,868
Intangible assets 310,341 326,677
Goodwill 937,695 937,695
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$21,019,233 $21,524,748
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Liabilities

Current
Bank indebtedness $ 460,000 $ -
Accounts payable 4,161,804 3,842,140
Deferred revenue 938,508 1,012,717
Current portion of long-term debt 1,583,495 1,765,581
Current portion of debentures 1,774,817 1,349,014
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8,918,624 7,969,452

Long-term debt 1,971,153 2,275,092
Liability component of debentures 9,881,117 10,234,037
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20,770,894 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 1,145,996 1,080,728
Deficit (41,031,620) (40,168,524)
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248,339 1,046,167
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$21,019,233 $21,524,748
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Interim Consolidated Statements of Contributed Surplus (Unaudited)

Three months ended Three months ended
March 31 March 31
2007 2006 2007 2006
-------------------------------------------------------------------------
Balance,
beginning
of period $ 1,080,728 $ 746,153 $ 1,080,728 $ 746,153
Transfer to
capital stock
upon exercise
of options - - - -
Compensation cost
for stock
options granted 65,268 97,512 65,268 97,512
-------------------------------------------------------------------------
Balance, end of
period $ 1,145,996 $ 843,665 $ 1,145,996 $ 843,665
-------------------------------------------------------------------------
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Interim Consolidated Statements of Deficit (Unaudited)

Three months ended Three months ended
March 31 March 31
2007 2006 2007 2006
-------------------------------------------------------------------------
Balance,
beginning
of period $40,168,524 $22,185,199 $40,168,524 $22,185,199
Interest on
equity component
of debentures 34,159 20,368 34,159 20,368
Net loss 828,937 1,556,151 828,936 1,556,151
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Balance, end of
period $41,031,620 $23,761,718 $41,031,620 $23,761,718
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Interim Consolidated Statements of Earnings (Unaudited)

Three months ended Three months ended
March 31 March 31
2007 2006 2007 2006
-------------------------------------------------------------------------
Revenue $ 6,162,011 $ 4,304,401 $ 6,162,011 $ 4,304,401
Cost of goods sold 4,592,077 2,962,730 4,592,077 2,962,730
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Gross margin 1,569,934 1,341,671 1,569,934 1,341,671
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-------------------------------------------------------------------------
Operating expenses
Selling,
general and
administrative 1,425,288 1,425,791 1,425,288 1,425,791
Finance charges 435,791 254,134 435,791 254,133
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1,861,079 1,679,925 1,861,079 1,679,924
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Loss from
continuing
operations 291,145 338,254 291,144 338,254
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Loss from
discontinued
operations 537,792 1,217,897 537,792 1,217,897
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net loss $ 828,937 $ 1,556,151 $ 828,936 $ 1,556,151
-------------------------------------------------------------------------
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Basic and fully
diluted net loss
per share from
continuing
operations $ 0.01 $ 0.01 $ 0.01 $ 0.01
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Basic and fully
diluted net
loss per share $ 0.02 $ 0.03 $ 0.02 $ 0.03
-------------------------------------------------------------------------
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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 Three months ended
March 31 March 31
2007 2006 2007 2006
-------------------------------------------------------------------------
Operations
Net loss $ (291,145) $ (338,254) $ (291,145) $ (338,254)
Items not
affecting cash:
Amortization
of property,
plant and
equipment 479,921 460,079 479,921 460,079
Amortization
of intangible
assets 15,784 136,073 15,784 136,073
Accretion of
interest 90,784 - 90,784 -
Gain on
disposal of
property,
plant and
equipment - (10,750) - (10,750)
Foreign
currency
fluctuation 23,611 (18,756) 23,611 (18,756)
Compensation
cost for
stock options 65,268 97,512 65,268 97,512
Interest
on equity
component of
debentures (34,159) (20,368) (34,159) (20,368)
Net change in
non-cash
working
capital items 353,000 1,145,520 353,000 1,145,520
-------------------------------------------------------------------------
Net cash provided
by continuing
operating
activities 703,064 1,451,056 703,064 1,451,056
Net cash used
in discontinued
activities (299,433) (1,047,458) (299,433) (1,047,458)
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403,631 403,598 403,631 403,598
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Investing
activities
Increase in
marketable
securities - (46,215) - (46,215)
Acquisition of
property,
plant and
equipment (21,847) (148,946) (21,847) (148,946)
Proceeds on
disposal of
property,
plant and
equipment - 10,750 - 10,750
Acquisition
of intangible
assets - (6,743) - (6,743)
-------------------------------------------------------------------------
Net cash used in
continuing
investing
activities (21,847) (191,154) (21,847) (191,154)
Net cash used in
discontinued
investing
activities - (59,282) - (59,282)
-------------------------------------------------------------------------
Net cash used in
investing
activities (21,847) (250,436) (21,847) (250,436)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Financing
activities
Increase in
bank loan 460,000 - 460,000 -
Repayment of
long-term
debt (486,025) (379,985) (486,025) (379,985)
Repayment of
liability
component of
debentures (17,901) (17,901) (17,901) (17,901)
-------------------------------------------------------------------------
Net cash used in
financing
activities (43,926) (397,886) (43,926) (397,886)
-------------------------------------------------------------------------
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Foreign exchange
gain (loss) on
cash held in
foreign
currencies (2,375) 447 (2,375) 447
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Increase
(decrease) in
cash and cash
equivalents 335,483 (244,277) 335,483 (244,277)
Cash and cash
equivalents,
beginning of
period 4,050,288 2,254,679 4,050,288 2,254,679
-------------------------------------------------------------------------
Cash and cash
equivalents,
end of period $ 4,385,771 $ 2,010,402 $ 4,385,771 $ 2,010,402
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