Warnex Inc.

Warnex Inc.

March 15, 2006 16:30 ET

Warnex reports fourth quarter and year end 2005 results

LAVAL, QC, March 15 - Warnex Inc. (TSX:WNX) today announced
financial results for the fourth quarter and year ended December 31, 2005.

Consolidated revenue for the twelve-month period ended December 31, 2005,
increased by 47% to $18.3 million compared to $12.5 million over the same
period a year ago. Net loss for the twelve-month period decreased by 27% from
$6.1 million in 2004 to $4.5 million in 2005. Consolidated revenue for the
fourth quarter ended December 31, 2005, increased by 34% to $5.7 million,
compared to $4.2 million in the corresponding quarter in 2004. The net loss
for the quarter decreased by 39% to $926,197 or $0.02 per share versus a net
loss of $1.5 million or $0.03 per share in the corresponding quarter a year
earlier.

For the twelve-month period ended December 31, 2005, EBITDA was
($700,834) compared to $(3.6) million for the twelve-month period ended
December 31, 2004, a $2.9 million improvement. Without compensation costs for
options and restructuring costs of $156,000, EBITDA was ($205,494) compared to
$(3.3) million last year.

"All four of our divisions generated double-digit growth this year
resulting in record revenue in each quarter of the year. These consistent and
across the board financial results clearly demonstrate our growing momentum,"
said Mark Busgang, President and CEO. "They also reflect the soundness of our
business model, the quality of our product and service offerings and our
commitment to growing shareholder value."

2005 Operating Highlights



- A total of 34 Rapid Pathogen Detection Systems are in use worldwide by
food processors, service labs, universities and research institutes

- Signed up nine new customers for the Warnex™ Rapid Pathogen
Detection System including:
- Agropur Cooperative, Canada's largest dairy cooperative
- Vanderpol's Eggs, a leading egg producer based in British Columbia
- Industrial Laboratories of Canada, a commercial laboratory
- Laboratoires d'analyse S.M., a commercial laboratory
- Gelda Scientific, a commercial laboratory
- Dakota Provisions, a turkey processor
- Marshall Durbin, one of the largest U.S. private poultry companies
- Amick Farms, a leading South Carolina chicken producer
- Lasher Laboratory of the University of Delaware

- Sold second Warnex Systems to two customers, reinforcing their high
level of confidence in the technology:
- Gold Kist, the third largest chicken producer in the U.S.
- West Liberty Foods LLC, a leading manufacturer of ready-to-eat
meats and major supplier to corporations like Subway, Denny's and
Wal-Mart

- In addition to this progress in North America, the Company has an
emerging presence in Europe with a total of 15 Warnex systems being
used by customers and research institutes

- Launched two new tests, illustrating the Company's capacity and
commitment to innovation:
- One-step 24-hour test for Listeria species in environmental samples
- Campylobacter test that detects the presence of Campylobacter
jejuni, C. coli and C. lari in poultry rinses, and subsequent to
year-end, launched the first PCR-based quantitative Campylobacter
test for the food industry


Additional Financial Review

Gross margins for the twelve-month period increased to $5.6 million, or
31% of revenue, in 2005 from $4.1 million, or 33% or revenue, in 2004. For the
quarter, the gross margin was $1.8 million, or 31% of revenue, compared to
$1.3 million, or 31% of revenue, in the same quarter of the previous year.

Selling, administrative and financial expenses for the year ended
December 31, 2005 were $8.1 million compared to $7.5 million in 2004. As a
percentage of revenue, selling administrative and financial expenses decreased
to 44% in 2005 from 60% in 2004. For the quarter, selling, administrative and
financial expenses were $2.3 million, or 41% of revenue, versus $2.2 million,
or 52% of revenue in the corresponding quarter in 2004.

Research and development expenses for the twelve-month period decreased
by 27% to $2.0 million compared to $2.7 million for the corresponding period
in 2004. For the quarter, R&D expense decreased from $655,664 in the fourth
quarter ended December 31, 2004, to $360,314 in the current quarter.

As of December 31, 2005, the Company had working capital of $9.1 million
and cash and unused banking facilities of $9.2 million.

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

Conference Call information

The Company will host a conference call on Thursday, March 16, 2006, 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.

Annual Meeting

The Company will be hosting its Annual Meeting of Shareholders on April
25, 2006, at 11:00 am at the Mount Royal Club in Montreal, Quebec.

About Warnex

Warnex (www.warnex.ca) is a biotechnology company devoted to protecting
public health by providing advanced diagnostic products and science-based
services to the agri-food, pharmaceutical 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. With a focus on pathogen detection in food, our
development pipeline also includes applications in GMO testing, meat
speciation, as well as in the detection of viruses, yeasts and moulds.
Warnex's analytical, bioanalytical, and medical laboratory 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.

Warnex is a trademark of Warnex Inc.

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, manufacturing and laboratory facilities, suppliers,
key employees, key customers, financial resources and credit risk, government
regulations, foreign currency risk and 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 in
the 2005 Annual Report, 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.



Consolidated Balance Sheets

As at December 31 2005 2004
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Assets
Current
Cash and cash equivalents $2,254,679 $7,788,504
Marketable securities 5,940,680 -
Accounts receivable 3,913,638 2,602,132
Work-in-progress 131,657 -
Inventories 879,461 417,127
Investment tax credits receivable 805,083 789,969
Prepaid expenses 267,889 197,921
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14,193,087 11,795,653

Long-term receivables 446,266 -
Property, plant and equipment 10,891,069 10,790,940
Intangible assets 2,098,333 2,627,667
Goodwill 8,407,083 8,407,083
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$36,035,838 $33,621,343
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Liabilities
Current
Accounts payable $2,721,849 $3,080,672
Deferred revenue 576,095 263,062
Current portion of long-term debt 1,757,473 893,987
Current portion of convertible debentures 71,605 71,605
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5,127,022 4,309,326

Long-term debt 3,689,605 1,634,328
Liability component of convertible debentures 8,969,476 9,041,082
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17,786,103 14,984,736
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Shareholders' equity
Capital stock 38,705,849 34,734,656
Equity component of convertible debentures 982,932 982,932
Contributed surplus 746,153 551,336
Deficit (22,185,199) (17,632,317)
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18,249,735 18,636,607
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$36,035,838 $33,621,343
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Consolidated Statements of Contributed Surplus


Three months ended Twelve months ended
For the years ended December 31st December 31st
December 31 2005 2004 2005 2004
-------------------------------------------------------------------------
Balance, beginning
of year
As previously
reported $814,782 $457,985 $551,336 $ -
Change in
accounting
policy regarding
stock-based
compensation - - - 229,140
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As restated 814,782 - 551,336 229,140
Transfer to capital
stock upon
exercise of
options (144,523) - (144,523) -
Compensation cost
for stock options
granted 75,894 93,351 339,340 322,196
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Balance, end of year $746,153 $551,336 $746,153 $551,336
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Consolidated Statements of Deficit


Three months ended Twelve months ended
For the years ended December 31st December 31st
December 31 2005 2004 2005 2004
-------------------------------------------------------------------------
Balance, beginning
of year
As previously
reported $21,238,080 $16,093,711 $17,632,317 $11,230,704
Change in
accounting
policy
regarding
stock-based
compensation - - - 229,140
-------------------------------------------------------------------------
As restated 21,238,080 16,093,711 17,632,317 11,459,844
Interest on equity
component of
convertible
debentures 20,922 21,593 85,242 66,665
Net loss 926,197 1,517,013 4,467,640 6,105,808
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Balance, end
of year $22,185,199 $17,632,317 $22,185,199 $17,632,317
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Consolidated Statements of Earnings


Three months ended Twelve months ended
For the years ended December 31st December 31st
December 31 2005 2004 2005 2004
-------------------------------------------------------------------------
Revenue $5,655,972 $4,214,390 $18,273,750 $12,453,531
Cost of goods sold 3,888,551 2,903,737 12,644,621 8,316,342
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Gross margin 1,767,421 1,310,653 5,629,129 4,137,189
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Operating expenses
Selling,
general and
administrative 2,074,123 1,947,289 7,087,618 6,799,945
Finance charges 259,181 224,713 1,009,773 721,759
Research and
development, net
of tax credits 360,314 655,664 1,999,378 2,721,293
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2,693,618 2,827,666 10,096,769 10,242,997
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Net loss $926,197 $1,517,013 $4,467,640 $6,105,808
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Basic and fully
diluted net loss
per share $0.02 $0.03 $0.09 $0.13
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Weighted average
number of shares
outstanding 49,895,067 48,649,400 48,981,879 46,193,319
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Consolidated Statements of Cash Flows


Three months ended Twelve months ended
For the years ended December 31st December 31st
December 31 2005 2004 2005 2004
-------------------------------------------------------------------------
Operations
Net loss $(926,197) $(1,517,013) $(4,467,640) $(6,105,808)
Items not
affecting cash:
Amortization of
property, plant
and equipment 590,310 452,717 2,189,487 1,526,127
Amortization of
intangible assets 142,449 136,489 567,546 280,543
Loss on disposal of
property, plant
and equipment 8,362 - 16,195 -
Foreign currency
fluctuation 35,400 54,930 35,400 54,930
Compensation cost
for stock options 75,894 93,351 339,340 322,196
Interest on equity
component of
convertible
debentures (20,922) (21,593) (85,242) (66,665)
-------------------------------------------------------------------------
(94,704) (801,119) (1,404,914) (3,988,677)

Net change in
non-cash working
capital items (439,133) 1,301,408 (2,045,545) 477,363
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(533,837) 500,289 (3,450,459) (3,511,314)
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Investing activities
Increase in
long-term
receivables 13,676 - (446,266) -
Decrease (increase)
in marketable
securities (5,940,680) - (5,940,680) 4,145,429
Acquisition of
property, plant
and equipment (306,081) (1,411,485) (1,533,247) (3,415,236)
Proceeds on
disposal of
property, plant
and equipment - - 53,786 -
Acquisition of
intangible
assets (2,004) (347,520) (38,212) (1,934,470)
Acquisition of
goodwill - - - (784,000)
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(6,235,089) (1,759,005) (7,904,619) (1,988,277)
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Financing activities
Proceeds from
long-term debt 50,139 - 3,136,400 700,000
Repayment of
long-term debt (376,346) (127,047) (1,043,987) (1,582,716)
Liability component
of convertible
debentures (17,902) (17,901) (71,606) 6,116,496
Equity component
of convertible
debentures - - - 650,932
Issue of shares 4,017,887 - 4,098,437 5,013,850
Costs of issuance (271,767) - (271,767) (388,703)
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3,402,011 (144,948) 5,847,477 10,509,859
-------------------------------------------------------------------------
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Foreign exchange
loss on cash held
in foreign
currencies (26,224) (69,137) (26,224) (69,137)
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Increase (decrease)
in cash and cash
equivalents (3,393,139) (1,472,801) (5,533,825) 4,941,131

Cash and cash
equivalents,
beginning of
year 5,647,818 9,261,305 7,788,504 2,847,373
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Cash and cash
equivalents,
end of year $2,254,679 $7,788,504 $2,254,679 $7,788,504
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