Warnex Inc.

Warnex Inc.

November 11, 2005 16:30 ET

Warnex reports third quarter 2005 results

LAVAL, QC, Nov. 11 - Warnex Inc. (TSX:WNX) today announced
financial results for the third quarter ended September 30, 2005.

Selected Highlights



- Record quarterly revenue and fourth consecutive quarter with revenue
exceeding $4 million
- Improved EBITDA by 63% compared to Q3 2004
- Launched two new tests for use with the Warnex™ Rapid Pathogen
Detection System: a 24-hour Listeria spp. test for environmental
samples and a test for Campylobacter, one of the most common causes
of foodborne illness
- Sold a second Warnex system to West Liberty Foods
- Launched www.prenatest.ca for its Prenatest® prenatal screening
test
- Subsequent to the quarter, signed three new Rapid Pathogen Detection
System customers, Gelda Scientific, a leading Canadian commercial
lab, Marshall Durbin, a major U.S. poultry producer, and the Lasher
Laboratory of the University of Delaware.


Consolidated revenue for the third quarter ended September 30, 2005, was
$4.3 million, 28% higher than the consolidated revenue of $3.4 million in the
corresponding quarter in 2004. On a nine-month basis, revenue totaled
$12.6 million compared to $8.2 million over the same period a year ago, a 53%
increase. The net loss for the quarter totaled $1.2 million or $0.02 per share
versus a net loss of $1.4 million or $0.03 per share in the corresponding
quarter a year earlier. For the nine-month period, the net loss decreased from
$4.6 million or $0.10 per share in 2004 to $3.5 million or $0.07 per share in
2005.

"Our revenue reached a record high in the third quarter, with all three
divisions reporting double digit growth," said Mark Busgang, President and CEO
of Warnex. "These increases are due to organic growth and demonstrate our
client's appreciation of our superior level of service and dedication to
quality. This growth has strengthened our foundation and will enable us to
expand our business even more."

Operating Highlights

During the quarter, the Company launched two new tests for use with the
Warnex Rapid Pathogen Detection System. The first is a one-step 24-hour test
for Listeria species for environmental samples. The second detects the three
species of Campylobacter which account for 99% of reported Campylobacter
illnesses.

The Company signed three new Rapid Pathogen Detection System customers:
Gelda Scientific, a leading commercial laboratory based in Mississauga,
Ontario; Marshall Durbin, one of the largest privately owned poultry companies
in the United States; and the Lasher Laboratory of the University of Delaware,
Georgetown, which provides diagnostic services to poultry producers in
Delaware, Maryland and Virginia.

As well, Warnex sold a second system to West Liberty Foods L.L.C. After
using the Warnex system successfully for several months to monitor the safety
of its products, West Liberty Foods acquired the additional system to increase
their volume of tests.

Warnex also launched its new website www.prenatest.ca for its Prenatest
screening test available throughout the province of Quebec. This test,
performed during the first trimester, is useful in determining a woman's risk
of carrying a fetus affected by one of the most common birth anomalies; Down
syndrome (trisomy 21) and trisomy 18.

Additional Financial Review

Gross margin for the quarter was $1.3 million compared with $1.1 million
in the same quarter of the previous year. For the nine-month period, the gross
margin increased to $3.9 million in 2005 from $2.8 million in 2004.

Selling, general and administrative (SG&A) expenses for the quarter ended
September 30, 2005, were $1.7 million versus $1.6 million in the corresponding
quarter in 2004. The Company 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 third
quarter of 2005 to 39% from 47% in the third quarter of 2004. For the year-to-
date, SG&A expenses were $5.0 million compared with $4.9 million in 2004.

Research and development expenses in the quarter decreased from $664,862
in the third quarter ended September 30, 2004, to $572,228 in the current
quarter. For the nine-month period, R&D expenses were $1.6 million in 2005
compared to $2.1 million for the corresponding period in 2004. In 2004, the
Company incurred higher R&D expenses as it was actively engaged in acquiring
regulatory approvals for its pathogen detection tests.

Earnings before interest, taxes and depreciation (EBITDA) for the quarter
was $(235,635) versus $(631,012) in the same quarter of the previous year, an
improvement of 63%. In addition, $84,637 of non-cash compensation costs
relating to stock options was expensed in the quarter. If it were not for some
restructuring costs incurred during the quarter and the compensation cost of
options, the Company would have reported a slightly positive EBITDA result.
For the nine-month period ended September 30, 2005, EBITDA was $(766,577),
compared to $(2,874,285) in 2004, an improvement of $2.1 million.

As of September 30, 2005, the Company had working capital of
approximately $6.3 million. With $5.6 million in cash and unused banking
facilities of $1.0 million, the Company has access to $6.6 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 Monday, November 14 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 to
GMO testing. Our development pipeline includes applications in the detection
of viruses, allergens, toxins, yeasts, and fungi, 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.

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
for the third quarter ended on September 30, 2005, 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.



WARNEX INC.
INTERIM CONSOLIDATED BALANCE SHEET
(Unaudited)

September 30 December 31
2005 2004
-------------------------------------------------------------------------
Assets
Current
Cash and cash equivalents $ 5,647,818 $ 7,788,504
Accounts receivable 3,155,104 2,602,132
Inventory 1,138,936 417,127
Investment tax credits receivable 493,336 789,969
Prepaid expenses 324,382 197,921
-------------------------------------------------------------------------
10,759,576 11,795,653

Long-term receivables 459,942 -
Property, plant and equipment 10,357,310 10,790,940
Intangible assets 2,238,778 2,627,667
Goodwill 8,407,083 8,407,083
-------------------------------------------------------------------------

$32,222,689 $33,621,343
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Liabilities
Current
Accounts payable $ 2,394,342 $ 3,080,672
Deferred revenue 447,589 263,062
Current portion of long-term debt 1,527,209 893,987
Current portion of convertible debentures 71,605 71,605
-------------------------------------------------------------------------
4,440,745 4,309,326

Long-term debt 3,419,726 1,634,328
Liability component of convertible debentures 8,987,378 9,041,082
-------------------------------------------------------------------------

16,847,849 14,984,736
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Shareholders equity
Capital stock 34,815,206 34,734,656
Equity component of convertible debentures 982,932 982,932
Contributed surplus 814,782 551,336
Deficit (21,238,080) (17,632,317)
-------------------------------------------------------------------------
15,374,840 18,636,607
-------------------------------------------------------------------------
-------------------------------------------------------------------------

$32,222,689 $33,621,343
-------------------------------------------------------------------------
-------------------------------------------------------------------------



WARNEX INC.
INTERIM CONSOLIDATED STATEMENT OF EARNINGS
(Unaudited)

Three months ended Nine months ended
September 30th September 30th
2005 2004 2005 2004
-------------------------------------------------------------------------

Revenue $4,323,472 $3,389,976 $12,617,778 $8,239,141

Cost of goods sold 2,996,359 2,312,340 8,756,071 5,412,605
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Gross margin 1,327,113 1,077,636 3,861,708 2,826,536
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Operating expenses
Selling, general
and
administrative 1,687,903 1,588,336 5,013,495 4,852,656
Finance charges 263,325 235,419 750,592 497,046
Research and
development, net
of tax credits 572,228 664,862 1,639,064 2,065,629
-------------------------------------------------------------------------
2,523,456 2,488,617 7,403,151 7,415,331
-------------------------------------------------------------------------

Net loss $1,196,343 $1,410,981 $3,541,443 $4,588,795
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Basic and fully
diluted net
loss per share $0.02 $0.03 $0.07 $0.10
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Weighted average
number of shares
outstanding 48,842,748 48,488,541 48,724,777 45,368,650
-------------------------------------------------------------------------
-------------------------------------------------------------------------



WARNEX INC.
INTERIM CONSOLIDATED STATEMENT OF DEFICIT
(Unaudited)

Three months ended Nine months ended
September 30th September 30th
2005 2004 2005 2004
-------------------------------------------------------------------------
Balance, beginning
of period
As previously
reported $20,020,369 $14,659,590 $17,632,317 $11,230,704

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

As restated 20,020,369 14,659,590 17,632,317 11,459,844

Interest on
equity component
of convertible
debentures 21,368 23,140 64,320 45,072

Net loss 1,196,343 1,410,981 3,541,443 4,588,795
-------------------------------------------------------------------------

Balance, end
of period $21,238,080 $16,093,711 $21,238,080 $16,093,711
-------------------------------------------------------------------------
-------------------------------------------------------------------------



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

Three months ended Nine months ended
September 30th September 30th
2005 2004 2005 2004
-------------------------------------------------------------------------
Balance, beginning
of period
As previously
reported $730,145 $370,388 $551,336 $ -

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

As restated 730,145 370,388 551,336 229,140

Compensation
cost for stock
options granted
during the
period 84,637 87,597 263,446 228,845
-------------------------------------------------------------------------

Balance, end of
period $814,782 $457,985 $814,782 $457,985
-------------------------------------------------------------------------
-------------------------------------------------------------------------



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

Three months ended Nine months ended
September 30th September 30th
2005 2004 2005 2004
-------------------------------------------------------------------------
Operations
Net loss $(1,196,343) $(1,410,981) $(3,541,443) $(4,588,795)
Items not
affecting cash:
Amortization of
property, plant
and equipment 555,112 418,369 1,599,177 1,073,410
Amortization of
intangible assets 142,271 126,181 425,097 144,054
Compensation cost
for stock options 84,637 87,597 263,446 228,845
Loss on disposal
of property,
plant and
equipment (1,720) - 7,833 -
Interest on equity
component of
convertible
debentures (21,368) (23,140) (64,320) (45,072)
-------------------------------------------------------------------------
(437,411) (801,974) (1,310,210) (3,187,558)

Net change in
non-cash working
capital items (783,155) (1,252,489) (1,606,412) (824,046)
-------------------------------------------------------------------------
(1,220,567) (2,054,463) (2,916,623) (4,011,604)
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Investing activities
Increase in
long-term
receivables (355,713) - (459,942) -
Decrease in
marketable
securities - - - 4,145,429
Acquisition of
property, plant
and equipment (276,820) (436,389) (1,227,166) (2,003,751)
Proceeds on
disposal of
property, plant
and equipment 5,920 - 53,786 -
Acquisition of
intangible assets (4,403) (26,334) (36,208) (1,586,950)
Acquisition
of goodwill - - - (784,000)
-------------------------------------------------------------------------
(631,016) (462,723) (1,669,530) (229,272)
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Financing activities
Bank loan (760,000) - - -
Proceeds from
long-term debt 3,000,000 - 3,086,261 700,000
Repayment of
long-term debt (222,812) (148,732) (667,641) (1,455,669)
Liability component
of convertible
debentures (17,901) (17,901) (53,704) 650,932
Equity component
of convertible
debentures - - - 6,134,397
Issue of shares 44,550 850 80,550 5,013,601
Costs of issuance - - - (388,454)
-------------------------------------------------------------------------
2,043,839 (165,783) 2,445,466 10,654,807
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Increase (decrease)
in cash and cash
equivalents 192,256 (2,682,969) (2,140,686) 6,413,931

Cash and cash
equivalents,
beginning of
period 5,455,562 11,944,273 7,788,504 2,847,373
-------------------------------------------------------------------------

Cash and cash
equivalents,
end of period $5,647,818 $9,261,304 $5,647,818 $9,261,304
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