Warnex Inc.
TSX : WNX

Warnex Inc.

March 14, 2008 08:30 ET

Warnex Reports Fourth Quarter and Year End 2007 Results

27% revenue growth, 52% improvement in EBITDA

LAVAL, QUEBEC--(Marketwire - March 14, 2008) - Warnex Inc. (TSX:WNX) today announced financial results for the fourth quarter and year ended December 31, 2007.

2007 Highlights

- Finalized the review of strategic options and concluded that the option which provides the most value for its shareholders is the continued operation of its laboratory services business

- Concluded the sale of the pathogen detection business to AES Laboratoire for the price of $900,000 in cash

- Successfully passed an FDA inspection of its bioanalytical facilities

- Obtained an exclusive licence from Ipsogen to market a molecular diagnostic service for leukemia in Canada

- Signed agreements to perform pharmacogenetic services for Schering-Plough Canada and Novartis Pharmaceuticals Canada

- Signed an agreement with Organon Canada Ltd. to provide bioavailable testosterone testing to their customers across Canada

- Subsequent to year-end, signed a 10-year lease with Busgang Investments Inc. for its premises in Blainville, Quebec, and extended the lease for its Laval premises to January 31, 2018.

- Subsequent to year-end, announced that Warnex Medical Laboratories will offer PCA3 testing for prostate cancer and NPM1 testing for acute myeloid leukemia

"In 2007, we completed our transition to becoming a company focused solely on laboratory services with the sale of the pathogen detection business. We also performed a very important review of strategic options and our Board concluded that the best option for our shareholders was the continued operation of our laboratory services business," said Mark Busgang, President and CEO. "We continued to deliver solid results in 2007 with an increase in revenues of 27% and a 52% improvement in EBITDA. Going forward, we are focused on maximizing our profitability, with a goal of posting positive net earnings for 2008."

Financial Results

Revenue from continuing operations for the twelve-month period ended December 31, 2007, increased by 27% to $25.0 million from $19.7 million for the same period of last year. Net loss for the twelve-month period decreased to $2.0 million or $0.04 per share in 2007 from $3.4 million or $0.07 per share in 2006, due to better operational results in 2007.

For the twelve-month period ended December 31, 2007, earnings before interests, taxes, depreciation and amortization (EBITDA) was $2.7 million compared to $1.8 million for the twelve-month period ended December 31, 2006, an increase of $0.9 million.

Gross margins for the twelve-month period increased to $6.3 million, representing 25% of revenue, in 2007 from $5.2 million and 26% of revenue in 2006.

Selling and administrative expenses for the year ended December 31, 2007, totalled $5.9 million compared to $6.2 million in 2006. As a percentage of revenue, selling and administrative expenses decreased to 23.6% in 2007 from 31.6% in 2006. Financial expenses increased $2.0 million in 2007 from $1.5 million in 2006 mainly due to $0.5 million in additional interest on its debentures.

Warnex also recorded rationalization costs in 2007 in the amount of $650,000 for severance costs. Following the sale of the pathogen detection business, the review of strategic options for the Company and the conclusion by the Board of Directors that the most valuable option for the shareholders is the continued operation of the laboratory services business, the Company is focusing on maximizing its profitability. Given the Company's current level of revenue and profitability, management has decided to reduce administrative salaries. Accordingly, the Vice President and Chief Financial Officer, the Vice-President, Human Resources & Organization Development and the Vice President, Legal Affairs & Corporate Secretary and certain support staff will leave the Company on March 31, 2008. Thereafter, greater responsibilities will be given to the Corporate Controller, who will be appointed Chief Financial Officer, and to the Director, Human Resources.

As of December 31, 2007, the Company had $1.0 million in cash and working capital of $(10.0) million since the debentures mature on June 25, 2008, and July 9, 2008.

Operating Highlights

The Analytical Services division increased revenue by 48% (51% growth by acquisition and 3% organic reduction) from $8.5 million to $12.6 million. The analytical business located in Blainville, Quebec, acquired in September 2006, generated revenues of $6.3 million and reached the breakeven point with $9,000 of operating profit for the year compared to a loss of $145,000 sustained in its 4 months of operation in 2006. This result is a significant improvement compared to the substantial loss sustained in its last fiscal year prior to our acquisition.

The Bioanalytical Services division increased revenue by 17% from $7.8 million to $9.1 million, mainly due to newly charged storage fees in 2007. In April 2007, Warnex successfully passed an FDA inspection of its bioanalytical laboratories and their quality control systems, as well as several client-specific studies. Warnex is compliant with FDA regulations and there were no major observations requiring any corrective action.

The Medical Laboratories division's revenue decreased by 2% (13% growth by acquisition and 15% organic reduction) from $3.2 million in 2006 to $3.1 million in 2007. The PRO-DNA Diagnostics laboratory acquired in May 2006 contributed $0.8 million in revenue, which partially compensated the loss of Prenatest® revenue. Even though Warnex lost its biggest prenatal testing customer in 2006, which represented approximately 50% of our Prenatest revenue, its prenatal testing revenues decreased only by 20% in 2007 compared to 2006, due to increased sales and marketing efforts. Business development efforts also resulted in the Company's two first pharmacogenetic contracts with Schering-Plough Canada and Novartis Pharmaceuticals Canada.

Discontinued operations

Warnex concluded the sale of its pathogen detection business to AES Laboratoire, effective June 28, 2007, by selling the related assets of its Warnex Research Inc. and Warnex Diagnostics Inc. subsidiaries for the total price of $900,000 in cash. The transaction resulted in a gain on disposal of assets of $732,293 in the second quarter. Since the Company continued to sell products of this division until the sale was concluded in June 2007, it sustained an operating loss of $303,989 with net earnings from discontinued operations of $428,304 in 2007. In 2006, following the decision to discontinue this operation, the Company recorded an impairment of $9.8 million and restructuring costs of $333,053. In addition, operating losses of $4.7 million were sustained during 2006, for a net loss from discontinued operations of $14.7 million in 2006.

For the twelve-month period ended December 31, 2007, total net loss, including discontinued operations, amounted to $1.6 million or $0.03 per share compared to $18.2 million or $0.35 per share in 2006.

Annual Meeting

The Company will be hosting its Annual Meeting of Shareholders on April 29, 2008, at 11:00 am at the Sheraton Laval, Salon Chomedey, 2440 Autoroute des Laurentides, Laval, Quebec.

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.

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 financial resources, government regulations, laboratory facilities, suppliers, employees, key customers and business partners, foreign currency risk, credit 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 in the 2007 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.


Consolidated Balance Sheets

2007 2006
As at December 31 (restated)
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Assets
Current
Cash and cash equivalents $1,016,951 $4,050,288
Accounts receivable 5,440,231 5,212,078
Work-in-progress 34,798 98,732
Inventory 93,053 79,368
Investment tax credits receivable 135,283 437,791
Prepaid expenses 169,610 207,984
Current assets held for sale - 349,267
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6,889,926 10,435,508

Long-term receivables 125,000 250,000
Property, plant and equipment 7,726,464 9,574,868
Intangible assets 292,606 326,677
Goodwill 937,695 937,695
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$15,971,691 $21,524,748
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Liabilities
Current
Accounts payable $3,575,368 $3,842,140
Deferred revenue 487,045 1,012,717
Current portion of long-term debt 1,609,127 1,765,581
Current portion of debentures 11,170,730 1,349,014
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16,842,270 7,969,452

Long-term debt 165,964 2,275,092
Liability component of debentures - 10,849,292
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17,008,234 21,093,836
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Shareholders' equity (deficiency)
Capital stock 38,705,849 38,705,849
Equity component of debentures 1,428,114 1,428,114
Contributed surplus 1,210,708 1,080,728
Deficit (42,381,214) (40,783,779)
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(1,036,543) 430,912
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$15,971,691 $21,524,748
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Consolidated Statements of Contributed Surplus

2007 2006
For the years ended December 31 (restated)
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Balance, beginning of year $1,080,728 $746,153
Compensation cost for stock options granted 129,980 334,575
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Balance, end of year $1,210,708 $1,080,728
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Consolidated Statements of Deficit

2007 2006
For the years ended December 31 (restated)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Balance, beginning of year $40,168,524 $22,185,199
Adjustment to opening deficit 615,255 393,900
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Restated balance, beginning of year 40,783,779 22,579,099
Net loss 1,597,435 18,204,680
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Balance, end of year $42,381,214 $40,783,779
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Consolidated Statements of Accumulated Other Comprehensive Income

2007 2006
For the years ended December 31 (restated)
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Accumulated Other Comprehensive Income $- $-
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Consolidated Statements of Earnings and Comprehensive Income

2007 2006
(restated
For the years ended December 31 note 2)
---------------------------------------------------------------------------
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Revenue $25,020,439 $19,719,154
Cost of goods sold 18,678,568 14,558,744
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Gross margin 6,341,871 5,160,410
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Operating expenses
Selling, general and administrative 5,909,952 6,226,133
Finance charges 1,964,151 1,506,726
Research and development tax credits (155,751) (174,526)
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7,718,353 7,558,333
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Loss before under noted items (1,376,482) (2,397,923)
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Gain on settlement of contract - (1,250,000)
Impairment of assets - 2,296,521
Rationalization costs 649,257 -
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649,257 1,046,521
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Loss from continuing operations (2,025,739) (3,444,444)
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Earnings (loss) from discontinued operations 428,304 (14,760,236)
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Net loss and comprehensive income $(1,597,435) $(18,204,680)
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Basic and fully diluted net loss per share
From continuing operations $(0.04) $(0.07)
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Basic and fully diluted net loss per share $(0.03) $(0.35)
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Weighted average number of shares outstanding 51,973,875 51,973,875
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Consolidated Statements of Cash Flows
2007 2006
(restated
For the years ended December 31 note 2)
---------------------------------------------------------------------------
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Operations
Net loss $(2,025,739) $(3,444,444)
Items not affecting cash:
Amortization of property, plant and equipment 2,022,047 2,078,590
Amortization of intangible assets 67,559 436,331
Accretion of interest 544,029 280,112
Gain on disposal of property, plant and
equipment - (10,750)
Foreign currency fluctuation 77,011 (76,574)
Impairment of intangible assets - 1,262,521
Impairment of goodwill - 1,034,000
Compensation cost for stock options 129,980 334,575
---------------------------------------------------------------------------
814,887 1,894,361
Net change in non-cash working capital items (622,618) 1,232,701
---------------------------------------------------------------------------
Net cash provided by continuing operating
activities 192,269 3,127,062
Net cash provided by (used in) discontinued
operating activities 45,278 (4,741,290)
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Net cash provided by (used in) operations 237,547 (1,614,228)
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Investing activities
Decrease in marketable securities - 5,940,680
Decrease in long-term receivables 125,000 125,000
Acquisition of property, plant and equipment (173,643) (581,266)
Proceeds on disposal of property, plant and
equipment - 77,613
Acquisition of intangible assets (33,488) (10,363)
Acquisition of business - (3,266,199)
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Net cash provided by (used in) continuing
investing activities (82,131) 2,285,465
Net cash provided by discontinued investing
activities 732,293 33,595
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Net cash provided by investing activities 650,162 2,319,060
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Financing activities
Proceeds from long-term debt - 62,433
Repayment of long-term debt (2,265,582) (1,891,669)
Proceeds from liability component of debentures - 2,554,819
Repayment of liability component of debentures (1,571,605) (71,606)
Equity component of debentures - 445,182
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Net cash provided by (used in) financing
activities (3,837,187) 1,099,159
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Foreign exchange loss on cash held in foreign
currencies (83,859) (8,382)
---------------------------------------------------------------------------
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Increase (decrease) in cash and cash equivalents (3,033,337) 1,795,609
Cash and cash equivalents, beginning of year 4,050,288 2,254,679
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Cash and cash equivalents, end of year $1,016,951 $4,050,288
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