Warnex Inc.
TSX : WNX

Warnex Inc.

March 11, 2009 17:01 ET

Warnex Reports Fourth Quarter and Year End 2008 Results

- Net earnings of $2.4 million, EBITDA of $3.3 million -

LAVAL, QUEBEC--(Marketwire - March 11, 2009) - Warnex Inc. (TSX:WNX) today announced financial results for the fourth quarter and year ended December 31, 2008.

2008 Highlights

- Record revenues of $7.1 million in the last quarter and $25.8 million for the year

- Net earnings from continuing operations of $2.4 million during the year

- Cash and cash equivalents totalling $2.4 million

- Restructured its debentures and received new financing facilities from Desjardins

- Successfully passed an FDA inspection of its Analytical facilities

- Obtained ISO accreditation for Warnex's Medical Laboratories division and launched its DNA identification testing services for immigration and forensic purposes

- Acquired two state-of-the-art TSQ Vantage mass spectrometers for Warnex's Bioanalytical Services division

- Purchased a state-of-the-art UPLC® system for Warnex's Analytical Services division

- Launched PCA3 testing for prostate cancer and NPM1 testing for acute myeloid leukemia

- Became the exclusive Canadian distributor of molecular diagnostic tests for GENDIA, an international network of laboratories offering more than 2,000 different genetic tests

- Signed 10-year leases for Warnex's facilities located in Laval and Blainville

"In 2008, we achieved two key objectives. First, we achieved our goal of being profitable in 2008, with net earnings of $2.4 million," said Mark Busgang, President and CEO. "Second, we restructured our balance sheet by renegotiating our debentures, reducing them effectively by $5 million, and by obtaining new financing facilities totalling $4 million from Desjardins. With our improved balance sheet and solid results in 2008, we are well-positioned for future growth opportunities and creating shareholder value."

Financial Results

Revenue from continuing operations for the twelve-month period ended December 31, 2008, increased by 3% to $25.8 million from $25.0 million for the same period of last year. Net earnings for the twelve-month period amounted to $2.4 million or $0.04 per share in 2008 compared to a loss of $2.0 million or $0.04 per share in 2007.

For the twelve-month period ended December 31, 2008, earnings before interests, taxes, depreciation and amortization (EBITDA) from continuing operations amounted to $3.3 million compared to $2.7 million for the twelve-month period ended December 31, 2007, an increase of $0.6 million.

Gross margins for the twelve-month period increased to $7.8 million, representing 30% of revenue, in 2008 from $6.3 million and 25% of revenue in 2007.

Selling and administrative expenses for the year ended December 31, 2008, totalled $6.1 million compared to $5.9 million in 2007. As a percentage of revenue, selling and administrative expenses are similar to last year at 24%. Financial expenses decreased to $1.3 million in 2008 from $2.0 million in 2007, mainly due to less interest on its debentures.

As of December 31, 2008, the Company had $2.4 million in cash and working capital of $1.8 million.

Operating Highlights

The Analytical division's revenues decreased by 6% from $12.6 million in 2007 to $11.8 million in 2008. The analytical laboratory in Laval generated $5.8 million during the year (2007 - $6.3 million) and the Neopharm division in Blainville, acquired in September 2006, generated $6.0 million (2007 - $6.3 million). This decrease is due to reduced activity from some of our regular customers. During the year, this division successfully passed an inspection by the FDA and acquired a state-of-the-art UPLC system, which significantly improves turnaround times.

The Bioanalytical division increased revenue by 9% from $9.1 million in 2007 to $9.9 million in 2008. Business development efforts generated increased volume from existing customers as well as from new customers. Warnex acquired two state-of-the-art TSQ Vantage mass spectrometers for this division, making it the first CRO in Canada to acquire this new technology.

The Medical division's revenue increased by 23% from $3.1 million in 2007 to $3.9 million in 2008. Prenatal testing revenue increased by 21% due to our increased sales and marketing efforts and despite the loss of our largest prenatal screening customer in the last quarter of 2006. Revenue from molecular diagnostics increased by 51% and revenue from pharmacogenetic contracts increased by 60%. These increases are the result of our business development efforts and our focus on highly specialized medical testing services.

Annual Meeting

The Company will be hosting its Annual Meeting of Shareholders on April 28, 2009, at 11:00 am at the Sheraton Laval, Salon Auteuil-Vimont, 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, liquidity 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 Warnex's most recent Management's Discussion and Analysis, 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

As at December 31 2008 2007
-------------------------------------------------------------
-------------------------------------------------------------
Assets
Current
Cash and cash equivalents $2,433,488 $1,016,951
Accounts receivable 3,967,918 5,440,231
Work-in-progress 1,356,149 34,798
Inventory 121,701 93,053
Investment tax credits
receivable 186,249 135,283
Prepaid expenses 306,238 169,610
-------------------------------------------------------------
-------------------------------------------------------------
8,371,743 6,889,926

Long-term receivables - 125,000
Future income taxes 750,000 -
Property, plant and equipment 8,309,317 7,726,464
Intangible assets 243,291 292,606
Goodwill 937,695 937,695
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$18,612,046 $15,971,691
-------------------------------------------------------------
-------------------------------------------------------------

Liabilities
Current
Accounts payable $3,860,615 $3,575,368
Deferred revenue 1,358,586 487,045
Current portion of
long-term debt 1,267,184 1,609,127
Current portion of debentures - 11,170,730
-------------------------------------------------------------
6,486,385 16,842,270

Long-term debt 1,872,557 165,964
Liability component
of debentures 6,952,881 -
-------------------------------------------------------------

15,311,823 17,008,234
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-------------------------------------------------------------

Shareholders' equity (deficiency)
Capital stock 40,551,049 38,705,849
Equity component
of debentures 312,288 1,428,114
Contributed surplus 2,445,043 1,210,708
Deficit (40,008,157) (42,381,214)
-------------------------------------------------------------
3,300,223 (1,036,543)
-------------------------------------------------------------
-------------------------------------------------------------

$18,612,046 $15,971,691
-------------------------------------------------------------
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Consolidated Statements of Contributed Surplus

For the years ended December 31 2008 2007
-------------------------------------------------------------
-------------------------------------------------------------
Balance, beginning of year $1,210,708 $1,080,728
Transfer of the equity component
of debentures extinguished
during the year 1,428,114 -
Stock-based compensation (193,779) 129,980
-------------------------------------------------------------
Balance, end of year $2,445,043 $1,210,708
-------------------------------------------------------------
-------------------------------------------------------------


Consolidated Statements of Deficit

For the years ended December 31 2008 2007
-------------------------------------------------------------
-------------------------------------------------------------
Balance, beginning of year $(42,381,214) $(40,168,524)
Adjustment to opening deficit - (615,255)
-------------------------------------------------------------
Restated balance,
beginning of year (42,381,214) (40,783,779)
Net earnings (loss) 2,373,057 (1,597,435)
-------------------------------------------------------------
Balance, end of year $(40,008,157) $(42,381,214)
-------------------------------------------------------------
-------------------------------------------------------------


Consolidated Statements of Accumulated Other Comprehensive Income

For the years ended December 31 2008 2007
-------------------------------------------------------------
-------------------------------------------------------------
Accumulated Other Comprehensive Income $- $-
-------------------------------------------------------------
-------------------------------------------------------------


Consolidated Statements of Earnings and Comprehensive Income

For the years ended December 31 2008 2007
-------------------------------------------------------------
-------------------------------------------------------------
Revenue $25,786,721 $25,020,439
Cost of goods sold 17,945,735 18,678,568
-------------------------------------------------------------
Gross margin 7,840,986 6,341,871
-------------------------------------------------------------
-------------------------------------------------------------
Operating expenses
Selling, general and
administrative 6,069,386 5,909,953
Finance charges 1,262,315 1,964,151
Research and development
tax credits (230,284) (155,751)
-------------------------------------------------------------
7,101,417 7,718,353
-------------------------------------------------------------
-------------------------------------------------------------
Earnings (loss) before under
noted items and income taxes 739,569 (1,376,482)
-------------------------------------------------------------
-------------------------------------------------------------
Gain on extinguishment of debt 1,814,192 -
Unrealized foreign exchange
loss on debentures (930,704) -
Rationalization costs - (649,257)
-------------------------------------------------------------
883,488 (649,257)
-------------------------------------------------------------
-------------------------------------------------------------
Earnings (loss) from continuing
operations before income taxes 1,623,057 (2,025,739)
-------------------------------------------------------------
-------------------------------------------------------------
Income taxes (recovered) - current 800,000 -
- future (750,000) -
Recovery of income taxes due
to utilization of prior
years' losses (800,000) -
-------------------------------------------------------------
(750,000) -
-------------------------------------------------------------
-------------------------------------------------------------
Earnings (loss) from
continuing operations 2,373,057 (2,025,739)
-------------------------------------------------------------
-------------------------------------------------------------
Earnings from discontinued
operations - 428,304
-------------------------------------------------------------
-------------------------------------------------------------
Net earnings (loss) and
comprehensive income $2,373,057 $(1,597,435)
-------------------------------------------------------------
-------------------------------------------------------------
Basic and fully diluted net
earnings (loss) per share
from continuing operations $0.04 $(0.04)
-------------------------------------------------------------
-------------------------------------------------------------
Basic and fully diluted net
earnings (loss) per share $0.04 $(0.03)
-------------------------------------------------------------
-------------------------------------------------------------
Weighted average number
of shares outstanding 59,562,069 51,973,875
-------------------------------------------------------------
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Consolidated Statements of Cash Flows

For the years ended December 31 2008 2007
-------------------------------------------------------------
-------------------------------------------------------------
Operations
Net earnings (loss) $2,373,057 $(2,025,739)
Items not affecting cash:
Amortization of property,
plant and equipment 1,523,858 2,022,047
Amortization of
intangible assets 59,504 67,559
Gain on disposal of property,
plant and equipment (6,946) -
Accretion of interest 200,864 544,029
Gain on extinguishment of debt (1,814,192) -
Unrealized foreign exchange
loss on debentures 930,704 -
Foreign currency fluctuation (133,281) 77,011
Compensation cost for
stock options (193,779) 129,980
Future income taxes (750,000) -
-------------------------------------------------------------
2,189,789 814,887
Net change in non-cash
working capital items 1,158,370 (622,618)
-------------------------------------------------------------
Net cash provided by continuing
operating activities 3,348,159 192,269
Net cash provided by discontinued
operating activities - 45,278
Net cash provided by operations 3,348,159 237,547
-------------------------------------------------------------
-------------------------------------------------------------
Investing activities
Decrease in long-term
receivables 125,000 125,000
Acquisition of property,
plant and equipment (510,451) (173,643)
Proceeds on disposal of
property, plant and equipment 9,725 -
Acquisition of intangible
assets (10,189) (33,488)
-------------------------------------------------------------
Net cash used in continuing
investing activities (385,915) (82,131)
Net cash provided by discontinued
investing activities - 732,293
-------------------------------------------------------------
Net cash provided by (used in)
investing activities (385,915) 650,162
-------------------------------------------------------------
-------------------------------------------------------------
Financing activities
Proceeds from long-term debt 2,000,000 -
Repayment of long-term debt (2,234,389) (2,265,582)
Repayment of liability
component of debentures (1,377,737) (1,571,605)
-------------------------------------------------------------
Net cash used in financing
activities (1,612,126) (3,837,187)
-------------------------------------------------------------
-------------------------------------------------------------
Foreign exchange gain (loss) on
cash held in foreign currencies 66,419 (83,859)
-------------------------------------------------------------
-------------------------------------------------------------
Increase (decrease) in cash and
cash equivalents 1,416,537 (3,033,337)
Cash and cash equivalents,
beginning of year 1,016,951 4,050,288
-------------------------------------------------------------
Cash and cash equivalents,
end of year $2,433,488 $1,016,951
-------------------------------------------------------------
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