Warnex Inc.
TSX : WNX

Warnex Inc.

March 17, 2011 07:00 ET

Warnex Reports Fourth Quarter and Year End 2010 Results

LAVAL, QUEBEC--(Marketwire - March 17, 2011) - Warnex Inc. (TSX:WNX) announced today financial results for the fourth quarter and year ended December 31, 2010.

2010 Highlights

  • Obtained a licence for a colorectal cancer blood screening test from Epigenomics and launched its Septin9 blood testing service for colorectal cancer in Canada

  • Warnex's PRO-DNA Services division, located in Thunder Bay, Ontario, received accreditation from the American Society of Crime Lab Directors/Laboratory Accreditation Board - International® (ASCLD/LAB-International®) for forensic science testing

  • Warnex's PRO-DNA Services division signed a Contribution Agreement with the National Research Council of Canada's Industrial Research Assistance Program (NRC-IRAP), for forensic DNA analysis of "Touch DNA" samples from expended firearm cartridges

  • Warnex's Medical Laboratories division obtained the renewal of its laboratory accreditation by COLA, a U.S. healthcare accreditation organization

  • Warnex's Bioanalytical Services division successfully passed a Good Clinical Practices (GCP) inspection by the Austrian Agency for Health and Food Safety (AGES)

  • Warnex's CEO, Mark Busgang, participated in Quebec Premier Jean Charest's economic mission to India

  • Appointed a new director, Dr. Richard Lacombe, who has over 30 years of experience in the pharmaceutical and CRO industries

  • Announced a collaboration with the Montreal Heart Institute and CEPMED (The Centre of Excellence in Personalized Medicine) to develop a new diagnostic test for early detection of cardiovascular and metabolic diseases

"2010 proved to be another challenging year, as the impact of the recession is still being felt in the pharmaceutical industry. We did not achieve our revenue and earnings targets, which seems to be the case for many companies in the contract research industry," said Mark Busgang, President and CEO of Warnex. "In 2011, our objective is to finalize the restructuring of our long-term debentures. As well, we will strongly focus on our sales efforts, and we have already begun to take action in our approach for business development."

Financial Results

Consolidated revenue for the twelve-month period ended December 31, 2010, amounted to $22.3 million compared to $23.6 million for the same period of last year, a decrease of 6%. Net loss for the twelve-month period amounted to $1.6 million or $0.02 per share in 2010 compared to a net loss of $0.2 million or $0.00 per share in 2009.

For the twelve-month period ended December 31, 2010, earnings before interests, taxes, depreciation and amortization (EBITDA) amounted to $1.0 million compared to $2.2 million for the twelve-month period ended December 31, 2009.

Gross margins for the twelve-month period amounted to $4.9 million, representing 22% of revenue, in 2010 compared to $5.8 million and 24% of revenue in 2009.

Selling and administrative expenses for the year ended December 31, 2010, totalled $6.4 million, compared to $6.0 million for the same period last year. As a percentage of revenue, selling and administrative expenses were 29% in 2010 compared to 25% in 2009. Financial expenses decreased to $1.1 million in 2010 from $1.2 million in 2009, mainly due to less interest on its long term debt.

Research and development tax credits amounted to $0.9 million for the year ended December 31, 2010, compared to $0.5 million in 2009.

The Company has accrued certain non-recurring expenses in 2010 relating to a restructuring of its management team for a total amount of $160,000 (2009 - $nil).

Operating Highlights

The Analytical division's revenues decreased by 9% from $11.6 million in 2009 to $10.5 million in 2010. The analytical laboratory in Laval generated $4.2 million during the year (2009 - $4.9 million) while the Neopharm division in Blainville generated $6.3 million (2009 - $6.7 million). This decrease is mainly due to a decrease in volume from major customers during the year.

The Bioanalytical division's revenues decreased by 14% from $7.4 million in 2009 to $6.4 million in 2010. This decrease is due to a substantial decrease of average price per sample while the volume of samples increased compared to last year.

The Medical division's revenue increased by 17% from $4.4 million in 2009 to $5.2 million in 2010. Prenatal testing revenues increased by 6%, molecular diagnostics increased by 37% and pharmacogenetic contracts increased by 23% compared to last year.

In 2010 and going forward in 2011, the Company has increased its business development effort in order to reverse the negative revenue trend and increase business from new and existing customers.

Fourth Quarter Results

Consolidated revenue for the three-month period ended December 31, 2010, amounted to $5.2 million compared to $6.0 million during the same quarter a year ago, a decrease of 13%. Net loss for the quarter, including non-recurring items, amounted to $779,183 or $0.01 per share compared to a net loss of $137,548 or $0.00 per share for the same quarter in 2009.

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 Analytical Services provides pharmaceutical and biotechnology companies with a variety of quality control services, including chemistry, chromatography, microbiology, method development and validation, and stability studies. Warnex Bioanalytical Services specializes in bioequivalence and bioavailability studies for clinical trials. Warnex Medical Laboratories provides specialized testing for the healthcare industry as well as pharmaceutical and central laboratory services. Warnex PRO-DNA Services offers DNA identification tests for paternity, maternity and other family relationships, as well as for immigration and forensic testing purposes. Warnex has three facilities located in Laval and Blainville, Quebec, and Thunder Bay, Ontario.

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, liquidity risk, key customers and business partners, credit risk, foreign currency risk, government regulations, laboratory facilities, volatility of share price, employees, suppliers, 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.

Financial results to follow.

Consolidated Balance Sheets

As at December 31 2010   2009  
Assets        
Current        
  Cash and cash equivalents $244,456   $894,031  
  Accounts receivable 2,980,299   2,880,919  
  Work-in-progress 328,289   531,142  
  Inventory 355,132   177,027  
  Investment tax credits receivable 498,000   712,471  
  Prepaid expenses 293,636   388,502  
  4,699,812   5,584,092  
         
Future income taxes 1,221,000   1,221,000  
Property, plant and equipment 6,174,451   7,375,516  
Intangible assets 407,185   382,145  
Goodwill 937,695   937,695  
         
  $13,440,143   $15,500,448  
         
Liabilities        
Current        
  Bank loan $580,000   $-  
  Accounts payable and accrued liabilities 2,899,115   3,008,594  
  Deferred revenue 921,532   411,599  
  Current portion of long-term debt 894,716   1,800,372  
  Current portion of debentures 6,121,344   -  
  11,416,707   5,220,565  
         
Long-term debt 5,722   447,661  
Liability component of debentures -   6,245,274  
         
  11,422,429   11,913,500  
         
Shareholders' equity        
  Capital stock 40,981,049   40,981,049  
  Equity component of debentures 312,288   312,288  
  Contributed surplus 2,456,265   2,466,016  
  Deficit (41,731,888 ) (40,172,405 )
  2,017,714   3,586,948  
         
  $13,440,143   $15,500,448  

Consolidated Statements of Contributed Surplus

For the years ended December 31 2010   2009
Balance, beginning of year $2,466,016   $2,445,043
Stock-based compensation (9,751 ) 20,973
Balance, end of year $2,456,265   $2,466,016

Consolidated Statements of Deficit

For the years ended December 31 2010 2009
Balance, beginning of year $40,172,405 $40,008,157
Net loss 1,559,483 164,248
Balance, end of year $41,731,888 $40,172,405

Consolidated Statements of Accumulated Other Comprehensive Income

For the years ended December 31 2010 2009
Accumulated Other Comprehensive Income $- $-

Consolidated Statements of Earnings and Comprehensive Income

For the years ended December 31 2010   2009  
Revenue $22,250,790   $23,646,987  
Cost of goods sold 17,309,041   17,878,578  
Gross margin 4,941,749   5,768,409  
Operating expenses        
  Selling, general and administrative 6,397,120   5,956,234  
  Finance charges 1,101,329   1,185,473  
  Research and development tax credits (923,735 ) (526,222 )
  6,574,714   6,615,485  
Loss before under noted items and income taxes (1,632,965 ) (847,076 )
Restructuring costs (160,000 ) -  
Unrealized foreign exchange gain on debentures 233,482   682,828  
  73,482   682,828  
Loss before income taxes (1,559,483 ) (164,248 )
Income taxes - current -   162,000  
Recovery of income taxes due to utilization of prior years' losses -   (162,000 )
  -   -  
Net loss and comprehensive income $(1,559,483 ) $(164,248 )
Basic and fully diluted net loss per share $(0.02 ) $0.00  
Weighted average number of shares outstanding 67,117,191   65,663,345  

Consolidated Statements of Cash Flows

For the years ended December 31 2010   2009  
Operations        
Net loss $(1,559,483 ) $(164,248 )
Items not affecting cash:        
  Amortization of property, plant and equipment 1,390,081   1,592,034  
  Amortization of intangible assets 101,600   79,932  
  Accretion of interest 109,552   95,221  
  Unrealized foreign exchange gain on debentures (233,482 ) (682,828 )
  Foreign currency fluctuation 70,862   267,647  
  Compensation cost for stock options (9,751 ) 20,973  
  (130,621 ) 1,208,731  
Net change in non-cash working capital items 622,115   (1,066,248 )
Net cash provided by operations 491,494   142,483  
Investing activities        
  Acquisition of property, plant and equipment (189,016 ) (312,861 )
  Acquisition of intangible assets (126,640 ) (177,320 )
Net cash used in investing activities (315,656 ) (490,181 )
Financing activities        
  Increase in bank loan 580,000   -  
  Proceeds from long-term debt -   350,000  
  Repayment of long-term debt (1,347,595 ) (1,317,608 )
Net cash used in financing activities (767,595 ) (967,608 )
Foreign exchange loss on cash held in foreign currencies (57,818 ) (224,151 )
Decrease in cash and cash equivalents (649,575 ) (1,539,457 )
Cash and cash equivalents, beginning of year 894,031   2,433,488  
Cash and cash equivalents, end of year $244,456   $894,031  

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