Warnex Inc.
TSX : WNX

Warnex Inc.

August 12, 2008 17:00 ET

Warnex Reports Second Quarter 2008 Results

Record Revenues and Net Earnings

LAVAL, QUEBEC--(Marketwire - Aug. 12, 2008) - Warnex Inc. (TSX:WNX) today announced financial results for the second quarter ended June 30, 2008.

Operating Highlights

- Generated record second quarter revenue of $5.9 million

- Achieved net earnings of $1.5 million

- Completed the restructuring of the Company's various debentures

- Signed an agreement with Desjardins for financing facilities totalling $4 million, which includes a revolving line of credit of $2 million and a term debt of $2 million

- Acquired two mass spectrometers for its Bioanalytical division and a UPLC® system (Ultra Performance Liquid Chromatography) for its Analytical division

- Launched a new paternity testing website: www.prodna.ca

- Appointed two new directors: Gilles Gagnon, consultant and former CEO of AEterna Zentaris, and Mattie Chinks, President of Avmor Ltd.

"This quarter, we generated record second quarter revenue as well as net earnings. We also improved our balance sheet during the quarter with the restructuring of our debentures and a financing agreement with Desjardins," said Mark Busgang, President and CEO of Warnex. "We are now well positioned to execute our operational growth strategy for creating shareholder value. We have already invested in new equipment in our Bioanalytical division due to increasing demand for our services, and in our Analytical division in order to enhance our technological offering."

Financial Results

Revenue from continuing operations for the second quarter ended June 30, 2008, was $5.9 million compared to $5.8 million in the second quarter of 2007. For the six-month period ended June 30, 2008, revenue from continuing operations reached $12.0 million, similar to last year.

For the three-month period ended June 30, 2008, net earnings from continuing operations amounted to $1.5 million or $0.03 per share compared to a net loss of $1.0 million or $0.02 per share in 2007, an increase of $2.5 million. This increase is partly due to a gain on extinguishment of debt of $1.8 million. Net earnings, including discontinued operations, amounted to $1.5 million or $0.03 per share (2007 - loss of $0.1 million or $0.00 per share). For the six-month period ended June 30, 2008, net earnings from continuing operations totalled $1.2 million or $0.02 per share (2007 - loss of $1.4 million or $0.03 per share) and net earnings, after discontinued operations, were $1.2 million or $0.02 per share (2007 - loss of $1.0 million or $0.02 per share).

Earnings before interest, taxes, depreciation and amortization (EBITDA) from continuing operations for the quarter amounted to $263,735 versus $73,060 for the same quarter a year ago. Total EBITDA including discontinued operations was $263,735 for the quarter compared with $264,105 in the corresponding quarter in 2007. For the six-month period ended June 30, 2008, EBITDA from continuing operations, amounted to $738,384 (2007 - $739,730). Total EBITDA including discontinued operations was $738,384 compared with $394,873 in the corresponding period in 2007.

Gross margins for the quarter amounted to $1.3 million or 22.7% of sales (2007 - $0.9 million or 15.7% of sales). The increase of $0.4 million in gross margin is mainly explained by a reduction in the cost of materials due to a stronger Canadian dollar, less amortization, and an increase in direct labour efficiency, even though we sustained higher maintenance and repair expenses. Gross margin for the six-month period ended June 30, 2008, amounted to $2.9 million or 24.4% of sales (2007 - $2.5 million or 20.8% of sales).

Selling and administrative expenses amounted to $1.3 million for the three-month period ended June 30, 2008 (2007 - $1.4 million). The decrease of $0.1 million is mainly explained by a decrease in salaries due the corporate restructuring completed at the end of the first quarter of 2008. In proportion of revenue, administrative and selling expenses are lower than last year at 22% in 2008 (2007 - 25%). For the six-month period ended June 30, 2008, selling and administrative expenses amounted to $2.8 million, similar to last year.

Financial expenses decreased by $212,392, from $528,133 in the second quarter of 2007 to $315,741 in the second quarter of 2008, mainly due to less interest following repayments made on the long term debt and due to the refinancing of the debentures. For the six-month period ended June 30, 2008, financial expenses amounted to $679,766 (2007 - $1,055,896), a decrease of $376,130.

As of June 30, 2008, the Company had $0.5 million in cash and working capital of $0.8 million. In addition, the Company had $2.0 million in unused banking facilities.

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.

Financial statements to follow.



Interim Consolidated Balance Sheets
(Unaudited)

June 30 December 31
2008 2007
-------------------------------------------------------------------------
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Assets
Current
Cash and cash equivalents $548,980 $1,016,951
Accounts receivable 4,766,691 5,440,231
Work-in-progress 56,031 34,798
Inventory 104,095 93,053
Investment tax credits receivable 135,283 135,283
Prepaid expenses 253,654 169,610
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5,864,734 6,889,926

Long-term receivables 125,000 125,000
Property, plant and equipment 7,910,727 7,726,464
Intangible assets 267,655 292,606
Goodwill 937,695 937,695
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$15,105,811 $15,971,691
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Liabilities
Current
Accounts payable $2,986,542 $3,575,368
Deferred revenue 995,461 487,045
Current portion of long-term debt 1,104,391 1,609,127
Current portion of debentures - 11,170,730
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5,086,394 16,842,270

Long-term debt 1,775,974 165,964
Liability component of debentures 5,979,082 -
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12,841,450 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 2,548,143 1,210,708
Deficit (41,147,119) (42,381,214)
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2,264,361 (1,036,543)
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$15,105,811 $15,971,691
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Interim Consolidated Statements of Contributed Surplus
(Unaudited)

Three months ended Six months ended
June 30 June 30
2008 2007 2008 2007
(restated (restated
note 2) note 2)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Balance, beginning
of period $1,232,249 $1,145,996 $1,210,708 $1,080,728
Transfer of the
equity component
of debentures
extinguished
during the period 1,428,114 - 1,428,114 -
Stock-based
compensation (112,220) 63,256 (90,679) 128,524
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Balance, end
of period $2,548,143 $1,209,252 $2,548,143 $1,209,252
-------------------------------------------------------------------------
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Interim Consolidated Statements of Deficit
(Unaudited)

Three months ended Six months ended
June 30 June 30
2008 2007 2008 2007
(restated (restated
note 2) note 2)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Balance, beginning
of period $(42,667,536) $(41,031,620) $(42,381,214) $(40,168,524)
Adjustment to
opening deficit - (673,066) - (615,255)
-------------------------------------------------------------------------
Restated balance,
beginning of
period (42,667,536) (41,704,686) (42,381,214) (40,783,779)
Net earnings
(loss) 1,520,417 (113,578) 1,234,095 (1,034,485)
-------------------------------------------------------------------------
Balance, end of
period $(41,147,119) $(41,818,264) $(41,147,119) $(41,818,264)
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Consolidated Statements of Accumulated Other Comprehensive Income
(Unaudited)

Three months ended Six months ended
June 30 June 30
2008 2007 2008 2007
(restated (restated
note 2) note 2)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Accumulated Other
Comprehensive
Income $- $- $- $-
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-------------------------------------------------------------------------



Interim Consolidated Statements of Earnings and Comprehensive Income
(Unaudited)

Three months ended Six months ended
June 30 June 30
2008 2007 2008 2007
(restated (restated
note 2) note 2)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Revenue $5,858,423 $5,792,277 $11,999,989 $11,954,288
Cost of goods
sold 4,526,380 4,880,294 9,076,881 9,472,371
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Gross margin 1,332,043 911,983 2,923,108 2,481,917
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Operating expenses
Selling, general
and
administrative 1,310,077 1,420,126 2,823,439 2,845,414
Finance charges 315,741 528,135 679,766 1,055,896
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1,625,818 1,948,261 3,503,205 3,901,310
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Loss before under
noted item (293,775) (1,036,278) (580,097) (1,419,393)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Gain on
extinguishment
of debt 1,814,192 - 1,814,192 -
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Net earnings (loss)
from continuing
operations 1,520,417 (1,036,278) 1,234,095 (1,419,393)
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-------------------------------------------------------------------------
Net earnings from
discontinued
operations - 922,700 - 384,908
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-------------------------------------------------------------------------
Net earnings (loss)
and comprehensive
income $1,520,417 $(113,578) $1,234,095 $(1,034,485)
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Basic and fully
diluted net
earnings (loss)
per share from
continuing
operations $0.03 $(0.02) $0.02 $(0.03)
-------------------------------------------------------------------------
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Basic and fully
diluted net
earnings (loss)
per share $0.03 $0.00 $0.02 $(0.02)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Weighted average
number of shares
outstanding 60,169,418 51,973,875 55,486,251 51,973,875
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Interim Consolidated Statements of Cash Flows
(Unaudited)

Three months ended Six months ended
June 30 June 30
2008 2007 2008 2007
(restated (restated
note 2) note 2)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Operations
Net earnings
(loss) $1,520,417 $(1,036,278) $1,234,095 $(1,419,393)
Items not
affecting cash:
Amortization of
property, plant
and equipment 344,247 525,280 717,393 1,005,201
Amortization of
intangible
assets 14,819 16,871 29,560 32,655
Loss on disposal
of property,
plant and
equipment - - 1,054 -
Accretion of
interest 48,988 142,917 157,769 291,514
Gain on
extinguishment
of debt (1,814,192) - (1,814,192) -
Foreign currency
fluctuation 26,723 112,222 (45,332) 135,833
Compensation cost
for stock
options (112,220) 63,256 (90,679) 128,524
-------------------------------------------------------------------------
28,782 (175,732) 189,668 174,334
Net change in
non-cash working
capital items (533,204) (496,635) 523,059 (143,637)
-------------------------------------------------------------------------
Net cash provided
by (used in)
continuing
operating
activities (504,422) (672,367) 712,727 30,697
Net cash provided
by discontinued
activities - 301,315 - 1,882
-------------------------------------------------------------------------
Net cash provided
by (used in)
operations (504,422) (371,052) 712,727 32,579
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Investing activities
Increase in
long-term
receivables - (300,000) - (300,000)
Acquisition of
property, plant
and equipment (157,496) (95,620) (316,426) (117,467)
Proceeds on
disposal of
property, plant
and equipment - - 1,725 -
Acquisition of
intangible assets (4,609) (108) (4,609) (108)
-------------------------------------------------------------------------
Net cash used in
continuing investing
activities (162,105) (395,728) (319,310) (417,575)
Net cash provided
by discontinued
investing activities - 732,293 - 732,293
-------------------------------------------------------------------------
Net cash provided
by (used in)
investing
activities (162,105) 336,565 (319,310) 314,718
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Financing activities
Increase in bank
loan - 140,000 - 600,000
Proceeds from
long-term debt 2,000,000 - 2,000,000 -
Repayment of
long-term debt (1,178,797) (464,621) (1,482,735) (950,646)
Repayment of
liability
component of
debentures (1,359,836) (517,901) (1,377,737) (535,802)
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Net cash used in
financing
activities (538,633) (842,522) (860,472) (886,448)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Foreign exchange
gain on cash held
in foreign
currencies (8,859) (72,495) (916) (74,870)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Decrease in cash
and cash
equivalents (1,214,019) (949,504) (467,971) (614,021)
Cash and cash
equivalents,
beginning of
period 1,762,999 4,385,771 1,016,951 4,050,288
-------------------------------------------------------------------------
Cash and cash
equivalents, end
of period $548,980 $3,436,267 $548,980 $3,436,267
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