Warnex Inc.
TSX : WNX

Warnex Inc.

August 11, 2009 17:00 ET

Warnex Reports Second Quarter 2009 Results

LAVAL, QUEBEC--(Marketwire - Aug. 11, 2009) - Warnex Inc. (TSX:WNX) today announced financial results for the second quarter ended June 30, 2009.

Operating Highlights

- Generated second quarter revenue of $5.4 million and year-to-date revenue of $13.0 million

- Acquired Molecular World Inc., a laboratory located in Thunder Bay, Ontario, specialized in human DNA identification including forensic DNA testing

- Launched a test for the detection of the influenza A H1N1 virus, offering results in as little as 8 hours

- Obtained ISO 15189:2007 accreditation by the Standards Council of Canada (SCC) for its Medical Laboratories division

"Our year-to-date revenues of $13 million, up from $12 million last year, are in line with our growth objectives for 2009. The completion of several major Bioanalytical projects in the first quarter of 2009 resulted in an expected slower second quarter. We have increased our investment in business development in this division, while we continue to focus on improving efficiency and productivity in all our operations," said Mark Busgang, President and CEO of Warnex. "As part of our strategic growth plan, we are also pleased to have acquired Molecular World Inc., a DNA testing laboratory based in Thunder Bay, Ontario. This acquisition is complimentary to our existing DNA identification services, providing us with unique technology and expertise for forensic and parentage testing."

Financial Results

Consolidated revenue for the three-month period ended June 30, 2009, amounted to $5.4 million compared to $5.9 million during the same period a year ago, a decrease of 7%. For the six-month period ended June 30, 2009, revenue reached $13.0 million from $12.0 million for the same period in 2008.

Net loss for the quarter amounted to $0.3 million or $0.01 per share compared to net earnings of $1.5 million or $0.03 per share for the same quarter in 2008, which included a gain on extinguishment of debt of $1.8 million. For the six-month period ended June 30, 2009, net earnings totalled $0.8 million or $0.01 per share compared to $1.2 million or $0.02 per share in 2008.

Earnings before interest, taxes, depreciation and amortization (EBITDA) for the quarter amounted to $(14,927) versus $263,735 for the same quarter last year. For the six-month period ended June 30, 2009, EBITDA amounted to $2.0 million compared to $0.7 million in 2008.

Gross margins for the three-month period ended June 30, 2009, amounted to $1.0 million or 19% of sales compared to $1.3 million or 23% of sales for the same quarter last year. The decrease of $0.3 million in gross margin is mainly explained by the lower revenue in the Bioanalytical division compared to the same quarter last year. Gross margin for the six-month period ended June 30, 2009, amounted to $4.1 million or 32% of sales compared to $2.9 million or 24% of sales in 2008, an increase of $1.2 million.

Selling and administrative expenses amounted to $1.5 million for the three-month period ended June 30, 2009, compared to $1.3 million last year. The increase of $0.2 million is mainly explained by a loss on foreign exchange due to the strength of the Canadian dollar compared to the U.S dollar, the cost of options and an increased investment in business development. In proportion of revenue, administrative and selling expenses were higher than last year at 27% in 2009 (2008 - 22%). For the six-month period ended June 30, 2009, selling and administrative expenses amounted to $3.0 million compared to $2.8 million for the same period in 2008.

Financial expenses decreased by $2,655 from $315,741 in the second quarter of 2008 to $313,086 in the second quarter of 2009, mainly due to less interest following repayments made on the long term debt and debentures. For the six-month period ended June 30, 2009, financial expenses amounted to $624,025 (2008 - $679,766).

As of June 30, 2009, the Company had $2.4 million in cash and working capital of $2.1 million.

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, 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.



Interim Consolidated Balance Sheets
(Unaudited)

June 30 December 31
2009 2008
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Assets
Current
Cash and cash equivalents $2,426,855 $2,433,488
Accounts receivable 3,338,816 3,967,918
Work-in-progress 189,748 1,356,149
Inventory 117,080 121,701
Investment tax credits receivable 186,249 186,249
Prepaid expenses 385,117 306,238
-----------------------------------------------------------------------
-----------------------------------------------------------------------
6,643,865 8,371,743

Future income taxes 1,221,000 750,000
Property, plant and equipment 8,064,138 8,309,317
Intangible assets 373,972 243,291
Goodwill 937,695 937,695
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$17,240,670 $18,612,046
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Liabilities
Current
Accounts payable $2,887,719 $3,860,615
Deferred revenue 329,144 1,358,586
Current portion of long-term debt 1,317,682 1,267,184
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4,534,545 6,486,385

Long-term debt 1,553,804 1,872,557
Liability component of debentures 6,765,409 6,952,881
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12,853,758 15,311,823
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Shareholders' equity
Capital stock 40,861,049 40,551,049
Equity component of debentures 312,288 312,288
Contributed surplus 2,465,635 2,445,043
Deficit (39,252,060) (40,008,157)
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4,386,912 3,300,223
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$17,240,670 $18,612,046
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Interim Consolidated Statements of Contributed Surplus
(Unaudited)

Three months ended Six months ended
June 30 June 30
2009 2008 2009 2008
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Balance, beginning
of period $2,445,078 $1,232,249 $2,445,043 $1,210,708
Transfer of the
equity component
of debentures
extinguished
during the period - 1,428,114 - 1,428,114
Stock-based
compensation 20,557 (112,220) 20,592 (90,679)
-------------------------------------------------------------------------
Balance, end of
period $2,465,635 $2,548,143 $2,465,635 $2,548,143
-------------------------------------------------------------------------
-------------------------------------------------------------------------



Interim Consolidated Statements of Deficit
(Unaudited)

Three months ended Six months ended
June 30 June 30
2009 2008 2009 2008
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Balance, beginning
of period $(38,905,400) $(42,667,536) $(40,008,157) $(42,381,214)
Net earnings
(loss) (346,660) 1,520,417 756,097 1,234,095
-------------------------------------------------------------------------
Balance, end of
period $(39,252,060) $(41,147,119) $(39,252,060) $(41,147,119)
-------------------------------------------------------------------------
-------------------------------------------------------------------------



Consolidated Statements of Accumulated Other Comprehensive Income
(Unaudited)

Three months ended Six months ended
June 30 June 30
2009 2008 2009 2008
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Accumulated Other
Comprehensive Income $- $- $- $-
-------------------------------------------------------------------------
-------------------------------------------------------------------------



Interim Consolidated Statements of Earnings and Comprehensive Income
(Unaudited)

Three months ended Six months ended
June 30 June 30
2009 2008 2009 2008
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Revenue $5,421,474 $5,858,423 $12,979,129 $11,999,989
Cost of goods
sold 4,378,996 4,526,380 8,869,119 9,076,881
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Gross margin 1,042,478 1,332,043 4,110,010 2,923,108
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Operating expenses
Selling, general
and
administrative 1,481,407 1,310,077 2,962,911 2,823,439
Finance charges 313,086 315,741 624,025 679,766
-------------------------------------------------------------------------
1,794,493 1,625,818 3,586,936 3,503,205
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings (loss)
before under
noted items and
income taxes (752,015) (293,775) 523,074 (580,097)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Unrealized
foreign exchange
gain on
debentures 405,355 - 233,023 -
Gain on
extinguishment
of debt - 1,814,192 - 1,814,192
-------------------------------------------------------------------------
405,355 1,814,192 233,023 1,184,192
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings (loss)
before income
taxes (346,660) 1,520,417 756,097 1,234,095
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Income taxes
(recovered) (75,000) - 225,000 -
Recovery of
income taxes
due to
utilization of
prior years'
losses 75,000 - (225,000) -
-------------------------------------------------------------------------
- - - -
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net earnings
(loss) and
comprehensive
income $(346,660) $1,520,417 $756,097 $1,234,095
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Basic net earnings
(loss) per share $(0.01) $0.03 $0.01 $0.02
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Fully diluted
net earnings
(loss) per share $(0.01) $0.02 $0.01 $0.02
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Weighted average
number of shares
outstanding 64,983,858 60,169,418 64,602,905 55,486,251
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Weighted average
number of fully
diluted shares
outstanding 76,113,853 64,317,191 76,113,853 64,317,191
-------------------------------------------------------------------------
-------------------------------------------------------------------------



Interim Consolidated Statements of Cash Flows
(Unaudited)

Three months ended Six months ended
June 30 June 30
2009 2008 2009 2008
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Operations
Net earnings
(loss) $(346,660) $1,520,417 $756,097 $1,234,095
Items not
affecting cash:
Amortization of
property, plant
and equipment 389,166 344,247 771,409 717,393
Amortization of
intangible assets 17,854 14,819 32,962 29,560
Loss on disposal
of property,
plant and
equipment - - - 1,054
Accretion of
interest 23,298 48,988 45,551 157,769
Unrealized foreign
exchange gain on
debentures (405,355) - (233,023) -
Gain on
extinguishment
of debt - (1,814,192) - (1,814,192)
Foreign currency
fluctuation 172,174 26,723 141,033 (45,332)
Compensation cost
for stock options 20,557 (112,220) 20,592 (90,679)
-------------------------------------------------------------------------
(128,966) 28,782 1,534,621 189,668
Net change in
non-cash working
capital items (399,618) (533,204) (803,300) 523,059
-------------------------------------------------------------------------
Net cash provided
by (used in)
operations (528,584) (504,422) 731,321 712,727
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Investing activities
Acquisition of
property, plant
and equipment (42,481) (157,496) (178,328) (316,426)
Acquisition of
intangible assets (29,221) (4,609) (124,707) (4,609)
Proceeds on
disposal of
property, plant
and equipment - - - 1,725
-------------------------------------------------------------------------
Net cash used in
investing
activities (71,702) (162,105) (303,035) (319,310)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Financing activities
Proceeds from
long-term debt 350,000 2,000,000 350,000 2,000,000
Repayment of
long-term debt (310,772) (1,178,797) (694,155) (1,482,735)
Repayment of
liability
component of
debentures - (1,359,836) - (1,377,737)
-------------------------------------------------------------------------
Net cash provided
by (used in)
financing
activities 39,228 (538,633) (344,155) (860,472)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Foreign exchange
loss on cash
held in foreign
currencies (133,934) (8,859) (90,764) (916)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Decrease in cash
and cash
equivalents (694,992) (1,214,019) (6,633) (467,971)
Cash and cash
equivalents,
beginning of
period 3,121,847 1,762,999 2,433,488 1,016,951
-------------------------------------------------------------------------
Cash and cash
equivalents, end
of period $2,426,855 $548,980 $2,426,855 $548,980
-------------------------------------------------------------------------
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