Warnex Inc.
TSX : WNX

Warnex Inc.

November 12, 2008 17:01 ET

Warnex Reports Third Quarter 2008 Results

Record Revenue and Net Earnings

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

Operating Highlights

- Generated record third quarter revenue of $6.7 million and year-to-date revenue of $18.7 million

- Achieved net earnings of $0.5 million for the quarter and $1.7 million for the nine-month period

- Generated EBITDA of $1.1 million for the quarter and $1.8 million for the nine-month period

- Successfully passed an FDA inspection of its Analytical facilities

- Obtained ISO accreditation by the Standards Council of Canada for its Medical Laboratories division and launched its DNA identification testing services for immigration and forensic purposes

- Launched manufacturing validation services for the pharmaceutical industry

- Subsequent to the quarter, Warnex's Bioanalytical Services division acquired two state-of-the-art TSQ Vantage mass spectrometers

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

"We have delivered another solid quarter and continue to show year-over-year growth. Our net earnings of $0.5 million in the third quarter show that our transition from a research-based company to one focused on laboratory services is producing results," said Mark Busgang, President and CEO of Warnex. "We continue to invest in state-of-the-art equipment and expand our service offering in order to provide unique and comprehensive services to the pharmaceutical and healthcare industries."

Financial Results

For the three-month period ended September 30, 2008, revenue from continuing operations was $6.7 million compared to $6.0 million in 2007, an increase of 11% over last year. For the nine-month period ended September 30, 2008, revenue from continuing operations was $18.7 million compared to $17.9 million in 2007, an increase of 4% over last year.

For the three-month period ended September 30, 2008, net earnings from continuing operations amounted to $0.5 million or $0.01 per share compare to a loss of $0.2 million or $0.00 per share in 2007. Net earnings, including discontinued operations, amounted to $0.5 million or $0.01 per share compared to a loss of $0.3 million or $0.01 per share in 2007. For the nine-month period ended September 30, 2008, net earnings from continuing operations totalled $1.7 million or $0.03 per share compared to a loss of $1.6 million or $0.03 per share in 2007 and net earnings, after discontinued operations, were $1.7 million or $0.03 per share compared to a loss of $1.3 million or $0.02 per share in 2007.

Earnings before interest, taxes, depreciation and amortization (EBITDA) from continuing operations, as well as after discontinued operations, for the quarter amounted to $1.1 million versus $0.8 million for the same quarter a year ago. For the nine-month period ended September 30, 2008, EBITDA from continuing operations, amounted to $1.8 million (2007 - $1.6 million). Total EBITDA including discontinued operations was $1.8 million compared with $1.2 million in the corresponding period in 2007.

Gross margins for the quarter amounted to $2.3 million or 34.7% of sales (2007 - $1.7 million or 28.0% of sales). The increase of $0.6 million in gross margin is mainly explained by the execution of complex projects with higher margins in the Bioanalytical Services division and less amortization, even though we sustained higher maintenance and repair expenses. Gross margin for the nine-month period ended September 30, 2008, amounted to $5.2 million or 28.0% of sales (2007 - $4.2 million or 23.2% of sales).

Selling and administrative expenses amounted to $1.5 million for the three-month period ended September 30, 2008 (2007 - $1.4 million). The increase of $0.1 million is mainly explained by the $0.3 million unrealized foreign exchange loss on the U.S. debentures recorded at September 30, 2008. In proportion to revenue, selling and administrative expenses are similar to last year at 23%. For the nine-month period ended September 30, 2008, selling and administrative expenses amounted to $4.3 million (2007 - $4.2 million).

Financial expenses decreased by $185,500, from $466,363 in the third quarter of 2007 to $280,863 in the third quarter of 2008, mainly due to less interest following repayments made on the long term debt and due to the new agreements signed with the lenders. For the nine-month period ended September 30, 2008, financial expenses amounted to $1.0 million compared to $1.5 million last year.

As of September 30, 2008, the Company had $1.7 million in cash and working capital of $1.7 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.



Interim Consolidated Balance Sheets
(Unaudited)
September 30 December 31
2008 2007
------------------------------------------------------------------------
------------------------------------------------------------------------
Assets
Current
Cash and cash equivalents $1,655,121 $1,016,951
Accounts receivable 4,197,278 5,440,231
Work-in-progress 691,122 34,798
Inventory 101,540 93,053
Investment tax credits receivable 135,283 135,283
Prepaid expenses 475,406 169,610
------------------------------------------------------------------------
------------------------------------------------------------------------
7,255,750 6,889,926

Long-term receivables - 125,000
Property, plant and equipment 7,587,410 7,726,464
Intangible assets 252,683 292,606
Goodwill 937,695 937,695
------------------------------------------------------------------------
$16,033,538 $15,971,691
------------------------------------------------------------------------
------------------------------------------------------------------------

Liabilities
Current
Accounts payable $3,290,643 $ 3,575,368
Deferred revenue 1,246,291 487,045
Current portion of long-term debt 978,994 1,609,127
Current portion of debentures - 11,170,730
------------------------------------------------------------------------
5,515,928 16,842,270
Long-term debt 1,542,719 165,964
Liability component of debentures 6,303,915 -
------------------------------------------------------------------------
13,362,562 17,008,234
------------------------------------------------------------------------
------------------------------------------------------------------------

Shareholders' equity (deficiency)
Capital stock 40,551,049 38,705,849
Equity component of debentures 312,288 1,428,114
Contributed surplus 2,443,148 1,210,708
Deficit (40,635,509) (42,381,214)
------------------------------------------------------------------------
2,670,976 (1,036,543)
------------------------------------------------------------------------
------------------------------------------------------------------------
$16,033,538 $15,971,691
------------------------------------------------------------------------
------------------------------------------------------------------------



Interim Consolidated Statements of Contributed Surplus
(Unaudited)

Three months ended Nine months ended
September 30 September 30
2008 2007 2008 2007
(restated (restated
note 2) note 2)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Balance, beginning
of period $2,548,143 $1,209,252 $1,210,708 $1,080,728
Transfer of the
equity component
of debentures
extinguished during
the period - - 1,428,114 -
Stock-based
compensation (104,995) 53,138 (195,674) 181,662
--------------------------------------------------------------------------
Balance, end of
period $2,443,148 $1,262,390 $2,443,148 $1,262,390
--------------------------------------------------------------------------
--------------------------------------------------------------------------



Interim Consolidated Statements of Deficit
(Unaudited)

Three months ended Nine months ended
September 30 September 30
2008 2007 2008 2007
(restated (restated
note 2) note 2)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Balance, beginning
of period $(41,147,119) $(41,086,347) $(42,381,214) $(40,168,524)
Adjustment to
opening deficit - (731,915) - (615,255)
--------------------------------------------------------------------------
Restated balance,
beginning of period (41,147,119) (41,818,262) (42,381,214) (40,783,779)
Net earnings (loss) 511,610 (263,216) 1,745,705 (1,297,699)
--------------------------------------------------------------------------
Balance, end of
period $(40,635,509) $(42,081,478) $(40,635,509) $(42,081,478)
--------------------------------------------------------------------------
--------------------------------------------------------------------------



Consolidated Statements of Accumulated Other Comprehensive Income
(Unaudited)
Three months ended Nine months ended
September 30 September 30
2008 2007 2008 2007
(restated (restated
note 2) note 2)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Accumulated Other
Comprehensive
Income $- $- $- $-
--------------------------------------------------------------------------
--------------------------------------------------------------------------



Interim Consolidated Statements of Earnings and Comprehensive Income
(Unaudited)


Three months ended Nine months ended
September 30 September 30
2008 2007 2008 2007
(restated (restated
note 2) note 2)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Revenue $6,669,833 $5,990,729 $18,669,822 $17,945,017
Cost of goods sold 4,352,157 4,310,604 13,429,038 13,782,975
--------------------------------------------------------------------------
Gross margin 2,317,676 1,680,125 5,240,784 4,162,042
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Operating expenses
Selling, general and
administrative 1,525,203 1,394,723 4,348,642 4,240,137
Finance charges 280,863 466,363 960,629 1,522,259
--------------------------------------------------------------------------
1,806,066 1,861,086 5,309,271 5,762,396
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Earnings (loss) before
under noted item 511,610 (180,961) (68,487) (1,600,354)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Gain on extinguishment
of debt - - 1,814,192 -
--------------------------------------------------------------------------
Net earnings (loss)
from continuing
operations 511,610 (180,961) 1,745,705 (1,600,354)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Net earnings (loss)
from discontinued
operations - (82,255) - 302,655
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Net earnings (loss) and
comprehensive income $511,610 $(263,216) $1,745,705 $(1,297,699)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Basic and fully diluted
net earnings (loss) per
share from continuing
operations $0.01 $0.00 $0.03 $(0.03)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Basic and fully diluted
net earnings (loss) per
share $0.01 $(0.01) $0.03 $(0.02)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Weighted average number
of shares outstanding 64,317,191 51,973,875 58,135,533 51,973,875
--------------------------------------------------------------------------
--------------------------------------------------------------------------



Interim Consolidated Statements of Cash Flows
(Unaudited)
Three months ended Nine months ended
September 30 September 30
2008 2007 2008 2007
(restated (restated
note 2) note 2)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Operations
Net earnings (loss) $511,610 $(180,961) $1,745,705 $(1,600,354)
Items not affecting cash:
Amortization of
property, plant and
equipment 381,716 507,696 1,099,109 1,512,897
Amortization of
intangible assets 14,972 16,896 44,532 49,551
Loss on disposal of
property, plant and
equipment - - 1,054 -
Accretion of interest 21,130 131,945 178,899 423,459
Gain on extinguishment
of debt - - (1,814,192) -
Unrealized foreign
exchange loss on
debentures 303,703 - 303,703 -
Foreign currency
fluctuation (23,461) (86,607) (68,793) 49,226
Compensation cost for
stock options (104,995) 53,138 (195,674) 181,662
--------------------------------------------------------------------------
1,104,675 442,107 1,294,343 616,441
Net change in non-cash
working capital items 289,173 (337,572) 812,232 (481,209)
---------------------------------------------------------------------------
Net cash provided by
continuing operating
activities 1,393,848 104,535 2,106,575 135,232
Net cash used in
discontinued activities - (82,253) - (80,371)
--------------------------------------------------------------------------
Net cash provided by
operations 1,393,848 22,282 2,106,575 54,861
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Investing activities
Decrease in long-term
receivables 125,000 425,000 125,000 125,000
Acquisition of
property, plant and
equipment (58,399) (19,729) (374,825) (137,196)
Proceeds on disposal
of property, plant and
equipment - - 1,725 -
Acquisition of
intangible assets - (33,380) (4,609) (33,488)
--------------------------------------------------------------------------
Net cash provided by
(used in) continuing
investing
activities 66,601 371,891 (252,709) (45,684)
Net cash provided by
discontinued investing
activities - - - 732,293
--------------------------------------------------------------------------
Net cash provided by
(used in) investing
activities 66,601 371,891 (252,709) 686,609
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Financing activities
Increase in bank loan - 150,000 - 750,000
Proceeds from
long-term debt - - 2,000,000 -
Repayment of long-term
debt (358,652) (415,530) (1,841,387) (1,366,176)
Repayment of liability
component of debentures - (517,902) (1,377,737) (1,053,704)
--------------------------------------------------------------------------
Net cash used in
financing activities (358,652) (783,432) (1,219,124) (1,669,880)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Foreign exchange gain
on cash held in foreign
currencies 4,344 91,679 3,428 16,809
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Increase (decrease) in
cash and cash
equivalents 1,106,141 (297,580) 638,170 (911,601)
Cash and cash
equivalents, beginning
of period 548,980 3,436,267 1,016,951 4,050,288
--------------------------------------------------------------------------
Cash and cash
equivalents, end of
period $1,655,121 $3,138,687 $1,655,121 $3,138,687
--------------------------------------------------------------------------
--------------------------------------------------------------------------

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