Warnex Inc.

Warnex Inc.

April 05, 2012 16:36 ET

Warnex Reports Year End 2011 Results

LAVAL, QUEBEC--(Marketwire - April 5, 2012) - Warnex Inc. (TSX:WNX) ("Warnex") announced today financial results for the year ended December 31, 2011.

2011 Highlights

  • Sold the assets of its Medical Laboratories division to Gamma-Dynacare Medical Laboratories for gross proceeds of $7.5 million. A portion of these proceeds was used to reduce the Company's debt owing pursuant to its outstanding debentures, reducing their aggregate principal amount from US$4,590,277 and CDN$2,140,815 in December 2011, to approximately CDN$1,576,000.
  • Reorganized the operations of its subsidiary Warnex Analytical Services Inc., including the shutdown of its analytical laboratories located in Laval and consolidation all of its analytical services at its Neopharm Laboratories facility located in Blainville.
  • Mr. Mark Busgang resigned as President and Chief Executive Officer and as a director of Warnex. The former responsibilities of Mr. Busgang were assumed by the remaining senior officers of Warnex with oversight from the newly created Executive Committee of the Board of Directors of Warnex.
  • On December 20, 2011, the Company had announced that it had entered into a binding letter of intent for the sale of its Analytical Services division for a consideration comprising of, among other elements, $400,000 in cash, the refund of working capital in the amount of approximately $700,000 and a 15% passive equity interest in the purchaser. On February 14, 2012, the Company announced that this transaction would not proceed due to the failure of the prospective purchaser to perform its obligations. As a result, the Company has initiated certain legal measures with a view to obtaining appropriate compensation from the prospective purchaser. The prospective purchaser has responded with its own legal proceedings alleging certain defaults on the part of the Company and seeking redress from the court. The Company intends to vigorously defend against such proceedings; however, it is not possible to predict the outcome of these various legal proceedings at this time.
  • Subsequent to year end, Mr. François Jetté, Chief Financial Officer, left the Company effective March 23, 2012, in order to pursue other career opportunities. Upon his departure, his responsibilities were assumed on an interim basis by Jean Vézina, who has significant relevant experience, having previously served as the Chief Financial Officer of a publicly listed pharmaceutical company.
  • Subsequent to year end, the Company announced on April 4, 2012 that it has reached an agreement with Persistence Capital Partners LP (PCP), the holder of the Debentures, regarding the conversion of a portion of the Debentures and the repayment of the remaining balance. The conversion of CDN$725,000 in principal amount of the Debentures into an aggregate of 46,178,344 Common Shares of Warnex pursuant to a notice of conversion received by Warnex on March 16, 2012, will be effected on or about April 5, 2012. As a result, PCP will own approximately 51.56% of the outstanding Common Shares. Furthermore, PCP has agreed to allow Warnex until April 13, 2012 to repay the remaining balance of approximately $959,420 owing under the Debentures, with the expectation that by such time, Warnex will be able to put into place a one-year operating line of credit with a financial institution of up to CDN$2,000,000 in order to provide Warnex with the funds necessary to repay such outstanding balance and to support future working capital requirements. While Warnex is well advanced towards putting this credit facility into place, no assurances can be given that Warnex will be successful in this regard.
  • Subsequent to year end, Mr. Marc Lebel has been appointed as the Interim Chief Executive Officer of the Company. His primary role within Warnex will be to ensure the integrity of the Company's operations as the Board of Directors continues its assessment of the strategic alternatives available for the Company.
  • As a result of the Company's continuing developments, the Toronto Stock Exchange has agreed to further extend the deadline for the delisting of the Common Shares of Warnex to April 16, 2012. Warnex continues to explore its various options in light of this scheduled delisting.
  • The Company continues to evaluate all of its options for maximizing the value of both its Analytical Services division and its Bioanalytical Services division. In this regard and subsequent to year end, the Company has received a number of non-binding expressions of interest with respect to potential transactions involving each of these divisions. The prospective purchasers are currently in the process of conducting due diligence reviews of their target operations. However, the Company cautions that there can be no assurance that any transaction will occur, or if a transaction is in fact undertaken, as to its terms or timing.

Financial Results

Consolidated revenue for the twelve-month period ended December 31, 2011, amounted to $21.3 million compared to $22.3 million for the same period of last year, a decrease of 4%. Net earnings for the twelve-month period amounted to $0.5 million or $0.01 per share in 2011 compared to a net loss of $1.7 million or $0.03 per share in 2010.

For the twelve-month period ended December 31, 2011, earnings before interests, taxes, depreciation and amortization (EBITDA) amounted to $0.2 million compared to $1.0 million for the twelve-month period ended December 31, 2010.

Gross margins for the twelve-month period amounted to $5.3 million, representing 25% of revenue, in 2011 compared to $4.8 million and 22% of revenue in 2010.

For the twelve-month period ended December 31, 2011, selling expenses were $1.3 million compared to $1.4 million in 2010. As a percentage of revenue, selling expenses were similar to last year at 6%.

General and administrative expenses amounted to $5.7 million compared to $5.2 million last year. As a percentage of revenue, general and administrative expenses were higher than last year at 26% (23% in 2010).

Financial expenses increased to $1.2 million in 2011 from $1.1 million in 2010, mainly due to more interest paid on the line of credit.

Research and development tax credits amounted to $0.2 million for the year ended December 31, 2011, compared to $0.9 million in 2010.

Operating Highlights

The Analytical division's revenues decreased by 22% from $10.5 million in 2010 to $8.1 million in 2011. This decrease is mainly due to a decrease in volume from major customers during the year. The Company announced on July 15, 2011, that it would reorganize the operations of the Warnex Analytical Services Inc. subsidiary. As part of the restructuring, Warnex shut down the operations of its analytical laboratories located in Laval, and consolidated all of its analytical services at its Neopharm Laboratories facility located in Blainville. This reorganization reflected the Company's strategy to continually improve efficiency, reduce costs related to operations and provide better service to customers. This reorganization was completed in September 2011.

The Bioanalytical division's revenues increased by 25% from $6.4 million in 2010 to $8.0 million in 2011. This increase is mainly due to the execution of more complex projects with an average price per analysis higher than last year. The business development efforts in this division are ongoing to further increase the Company's business from new and existing customers.

The Medical division's revenue decreased by 5% from $5.2 million in 2010 (12 months) to $4.9 million in 2011 (11 months). This division was sold on December 8, 2011, to Gamma-Dynacare Medical Laboratories.

About Warnex

Warnex (www.warnex.ca) is a life sciences company devoted to protecting public health by providing laboratory services to the pharmaceutical sector. 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 has two facilities located in Laval and Blainville, Quebec.


Certain statements contained in this news release are forward-looking and are subject to numerous risks and uncertainties, known and unknown. For further 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 statements to follow.

Consolidated Statements of Financial Position

December 31
December 31
January 1
Current assets
Cash and cash equivalents 1,285,236 244,456 894,031
Trade and other receivables 3,482,427 3,478,299 3,593,390
Work-in-progress 510,171 328,289 531,142
Inventory 273,564 355,132 177,027
Prepaid expenses 276,337 293,636 388,502
5,827,735 4,699,812 5,584,092
Non-current assets
Deferred income taxes - 1,221,000 1,221,000
Property, plant and equipment 3,333,740 6,569,217 7,868,974
Intangibles 166,552 407,185 382,145
Goodwill - 937,695 937,695
9,328,027 13,834,909 15,993,906
Current liabilities
Bank loan 740,000 580,000 -
Trade and other payables 3,335,549 2,899,115 3,008,594
Provisions 90,278 - -
Deferred revenue 563,071 921,532 411,599
Current portion of long-term debt 42,840 894,716 1,800,372
Liability component of debentures 1,635,400 6,100,181 -
6,407,138 11,395,544 5,220,565
Long-term liabilities
Long-term debt - 5,722 447,661
Liability component of debentures - - 6,187,516
6,407,138 11,401,266 11,855,742
Shareholders' equity
Capital stock 40,981,049 40,981,049 40,981,049
Other reserves 2,803,559 2,803,559 2,772,306
Deficit (40,863,719 ) (41,350,965 ) (39,615,191 )
2,920,889 2,433,643 4,138,164
9,328,027 13,834,909 15,993,906

Consolidated Statements of Changes in Shareholders' Equity

Other reserves
Equity components of debentures
Share-based compensation
Total other reserves
Balance, December 31, 2010 40,981,049 1,734,404 1,028,149 41,006 2,803,559 (41,350,965 ) 2,433,643
Share-based compensation - - - - - - -
Net and comprehensive income - - - - - 487,246 487,246
Balance, December 31, 2011 40,981,049 1,734,404 1,028,149 41,006 2,803,559 (40,863,719 ) 2,920,889
Balance, January 1, 2010 40,981,049 1,734,404 996,896 41,006 2,772,306 (39,615,191 ) 4,138,164
Share-based compensation - - 31,253 - 31,253 - 31,253
Net and comprehensive loss - - - - - (1,735,774 ) (1,735,774 )
Balance, December 31, 2010 40,981,049 1,734,404 1,028,149 41,006 2,803,559 (41,350,965 ) 2,433,643

Consolidated Statements of Operations and Comprehensive Income (Loss)

For the years ended December 31 2011
Revenue 21,258,262 22,250,790
Cost of goods sold 15,959,523 17,407,733
Gross margin 5,298,739 4,843,057
Operating expenses
Selling 1,261,168 1,388,957
General and administrative 5,720,081 5,209,167
Finance 1,178,969 1,137,924
Research and development tax credits (204,422 ) (923,735 )
7,955,796 6,812,313
Loss before under noted items and income taxes (2,657,057 ) (1,969,256 )
Impairment of assets (1,825,000 ) -
Gain on disposal of assets 5,896,240 -
Gain on extinguishment of debt 420,727 -
Unrealized foreign exchange gain (loss) on debentures (126,664 ) 233,482
Earnings (loss) before income taxes 1,708,246 (1,735,774 )
Deferred income taxes 1,221,000 -
Net earnings (loss) and comprehensive income (loss) 487,246 (1,735,774 )
Basic earnings (loss) per share 0.01 (0.03 )
Diluted earnings (loss) per share 0.01 (0.03 )
Weighted average number of shares outstanding 67,117,191 67,117,191
Weighted average number of diluted shares outstanding 107,325,191 67,117,191

Consolidated Statements of Cash Flow

For the years ended December 31 2011
Net earnings (loss) 487,246 (1,735,774 )
Items not affecting cash:
Depreciation of property, plant and equipment 1,250,562 1,488,773
Amortization of intangibles 93,591 101,600
Impairment of property, plant and equipment 1,787,510 -
Impairment of intangibles 37,490 -
Gain on disposal of assets (5,896,240 ) -
Accretion of interest on debentures 71,114 146,147
Capitalized fees and interest on debentures 578,282 -
Gain on extinguishment of debt (420,727 ) -
Unrealized foreign exchange loss (gain) on debentures 126,664 (233,482 )
Deferred income taxes 1,221,000
Share-based compensation - 31,253
Foreign currency fluctuation (15,408 ) 70,862
(678,916 ) (130,621 )
Net change in non-cash working capital items 92,446 622,115
Net cash provided by (used in) operations (586,470 ) 491,494
Investing activities
Acquisition of property, plant and equipment (211,486 ) (189,016 )
Proceeds on disposal of property, plant and equipment 408,891 -
Acquisition of intangibles (17,642 ) (126,640 )
Proceeds on disposal of intangibles 127,194 -
Proceeds on disposal of goodwill 6,833,935 -
Net cash provided by (used in) investing activities 7,140,892 (315,656 )
Financing activities
Increase in bank loan 160,000 580,000
Repayment of long term debt (857,598 ) (1,347,595 )
Proceeds from debentures 600,000 -
Repayment of debentures (5,420,114 ) -
Net cash used in financing activities (5,517,712 ) (767,595 )
Foreign exchange gain (loss) on cash held in foreign currencies 4,070 (57,818 )
Increase (decrease) in cash and cash equivalents 1,040,780 (649,575 )
Cash and cash equivalents, beginning of year 244,456 894,031
Cash and cash equivalents, end of year 1,285,236 244,456

Contact Information

  • Michael Singer
    Chairman of the Executive Committee of the Board of Director
    Warnex Inc.
    (514) 940-3610