Warnex reports fourth quarter and year end 2006 results



    - Company to Focus on Laboratory Services -

    LAVAL, QC, March 15 /CNW/ - Warnex Inc. (TSX: WNX) today announced
financial results for the fourth quarter and year ended December 31, 2006.

    2006 Highlights

    
    -   Strategic decision to focus the Company on laboratory services, which
        include analytical, bioanalytical, and medical laboratory services
    -   Concluded the acquisition of MDS Pharma Services' pharmaceutics
        business in Blainville, Quebec
    -   Concluded the acquisition of PRO-DNA Diagnostics, a laboratory
        offering genetic testing services
    -   Obtained global financing of $4 million, which included the issuance
        of an unsecured debenture of $3 million and a $1 million operating
        line of credit increase
    -   Decision to divest of the pathogen detection division resulted in an
        impairment of $9.8 million and restructuring costs of $0.3 million
    

    "Warnex was able to generate record revenue in 3 out of 4 quarters and
for the year. As well, in the fourth quarter for the first time ever we posted
quarterly revenue that exceeded $7 million," said Mark Busgang, President and
CEO. "In 2007, as we transition our focus to the laboratory services division,
we look forward to continued strong organic growth as well as the potential
for acquisitions in this profitable sector."

    Financial Results

    Total revenue, including revenue from discontinued operations, for the
twelve-month period ended December 31, 2006, was $21.1 million compared to
$18.3 million in the same period a year ago. Net loss for the twelve-month
period, which included significant restructuring and impairment costs,
increased to $17.9 million or $0.34 per share from $4.7 million or $0.09 per
share in the same period a year ago.

    Continuing Operations

    Revenue from continuing operations for the twelve-month period ended
December 31, 2006, increased 19% to $19.7 million from $16.6 million for the
same period of last year. Net loss for the twelve-month period increased from
$52,259 or $0.00 per share in 2005 to $3.1 million or $0.06 per share in 2006.
The net loss was impacted by a net impairment of $1.0 million in the Medical
Laboratories division. Revenue from continuing operations for the fourth
quarter ended December 31, 2006, increased 41% to $7.1 million from $5.0
million in the corresponding quarter in 2005.
    For the twelve-month period ended December 31, 2006, EBITDA was
$1,774,260 compared to $3,535,754 for the twelve-month period ended December
31, 2005, a decrease of $1.8 million.
    Gross margins for the twelve-month period decreased to $5.2 million,
representing 26% of revenue, in 2006 from $5.9 million and 35% of revenue in
2005.
    Selling, administrative and financial expenses for the year ended
December 31, 2006, totalled $7.2 million compared to $5.9 million in 2005. As
a percentage of revenue, selling, administrative and financial expenses
increased to 36.7% in 2006 from 35.6% in 2005.
    As of December 31, 2006, the Company had working capital of $2.5 million
and cash and unused banking facilities of $6.1 million.

    Operating Highlights

    The Analytical Services division increased revenue by 41% (9% organic
growth and 32% by acquisition) from $6.0 million to $8.5 million, including
$1.9 million from the newly acquired analytical laboratory. With the
acquisition of these operations in September 2006, the Analytical division has
become a leader in the Quebec market with approximately $12 million of
annualized revenue.
    The Bioanalytical Services division increased revenue by 2% from $7.6
million to $7.8 million, despite an unusually slow first half of the year. The
division was able to overcome this situation in part by diversifying its
customer base. This division finished the year strongly as it delivered a
record $3.1 million of revenue in the last quarter, 23% more than for the same
period last year.
    The Medical division increased revenue by 19% (4% organically and 15% by
acquisition) from $2.7 million to $3.2 million, including $0.4 million from
the newly acquired PRO-DNA Diagnostics laboratory. The division grew their
prenatal testing business, despite the fact that it no longer has the
exclusivity for the analysis of blood samples collected by Opmedic. In October
2006, this customer agreed to pay $1,250,000 to cancel its contract. Increased
sales and marketing efforts in the prenatal market have generated growing
revenue from other existing customers as well as attracted new clients.

    Divestiture of Pathogen Detection Business Unit

    In the fourth quarter of 2006, Warnex made the decision to divest of the
pathogen detection business. This was a difficult decision given both the
world-class quality of the technology and the collective investment of time
and money that went into developing it. Ultimately, the Company came to the
conclusion that this business required a wider distribution platform,
additional product lines and additional funding to achieve its full commercial
potential. As a result of this decision, an impairment of $9.8 million and
restructuring costs of $0.3 million were recorded as of December 31, 2006. In
addition, operating losses of $4.7 million were sustained during the year, for
a net loss from discontinued operations of $14.8 million. $4.7 million of cash
was required for this business in 2006.
    To date, the Company has not been able to conclude a strategic
alternative for its pathogen detection business. Accordingly, while we are
still engaged in discussions with potential purchasers or partners, we have
decided to minimize our ongoing expenses in this division. We have reduced our
ongoing R&D and sales and marketing expenses and will focus on supporting our
existing customer base.

    Conference Call information

    The Company will host a conference call on Friday, March 16, 2007, at
10:00 am EST. A live audio webcast of the conference call will be available
through www.warnex.ca. A replay of the webcast will be available for 90 days
at www.warnex.ca.

    Annual Meeting

    The Company will be hosting its Annual Meeting of Shareholders on April
24, 2007, at 11:00 am at the Omni Hotel, 1050 Sherbrooke Street West,
Montreal, Quebec.

    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 group 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 the early
commercialization of Warnex products, intellectual property and licensing, R&D
of new Warnex products, integration of acquisitions, manufacturing and
laboratory facilities, suppliers, key employees, key customers and business
partners, financial resources and credit risk, government regulations, foreign
currency risk, volatility of share price, strategic alternatives for the
pathogen detection division, 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 the
Management's Discussion and Analysis in the 2006 Annual Report, 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 Balance Sheets

    As at December 31                                    2006           2005
    -------------------------------------------------------------------------
    Assets
    Current
      Cash and cash equivalents                  $  4,050,288   $  2,254,679
      Marketable securities                                 -      5,940,680
      Accounts receivable                           5,212,078      3,539,534
      Work-in-progress                                 98,732        130,607
      Inventory                                        79,368         94,945
      Investment tax credits receivable               437,791        805,083
      Prepaid expenses                                207,984        191,895
      Current assets held for sale                    349,267      1,235,666
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                   10,435,508     14,193,089

    Long-term receivables                             250,000        375,000
    Property, plant and equipment                   9,574,868      9,252,441
    Intangible assets                                 326,677      2,015,166
    Goodwill                                          937,695      1,034,000
    Long-term assets held for sale                          -      9,166,142
    -------------------------------------------------------------------------

                                                 $ 21,524,748   $ 36,035,838
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Liabilities
    Current
      Accounts payable                           $  3,842,140   $  2,721,849
      Deferred revenue                              1,012,717        576,095
      Current portion of long-term debt             1,765,581      1,757,473
      Current portion of debentures                 1,349,014         71,605
    -------------------------------------------------------------------------
                                                    7,969,452      5,127,022

    Long-term debt                                  2,275,092      3,689,605
    Liability component of debentures              10,234,037      8,969,476
    -------------------------------------------------------------------------

                                                   20,478,581     17,786,103
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Shareholders' equity
      Capital stock                                38,705,849     38,705,849
      Equity component of debentures                1,428,114        982,932
      Contributed surplus                           1,080,728        746,153
      Deficit                                     (40,168,524)   (22,185,199)
    -------------------------------------------------------------------------
                                                    1,046,167     18,249,735
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                 $ 21,524,748   $ 36,035,838
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Consolidated Statements of Contributed Surplus

    For the years ended December 31                      2006           2005
    -------------------------------------------------------------------------
    Balance, beginning of year                   $    746,153   $    551,336
    Transfer to capital stock upon exercise
     of options                                             -       (144,523)
    Compensation cost for stock options granted       334,575        339,340
    -------------------------------------------------------------------------
    Balance, end of year                         $  1,080,728   $    746,153
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Consolidated Statements of Deficit

    For the years ended December 31                      2006           2005
    -------------------------------------------------------------------------
    Balance, beginning of year                   $ 22,185,199   $ 17,632,317
    Interest on equity component of debentures         90,242         85,242
    Net loss                                       17,893,083      4,467,640
    -------------------------------------------------------------------------
    Balance, end of year                         $ 40,168,524   $ 22,185,199
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Consolidated Statements of Earnings

    For the years ended December 31                      2006           2005
    -------------------------------------------------------------------------
    Revenue                                      $ 19,719,154   $ 16,557,797

    Cost of goods sold                             14,558,744     10,706,144
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Gross margin                                    5,160,410      5,851,653
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Operating expenses
      Selling, general and administrative           6,226,133      5,009,350
      Finance charges                               1,195,129        997,957
      Research and development tax credits           (174,526)      (103,395)
    -------------------------------------------------------------------------
                                                    7,246,736      5,903,912
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Loss before under noted items                   2,086,326         52,259
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Gain on settlement of contract                 (1,250,000)             -
    Impairment of assets                            2,296,521              -
    -------------------------------------------------------------------------
                                                    1,046,521              -
    -------------------------------------------------------------------------
    Loss from continuing operations                 3,132,847         52,259
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Loss from discontinued operations              14,760,236      4,415,381
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net loss                                     $ 17,893,083   $  4,467,640
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Basic and fully diluted net loss per share
     from continuing operations                  $       0.06   $       0.00
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Basic and fully diluted net loss per share   $       0.34   $       0.09
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Weighted average number of shares
     outstanding                                   51,973,875     48,981,879
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Consolidated Statements of Cash Flows

    For the years ended December 31                      2006           2005
    -------------------------------------------------------------------------
    Operations
    Net loss                                     $ (3,132,847)  $    (52,259)
    Items not affecting cash:
      Amortization of property, plant and
       equipment                                    2,078,590      1,847,139
      Amortization of intangible assets               436,331        560,884
      Accretion of interest                            58,757              -
      Loss (gain) on disposal of property, plant
       and equipment                                  (10,750)        16,195
      Foreign currency fluctuation                    (76,574)        31,189
      Impairment of intangible assets               1,262,521              -
      Impairment of goodwill                        1,034,000              -
      Compensation cost for stock options             334,575        339,340
      Interest on equity component of debentures      (90,242)       (85,242)
      Net change in non-cash working capital items    367,980     (1,304,729)
    -------------------------------------------------------------------------
    Net cash provided by continuing operating
     activities                                     2,262,341      1,352,517
    Net cash used in discontinued activities       (4,741,290)    (4,806,775)
    -------------------------------------------------------------------------
                                                   (2,478,949)    (3,454,258)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Investing activities
      Decrease (increase) in marketable securities  5,940,680     (5,940,680)
      Decrease (Increase) in long-term receivables    125,000       (375,000)
      Acquisition of property, plant and equipment (2,045,049)    (1,432,033)
      Proceeds on disposal of property, plant and
       equipment                                       77,613         53,786
      Acquisition of intangible assets                (10,363)       (38,212)
      Acquisition of goodwill                        (937,695)             -
    -------------------------------------------------------------------------
    Net cash provided by (used in) continuing
     investing activities                           3,150,186     (7,732,139)
    Net cash provided by (used in) discontinued
     investing activities                              33,595       (172,481)
    -------------------------------------------------------------------------
    Net cash provided by (used in) investing
     activities                                     3,183,781     (7,904,620)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Financing activities
      Proceeds from long-term debt                     62,433      3,136,400
      Repayment of long-term debt                  (1,891,669)    (1,043,987)
      Proceeds from liability component of
       debentures                                   2,554,819              -
      Repayment of liability component of
       debentures                                     (71,606)       (71,606)
      Equity component of debentures                  445,182              -
      Issue of shares                                       -      4,098,437
      Cost of issuance                                      -       (271,767)
    -------------------------------------------------------------------------
    Net cash provided by financing activities       1,099,159      5,847,477
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Foreign exchange loss on cash held in foreign
     currencies                                        (8,382)       (22,424)

    Increase (decrease) in cash and cash
     equivalents                                    1,795,609     (5,533,825)

    Cash and cash equivalents, beginning of year    2,254,679      7,788,504
    -------------------------------------------------------------------------
    Cash and cash equivalents, end of year       $  4,050,288   $  2,254,679
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    %SEDAR: 00010099EF




For further information:

For further information: Mark J. Busgang, President & CEO, Warnex Inc., 
Tel: (450) 663-6724 x.310, mbusgang@warnex.ca; Mike Polonsky, Investor 
Relations, The Equicom Group Inc., Tel: (416) 815-0700 x.231, 
mpolonsky@equicomgroup.com

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