Warnex Reports Second Quarter 2007 Results



    - Record Second Quarter Revenue and Positive EBITDA -

    LAVAL, QC, Aug. 9 /CNW/ - Warnex Inc. (TSX: WNX) today announced
financial results for the second quarter ended June 30, 2007.

    
    Operating Highlights

    -   Achieved record second quarter revenue of $5.8 million
    -   Concluded the sale of the pathogen detection business to AES
        Laboratoire for a total price of $900,000
    -   Positive EBITDA from continuing operations for a third consecutive
        quarter
    -   Initiated a review of various strategic options for its ongoing
        laboratory services business in order to enhance shareholder value
    -   Successfully passed an FDA inspection of the Company's bioanalytical
        facilities
    -   Signed an agreement to perform pharmacogenetic and bioanalytical
        services for Novartis Pharmaceuticals Canada Inc.
    

    Consolidated revenue for the second quarter ended June 30, 2007, was
$5.8 million, 59% higher than the consolidated revenue of $3.7 million in the
corresponding quarter in 2006. Acquisitions contributed $1.9 million of
revenue during the quarter, representing 51% of revenue growth. These results
are mainly attributed to the performance of the Analytical and Bioanalytical
divisions. During the quarter, the Analytical division increased its revenue
by 94%, from $1.7 million for the same period in 2006 to $3.2 million in 2007,
due to the Neopharm analytical laboratory acquired last September. The
Bioanalytical division increased its revenue by 73% from $1.1 million in 2006
to $1.9 million in 2007. For the six-month period ended June 30, 2007, revenue
from continuing operations reached $12.0 million (2006 - $8.0 million), an
increase of 50% over last year.
    The net loss for the quarter was $0.9 million from continuing operations
(2006 - $1.5 million) and a net profit of $0.9 million from discontinued
operations (2006 - loss of $1.5 million) for a total net loss of $0.0 million
(2006 - $3.0 million). The net loss per share was $0.02 from continuing
operations (2006 - $0.03) and earnings were $0.02 per share from discontinued
operations (2006 - loss of $0.03) for a total net loss of $0.00 per share
(2006 - $0.06). For the six-month period ended June 30, 2007, the net loss was
$1.2 million from continuing operations (2006 - $1.9 million) and a net profit
of $0.4 million from discontinued operations (2006 - net loss of
$2.7 million), for a total net loss of $0.9 million (2006 - $4.6 million). The
net loss per share was $0.02 from continuing operations (2006 - $0.04) and
earnings were $0.00 per share from discontinued operations (2006 - loss of
$0.05) for a total net loss of $0.02 per share (2006 - $0.09).
    For the three-month period ended June 30, 2007, earnings before
interests, taxes, depreciation and amortization (EBITDA) from continuing
operations amounted to $0.1 million (2006 - a loss of $0.6 million), an
increase of $0.7 million over last year. Total EBITDA including discontinued
operations was $0.3 million for the quarter compared with a loss of
$2.0 million in the corresponding quarter in 2006. For the six-month period
ended June 30, 2007, EBITDA from continuing operations, amounted to
$0.7 million (2006 - loss of $44,000), an increase of $0.7 million over last
year. Total EBITDA including discontinued operations was $0.4 million compared
with a loss of $2.6 million in the corresponding period in 2006.
    "Our strategy to divest from the pathogen detection business, to focus on
our laboratory services and grow our existing operations is having a positive
impact on our revenue growth and bottom line," said Mark Busgang, President
and CEO of Warnex. "In order to maintain our commitment to providing a high
quality comprehensive service offering to the pharmaceutical industry, we will
continue leveraging our developed expertise and capabilities and complement
our existing services by continuing to invest in the laboratory services
sector."

    Additional Financial Review

    The transfer of assets resulting from the sale of the pathogen detection
business unit to AES Laboratoire resulted in a gain on disposal of assets of
$732,293.
    Gross margins for the three-month period ended June 30, 2007, amounted to
$0.9 million or 15.7% of sales (2006 - $0.4 million or 11.0% of sales). The
increase in gross margin is mainly explained by the improvement in the
Bioanalytical division's gross margin over last year. More revenue was
generated this year while labour costs remained similar to last year. Gross
margins in the Medical division decreased by $116,788 due to a decrease in
Prenatest(R) revenue, and gross margins in the Analytical division remained
stable compared to last year. Gross margins for the six-month period ended
June 30, 2007, amounted to $2.5 million or 20.8% of sales (2006 - $1.7 million
or 21.9% of sales), an increase of $0.8 million.
    Selling and administrative expenses (SG&A) amounted to $1.4 million for
the three-month period ended June 30, 2007 (2006 - $1.7 million). In
proportion of revenue, SG&A are less than last year at 24.5% in 2007 (2006 -
45.3%). For the six-month period ended June 30, 2007, selling and
administrative expenses amounted to $2.8 million (2006 - $3.1 million), a
decrease of $0.3 million.
    Financial expenses for the quarter increased by $164,694 to $437,661
(2006 - $272,967) principally due to $151,133 in interest on the October 2006
debenture. For the six-month period, financial expenses amounted to $873,452
(2006 - $527,101), an increase of $346,351.
    As of June 30, 2007, the Company had working capital of $(5.3 million)
compared to $2.5 million at December 2006, due to the debenture maturing
June 25, 2008, fully becoming current. As at June 30, 2007, the Company has
$3.4 million invested in cash and in such securities and $0.4 million of R&D
tax credits. In addition, the Company had $0.4 million in unused banking
facilities. The Company is pursuing financing alternatives and believes that
it will identify long-term financing before the maturity date of the
convertible debentures, in the context that the laboratory divisions of the
Company will generate positive EBITDA in 2007 and beyond following the sale of
the pathogen detection division.

    Conference Call Information

    The Company will host a conference call on Friday, August 10, 2007, at
10:00 am EDT. 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.

    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.

    Prenatest is a registered trademark of Warnex Inc. Laval, Quebec.

    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
integration of acquisitions, 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 options for the Company, 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 for the second
quarter ended June 30, 2007, 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
                                                          2007          2006
    -------------------------------------------------------------------------
    Assets
    Current
      Cash and cash equivalents                   $  3,436,267  $  4,050,288
      Accounts receivable                            4,524,707     5,212,078
      Work-in-progress                                   1,184        98,732
      Inventory                                         88,222        79,368
      Investment tax credits receivable                437,791       437,791
      Prepaid expenses                                 241,867       207,984
      Current assets held for sale                           -       349,267
    -------------------------------------------------------------------------
                                                     8,730,038    10,435,508

    Long-term receivables                              550,000       250,000
    Property, plant and equipment                    8,687,134     9,574,868
    Intangible assets                                  294,130       326,677
    Goodwill                                           937,695       937,695
    -------------------------------------------------------------------------

                                                  $ 19,198,997  $ 21,524,748
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities
    Current
      Bank indebtedness                           $    600,000  $          -
      Accounts payable                               3,449,421     3,842,140
      Deferred revenue                                 580,580     1,012,717
      Current portion of long-term debt              1,392,187     1,765,581
      Current portion of debentures                  7,968,885     1,349,014
    -------------------------------------------------------------------------
                                                    13,991,073     7,969,452

    Long-term debt                                   1,697,840     2,275,092
    Liability component of debentures                3,253,217    10,234,037
    -------------------------------------------------------------------------

                                                    18,942,130    20,478,581
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Shareholders' equity
      Capital stock                                 38,705,849    38,705,849
      Equity component of debentures                 1,428,114     1,428,114
      Contributed surplus                            1,209,252     1,080,728
      Deficit                                      (41,086,348)  (40,168,524)
    -------------------------------------------------------------------------
                                                       256,867     1,046,167
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                                  $ 19,198,997  $ 21,524,748
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Interim Consolidated Statements of Contributed Surplus
    (Unaudited)
                          Three months ended           Six months ended
                               June 30                      June 30
                          2007          2006          2007          2006
    -------------------------------------------------------------------------
    Balance,
     beginning
     of period        $  1,145,996  $    843,665  $  1,080,728  $    746,153
    Compensation cost
     for stock
     options granted        63,256        96,471       128,524       193,983
    -------------------------------------------------------------------------
    Balance, end
     of period        $  1,209,252  $    940,136  $  1,209,252  $    940,136
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Interim Consolidated Statements of Deficit
    (Unaudited)
                          Three months ended           Six months ended
                               June 30                      June 30
                          2007          2006          2007          2006
    -------------------------------------------------------------------------
    Balance,
     beginning
     of period        $ 41,031,620  $ 23,761,718  $ 40,168,524  $ 22,185,199
    Interest on equity
     component of
     debentures             31,624         20,337       65,783        40,705
    Net loss                23,104     3,045,703       852,041     4,601,854
    -------------------------------------------------------------------------
    Balance, end
     of period        $ 41,086,348  $ 26,827,758  $ 41,086,348  $ 26,827,758
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Interim Consolidated Statements of Earnings
    (Unaudited)
                          Three months ended           Six months ended
                               June 30                      June 30
                          2007          2006          2007          2006
    -------------------------------------------------------------------------
    Revenue           $  5,792,277  $  3,651,667  $ 11,954,288  $  7,956,069
    Cost of goods sold   4,880,294     3,251,702     9,472,371     6,214,433
    -------------------------------------------------------------------------
    Gross margin           911,983       399,966     2,481,917     1,741,636
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Operating expenses
      Selling, general
       and
       administrative    1,420,126     1,656,302     2,845,414     3,082,092
      Finance charges      437,661       272,967       873,452       527,101
    -------------------------------------------------------------------------
                         1,857,787     1,929,269     3,718,866     3,609,193
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Loss from
     continuing
     operations           (945,804)   (1,529,303)   (1,236,949)   (1,867,557)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Earning (loss)
     from discontinued
     operations            922,700    (1,516,400)      384,908    (2,734,297)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net loss          $    (23,104) $ (3,045,703) $   (852,041) $ (4,601,854)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Basic and fully
     diluted net loss
     per share from
     continuing
     operations       $      (0.02) $      (0.03) $      (0.02) $      (0.04)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Basic and fully
     diluted net loss
     per share        $       0.00  $      (0.06) $      (0.02) $      (0.09)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Weighted average
     number of shares
     outstanding        51,973,875     51,973,875   51,973,875    51,973,875
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Interim Consolidated Statements of Cash Flows (Unaudited)

                          Three months ended           Six months ended
                               June 30                      June 30
                          2007          2006          2007          2006
    -------------------------------------------------------------------------
    Operations
    Net loss          $   (945,804) $ (1,529,303) $ (1,236,949) $ (1,867,557)
    Items not
     affecting cash:
      Amortization
       of property,
       plant and
       equipment           525,280       505,855     1,005,201       965,934
      Amortization
       of intangible
       assets               16,871       136,365        32,655       272,438
      Accretion of
       interest             84,069        45,833       174,853        45,833
      Gain on
       disposal of
       property,
       plant and
       equipment                 -             -             -       (10,750)
      Foreign currency
       fluctuation         112,222        47,215       135,833        28,459
      Compensation
       cost for stock
       options              63,256        96,471       128,524       193,983
      Interest on
       equity
       component of
       debentures          (31,624)      (20,337)      (65,783)      (40,706)
    -------------------------------------------------------------------------
                        (1,757,730)     (717,901)      174,334      (412,366)
      Net change
       in non-cash
       working
       capital items      (496,637)      408,801      (143,637)    1,554,321
    -------------------------------------------------------------------------
    Net cash
     provided by
     (used in)
     continuing
     operating
     activities           (672,367)     (309,100)       30,697     1,141,955
    Net cash
     provided by
     (used in)
     discontinued
     activities            301,315    (1,465,744)        1,882    (2,513,202)
    -------------------------------------------------------------------------
                          (371,052)   (1,774,844)       32,579    (1,371,247)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Investing
     activities
      Increase in
       long-term
       receivables        (300,000)    5,986,895      (300,000)    5,940,680
      Acquisition
       of property,
       plant and
       equipment           (95,620)     (532,398)     (117,467)     (681,344)
      Proceeds on
       disposal of
       property,
       plant and
       equipment                 -             -             -        10,750
      Acquisition
       of intangible
       assets                 (108)       (2,045)         (108)       (8,788)
      Acquisition
       of goodwill               -      (817,864)            -      (817,864)
    -------------------------------------------------------------------------
    Net cash
     provided by
     (used in)
     continuing
     investing
     activities           (395,728)    4,634,588      (417,575)    4,443,434
    Net cash
     provided by
     (used in)
     discontinued
     investing
     activities            732,293        (9,399)      732,293       (68,680)
    -------------------------------------------------------------------------
    Net cash
     provided by
     investing
     activities            336,565     4,625,189       314,718     4,374,754
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Financing
     activities
      Increase in
       bank loan           140,000             -       600,000             -
      Repayment of
       long-term
       debt               (464,621)     (533,843)     (950,646)     (913,828)
      Repayment of
       liability
       component of
       debentures         (517,901)      (17,901)     (535,802)      (35,802)
    -------------------------------------------------------------------------
    Net cash used
     in financing
     activities           (842,522)     (551,744)     (886,448)     (949,630)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Foreign exchange
     loss on cash
     held in foreign
     currencies            (72,495)      (24,914)      (74,870)      (24,467)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Increase
     (decrease) in
     cash and cash
     equivalents          (949,504)    2,273,687      (614,021)    2,029,410
    Cash and cash
     equivalents,
     beginning of
     period              4,385,771     2,010,402     4,050,288     2,254,679
    -------------------------------------------------------------------------
    Cash and cash
     equivalents,
     end of period    $  3,436,267  $  4,284,089  $  3,436,267  $  4,284,089
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    %SEDAR: 00010099EF




For further information:

For further information: Mark J. Busgang, President & CEO, Warnex Inc.,
Tel: (450) 663-6724 x.310, mbusgang@warnex.ca

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