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Warnex Inc. (CC:WNX) Reports Second Quarter 2010 Results



8/12/2010 9:24:42 AM

LAVAL, QUEBEC--(Marketwire - August 11, 2010) - Warnex Inc. (TSX: WNX) announced today financial results for the second quarter ended June 30, 2010.

Operating Highlights -- Increased second quarter revenues by 18% to $6.4 million compared to $5.4 million last year -- Generated earnings before unrealized foreign exchange loss on debentures of $0.2 million versus a loss of $0.8 million last year, representing an increase of $1.0 million in operating profit -- Generated net earnings of $11,295 for the second quarter compared to a net loss of $346,660 last year -- Obtained a licence for a colorectal cancer blood screening test from Epigenomics -- Announced that its Bioanalytical Services division successfully passed a Good Clinical Practices (GCP) inspection by the Austrian Agency for Health and Food Safety (AGES) -- Appointed a new director, Dr. Richard Lacombe, who has over 30 years of experience in the pharmaceutical and CRO industries "We are pleased to have increased our quarterly revenues and to report positive net earnings for the second quarter. Both our Bioanalytical and Medical divisions showed revenue growth during the quarter while our Analytical division remained constant compared to last year," said Mark Busgang, President and CEO of Warnex. "Most notably, our operating earnings were improved by $1.0 million compared to the second quarter last year. In the coming quarter, we hope to finalize the restructuring of our balance sheet, while we continue to focus on growth in our top and bottom lines."

Financial Results

Consolidated revenue for the three-month period ended June 30, 2010, reached $6.4 million compared to $5.4 million during the same quarter a year ago, an increase of 18%. For the six-month period ended June 30, 2010, revenue amounted to $11.5 million compared to $13.0 million for the same period in 2009.

Net earnings for the quarter amounted to $11,295 or $0.00 per share compared to a net loss of $0.3 million or $0.01 per share for the same quarter in 2009. For the six-month period ended June 30, 2010, net loss totalled $0.8 million or $0.01 per share compared to net earnings of $0.8 million or $0.01 per share in 2009.

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) for the quarter amounted to $0.9 million versus $0.1 million for the same quarter last year. For the six-month period ended June 30, 2010, adjusted EBITDA amounted to $0.5 million compared to $2.0 million in 2009.

Gross margins for the three-month period ended June 30, 2010, amounted to $1.8 million or 28% of sales compared to $1.0 million or 19% of sales for the same quarter last year. The increase of $0.8 million in gross margin is mainly explained by the increase in revenue in the Bioanalytical division compared to the same quarter last year. Gross margin for the six-month period ended June 30, 2010, amounted to $2.6 million or 23% of sales compared to $4.1 million or 32% of sales in 2009. This decrease is mainly explained by a slow first quarter in the Bioanalytical division this year compared to last year as well as the execution of high margin projects in this division during the first quarter of 2009.

Selling and administrative expenses amounted to $1.6 million for the three-month period ended June 30, 2010, compared to $1.5 million last year. The increase of $0.1 million is mainly explained by an increased investment in our sales group, professional fees related to the transition to International Financial Reporting Standards ("IFRS"), the review of our ISO certification in the Medical division and an increase in the salary expense, despite a reduction in other expenses compared to last year. In proportion of revenue, administrative and selling expenses were lower than last year at 24% (2009 - 27%). For the six-month period ended June 30, 2010, selling and administrative expenses amounted to $3.1 million compared to $3.0 million for the same period in 2009.

Financial expenses decreased by $35,249, from $313,086 in the second quarter of 2009 to $277,837 in the second quarter of 2010, mainly due to less interest following repayments made on the long term debt. For the six-month period ended June 30, 2010, financial expenses amounted to $554,393 (2009 - $624,025).

The Company has entered into agreements with certain debenture holders to modify the maturity dates. The Company is also in the process of analyzing its cash flow needs and in reviewing the alternatives between its current debenture structure, seeking new investors or other financing strategies.

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, 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. Interim Consolidated Balance Sheets (Unaudited) June 30 December 31 2010 2009 ---------------------------------------------------------------------- ---------------------------------------------------------------------- Assets Current Cash and cash equivalents $ 249,274 $ 894,031 Accounts receivable 3,806,093 2,880,919 Work-in-progress 129,595 531,142 Inventory 106,729 177,027 Investment tax credits receivable 801,000 712,471 Prepaid expenses 413,411 388,502 ---------------------------------------------------------------------- ---------------------------------------------------------------------- 5,506,102 5,584,092 Future income taxes 1,221,000 1,221,000 Property, plant and equipment 6,761,040 7,375,516 Intangible assets 437,790 382,145 Goodwill 937,695 937,695 ---------------------------------------------------------------------- $ 14,863,627 $ 15,500,448 ---------------------------------------------------------------------- ---------------------------------------------------------------------- Liabilities Current Bank indebtedness $ 320,000 $ - Accounts payable 3,333,501 3,008,594 Deferred revenue 485,987 411,599 Current portion of long-term debt 1,421,253 1,800,372 Current portion of debentures 324,177 - ---------------------------------------------------------------------- 5,884,918 5,220,565 Long-term debt 157,675 447,661 Liability component of debentures 6,029,747 6,245,274 ---------------------------------------------------------------------- 12,072,340 11,913,500 ---------------------------------------------------------------------- ---------------------------------------------------------------------- Shareholders' equity Capital stock 40,981,049 40,981,049 Equity component of debentures 312,288 312,288 Contributed surplus 2,456,224 2,466,016 Deficit (40,958,274) (40,172,405) ---------------------------------------------------------------------- 2,791,287 3,586,948 ---------------------------------------------------------------------- ---------------------------------------------------------------------- $ 14,863,627 $ 15,500,448 ---------------------------------------------------------------------- ---------------------------------------------------------------------- Interim Consolidated Statements of Contributed Surplus (Unaudited) Three months ended Six months ended June 30 June 30 2010 2009 2010 2009 -------------------------------------------------------------------------- -------------------------------------------------------------------------- Balance, beginning of period $ 2,425,012 $ 2,445,078 $2,466,016 $ 2,445,043 Stock-based compensation 31,212 20,557 (9,792) 20,592 -------------------------------------------------------------------------- Balance, end of period $ 2,456,224 $ 2,465,635 $2,456,224 $ 2,465,635 -------------------------------------------------------------------------- -------------------------------------------------------------------------- Interim Consolidated Statements of Deficit (Unaudited) Three months ended Six months ended June 30 June 30 2010 2009 2010 2009 ------------------------------------------------------------------------- Balance, beginning of period $(40,969,569) $(38,905,400) $(40,172,405) $(40,008,157) Net earnings (loss) 11,295 (346,660) (785,869) 756,097 ------------------------------------------------------------------------- Balance, end of period $(40,958,274) $(39,252,060) $(40,958,274) $(39,252,060) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Consolidated Statements of Accumulated Other Comprehensive Income (Unaudited) Three months ended Six months ended June 30 June 30 2010 2009 2010 2009 -------------------------------------------------------------------------- -------------------------------------------------------------------------- Accumulated Other Comprehensive Income $- $- $- $- -------------------------------------------------------------------------- -------------------------------------------------------------------------- Interim Consolidated Statements of Earnings and Comprehensive Income (Unaudited) Three months ended Six months ended June 30 June 30 2010 2009 2010 2009 -------------------------------------------------------------------------- -------------------------------------------------------------------------- Revenue $ 6,372,426 $ 5,421,474 $11,463,096 $12,979,129 Cost of goods sold 4,559,151 4,378,996 8,866,902 8,869,119 -------------------------------------------------------------------------- Gross margin 1,813,275 1,042,478 2,596,194 4,110,010 -------------------------------------------------------------------------- -------------------------------------------------------------------------- Operating expenses Selling, general and administrative 1,561,595 1,481,407 3,097,427 2,962,911 Finance charges 277,837 313,086 554,393 624,025 Research and development tax credits (238,000) - (326,000) - -------------------------------------------------------------------------- 1,601,432 1,794,493 3,325,820 3,586,936 -------------------------------------------------------------------------- -------------------------------------------------------------------------- Earnings (loss) before under noted item and income taxes 211,843 (752,015) (729,626) 523,074 -------------------------------------------------------------------------- Unrealized foreign exchange gain (loss) on debentures (200,548) 405,355 (56,243) 233,023 -------------------------------------------------------------------------- Earnings (loss) before income taxes 11,295 (346,660) (785,869) 756,097 -------------------------------------------------------------------------- -------------------------------------------------------------------------- Income taxes - (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 $ 11,295 $ (346,660) $ (785,869) $ 756,097 Basic net earnings (loss) per share $ 0.00 $ (0.01) $ (0.01) $ 0.01 Fully diluted net earnings (loss) per share $ 0.00 $ (0.01) $ (0.01) $ 0.01 Weighted average number of shares outstanding 67,117,191 64,983,858 67,117,191 64,602,905 Weighted average number of fully diluted shares outstanding 67,117,191 76,113,853 67,117,191 76,113,853 -------------------------------------------------------------------------- -------------------------------------------------------------------------- Interim Consolidated Statements of Cash Flows (Unaudited) Three months ended June 30 Six months ended June 30 2010 2009 2010 2009 -------------------------------------------------------------------------- -------------------------------------------------------------------------- Operations Net earnings (loss) $ 11,295 $ (346,660) $ (785,869) $ 756,097 Items not affecting cash: Amortization of property, plant and equipment 346,117 389,166 691,117 771,409 Amortization of intangible assets 25,710 17,854 47,289 32,962 Accretion of interest 26,804 23,298 52,407 45,551 Unrealized foreign exchange gain (loss) on debentures 200,548 (405,355) 56,243 (233,023) Foreign currency fluctuation (46,132) 172,174 (22,106) 141,033 Compensation cost for stock options 31,212 20,557 (9,792) 20,592 -------------------------------------------------------------------------- 595,554 (128,966) 29,289 1,534,621 Net change in non- cash working capital items (131,731) (399,618) (155,376) (803,300) -------------------------------------------------------------------------- Net cash provided by (used in) operations 463,823 (528,584) (126,087) 731,321 -------------------------------------------------------------------------- -------------------------------------------------------------------------- Investing activities Acquisition of property, plant and equipment (23,896) (42,481) (76,641) (178,328) Acquisition of intangible assets (38,047) (29,221) (102,934) (124,707) -------------------------------------------------------------------------- Net cash used in investing activities (61,943) (71,702) (179,575) (303,035) -------------------------------------------------------------------------- -------------------------------------------------------------------------- Financing activities Increase (decrease) in operating line of credit (140,000) - 320,000 - Proceeds from long-term debt - 350,000 - 350,000 Repayment of long- term debt (326,141) (310,772) (669,105) (694,155) -------------------------------------------------------------------------- Net cash provided by (used in) financing activities (466,141) 39,228 (349,105) (344,155) -------------------------------------------------------------------------- -------------------------------------------------------------------------- Foreign exchange gain (loss) on cash held in foreign currencies 11,918 (133,934) 10,010 (90,764) -------------------------------------------------------------------------- -------------------------------------------------------------------------- Decrease in cash and cash equivalents (52,343) (694,992) (644,757) (6,633) Cash and cash equivalents, beginning of period 301,617 3,121,847 894,031 2,433,488 -------------------------------------------------------------------------- Cash and cash equivalents, end of period $ 249,274 $ 2,426,855 $ 249,274 $ 2,426,855 -------------------------------------------------------------------------- --------------------------------------------------------------------------


Contacts:
Mark J. Busgang
President & CEO
Warnex Inc.
450-663-6724 x 310
mbusgang@warnex.ca

Catherine Sartoros
Communications Specialist
Warnex Inc.
450-663-6724 x 277
csartoros@warnex.ca


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