Warnex Inc. Reports Second Quarter 2009 Results

LAVAL, QUEBEC--(Marketwire - August 11, 2009) - Warnex Inc. (TSX: WNX) today announced financial results for the second quarter ended June 30, 2009.

Operating Highlights

- Generated second quarter revenue of $5.4 million and year-to-date revenue of $13.0 million

- Acquired Molecular World Inc., a laboratory located in Thunder Bay, Ontario, specialized in human DNA identification including forensic DNA testing

- Launched a test for the detection of the influenza A H1N1 virus, offering results in as little as 8 hours

- Obtained ISO 15189:2007 accreditation by the Standards Council of Canada (SCC) for its Medical Laboratories division

“Our year-to-date revenues of $13 million, up from $12 million last year, are in line with our growth objectives for 2009. The completion of several major Bioanalytical projects in the first quarter of 2009 resulted in an expected slower second quarter. We have increased our investment in business development in this division, while we continue to focus on improving efficiency and productivity in all our operations,” said Mark Busgang, President and CEO of Warnex. “As part of our strategic growth plan, we are also pleased to have acquired Molecular World Inc., a DNA testing laboratory based in Thunder Bay, Ontario. This acquisition is complimentary to our existing DNA identification services, providing us with unique technology and expertise for forensic and parentage testing.”

Financial Results

Consolidated revenue for the three-month period ended June 30, 2009, amounted to $5.4 million compared to $5.9 million during the same period a year ago, a decrease of 7%. For the six-month period ended June 30, 2009, revenue reached $13.0 million from $12.0 million for the same period in 2008.

Net loss for the quarter amounted to $0.3 million or $0.01 per share compared to net earnings of $1.5 million or $0.03 per share for the same quarter in 2008, which included a gain on extinguishment of debt of $1.8 million. For the six-month period ended June 30, 2009, net earnings totalled $0.8 million or $0.01 per share compared to $1.2 million or $0.02 per share in 2008.

Earnings before interest, taxes, depreciation and amortization (EBITDA) for the quarter amounted to $(14,927) versus $263,735 for the same quarter last year. For the six-month period ended June 30, 2009, EBITDA amounted to $2.0 million compared to $0.7 million in 2008.

Gross margins for the three-month period ended June 30, 2009, amounted to $1.0 million or 19% of sales compared to $1.3 million or 23% of sales for the same quarter last year. The decrease of $0.3 million in gross margin is mainly explained by the lower revenue in the Bioanalytical division compared to the same quarter last year. Gross margin for the six-month period ended June 30, 2009, amounted to $4.1 million or 32% of sales compared to $2.9 million or 24% of sales in 2008, an increase of $1.2 million.

Selling and administrative expenses amounted to $1.5 million for the three-month period ended June 30, 2009, compared to $1.3 million last year. The increase of $0.2 million is mainly explained by a loss on foreign exchange due to the strength of the Canadian dollar compared to the U.S dollar, the cost of options and an increased investment in business development. In proportion of revenue, administrative and selling expenses were higher than last year at 27% in 2009 (2008 - 22%). For the six-month period ended June 30, 2009, selling and administrative expenses amounted to $3.0 million compared to $2.8 million for the same period in 2008.

Financial expenses decreased by $2,655 from $315,741 in the second quarter of 2008 to $313,086 in the second quarter of 2009, mainly due to less interest following repayments made on the long term debt and debentures. For the six-month period ended June 30, 2009, financial expenses amounted to $624,025 (2008 - $679,766).

As of June 30, 2009, the Company had $2.4 million in cash and working capital of $2.1 million.

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, 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) June 30 December 31 2009 2008 ----------------------------------------------------------------------- ----------------------------------------------------------------------- Assets Current Cash and cash equivalents $2,426,855 $2,433,488 Accounts receivable 3,338,816 3,967,918 Work-in-progress 189,748 1,356,149 Inventory 117,080 121,701 Investment tax credits receivable 186,249 186,249 Prepaid expenses 385,117 306,238 ----------------------------------------------------------------------- ----------------------------------------------------------------------- 6,643,865 8,371,743 Future income taxes 1,221,000 750,000 Property, plant and equipment 8,064,138 8,309,317 Intangible assets 373,972 243,291 Goodwill 937,695 937,695 ----------------------------------------------------------------------- $17,240,670 $18,612,046 ----------------------------------------------------------------------- ----------------------------------------------------------------------- Liabilities Current Accounts payable $2,887,719 $3,860,615 Deferred revenue 329,144 1,358,586 Current portion of long-term debt 1,317,682 1,267,184 ----------------------------------------------------------------------- 4,534,545 6,486,385 Long-term debt 1,553,804 1,872,557 Liability component of debentures 6,765,409 6,952,881 ----------------------------------------------------------------------- 12,853,758 15,311,823 ----------------------------------------------------------------------- ----------------------------------------------------------------------- Shareholders’ equity Capital stock 40,861,049 40,551,049 Equity component of debentures 312,288 312,288 Contributed surplus 2,465,635 2,445,043 Deficit (39,252,060) (40,008,157) ----------------------------------------------------------------------- 4,386,912 3,300,223 ----------------------------------------------------------------------- ----------------------------------------------------------------------- $17,240,670 $18,612,046 ----------------------------------------------------------------------- ----------------------------------------------------------------------- Interim Consolidated Statements of Contributed Surplus (Unaudited) Three months ended Six months ended June 30 June 30 2009 2008 2009 2008 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Balance, beginning of period $2,445,078 $1,232,249 $2,445,043 $1,210,708 Transfer of the equity component of debentures extinguished during the period - 1,428,114 - 1,428,114 Stock-based compensation 20,557 (112,220) 20,592 (90,679) ------------------------------------------------------------------------- Balance, end of period $2,465,635 $2,548,143 $2,465,635 $2,548,143 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Interim Consolidated Statements of Deficit (Unaudited) Three months ended Six months ended June 30 June 30 2009 2008 2009 2008 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Balance, beginning of period $(38,905,400) $(42,667,536) $(40,008,157) $(42,381,214) Net earnings (loss) (346,660) 1,520,417 756,097 1,234,095 ------------------------------------------------------------------------- Balance, end of period $(39,252,060) $(41,147,119) $(39,252,060) $(41,147,119) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Consolidated Statements of Accumulated Other Comprehensive Income (Unaudited) Three months ended Six months ended June 30 June 30 2009 2008 2009 2008 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Accumulated Other Comprehensive Income $- $- $- $- ------------------------------------------------------------------------- ------------------------------------------------------------------------- Interim Consolidated Statements of Earnings and Comprehensive Income (Unaudited) Three months ended Six months ended June 30 June 30 2009 2008 2009 2008 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Revenue $5,421,474 $5,858,423 $12,979,129 $11,999,989 Cost of goods sold 4,378,996 4,526,380 8,869,119 9,076,881 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Gross margin 1,042,478 1,332,043 4,110,010 2,923,108 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Operating expenses Selling, general and administrative 1,481,407 1,310,077 2,962,911 2,823,439 Finance charges 313,086 315,741 624,025 679,766 ------------------------------------------------------------------------- 1,794,493 1,625,818 3,586,936 3,503,205 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Earnings (loss) before under noted items and income taxes (752,015) (293,775) 523,074 (580,097) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Unrealized foreign exchange gain on debentures 405,355 - 233,023 - Gain on extinguishment of debt - 1,814,192 - 1,814,192 ------------------------------------------------------------------------- 405,355 1,814,192 233,023 1,184,192 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Earnings (loss) before income taxes (346,660) 1,520,417 756,097 1,234,095 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Income taxes (recovered) (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 $(346,660) $1,520,417 $756,097 $1,234,095 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Basic net earnings (loss) per share $(0.01) $0.03 $0.01 $0.02 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Fully diluted net earnings (loss) per share $(0.01) $0.02 $0.01 $0.02 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Weighted average number of shares outstanding 64,983,858 60,169,418 64,602,905 55,486,251 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Weighted average number of fully diluted shares outstanding 76,113,853 64,317,191 76,113,853 64,317,191 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Interim Consolidated Statements of Cash Flows (Unaudited) Three months ended Six months ended June 30 June 30 2009 2008 2009 2008 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Operations Net earnings (loss) $(346,660) $1,520,417 $756,097 $1,234,095 Items not affecting cash: Amortization of property, plant and equipment 389,166 344,247 771,409 717,393 Amortization of intangible assets 17,854 14,819 32,962 29,560 Loss on disposal of property, plant and equipment - - - 1,054 Accretion of interest 23,298 48,988 45,551 157,769 Unrealized foreign exchange gain on debentures (405,355) - (233,023) - Gain on extinguishment of debt - (1,814,192) - (1,814,192) Foreign currency fluctuation 172,174 26,723 141,033 (45,332) Compensation cost for stock options 20,557 (112,220) 20,592 (90,679) ------------------------------------------------------------------------- (128,966) 28,782 1,534,621 189,668 Net change in non-cash working capital items (399,618) (533,204) (803,300) 523,059 ------------------------------------------------------------------------- Net cash provided by (used in) operations (528,584) (504,422) 731,321 712,727 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Investing activities Acquisition of property, plant and equipment (42,481) (157,496) (178,328) (316,426) Acquisition of intangible assets (29,221) (4,609) (124,707) (4,609) Proceeds on disposal of property, plant and equipment - - - 1,725 ------------------------------------------------------------------------- Net cash used in investing activities (71,702) (162,105) (303,035) (319,310) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Financing activities Proceeds from long-term debt 350,000 2,000,000 350,000 2,000,000 Repayment of long-term debt (310,772) (1,178,797) (694,155) (1,482,735) Repayment of liability component of debentures - (1,359,836) - (1,377,737) ------------------------------------------------------------------------- Net cash provided by (used in) financing activities 39,228 (538,633) (344,155) (860,472) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Foreign exchange loss on cash held in foreign currencies (133,934) (8,859) (90,764) (916) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Decrease in cash and cash equivalents (694,992) (1,214,019) (6,633) (467,971) Cash and cash equivalents, beginning of period 3,121,847 1,762,999 2,433,488 1,016,951 ------------------------------------------------------------------------- Cash and cash equivalents, end of period $2,426,855 $548,980 $2,426,855 $548,980 ------------------------------------------------------------------------- -------------------------------------------------------------------------