Warnex Inc. Reports Third Quarter 2010 Results

LAVAL, QUEBEC--(Marketwire - November 11, 2010) - Warnex Inc. (TSX: WNX) announced today its financial results for the third quarter ended September 30, 2010.

Operating Highlights

 -- Increased third quarter revenues by 19% to $5.5 million compared to $4.7 million last year -- Generated net earnings of $5,569 for the third quarter compared to a net loss of $782,797 last year -- Announced a collaboration with the Montreal Heart Institute (MHI) and CEPMED (The Centre of Excellence in Personalized Medicine) to develop a new diagnostic test for early detection of cardiovascular and metabolic diseases 

“Both in the second and third quarters of 2010, we have achieved an increase in revenues and net earnings compared to 2009,” said Mark Busgang, President and CEO of Warnex. “We continue to work on the restructuring of our balance sheet, which we hope to finalize by year-end. As well, all of our divisions are expanding their service offerings. Our Medical division is currently focused on the launch of the Septin9 blood test for colorectal cancer, the Bioanalytical division is now offering ligand binding services and the Analytical division is expanding into the natural health products field.”

Financial Results

Consolidated revenue for the three-month period ended September 30, 2010, amounted to $5.5 million compared to $4.7 million during the same quarter a year ago, an increase of 19%. For the nine-month period ended September 30, 2010, revenue reached $17.0 million compared to $17.6 million for the same period in 2009.

Net earnings for the quarter amounted to $5,569 or $0.00 per share compared to a net loss of $782,797 or $0.01 per share for the same quarter in 2009. For the nine-month period ended September 30, 2010, net loss totalled $780,300 or $0.01 per share compared to $26,700 or $0.00 per share in 2009.

Adjusted earnings before interest, taxes, depreciation and amortization (adjusted EBITDA) for the quarter amounted to $571,411 versus $(354,517) for the same quarter last year. For the nine-month period ended September 30, 2010, adjusted EBITDA amounted to $1.1 million compared to $1.7 million in 2009.

Gross margins for the three-month period ended September 30, 2010, amounted to $1.3 million or 23% of sales compared to $0.4 million or 9% of sales for the same quarter last year. The increase of $0.9 million in gross margin is mainly explained by the increase in revenue in the Bioanalytical division compared to the same period last year. Gross margin for the nine-month period ended September 30, 2010, amounted to $3.9 million or 23% of sales compared to $4.5 million or 26% of sales in 2009, a decrease of $0.6 million.

Selling and administrative expenses amounted to $1.6 million for the three-month period ended September 30, 2010, compared to $1.3 million last year. The increase of $0.3 million is mainly explained by an increased investment in our sales group, professional fees related to the transition to International Financial Reporting Standards (“IFRS”), consulting fees related to the income tax credit claims 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 similar to last year at 29% in 2010 (2009 - 28%). For the nine-month period ended September 30, 2010, selling and administrative expenses amounted to $4.7 million compared to $4.3 million for the same period in 2009.

Financial expenses for the quarter were similar to last year at $0.3 million. For the nine-month period ended September 30, 2010, financial expenses amounted to $0.8 million (2009 - $0.9 million).

Research and development tax credits for the quarter amounted to $473,235 compared to $51,222 for the same period in 2009. For the nine-month period ended September 30, 2010, research and development tax credits amounted to $799,235 compared to $51,222 in 2009, an increase of $748,013.

As a consequence of the long term debentures becoming due in July 2011, Warnex has classified this debt as a current liability on the balance sheet. The Company hopes to finalize the restructuring of this debt prior to December 31, 2010.

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) September 30 2010 December 31 2009 -------------------------------------------------------------------------- -------------------------------------------------------------------------- Assets Current Cash and cash equivalents $44,859 $894,031 Accounts receivable 3,363,204 2,880,919 Work-in-progress 233,595 531,142 Inventory 168,433 177,027 Investment tax credits receivable 715,785 712,471 Prepaid expenses 441,147 388,502 -------------------------------------------------------------------------- -------------------------------------------------------------------------- 4,967,023 5,584,092 Future income taxes 1,221,000 1,221,000 Property, plant and equipment 6,445,874 7,375,516 Intangible assets 421,676 382,145 Goodwill 937,695 937,695 -------------------------------------------------------------------------- $13,993,268 $15,500,448 -------------------------------------------------------------------------- -------------------------------------------------------------------------- Liabilities Current Bank indebtedness $340,000 $- Accounts payable 2,908,811 3,008,594 Deferred revenue 463,075 411,599 Current portion of long-term debt 1,171,210 1,800,372 Current portion of debentures 6,253,168 - -------------------------------------------------------------------------- 11,136,264 5,220,565 Long-term debt 60,107 447,661 Liability component of debentures - 6,245,274 -------------------------------------------------------------------------- 11,196,371 11,913,500 -------------------------------------------------------------------------- -------------------------------------------------------------------------- Shareholders’ equity Capital stock 40,981,049 40,981,049 Equity component of debentures 312,288 312,288 Contributed surplus 2,456,265 2,466,016 Deficit (40,952,705) (40,172,405) -------------------------------------------------------------------------- 2,796,897 3,586,948 -------------------------------------------------------------------------- -------------------------------------------------------------------------- $13,993,268 $15,500,448 -------------------------------------------------------------------------- -------------------------------------------------------------------------- Interim Consolidated Statements of Contributed Surplus (Unaudited) Three months ended Nine months ended September 30 September 30 2010 2009 2010 2009 -------------------------------------------------------------------------- -------------------------------------------------------------------------- Balance, beginning of period $2,456,224 $2,465,635 $2,466,016 $2,445,043 Stock-based compensation 41 213 (9,751) 20,805 -------------------------------------------------------------------------- Balance, end of period $2,456,265 $2,465,848 $2,456,265 $2,465,848 -------------------------------------------------------------------------- -------------------------------------------------------------------------- Interim Consolidated Statements of Deficit (Unaudited) Three months ended Nine months ended September 30 September 30 2010 2009 2010 2009 -------------------------------------------------------------------------- -------------------------------------------------------------------------- Balance, beginning of period $(40,958,274) $(39,252,060) $(40,172,405) $(40,008,157) Net earnings (loss) 5,569 (782,797) (780,300) (26,700) -------------------------------------------------------------------------- Balance, end of period $(40,952,705) $(40,034,857) $(40,952,705) $(40,034,857) -------------------------------------------------------------------------- -------------------------------------------------------------------------- Consolidated Statements of Accumulated Other Comprehensive Income (Unaudited) Three months ended Nine months ended September 30 September 30 2010 2009 2010 2009 -------------------------------------------------------------------------- -------------------------------------------------------------------------- Accumulated Other Comprehensive Income $- $- $- $- -------------------------------------------------------------------------- -------------------------------------------------------------------------- Interim Consolidated Statements of Earnings and Comprehensive Income (Unaudited) Three months ended Nine months ended September 30 September 30 2010 2009 2010 2009 -------------------------------------------------------------------------- -------------------------------------------------------------------------- Revenue $5,538,122 $4,656,405 $17,001,218 $17,635,534 Cost of goods sold 4,240,500 4,257,685 13,107,403 13,126,804 -------------------------------------------------------------------------- Gross margin 1,297,622 398,720 3,893,815 4,508,730 -------------------------------------------------------------------------- -------------------------------------------------------------------------- Operating expenses Selling, general and administrative 1,626,886 1,323,933 4,713,174 4,286,844 Finance charges 278,365 278,259 832,758 902,284 Research and development tax credits (473,235) (51,222) (799,235) (51,222) -------------------------------------------------------------------------- 1,432,016 1,550,970 4,746,697 5,137,906 -------------------------------------------------------------------------- -------------------------------------------------------------------------- Loss before under noted item and income taxes (134,394) (1,152,250) (852,882) (629,176) -------------------------------------------------------------------------- Unrealized foreign exchange gain on debentures 128,825 369,453 72,582 602,476 Earnings (loss) before income taxes 5,569 (782,797) (780,300) (26,700) -------------------------------------------------------------------------- -------------------------------------------------------------------------- Income taxes - (225,000) - - Recovery of income taxes due to utilization of prior years’ losses - 225,000 - - -------------------------------------------------------------------------- - - - - -------------------------------------------------------------------------- -------------------------------------------------------------------------- Net earnings (loss) and comprehensive income $5,569 $(782,797) $(780,300) $(26,700) -------------------------------------------------------------------------- -------------------------------------------------------------------------- Basic net earnings (loss) per share $0.00 $(0.01) $(0.01) $0.00 -------------------------------------------------------------------------- -------------------------------------------------------------------------- Fully diluted net earnings (loss) per share $0.00 $(0.01) $(0.01) $0.00 -------------------------------------------------------------------------- -------------------------------------------------------------------------- Weighted average number of shares outstanding 67,117,191 66,683,858 67,117,191 65,227,191 -------------------------------------------------------------------------- -------------------------------------------------------------------------- Weighted average number of fully diluted shares outstanding 67,117,191 72,913,853 67,117,191 72,913,853 -------------------------------------------------------------------------- -------------------------------------------------------------------------- Interim Consolidated Statements of Cash Flows (Unaudited) Three months ended Nine months ended September 30 September 30 2010 2009 2010 2009 -------------------------------------------------------------------------- -------------------------------------------------------------------------- Operations Net earnings (loss) $5,569 $(782,797) $(780,300) $(26,700) Items not affecting cash: Amortization of property, plant and equipment 347,987 408,888 1,039,104 1,180,297 Amortization of intangible assets 26,822 23,049 74,111 56,011 Accretion of interest 28,069 24,398 80,476 69,949 Unrealized foreign exchange gain on debentures (128,825) (369,453) (72,582) (602,476) Foreign currency fluctuation 211,095 82,912 188,989 223,945 Compensation cost for stock options 41 213 (9,751) 20,805 -------------------------------------------------------------------------- 490,758 (612,790) 520,047 921,831 Net change in non-cash working capital items (258,681) 68,227 (414,057) (735,073) -------------------------------------------------------------------------- Net cash provided by (used in) operations 232,077 (544,563) 105,990 186,758 -------------------------------------------------------------------------- -------------------------------------------------------------------------- Investing activities Acquisition of property, plant and equipment (32,821) (66,934) (109,462) (245,262) Acquisition of intangible assets (10,708) (14,875) (113,642) (139,582) -------------------------------------------------------------------------- Net cash used in investing activities (43,529) (81,809) (223,104) (384,844) -------------------------------------------------------------------------- -------------------------------------------------------------------------- Financing activities Increase in operating line of credit 20,000 - 340,000 - Proceeds from long-term debt - - - 350,000 Repayment of long-term debt (347,611) (301,869) (1,016,716) (996,024) -------------------------------------------------------------------------- Net cash used in financing activities (327,611) (301,869) (676,716) (646,024) -------------------------------------------------------------------------- -------------------------------------------------------------------------- Foreign exchange loss on cash held in foreign currencies (65,352) (123,320) (55,342) (214,084) -------------------------------------------------------------------------- -------------------------------------------------------------------------- Decrease in cash and cash equivalents (204,415) (1,051,561) (849,172) (1,058,194) Cash and cash equivalents, beginning of period 249,274 2,426,855 894,031 2,433,488 -------------------------------------------------------------------------- Cash and cash equivalents, end of period $44,859 $1,375,294 $44,859 $1,375,294 -------------------------------------------------------------------------- --------------------------------------------------------------------------