March 30, 2009 / 12:26 PM / 9 years ago

UPDATE 2-LAB warns of cash flow troubles, shares tumble

* Says might not be able to satisfy debt covenants

* Q4 loss deepens

* Shares drop 40 pct (Adds analyst’s comments. Updates share price)

TORONTO, March 30 (Reuters) - LAB Research LRI.TO said on Monday it plans to suspend expansion projects to shore up its cash flow and warned it might not be able to satisfy certain Canadian debt obligations, sending it shares down 40 percent.

The Montreal-based company, which does pharmaceutical research on a contract basis, also reported a steeper quarterly loss and said that the initiatives it is taking might not be enough to allow the company to continue “beyond the near future”.

LAB said it owed more than C$40 million ($31 million) in loans to one Canadian bank related to LAB Canada’s covenants.

The company said the bank had not called the loans, but warned that it will “have insufficient funds to meet its obligations” if it did.

Its shares, which have fallen 97 percent in the past year amid legal woes and restructuring, were down 40 percent at 15 Canadian cents on the Toronto Stock Exchange on Monday.

“It’s going to be difficult for them. Without a waiver from their Canadian bank I think it is going to continue to be difficult for them to attract new business,” said Maher Yaghi, an analyst at Desjardins Securities in Montreal.

“This will continue to put pressure on the stock until this is resolved and even after that.”

Yaghi said the company must find ways to refinance itself amid the grim outlook for new contracts.

The company, which recently boosted capacity at its Canadian operations, said on Monday it planned to put on hold any further “capacity driven” expansion as a way to conserve cash flow.

“The margin of maneuver is very small and the recovery that we have been waiting for and management has been talking about is taking way longer than initially thought.”

The worsening outlook came as the company slipped to a fourth-quarter loss hurt by falling research and development contracts and litigation expenses.

LAB said it lost C$6.7 million, or 24 Canadian cents a share, for the quarter ended Dec. 31, compared with a loss of C$1.7 million, or 9 Canadian cents a share, for the same quarter a year earlier.

$1=$1.25 Canadian Reporting by Scott Anderson; editing by Peter Galloway

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