PR Newswire | Nov 13, 2020 09:27PM EST

11/13 20:26 CST

Avcorp announces 2020 Third Quarter Financial Results VANCOUVER, BC, Nov. 13, 2020

VANCOUVER, BC, Nov. 13, 2020 /PRNewswire/ - Avcorp Industries Inc. (TSX: AVP) (the "Company", "Avcorp" or the "Avcorp Group") today announced its financial results for the quarter ended September 30, 2020. All amounts are in Canadian currency unless otherwise stated.

2020 Third Quarter Highlights

Key financial results include:

* Third quarter 2020 revenue was $33,769,000 compared to $37,437,000 in 2019. 2020 revenue decreased by $3,668,000 because of lower deliveries caused by lower customer requirements due to the novel Coronavirus ("COVID-19") and 737 MAX grounding. * Third quarter 2020 defense program related revenue was $20,848,000 compared to $13,737,000 in 2019, a strong growth of $7,111,000. * Third quarter 2020 net loss was $1,263,000 compared to net loss of $7,511,000 in 2019. Net loss improved in comparison to 2019 due to higher gross profit, savings in administrative and general expenses and the receipts of government support. * Third quarter 2020 foreign exchange gain was $712,000 (September 30, 2019: $171,000 loss). The Canadian dollar strengthened against the US dollar resulting in a gain predominately from the translation of the Company's US dollar denominated Bank indebtedness and Term debt. * Third quarter 2020 cash flows from operating activities before changes in non-cash working capital was $2,021,000 (September 30, 2019: cash outflow of $3,509,000). Third quarter 2020 cash flows from operating activities increased by $4,104,000 relative to 2019, after the cash receipts from Canada Emergency Wage Subsidies and other government grants of $1,426,000 have been removed. * Third quarter 2020, the Company repaid $4,744,000 of bank indebtedness (September 30, 2019: Nil) and paid trade payables down to $11,829,000 (December 31, 2019: $23,201,000). * BAE Systems awarded the Company a contract for the assembly of the F-35 Carrier Variant Outboard Wing. The total awards are approximately $87 million extending Avcorp's current long-term contract with BAE systems into 2022. * In July 2020, the Company received an additional Canada Emergency Wage Subsidy of $1,231,000.

Highlights Subsequent to Quarter-End

* On October 30, 2020, the Company entered into an amendment to its existing operating credit facility with a Canadian Chartered Bank whereby the maximum availability under the Loan agreement cannot exceed USD $68,000,000 less USD $1,000,000 until December 31, 2020 and thereafter less USD $2,300,000 providing additional liquidity. * In October and November 2020, the Company received an additional Canada Emergency Wage Subsidy of $1,077,000.

Review of 2020 Third Quarter Results

For the quarter ended September 30, 2020, the Avcorp Group recorded losses from operations totaling $326,000 from $33,769,000 revenue, as compared to losses from operations totaling $5,164,000 from $37,437,000 revenue from the same quarter in the previous year. The third quarter 2020 operating loss decreased in comparison to 2019 by $3,721,000 after the removal of the onerous contracts provision of $Nil (September 30, 2019: $408,000 income), and government grants of $1,525,000 in 2020. The decrease in operating loss is due to continued operational improvement, cost reduction initiatives and the change in program revenue mix.

During the quarter ended September 30, 2020, cash flows from operating activities, excluding the impact of changes in non-cash working capital and $1,426,000 of Canada Emergency Wage and other government subsidies, provided $595,000 of cash as compared to utilization of $3,509,000 during the quarter ended September 30, 2019.

As at September 30, 2020, the Company had $6,606,000 cash on hand (December 31, 2019: $4,316,000) and had utilized $82,808,000 of its operating line of credit (December 31, 2019: $84,661,000). The Company has a working capital deficit of $92,484,000 as at September 30, 2020, compared with $71,561,000 deficit as at December 31, 2019. Working capital surplus/deficit is defined as the difference between current assets and current liabilities. The Company's accounts receivable, contract assets, and inventories net of accounts payable, amount to a $20,546,000 surplus as at September 30, 2020 (December 31, 2019: $18,542,000 surplus). The Company's accumulated deficit as at September 30, 2020 is $155,465,000 (December 31, 2019: $142,194,000).

About Avcorp

The Avcorp Group designs and builds major airframe structures for some of the world's leading aircraft companies, including BAE Systems, Boeing, Bombardier, Lockheed Martin and Subaru Corporation. The Avcorp Group has more than 60 years of experience, over 550 skilled employees and 636,000 square feet of facilities. Avcorp Structures & Integration located in Delta British Columbia, Canada is dedicated to metallic and composite aerostructures assembly and integration; Avcorp Engineered Composites located in Burlington Ontario, Canada is dedicated to design and manufacture of composite aerostructures, and Avcorp Composite Fabrication located in Gardena California, USA has advanced composite aerostructures fabrication capabilities for composite aerostructures. The Avcorp Group offers integrated composite and metallic aircraft structures to aircraft manufacturers, a distinct advantage in the pursuit of contracts for new aircraft designs, which require lower-cost, light-weight, strong, reliable structures. Comtek Advanced Structures Ltd., at our Burlington, Ontario, Canada location also provides aircraft operators with aircraft structural component repair services for commercial aircraft.

Avcorp Composite Fabrication Inc. is wholly owned by Avcorp US Holdings Inc. Both companies are incorporated in the State of Delaware, USA, and are wholly owned subsidiaries of Avcorp Industries Inc.

Comtek Advanced Structures Ltd., incorporated in the Province of Ontario, Canada, is a wholly owned subsidiary of Avcorp Industries Inc.

Avcorp Industries Inc. is a federally incorporated reporting company in Canada and traded on the Toronto Stock Exchange (TSX:AVP).

AMANDEEP KALERCHIEF EXECUTIVE OFFICERAVCORP GROUP

Forward-Looking Statements

This release should be read in conjunction with the Company's audited financial statements contained in the Company's Annual Report, and with the quarterly financial statements and accompanying notes filed with Sedar (www.sedar.com).

Certain statements in this release and other oral and written statements made by the Company from time to time are forward-looking statements, including those that discuss strategies, goals, outlook or other non-historical matters; or projected revenues, income, returns or other financial measures. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those contained in the statements, including the following: (a) changes in worldwide economic and political conditions that impact interest and foreign exchange rates; (b) the occurrence of work stoppages and strikes at key facilities of the Corporation or the Corporation's customers or suppliers; (c) government funding and program approvals affecting products being developed or sold under government programs; (d) cost and delivery performance under various program and development contracts; (e) the adequacy of cost estimates for various customer care programs including servicing warranties; (f) the ability to control costs and successful implementation of various cost reduction programs; (g) the timing of certifications of new aircraft products; (h) the occurrence of downturns in customer markets to which the Corporation products are sold or supplied or where the Corporation offers financing; (i) changes in aircraft delivery schedules or cancellation of orders; (j) the Corporation's ability to offset, through cost reductions, raw material price increases and pricing pressure brought by original equipment manufacturer customers; (k) the availability and cost of insurance; (l) the Corporation's ability to maintain portfolio credit quality; (m) the Corporation's access to debt financing at competitive rates; (n) uncertainty in estimating contingent liabilities and establishing reserves tailored to address such contingencies; and (o) integration of newly acquired operations and associated expenses may adversely affect profitability.

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION(unaudited, expressed in thousands of Canadian dollars)

September 30, 2020 December 31, 2019

ASSETS

Current assets

Cash $6,606 $4,316

Accounts receivable 17,032 17,625

Contract assets 19,714 26,162

Inventories 11,569 12,933

Prepayments and other assets 2,992 2,136

57,913 63,172

Non-current assets

Prepayments and other assets 3,012 2,738

Development costs 16,074 14,075

Property, plant and equipment 42,718 46,328

Intangibles 984 1,827

Total assets 120,701 128,140

LIABILITIES AND EQUITY

Current liabilities

Bank indebtedness 83,213 85,470

Accounts payable and accrued liabilities 27,769 38,178

Current portion of term debt 16,515 2,768

Contract liability 8,246 2,036

Guarantee fee 7,778 -

Customer advance 6,193 6,030

Deferred government grant 392 -

Onerous contract provision 291 251

150,397 134,733

Non-current liabilities

Term debt 24,801 26,848

Contract liability 3,020 4,757

Deferred government grant 229 -

Onerous contract provision 91 -

Guarantee fee - 5,277

178,538 171,615

(Deficiency) Equity

Capital stock 86,219 86,219

Contributed surplus 5,470 5,446

Accumulated other comprehensive income 5,939 7,054

Accumulated deficit (155,465) (142,194)

(57,837) (43,475)

Total liabilities and deficiency 120,701 128,140

CONDENSED INTERIM CONSOLIDATED STATEMENTSOF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)(unaudited, expressed in thousands of Canadian dollars, except number of shares and per share amounts)

FOR THE PERIOD ENDED SEPTEMBER 30 Three months Nine months ended ended

2020 2019 2020 2019

Revenues $33,769 $37,437 $106,220 $126,461

Cost of sales 31,209 36,843 103,144 120,728

Gross profit 2,560 594 3,076 5,733

Administrative and general expenses 4,218 5,568 12,590 16,119

Office equipment depreciation 193 190 588 579

Net gain on claims - - - (17,955)

Government grants (1,525) - (3,996) -

Operating (loss) income (326) (5,164) (6,106) 6,990

Finance costs - net 1,649 2,140 6,346 5,937

Foreign exchange (gain) loss (712) 171 732 (588)

Net loss on sale of equipment - 36 87 111

(Loss) income before income tax (1,263) (7,511) (13,271) 1,530

Income tax expense - - - -

(Loss) income for the period (1,263) (7,511) (13,271) 1,530

Other comprehensive gain (loss) 977 (349) (1,115) 1,046

Total comprehensive (loss) income for the (286) (7,860) (14,386) 2,576period

(Loss) income per share:

Basic (loss) income per common share (0.00) (0.02) (0.04) 0.00

Diluted (loss) income per common share (0.00) (0.02) (0.04) 0.00

Basic weighted average number of shares 368,118 368,118 368,118 368,118outstanding (000's)

Diluted weighted average number of shares 368,118 368,118 368,118 369,308outstanding (000's)

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS(unaudited, expressed in thousands of Canadian dollars)

Three months Nine months ended ended

FOR THE PERIOD ENDED SEPTEMBER 30 2020 2019 2020 2019

Cash flows from operating activities

Net (loss) income for the period $ $ $ $1,530 (1,263) (7,511) (13,271)

Adjustment for items not affecting cash:

Interest expense 1,781 2,137 6,743 5,928

Depreciation 2,047 1,891 6,321 5,716

Development cost amortization 771 279 1,169 1,183

Intangible assets amortization 297 295 906 890

Non-cash financing cost accretion 3 3 8 9

Provision for onerous contracts - (408) 120 (1,510)

Provision for doubtful accounts (76) - (326) (555)

Provision for obsolete inventory (380) (535) (434) (1,508)

Stock based compensation 8 17 24 58

Net claim settlement - 8 - (1,512)

Loss on disposal of equipment - 36 87 111

Unrealized foreign exchange (933) 279 669 (730)

Fair value difference on below market rate (99) - (166) -term debt

Loss on loan modification amortization (135) - (405) -

Cash flows from (used in) operating activitiesbefore changes 2,021 (3,509) 1,445 9,610in non-cash working capital

Changes in non-cash working capital

Accounts receivable 324 9,577 1,808 8,247

Contract assets 4,343 (2,242) 6,565 440

Inventories 16 21 1,918 4,498

Prepayments and other assets (2,291) 359 (1,593) 2,203

Accounts payable and accrued liabilities (1,543) 1,908 (10,703) (1,889)

Contract liability 2,856 87 4,272 (4,391)

Net cash from operating activities 5,726 6,201 3,712 18,718

Cash flows (used in) investing activities

Proceeds from sale of equipment - 66 34 66

Purchase of equipment (884) (406) (1,579) (893)

Payments relating to development costs and (780) (1,181) (3,166) (3,007)tooling

Initial lease payments and other direct costs - - (31) -incurred

Net cash used in investing activities (1,664) (1,521) (4,742) (3,834)

Cash flows (used in) from financing activities

Proceeds from bank indebtedness - 5,539 653 15,555

Repayment of bank indebtedness (4,744) - (4,744) (17,912)

Payment of interest (876) (1,252) (3,272) (3,739)

Proceeds from term debt - 352 12,553 868

Repayment of term debt (628) (567) (1,880) (2,023)

Net cash (used in) from financing activities (6,248) 4,072 3,310 (7,251)

Net (decrease) increase in cash (2,186) 8,752 2,280 7,633

Net foreign exchange difference (22) - 10 (16)

Cash - Beginning of the period 8,814 916 4,316 2,051

Cash - End of the period 6,606 9,668 6,606 9,668

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY(unaudited, expressed in thousands of Canadian dollars, except number of shares)

Capital Stock

Accumulated Number of Amount Contributed Accumulated Other Total Shares Surplus Deficit Comprehensive Deficiency Income

Balance at December 31, 2018 368,118,620 86,219 5,370 (132,878) 5,145 (36,144)

Stock-based compensation - - 58 - - 58expense

Unrealized currency loss on translation for the period - - - - 1,044 1,044

Net income for the period - - - 1,530 - 1,530

Balance at September 30, 2019 368,118,620 86,219 5,428 (131,348) 6,189 (33,512)

Balance at December 31, 2019 368,118,620 86,219 5,446 (142,194) 7,054 (43,475)

Stock-based compensation - - 24 - - 24expense

Unrealized currency gain on - - - - (1,115) (1,115)translation for the period

Net loss for the period - - - (13,271) - (13,271)

Balance at September 30, 2020 368,118,620 86,219 5,470 (155,465) 5,939 (57,837)

View original content: http://www.prnewswire.com/news-releases/avcorp-announces-2020-third-quarter-financial-results-301173078.html

SOURCE Avcorp Industries Inc.