PR Newswire | Aug 13, 2020 07:42PM EDT

08/13 18:41 CDT

Avcorp announces 2020 Second Quarter Financial Results VANCOUVER, BC, Aug. 13, 2020

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

2020 Highlights

Key financial results include:

* Second quarter 2020 revenue was $32,246,000 compared to $46,799,000 in 2019. 2020 revenue decreased by $14,553,000 as a result of lower deliveries caused by lower customer requirements due to the novel Coronavirus ("COVID-19") and 737 MAX grounding. * Second quarter 2020 net loss was $1,594,000 compared to net loss of $4,568,000 in 2019. Net loss improved in comparison to 2019 after receiving the Canada Emergency Wage Subsidies of $2,404,000. * Second quarter 2020 foreign exchange gain was $1,414,000 (June 30, 2019: $329,000 gain). 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. * Second quarter 2020 cash flows from operating activities before changes in non-cash working capital was $1,694,000 (June 30, 2019: cash inflow of $121,000). Second quarter 2020 cash flows used in operating activities worsened by $831,000 relative to 2019, after the cash receipts from Canada Emergency Wage Subsidies of $2,404,000 has been removed. * On April 28, 2020, the Company received a loan in the amount of USD $4,123,000 to support Avcorp Composite Fabrication Inc ("ACF") through the Paycheck Protection Program from the U.S. Small Business Administration. The loan has a term of 2 years and bears interest at a fixed rate of 1% per annum with the first six months of interest deferred. The loan is forgivable if certain requirements are met. * On June 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 July 31, 2020 and thereafter less USD $2,300,000 providing additional liquidity.

Highlights Subsequent to Quarter-End

* 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. * On July 31, 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 August 31, 2020 and thereafter less USD $2,300,000 providing additional liquidity.

Review of 2020 Second Quarter Results

For the quarter ended June 30, 2020, the Avcorp Group recorded losses from operations totaling $1,080,000 from $32,246,000 revenue, as compared to losses from operations totaling $2,903,000 from $46,799,000 revenue from the same quarter in the previous year. The second quarter 2020 operating loss increased in comparison to 2019 by $1,608,000 after the removal of the onerous contracts provision of $244,000 (June 30, 2019: $585,000 income), a net loss on settlement of $1,789,000 in 2019 and government grants of $2,471,000 in 2020. The increase in operating loss is contributed to customer delivery scheduling changes due to COVID-19 decreasing revenue in the current quarter.

During the quarter ended June 30, 2020, cash flows from operating activities, excluding the impact of changes in non-cash working capital, provided $1,694,000 of cash as compared to $121,000 during the quarter ended June 30, 2019. The Company received $2,404,000 of Canada Emergency Wage Subsidies contributing to the positive operating cash flows in the current quarter.

As at June 30, 2020, the Company had $8,814,000 cash on hand (December 31, 2019: $4,316,000) and had utilized $89,514,000 of its operating line of credit (December 31, 2019: $84,661,000). The Company has a working capital deficit of $84,103,000 as at June 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. However, the Company's accounts receivable, contract assets, and inventories net of accounts payable, amount to a $22,302,000 surplus as at June 30, 2020 (December 31, 2019: $18,542,000 surplus). The Company's accumulated deficit as at June 30, 2020 is $154,202,000 (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 600 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)

June 30, 2020 December 31, 2019

ASSETS

Current assets

Cash $8,814 $4,316

Accounts receivable 16,329 17,625

Contract assets 24,165 26,162

Inventories 11,296 12,933

Prepayments and other assets 1,713 2,136

62,317 63,172

Non-current assets

Prepayments and other assets 2,868 2,738

Development costs 16,065 14,075

Property, plant and equipment 44,452 46,328

Intangibles 1,309 1,827

Total assets 127,011 128,140

LIABILITIES AND EQUITY

Current liabilities

Bank indebtedness 90,054 85,470

Accounts payable and accrued liabilities 29,488 38,178

Current portion of term debt 16,879 2,768

Customer advance 6,327 6,030

Contract liability 2,980 2,036

Deferred government grant 401 -

Onerous contract provision 291 251

146,420 134,733

Non-current liabilities

Guarantee fee 7,156 5,277

Term debt 25,240 26,848

Contract liability 5,328 4,757

Deferred government grant 334 -

Onerous contract provision 91 -

184,569 171,615

(Deficiency) Equity

Capital stock 86,219 86,219

Contributed surplus 5,463 5,446

Accumulated other comprehensive income 4,962 7,054

Accumulated deficit (154,202) (142,194)

(57,558) (43,475)

Total liabilities and deficiency 127,011 128,140

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 JUNE 30 Three months Six months ended ended

2020 2019 2020 2019

Revenues $32,246 $46,799 $72,451 $89,024

Cost of sales 31,632 42,313 71,935 83,885

Gross profit 614 4,486 516 5,139

Administrative and general expenses 3,965 5,400 8,372 10,551

Office equipment depreciation 200 200 395 389

Net loss (gain) on claims - 1,789 - (17,955)

Government grants (2,471) - (2,471) -

Operating (loss) income (1,080) (2,903) (5,780) 12,154

Finance costs - net 1,928 1,919 4,697 3,797

Foreign exchange (gain) loss (1,414) (329) 1,444 (759)

Net loss on sale of equipment - 75 87 75

(Loss) income before income tax (1,594) (4,568) (12,008) 9,041

Income tax expense - - - -

(Loss) income for the period (1,594) (4,568) (12,008) 9,041

Other comprehensive gain (loss) 1,892 640 (2,092) 1,395

Total comprehensive income (loss) for the 298 (3,928) (14,100) 10,436period

(Loss) income per share:

Basic (loss) income per common share (0.00) (0.01) (0.03) 0.02

Diluted (loss) income per common share (0.00) (0.01) (0.03) 0.02

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

Diluted weighted average number of shares 368,118 368,118 368,118 369,146outstanding (000's)

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

Three months Six months ended ended

FOR THE PERIOD ENDED JUNE 30 2020 2019 2020 2019

Cash flows from (used in) operatingactivities

Net (loss) income for the period $(1,594) $ $ $9,041 (4,568) (12,008)

Adjustment for items not affecting cash:

Interest expense 1,926 1,916 4,692 3,791

Depreciation 2,206 1,921 4,274 3,825

Development cost amortization 87 599 398 904

Intangible assets amortization 309 298 609 595

Non-cash financing cost accretion 2 3 5 6

Provision for onerous contracts 244 (585) 120 (1,102)

Provision for doubtful accounts (123) (19) (250) (555)

Provision for obsolete inventory 198 (733) (54) (973)

Stock based compensation 7 20 16 41

Net claim - 1,789 - (1,520)

Loss on disposal of equipment - 75 87 75

Unrealized foreign exchange (1,366) (595) 1,602 (1,009)

Fair value difference on below market rate (67) - (67) -term debt

Loss on loan modification amortization (135) - (270) -

Cash flows from (used in) operatingactivities before changes 1,694 121 (846) 13,119in non-cash working capital

Changes in non-cash working capital

Accounts receivable 7,996 (3,676) 1,484 (1,330)

Contract assets 846 2,191 2,222 2,682

Inventories 1,361 2,996 1,902 4,477

Prepayments and other assets 581 2,034 698 1,844

Accounts payable and accrued liabilities (10,684) (2,902) (9,160) (3,797)

Contract liability 1,260 (3,519) 1,416 (4,478)

Net cash from (used in) operating activities 3,054 (2,755) (2,284) 12,517

Cash flows used in investing activities

Proceeds from sale of equipment 34 - 34 -

Purchase of equipment (474) (305) (695) (487)

Payments relating to development costs and (936) (1,119) (2,386) (1,826)tooling

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

Net cash used in investing activities (1,407) (1,424) (3,078) (2,313)

Cash flows from (used in) financingactivities

Proceeds from bank indebtedness - 4,152 653 10,016

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

Payment of interest (979) (1,239) (2,126) (2,487)

Proceeds from term debt 5,629 516 12,553 516

Repayment of term debt (640) (853) (1,252) (1,456)

Net cash from (used in) financing activities 4,010 2,576 9,828 (11,323)

Net increase (decrease) in cash 5,657 (1,603) 4,466 (1,119)

Net foreign exchange difference (42) 114 32 (16)

Cash - Beginning of the period 3,199 2,405 4,316 2,051

Cash - End of the period 8,814 916 8,814 916

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 - - 41 - - 41expense

Unrealized currency loss on - - - - 1,395 1,395translation for the period

Net income for the period - - - 9,041 - 9,041

Balance at June 30, 2019 368,118,620 86,219 5,411 (123,837) 6,540 (25,667)

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

Stock-based compensation - - 17 - - 17expense

Unrealized currency gain on - - - - (2,092) (2,092)translation for the period

Net loss for the period - - - (12,008) - (12,008)

Balance at June 30, 2020 368,118,620 86,219 5,463 (154,202) 4,962 (57,558)

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SOURCE Avcorp Industries Inc.