PR Newswire | Aug 12, 2021 07:40PM EDT

08/12 18:39 CDT

Avcorp announces 2021 Second Quarter Financial Results VANCOUVER, BC, Aug. 12, 2021

VANCOUVER, BC, Aug. 12, 2021 /PRNewswire/ - Avcorp Industries Inc. (TSX: AVP) (the "Company", "Avcorp" or the "Avcorp Group") today announced its financial results for the quarter ended June 30, 2021. All amounts are in Canadian currency unless otherwise stated.

2021 Second Quarter Highlights

* The Company has improved the shareholders' deficiency to $30,380,000 as at June 30, 2021 (December 31, 2020: deficiency of $49,140,000). This was the result of the Company entering into a multiparty amended and restated Accommodation Agreement with a customer and Panta Canada B.V on March 12, 2021. This eliminated the unamortized cash advance, provided a mutual release and forgiveness of certain historic and future guarantee fees payable to the customer, and a legal claim. * During second quarter 2021, the Company repaid $1,515,000 of bank indebtedness (June 30, 2020: $2,106,000), together with the modification gain recognized in the current quarter, the bank indebtedness was paid down to $71,178,000 as at June 30, 2021 (December 31, 2020: $76,708,000). * On June 22, 2021, the Company amended its loan agreement with a Canadian Chartered Bank to extend the maturity date of the existing loan agreement to June 30, 2023, which is supported by a major and material customer of the Company by way of a guarantee and recorded a modification gain of $1,155,000. * Second quarter 2021 revenue was $24,385,000 compared to $32,246,000 in 2020. 2021 revenue decreased by $7,861,000, in comparison to 2020. Revenue was affected by lower customer requirements due to the COVID-19 virus. * Second quarter 2021 net loss was $1,212,000 compared to net loss of $1,594,000 in 2020. The net loss in the second quarter of 2021 was supported by the Canada Emergency Wage Subsidies, loan forgiveness on Small Business Administration Paycheck Protection Program Loan and gain on modification of bank indebtedness as a result of executing an amendment agreement in the current quarter. * Second quarter 2021 cash flows from operating activities were $704,000 compared to an inflow of $3,189,000 in 2020. The second quarter of 2021 cash flows from operating activities were supported by the receipt of Canada Emergency Wage Subsidies of $2,078,000 and the receipt of Canada Emergency Rent Subsidies of $305,000. * On June 8, 2021, the Company received approval for forgiveness on the full loan amount of USD $4,123,000 of the first wave Small Business Administration Paycheck Protection Program Loan. The Company has recognized loan forgiveness of $2,195,000 (USD $1,774,000) in the current quarter as the Company has satisfied the requirements of loan forgiveness on both first and second wave of the loan. * On June 28, 2021, the Company received an award letter from BLR Aerospace to produce Wingtips with estimated first delivery by end of 2021.

Review of 2021 Second Quarter Results

For the quarter ended June 30, 2021, the Avcorp Group recorded an operating loss of $1,978,000 from $24,385,000 of revenue, as compared to an operating loss of $1,080,000 from $32,246,000 of revenue from the same quarter in the previous year. The second quarter of 2021 operating loss increased in comparison to 2020 by $898,000 mainly due to lower revenue, lower gross profit of $1,320,000 and higher administrative and general expenses of $992,000, partially offset by higher other income of $1,396,000.

During the quarter ended June 30, 2021, cash flows from operating activities generated $704,000 as compared to providing $3,189,000 cash in 2020. The decrease was attributed to lower operational earnings in the current quarter.

As at June 30, 2021, the Company had $4,470,000 cash on hand (December 31, 2020: $7,044,000) and had utilized $72,407,000 of its operating line of credit (December 31, 2020: $76,439,000). The bank indebtedness balance of the modification and related adjustments as a result of executing an amending agreement in 2021 was $1,229,000 as at June 30, 2021 (December 31, 2020 loss of $269,000 from the 2019 amendment). The Company has a working capital deficit of $56,482,000 as at June 30, 2021, compared with $77,780,000 deficit as at December 31, 2020. Working capital is defined as the difference between current assets and current liabilities. The Company's accounts receivable, government grant receivable, contract assets, and inventories net of accounts payable amount to a $41,849,000 surplus as at June 30, 2021 (December 31, 2020: $33,174,000 surplus). The Company's accumulated deficit as at June 30, 2021 is $132,741,000 (December 31, 2020: $148,919,000).

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 65 years of experience, over 500 skilled employees and 560,000 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, 2021 December 31, 2020

ASSETS

Current assets

Cash $4,470 $7,044

Accounts receivable 18,488 14,436

Government grant receivable 254 2,688

Contract assets 30,740 34,325

Inventories 12,101 9,657

Prepayments and other assets 1,571 2,108

67,624 70,258

Non-current assets

Prepayments and other assets 2,805 2,877

Development costs 10,563 9,045

Property, plant, and equipment 30,239 38,703

Intangibles 592 655

Total assets 111,823 121,538

LIABILITIES AND DEFICIENCY

Current liabilities

Bank indebtedness 71,178 76,708

Accounts payable and accrued liabilities 19,734 27,932

Term debt 16,130 16,868

Contract liability 16,316 11,502

Onerous contract provision 587 282

Deferred government grant 161 657

Customer advance - 5,911

Guarantee fee - 8,178

124,106 148,038

Non-current liabilities

Term debt 13,123 19,168

Contract liability 4,974 3,189

Onerous contract provision - 283

142,203 170,678

(Deficiency) Equity

Capital stock 86,219 86,219

Contributed surplus 6,860 5,478

Accumulated other comprehensive income 9,282 8,082

Accumulated deficit (132,741) (148,919)

(30,380) (49,140)

Total liabilities and deficiency 111,823 121,538

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

2021 2020 2021 2020

Revenues $24,385 $32,246 $48,318 $72,451

Cost of sales 25,091 31,632 49,425 71,935

Gross (loss) profit (706) 614 (1,107) 516

Administrative and general expenses 4,957 3,965 10,392 8,372

Office equipment depreciation 182 200 369 395

Accommodation agreement settlement - - (21,391) -

Other income (3,867) (2,471) (6,772) (2,471)

Operating (loss) income (1,978) (1,080) 16,295 (5,780)

Finance costs - net (420) 1,928 836 4,697

Foreign exchange (gain) loss (346) (1,414) (777) 1,444

Net loss on sale of equipment - - 58 87

(Loss) income before income tax (1,212) (1,594) 16,178 (12,008)

Income tax expense - - - -

(Loss) income for the period (1,212) (1,594) 16,178 (12,008)

Other comprehensive gain (loss) 643 1,892 1,200 (2,092)

Total comprehensive (loss) income for the (569) 298 17,378 (14,100)period

(Loss) income per share:

Basic (loss) income per common share (0.00) (0.00) 0.04 (0.03)

Diluted (loss) income per common share (0.00) (0.00) 0.04 (0.03)

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

Diluted weighted average number of shares 368,118 368,118 370,499 368,118outstanding (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 2021 2020 2021 2020

Cash flows from (used in) operatingactivities

Net (loss) income for the period $ $(1,594) $16,178 $ (1,212) (12,008)

Adjustment for items not affecting cash:

Interest expense (420) 1,928 836 4,697

Depreciation 1,749 2,206 3,587 4,274

Development cost amortization 398 87 563 398

Intangible assets amortization 22 309 45 609

Provision for onerous contracts 187 244 22 120

Provision for doubtful accounts 2 (123) 2 (250)

Provision for obsolete inventory 220 198 130 (54)

Accommodation agreement settlement - - (21,391) -

Stock based compensation 3 7 1,382 16

Loss on disposal of equipment - - 58 87

Lease modification loss - - 345 -

Unrealized foreign exchange (352) (1,366) (687) 1,602

Government grant income (1,377) (67) (3,512) (67)

Cash flows (used in) from operatingactivities before changes (780) 1,829 (2,442) (576)in non-cash working capital

Changes in non-cash working capital

Accounts receivable (577) 7,996 3,713 1,484

Contract assets 2,597 846 3,472 2,222

Inventories (116) 1,361 (2,677) 1,902

Prepayments and other assets 1,048 581 2,672 698

Accounts payable and accrued liabilities (2,006) (10,684) (1,003) (9,160)

Contract liability 538 1,260 (1,381) 1,416

Net cash from (used in) operating activities 704 3,189 2,354 (2,014)

Cash flows (used in) from investingactivities

Proceeds from sale of equipment - 34 645 34

Purchase of equipment (478) (474) (706) (695)

Payments relating to development costs and (752) (936) (2,081) (2,386)tooling

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

Net cash used in investing activities (1,230) (1,407) (2,142) (3,078)

Cash flows (used in) from financingactivities

Proceeds from bank indebtedness - - - 653

Repayment of bank indebtedness (1,515) - (2,106) -

Payment of interest (598) (1,114) (1,226) (2,396)

Proceeds from term debt - 5,629 2,494 12,553

Repayment of term debt (1,203) (640) (1,942) (1,252)

Net cash (used in) from financing activities (3,316) 3,875 (2,780) 9,558

Net (decrease) increase in cash (3,842) 5,657 (2,568) 4,466

Net foreign exchange difference 7 (42) (6) 32

Cash - Beginning of the period 8,305 3,199 7,044 4,316

Cash - End of the period 4,470 8,814 4,470 8,814

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIENCY(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, 2019 368,118,620 86,219 5,446 (142,194) 7,054 (43,475)

Stock-based compensation expense - - 17 - - 17

Unrealized currency loss 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)

Balance at December 31, 2020 368,118,620 86,219 5,478 (148,919) 8,082 (49,140)

Stock-based compensation expense - - 1,382 - - 1,382

Unrealized currency gain on translation for the period - - - - 1,200 1,200

Net income for the period - - - 16,178 - 16,178

Balance at June 30, 2021 368,118,620 86,219 6,860 (132,741) 9,282 (30,380)

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SOURCE Avcorp Industries Inc.