Avcorp announces 2020 Second Quarter Financial Results

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 KALER
CHIEF EXECUTIVE OFFICER
AVCORP 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 STATEMENTS OF 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 ended		Six months 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 period	298	(3,928)	(14,100)	10,436
(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 outstanding (000's)	368,118	368,118	368,118	368,118
Diluted weighted average number of shares outstanding (000's)	368,118	368,118	368,118	369,146

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

	Three months ended		Six months ended
FOR THE PERIOD ENDED JUNE 30	2020	2019	2020	2019
Cash flows from (used in) operating activities
Net (loss) income for the period	$(1,594)	$(4,568)	$(12,008)	$9,041
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 term debt	(67)	-	(67)	-
Loss on loan modification amortization	(135)	-	(270)	-
Cash flows from (used in) operating activities before changes in non-cash working capital	1,694	121	(846)	13,119
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 tooling	(936)	(1,119)	(2,386)	(1,826)
Initial lease payments and other direct costs incurred	(31)	-	(31)	-
Net cash used in investing activities	(1,407)	(1,424)	(3,078)	(2,313)

Cash flows from (used in) financing activities
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
	Number of Shares	Amount	Contributed Surplus	Accumulated Deficit	Accumulated Other Comprehensive Income	Total Deficiency
Balance at December 31, 2018	368,118,620	86,219	5,370	(132,878)	5,145	(36,144)
Stock-based compensation expense	-	-	41	-	-	41
Unrealized currency loss on translation for the period	-	-	-	-	1,395	1,395
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 expense	-	-	17	-	-	17
Unrealized currency gain on translation for the period	-	-	-	-	(2,092)	(2,092)
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)