Avcorp announces 2021 Second Quarter Financial Results

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 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, 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 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
	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 period	(569)	298	17,378	(14,100)
(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 outstanding (000's)	368,118	368,118	368,118	368,118
Diluted weighted average number of shares outstanding (000's)	368,118	368,118	370,499	368,118

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	2021	2020	2021	2020
Cash flows from (used in) operating activities
Net (loss) income for the period	$(1,212)	$(1,594)	$16,178	$(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 operating activities before changes in non-cash working capital	(780)	1,829	(2,442)	(576)
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 investing activities
Proceeds from sale of equipment	-	34	645	34
Purchase of equipment	(478)	(474)	(706)	(695)
Payments relating to development costs and tooling	(752)	(936)	(2,081)	(2,386)
Initial lease payments and other direct costs incurred	-	(31)	-	(31)
Net cash used in investing activities	(1,230)	(1,407)	(2,142)	(3,078)

Cash flows (used in) from financing activities
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
	Number of Shares	Amount	Contributed Surplus	Accumulated Deficit	Accumulated Other Comprehensive Income	Total Deficiency
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 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)
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)