Avcorp announces 2021 Third Quarter Financial Results

VANCOUVER, BC, Nov. 10, 2021 /PRNewswire/ - Avcorp Industries Inc. (TSX: AVP) (the "Company", "Avcorp" or the "Avcorp Group") today announced its financial results for the quarter ended September 30, 2021. All amounts are in Canadian currency unless otherwise stated.

2021 Third Quarter Highlights

Third quarter 2021 revenue was $25,905,000 compared to $33,769,000 in 2020. 2021 revenue decreased by $7,864,000, in comparison to 2020. Revenue was affected by lower customer requirements due to the COVID-19 virus and fulfilling the remaining customer requirements of a contract at the Gardena facility, offset by the continued growth in the F35 Program in the Delta facility.
Third quarter 2021 net loss was $3,172,000 compared to net loss of $1,263,000 in 2020. Loss increased in comparison to 2020 mainly due to lower gross profit, and a foreign exchange loss of $385,000 in current quarter compared to a gain of $712,000 in 2020, partially offset by lower administrative and general expenses. The US dollar strengthened against the Canadian dollar resulting in a loss predominately from the translation of the Company's US dollar denominated Bank indebtedness and Term debt.
Third quarter 2021 cash flows from operating activities before changes in non-cash working capital were $695,000 compared to an inflow of $2,021,000 in 2020. 2020 cashflow was partially supported by the Canada Emergency Wage Subsidies of $1,232,000.
In August 2021, the Company signed a contract extension with Boeing to provide the Wheel Well Fairing assemblies for the Boeing 737 MAX.
The Company has improved the shareholders' deficiency to $34,810,000 as at September 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.

Review of 2021 Third Quarter Results

For the quarter ended September 30, 2021, the Avcorp Group recorded an operating loss of $1,590,000 from $25,905,000 of revenue, as compared to an operating loss of $326,000 from $33,769,000 of revenue from the same quarter in the previous year. The third quarter of 2021 operating loss increased in comparison to 2020 by $1,264,000 mainly due to lower revenue, lower gross profit of $1,053,000 and lower other income of $479,000, partially offset by lower administrative and general expenses of $249,000.

During the quarter ended September 30, 2021, cash flows from operating activities before changes in non-cash working capital were $695,000 compared to an inflow of $2,021,000 in 2020. 2020 cashflow was partially supported by the Canada Emergency Wage Subsidies of $1,232,000.

As at September 30, 2021, the Company had $6,442,000 cash on hand (December 31, 2020: $7,044,000) and had utilized $74,435,000 of its operating line of credit (December 31, 2020: $76,439,000). The bank indebtedness balance of the modification gain and related adjustments as a result of the execution of an amending agreement in 2021 was $1,076,000 as at September 30, 2021, (December 31, 2020 loss of $269,000 from the 2019 amendment). The Company has a working capital surplus of $26,327,000 as at September 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 increase compared to 2020 was mainly due to the bank indebtedness re-classified as non-current upon extension of maturity to June 30, 2023 with a loan amendment entered into in June 2021. On September 30, 2021, the ratio of the Company's current assets to current liabilities was 1.64:1 (December 31, 2020: 0.47:1).

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 450 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)

	September 30, 2021	December 31, 2020
ASSETS
Current assets
Cash	$6,442	$7,044
Accounts receivable	11,721	14,436
Government grant receivable	1,102	2,688
Contract assets	33,110	34,325
Inventories	12,846	9,657
Prepayments and other assets	2,364	2,108
	67,585	70,258
Non-current assets
Prepayments and other assets	2,881	2,877
Development costs	10,598	9,045
Property, plant, and equipment	29,928	38,703
Intangibles	586	655
Total assets	111,578	121,538

LIABILITIES AND DEFICIENCY
Current liabilities
Bank indebtedness	-	76,708
Accounts payable and accrued liabilities	20,284	27,932
Term debt	2,976	16,868
Contract liability	16,999	11,502
Onerous contract provision	800	282
Deferred government grant	199	657
Customer advance	-	5,911
Guarantee fee	-	8,178
	41,258	148,038
Non-current liabilities
Bank indebtedness	73,359	-
Term debt	26,853	19,168
Contract liability	4,918	3,189
Onerous contract provision	-	283
	146,388	170,678
(Deficiency) Equity
Capital stock	86,219	86,219
Contributed surplus	6,863	5,478
Accumulated other comprehensive income	8,021	8,082
Accumulated deficit	(135,913)	(148,919)
	(34,810)	(49,140)
Total liabilities and deficiency	111,578	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 SEPTEMBER 30	Three months ended		Nine months ended
	2021	2020	2021	2020
Revenues	$25,905	$33,769	$74,223	$106,220
Cost of sales	24,398	31,209	73,823	103,144
Gross profit	1,507	2,560	400	3,076
Administrative and general expenses	3,969	4,218	14,361	12,590
Office equipment depreciation	174	193	543	588
Accommodation agreement settlement	-	-	(21,391)	-
Other income	(1,046)	(1,525)	(7,818)	(3,996)
Operating (loss) income	(1,590)	(326)	14,705	(6,106)
Finance costs – net	1,197	1,649	2,033	6,346
Foreign exchange loss (gain)	385	(712)	(392)	732
Net loss on sale of equipment	-	-	58	87
(Loss) income before income tax	(3,172)	(1,263)	13,006	(13,271)
Income tax expense	-	-	-	-
(Loss) income for the period	(3,172)	(1,263)	13,006	(13,271)
Other comprehensive (loss) gain	(1,261)	977	(61)	(1,115)
Total comprehensive (loss) income for the period	(4,433)	(286)	12,945	(14,386)
(Loss) income per share:
Basic (loss) income per common share	(0.01)	(0.00)	0.04	(0.04)
Diluted (loss) income per common share	(0.01)	(0.00)	0.04	(0.04)
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	371,465	368,118

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

	Three months ended		Nine months ended
FOR THE PERIOD ENDED SEPTEMBER 30	2021	2020	2021	2020
Cash flows (used in) from operating activities
Net (loss) income for the period	$(3,172)	$(1,263)	$13,006	$(13,271)
Adjustment for items not affecting cash:
Interest expense	1,197	1,649	2,033	6,346
Depreciation	1,769	2,047	5,356	6,321
Development cost amortization	424	771	987	1,169
Intangible assets amortization	23	297	68	906
Provision for onerous contracts	213	-	235	120
Provision for doubtful accounts	13	(76)	15	(326)
Provision for obsolete inventory	500	(380)	630	(434)
Accommodation agreement settlement	-	-	(21,391)	-
Stock based compensation	3	8	1,385	24
Loss on disposal of equipment	-	-	58	87
Lease modification (gain)/loss	(2)	-	344	-
Unrealized foreign exchange	549	(933)	(150)	669
Government grant income	(822)	(99)	(4,334)	(166)
Cash flows from (used in) operating activities before changes in non-cash working capital	695	2,021	(1,758)	1,445
Changes in non-cash working capital
Accounts receivable	1,590	324	5,303	1,808
Contract assets	(2,212)	4,343	1,260	6,565
Inventories	(1,079)	16	(3,756)	1,918
Prepayments and other assets	(745)	(2,291)	1,927	(1,593)
Accounts payable and accrued liabilities	344	(1,543)	(659)	(10,703)
Contract liability	5,750	2,856	4,369	4,272
Net cash from operating activities	4,343	5,726	6,686	3,712

Cash flows (used in) from investing activities
Proceeds from sale of equipment	-	-	647	34
Purchase of equipment	(704)	(884)	(1,410)	(1,579)
Receipt of government grants for purchase of equipment	147	-	147	-
Payments relating to development costs and tooling	(458)	(780)	(2,539)	(3,166)
Initial lease payments and other direct costs incurred	-	-	-	(31)
Net cash used in investing activities	(1,015)	(1,664)	(3,155)	(4,742)

Cash flows (used in) from financing activities
Proceeds from bank indebtedness	-	-	-	653
Repayment of bank indebtedness	-	(4,744)	(2,106)	(4,744)
Payment of interest	(634)	(876)	(1,860)	(3,272)
Proceeds from term debt	-	-	2,503	12,553
Repayment of term debt	(657)	(628)	(2,599)	(1,880)
Net cash (used in) from financing activities	(1,291)	(6,248)	(4,062)	3,310
Net increase (decrease) in cash	2,037	(2,186)	(531)	2,280
Net foreign exchange difference	(65)	(22)	(71)	10
Cash - Beginning of the period	4,470	8,814	7,044	4,316
Cash - End of the period	6,442	6,606	6,442	6,606

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	-	-	24	-	-	24
Unrealized currency loss on translation for the period	-	-	-	-	(1,115)	(1,115)
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)
Balance at December 31, 2020	368,118,620	86,219	5,478	(148,919)	8,082	(49,140)
Stock-based compensation expense	-	-	1,385	-	-	1,385
Unrealized currency loss on translation for the period	-	-	-	-	(61)	(61)
Net income for the period	-	-	-	13,006	-	13,006
Balance at September 30, 2021	368,118,620	86,219	6,863	(135,913)	8,021	(34,810)