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Avcorp announces 2021 First Quarter Financial Results

May 12, 2021

PR Newswire

VANCOUVER, BC , May 12, 2021 /PRNewswire/ - Avcorp Industries Inc. (TSX: AVP) (the "Company", "Avcorp" or the "Avcorp Group") today announced its financial results for the quarter ended March 31, 2021 . All amounts are in Canadian currency unless otherwise stated.

2021 First Quarter Highlights

First quarter 2021 revenue was $23,933,000 compared to $40,205,000 in 2020. 2021 revenue decreased by $16,272,000 , in comparison to 2020. Revenue was affected by lower customer requirements due to the Coronavirus ("COVID-19").
First quarter 2021 net income was $17,390,000 compared to net loss of $10,414,000 in 2020. The net income in the first quarter of 2021 was supported by the accommodation agreement.
On March 12, 2021 , the Company entered into a multiparty amended and restated Accommodation Agreement with a customer and Panta Canada B.V .

Panta Canada B.V . has agreed to provide a USD $10,000,000 non-revolving standby loan facility and a USD $3,000,000 equipment loan for an aggregate availability of USD $13,000,000 .
The elimination of an unamortized cash advance, mutual release and forgiveness of certain historic and future guarantee fees payable to the customer, and a legal claim. The customer advance of $5,800,000 (USD $4,643,000 ), guarantee fee of $8,595,000 (USD $6,880,000 ), and a legal claim provision of $6,996,000 (USD $5,600,000 ) were released and included in the first quarter 2021 Net income.

First quarter 2021 cash flows from operating activities were $1,603,000 compared to an outflow of $5,338,000 in 2020. The first quarter of 2021 cash flows from operating activities were supported by the receipt of Canada Emergency Wage Subsidies of $3,127,000 .
On February 25, 2021 , the Company amended the Avcorp Composite Fabrication Inc.'s Gardena facility lease agreement effective January 1, 2021 to vacate certain buildings, reduce shared operating expenses, and set new lease terms.
On March 15, 2021 , the Company received a $2,532,000 (USD $2,000,000 ) second wave Small Business Administration Paycheck Protection Program Loan. The Company has recognized an estimated forgiveness of $1,224,000 (USD $967,000 ) in the current quarter as the company has satisfied the requirements of loan forgiveness.

Highlights Subsequent to Quarter-End

The Company received Canada Emergency Wage Subsidies of $733,000 and Canada Emergency Rent Subsidies of $277,000 in April 2021 .

Review of 2021 First Quarter Results

For the quarter ended March 31, 2021 , the Avcorp Group recorded an operating income of $18,274,000 from $23,933,000 of revenue, as compared to an operating loss of $4,700,000 from $40,205,000 of revenue from the same quarter in the previous year. The first quarter of 2021 operating income increased in comparison to 2020 by $22,974,000 mainly attributable to the Accommodation Agreement settlement of $21,391,000 and the recognition of $3,231,000 government grants as other income in the current quarter, partially offset by a stock-based compensation expense of $1,376,000 on the 17,350,000 incentive stock options granted on March 19, 2021 .

During the quarter ended March 31, 2021 , cash flows from operating activities generated $1,603,000 as compared to utilization of $5,338,000 in 2020. The increase was attributed to the receipt of the Canada Emergency Wage Subsidies of $3,127,000 in the current quarter and the timing difference on accounts receivables collection. The increase was partially offset by the increase in inventory in the current quarter.

As at March 31, 2021 , the Company had $8,305,000 cash on hand ( December 31, 2020 : $7,044,000 ) and had utilized $74,906,000 of its operating line of credit ( December 31, 2020 : $76,439,000 ). The balance of the net loss and related adjustments on modification of bank indebtedness as a result of executing an amending agreement in 2019 was $135,000 as at March 31, 2021 ( December 31, 2020 $269,000 ). The Company has a working capital deficit of $56,569 ,000 as at March 31, 2021 , compared with $77,780,000 deficit as at December 31, 2020 . Working capital surplus/deficit 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 $39,157,000 surplus as at March 31, 2021 ( December 31, 2020 : $33,174,000 surplus). The Company's accumulated deficit as at March 31, 2021 is $131,529,000 ( 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)

	March 31, 2021	December 31, 2020
ASSETS
Current assets
Cash	$8,305	$7,044
Accounts receivable	14,120	14,436
Government grant receivable	1,253	2,688
Contract assets	33,398	34,325
Inventories	12,259	9,657
Prepayments and other assets	2,090	2,108
	71,425	70,258
Non-current assets
Prepayments and other assets	2,843	2,877
Development costs	10,209	9,045
Property, plant, and equipment	31,745	38,703
Intangibles	624	655
Total assets	116,846	121,538

LIABILITIES AND DEFICIENCY
Current liabilities
Bank indebtedness	75,041	76,708
Accounts payable and accrued liabilities	21,873	27,932
Current portion of term debt	17,263	16,868
Contract liability	13,076	11,502
Onerous contract provision	400	282
Deferred government grant	341	657
Customer advance	-	5,911
Guarantee fee	-	8,178
	127,994	148,038
Non-current liabilities
Term debt	15,364	19,168
Contract liability	3,302	3,189
Onerous contract provision	-	283
	146,660	170,678
(Deficiency) Equity
Capital stock	86,219	86,219
Contributed surplus	6,857	5,478
Accumulated other comprehensive income	8,639	8,082
Accumulated deficit	(131,529)	(148,919)
	(29,814)	(49,140)
Total liabilities and deficiency	116,846	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 QUARTER ENDED MARCH 31	2021	2020
Revenues	$23,933	$40,205
Cost of sales	24,334	40,303
Gross loss	(401)	(98)
Administrative and general expenses	5,434	4,407
Office equipment depreciation	187	195
Accommodation agreement settlement	(21,391)	-
Other income	(2,905)	-
Operating income (loss)	18,274	(4,700)
Finance costs – net	1,256	2,769
Foreign exchange (gain) loss	(431)	2,858
Net loss on sale of equipment	59	87
Income (loss) before income tax	17,390	(10,414)
Income tax expense	-	-
Income (loss) for the period	17,390	(10,414)
Other comprehensive gain (loss)	557	(3,984)
Total comprehensive income (loss) for the period	17,947	(14,398)
Income (loss) per share:
Basic income (loss) per common share	0.05	(0.03)
Diluted income (loss) per common share	0.05	(0.03)
Basic weighted average number of shares outstanding (000's)	368,118	368,118
Diluted weighted average number of shares outstanding (000's)	370,337	368,118

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


FOR THE QUARTER ENDED MARCH 31	2021	2020
Cash flows from (used in) operating activities
Net income (loss) for the year	$17,390	$(10,414)
Adjustment for items not affecting cash:
Net interest expense	1,256	2,634
Depreciation	1,838	2,068
Development cost amortization	165	311
Intangible assets amortization	23	300
Provision for onerous contracts	(165)	(124)
Provision for doubtful accounts	-	(127)
Provision for obsolete inventory	(90)	(252)
Accommodation agreement settlement	(21,391)	-
Stock based compensation	1,379	9
Lease modification loss	350	-
Loss on disposal of equipment	59	87
Government grant income	(2,135)	-
Unrealized foreign exchange	(388)	2,968
Cash flows used in operating activities before changes in non-cash working capital	(1,709)	(2,540)
Changes in non-cash working capital
Accounts receivable	4,290	(6,512)
Contract assets	875	1,376
Inventories	(2,561)	541
Prepayments and other assets	1,624	117
Accounts payable and accrued liabilities	1,003	1,524
Contract liability	(1,919)	156
Net cash from (used in) operating activities	1,603	(5,338)

Cash flows (used in) from investing activities
Proceeds from sale of equipment	654	-
Purchase of equipment	(228)	(221)
Payments relating to development costs and tooling	(1,329)	(1,450)
Net cash used in investing activities	(903)	(1,671)

Cash flows from (used in) financing activities
Proceeds from bank indebtedness	-	653
Repayment of bank indebtedness	(591)	-
Payment of interest	(628)	(1,147)
Proceeds from term debt	2,532	6,924
Repayment of term debt	(739)	(612)
Net cash from financing activities	574	5,818
Net increase (decrease) in cash	1,274	(1,191)
Net foreign exchange difference	(13)	74
Cash - Beginning of the period	7,044	4,316
Cash - End of the period	8,305	3,199

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	-	-	9	-	-	9
Unrealized currency loss on translation for the period	-	-	-	-	(3,984)	(3,984)
Net loss for the period	-	-	-	(10,414)	-	(10,414)
Balance at March 31, 2020	368,118,620	86,219	5,455	(152,608)	3,070	(57,864)
Balance at December 31, 2020	368,118,620	86,219	5,478	(148,919)	8,082	(49,140)
Stock-based compensation expense	-	-	1,379	-	-	1,379
Unrealized currency gain on translation for the period	-	-	-	-	557	557
Net income for the period	-	-	-	17,390	-	17,390
Balance at March 31, 2021	368,118,620	86,219	6,857	(131,529)	8,639	(29,814)