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Subject: ERN

Avcorp announces 2019 Third Quarter Financial Results


VANCOUVER, Nov. 14, 2019 /PRNewswire/ - Avcorp Industries Inc. (TSX: AVP) (the "Company", "Avcorp" or the "Avcorp Group") today announced its financial results for the quarter ended September 30, 2019. All amounts are in Canadian currency unless otherwise stated.

2019 Highlights

Key financial results include:

Review of 2019 Third Quarter Financial Results

For the quarter ended September 30, 2019, the Avcorp Group recorded losses from operations totaling $5,164,000 from $37,437,000 revenue, as compared to $41,782,000 operating income from $44,862,000 revenue for the previous years' quarter. It should be noted that 2019 operating loss benefited by $408,000 income from amortization of onerous contracts provision (September 30, 2018: $3,330,000 amortization of unfavourable contract liability and onerous contract liability). The third quarter ended 2018 also benefited from the net contract modification for an unfavourable contract in the amount of $41,470,000 and a net claim settlement of $2,219,000. The current operating loss was higher by $335,000, in comparison to the same quarter in 2018 after these benefits have been removed.

During the quarter ended September 30, 2019, cash utilization from operating activities, excluding the impact of changes in non?cash working capital, were $3,766,000 of cash as compared with utilization of $3,490,000 of cash during the quarter ended September 30, 2018.

As at September 30, 2019, the Company had $9,668,000 cash on hand (December 31, 2018: $2,051,000) and had utilized $81,026,000 of its operating line of credit (December 31, 2018: $85,840,000). The Company has a working capital deficit of $73,760,000 as at September 30, 2019 which has decreased from the December 31, 2018 $71,503,000 deficit. Working capital surplus/deficit is defined as the difference between current assets and current liabilities. The Company's accounts receivable, contract assets, and inventories net of accounts payable, amount to a $13,417,000 surplus as at September 30, 2019 (December 31, 2018: $22,000,000 surplus). The Company's accumulated deficit as at September 30, 2019 is $131,348,000 (December 31, 2018: $132,878,000).

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 700 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

Contact: Amandeep Kaler, Investor Relations Contact / 604-582-6677 Ext 2534

Forward-Looking Statements

This release should be read in conjunction with the Company's unaudited 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, 2019

December 31, 2018

ASSETS



Current assets



Cash

$9,668

$2,051

Accounts receivable

19,881

23,442

Contract assets

24,143

24,762

Inventories

12,360

15,601

Prepayments and other assets

4,668

6,076


70,720

71,932

Non-current assets



Prepaid rent and security

-

146

Development costs

13,580

11,755

Property, plant and equipment

45,561

28,416

Intangibles

5,866

3,137

Investment in AVS-SYS

662

682




Total assets

136,389

116,068




LIABILITIES AND EQUITY



Current liabilities



Bank indebtedness

81,026

85,840

Accounts payable and accrued liabilities

42,967

41,805

Guarantee Fee

4,676

-

Current portion of term debt

7,948

5,510

Customer advance

6,148

6,334

Contract liability

1,304

2,137

Onerous contract provision

411

1,809


144,480

143,435

Non-current liabilities



Guarantee fee

-

2,994

Term debt

22,018

2,800

Contract liability

3,403

2,862

Onerous contract provision

-

121





169,901

152,212

(Deficiency) Equity



Capital stock

86,219

86,219

Contributed surplus

5,428

5,370

Accumulated other comprehensive income

6,189

5,145

Accumulated deficit

(131,348)

(132,878)





(33,512)

(36,144)




Total liabilities and deficiency

136,389

116,068

 

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF (LOSS) INCOME AND COMPREHENSIVE (LOSS) INCOME
(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


2019

2018

2019

2018

Revenues

$37,437

$44,862

$126,461

$131,430






Cost of sales 

36,843

39,361

120,728

119,514






Gross profit

594

5,501

5,733

11,916






Administrative and general expenses

5,568

7,259

16,119

17,705

Office equipment depreciation

190

149

579

438

Net contract modification

-

(41,470)

-

(41,470)

Net claims settlement

-

(2,219)

(17,955)

(2,219)






Operating (loss) income

(5,164)

41,782

6,990

37,462






Finance costs ? net 

2,140

1,585

5,937

3,968

Foreign exchange loss (gain)

171

(37)

(588)

(178)

Net loss on sale of equipment

36

-

111

-






(Loss) income before income tax

(7,511)

40,234

1,530

33,672






Income tax expense

-

-

-

-






(Loss) income for the period

(7,511)

40,234

1,530

33,672






Other comprehensive (loss) income

(349)

1,130

1,046

(3,024)

Net (loss) income and total comprehensive (loss) income

for the period

(7,860)

41,364

2,576

30,648






(Loss) income per share:





Basic (loss) income per common share 

(0.02)

0.12

0.00

0.10

Diluted (loss) income per common share

(0.02)

0.12

0.00

0.10






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

368,118

339,408

368,118

338,080






Diluted weighted average number of shares outstanding (000's)

368,118

339,408

369,308

338,080

 

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

2019

2018

2019

2018






Cash flows from (used in) operating activities





Net (loss) income for the period

$(7,511)

$40,234

$1,530

$33,672

Adjustment for items not affecting cash:





Interest expense

2,137

1,583

5,928

3,961

Depreciation

1,891

1,171

5,716

3,357

Development cost amortization

279

332

1,183

1,881

Intangible assets amortization

295

341

890

1,008

Non-cash financing cost accretion


3

2

9

7

Provision for unfavourable contracts

-

(1,334)

-

(6,195)

Provision for onerous contracts

(408)

(1,996)

(1,510)

(5,376)

Provision for doubtful accounts

-

-

(555)

-

Provision for obsolete inventory

(535)

343

(1,508)

1,505

Stock based compensation

17

29

58

580

Net contract modification

-

(41,470)

-

(41,470)

Net claim settlement

8

(2,219)

(1,512)

(2,219)

Loss on disposal of equipment

36

-

111

-

Unrealized foreign exchange

22

(481)

(730)

223

Other items

-

(25)

-

(91)

Cash flows (used in) from operating activities before changes in non-

cash working capital

(3,766)

(3,490)

9,610

(9,157)

Changes in non-cash working capital





Accounts receivable

9,577

775

8,247

6,079

Contract assets

(2,242)

990

440

(2,447)

Inventories

21

2,071

4,498

162

Prepayments and other assets

359

(1,464)

2,203

(2,033)

Accounts payable and accrued liabilities

1,908

2,001

(1,889)

5,175

Customer advance payable

257

(502)

-

(2,660)

Contract liability

87

(7,564)

(4,391)

(1,965)






Net cash from (used in) operating activities

6,201

(7,183)

18,718

(19,004)






Cash flows (used in) investing activities





Purchase of equipment

(406)

(632)

(893)

(1,463)

Proceeds from sale of equipment

66

-

66

-

Addition of developed software

-

-

-

(371)

Payments relating to development costs and tooling

(1,181)

(1,692)

(3,007)

(3,892)






Net cash from (used in) investing activities

(1,521)

(2,324)

(3,834)

(5,726)






Cash flows from (used in) financing activities





Increase (decrease) in bank indebtedness

5,539

-

(2,357)

17,961

Payment of interest

(1,252)

(847)

(3,739)

(2,010)

Proceeds from term debt

352

5,466

868

5,664

Exercise of warrants

-

938

-

938

Repayment of term debt

(567)

(58)

(2,023)

(211)






Net cash from (used in) financing activities

4,072

5,499

(7,251)

22,342

Net increase (decrease) in cash

8,752

(4,008)

7,633

(2,388)

Net foreign exchange difference

-

62

(16)

99

Cash - Beginning of the period

916

6,869

2,051

5,212

Cash - End of the period

9,668

2,923

9,668

2,923







 

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 January 1, 2018

337,404,502

82,905

6,979

(153,251)

9,896

(53,471)








Issue of common shares

30,714,118

2,152

-

-

-

2,152








Stock-based compensation expense

-

-

140

-

-

140








Cancellation of issued stock options

-

-

440

-

-

440








Transfer to share capital on
exercise of stock options

-

1,162

(1,162)

-

-

-








Unrealized currency gain on
translation for the period

-

-

-

-

(3,024)

(3,024)








Net income for the period

-

-

-

33,672

-

33,672








Balance at September 30, 2018

368,118,620

86,219

6,397

(119,579)

6,872

(20,091)








Balance at December 31, 2018

368,118,620

86,219

5,370

(132,878)

5,145

(36,144)








Stock-based compensation expense

-

-

58

-

-

58








Unrealized currency loss on
translation for the period

-

-

-

-

1,044

1,044








Net income for the period

-

-

-

1,530

-

1,530








Balance at September 30, 2019

368,118,620

86,219

5,428

(131,348)

6,189

(33,512)

 

SOURCE Avcorp Industries Inc.


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