Avcorp announces 2010 First Quarter Results

VANCOUVER, May 17 /CNW/ - Avcorp (AVP on the Toronto Stock Exchange) today announced its financial results for the quarter ended March 31, 2010.

During the quarter ended March 31, 2010, the Company recorded a loss from operations of $2,073,000 on $17,376,000 revenue, as compared to a $1,989,000 loss from operations on $22,087,000 revenue for the same quarter of the preceding year; and a net loss for the current quarter of $2,330,000 as compared to a net loss of $3,172,000 for the quarter ended March 31, 2009.

Continued reduced customer demand has resulted in idle plant capacity. The Company has expensed $1,333,000 of overhead costs during the current quarter (March 31, 2009: $Nil) which under normal production levels would have been inventoried, then expensed at a later time when the product is sold.

The Company expects revenue growth in 2010 from full rate production of the Boeing Defense Space & Security CH47 helicopter and the Cessna Citation CJ4 business jet; both programs were in start-up phase for the Company in 2009. Additionally, the Company will experience moderate growth during the second half of 2010 as a result of program re-starts and production rate increases.

The Company has increased its provision for loss making contracts by $105,000 during the current quarter, primarily as a result of the adverse impact the strengthening of the Canadian dollar relative to the US dollar has had on US dollar denominated sales.

During the current quarter the Company provisioned for $417,000 of expected warranty expenditures relating to a manufacturing deficiency arising within its supply chain.

It should be noted that the current quarter loss includes a $42,000 foreign exchange gain (March 31, 2009: $1,044,000 foreign exchange loss) which occurred as a result of holding foreign-currency-denominated receivables, payables and debt.

Cash flows from operating activities during the current quarter utilized $1,016,000 of cash, as compared to utilizing $681,000 of cash during the quarter ended March 31, 2009. The Company has a working capital surplus of $1,761,000 as at March 31, 2010 (December 31, 2009: $820,000 surplus) and an accumulated deficit of $67,895,000 at March 31, 2010 (December 31, 2009: $65,379,000).

As at March 31, 2010, the Company was not in compliance with a financial covenant associated with its operating lines of credit. The lender had agreed to forbear from demanding payment of the indebtedness and from taking steps to enforce the security, subject to the Company complying with terms and conditions of a Forbearance Agreement which ends on June 9, 2010. Also, as at March 31, 2010, the Company was not in compliance with a financial covenant associated with the convertible debenture held by Export Development Canada. The Company has obtained a waiver from the debenture holder for this non-compliance.

About Avcorp

Avcorp designs and builds major airframe structures for some of the world's leading aircraft companies, including Boeing, Bombardier, and Cessna. With more than 50 years of experience, 507 skilled employees and 354,000 square feet of facilities, Avcorp 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. Avcorp is a Canadian public company traded on the Toronto Stock Exchange (TSX:AVP).

    
    (signed)

    MARK VAN ROOIJ
    CHIEF EXECUTIVE OFFICER
    

Forward-Looking Statements

This management discussion and analysis should be read in conjunction with the Company's audited financial statements. Certain statements in this report 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) the ability of the Company to renegotiate its debt agreements under which it is in default; (b) the extent to which the Company is able to achieve savings from its restructuring plans; (c) uncertainty in estimating the amount and timing of restructuring charges and related costs; (d) changes in worldwide economic and political conditions that impact interest and foreign exchange rates; (e) the occurrence of work stoppages and strikes at key facilities of the Company or the Company's customers or suppliers; (f) government funding and program approvals affecting products being developed or sold under government programs; (g) cost and delivery performance under various program and development contracts; (h) the adequacy of cost estimates for various customer care programs including servicing warranties; (i) the ability to control costs and successful implementation of various cost reduction programs; (j) the timing of certifications of new aircraft products; (k) the occurrence of further downturns in customer markets to which the Company products are sold or supplied or where the Company offers financing; (l) changes in aircraft delivery schedules or cancellation of orders; (m) the Company's ability to offset, through cost reductions, raw material price increases and pricing pressure brought by original equipment manufacturer customers; (n) the availability and cost of insurance; (o) the Company's ability to maintain portfolio credit quality; (p) the Company's access to debt financing at competitive rates; and (q) uncertainty in estimating contingent liabilities and establishing reserves tailored to address such contingencies.

    
    Consolidated Balance Sheets
    as at March 31, 2010 and December 31, 2009
    (unaudited, in thousands of Canadian dollars)
    -------------------------------------------------------------------------

                                                      March 31,  December 31,
                                                          2010          2009
                                                  ---------------------------
    Assets
    Current assets
    Accounts receivable                             $    8,396    $    6,689
    Inventories                                         14,306        15,497
    Prepayments                                          1,126         1,092
    Other assets                                            23            24
                                                  ---------------------------
                                                        23,851        23,302

    Development costs                                    4,123         3,923
    Property, plant and equipment                       16,668        17,346
    Warranty claim receivable                            1,637         1,637
    Intangible assets                                    1,734         1,818
                                                  ---------------------------
                                                        48,013        48,026
                                                  ---------------------------
                                                  ---------------------------
    Liabilities
    Current liabilities
    Bank indebtedness                                    7,428         8,422
    Accounts payable and accrued liabilities             9,421         7,929
    Current portion of long-term debt                    5,241         6,131
                                                  ---------------------------
                                                        22,090        22,482

    Deferred gain                                          394           405
    Lease inducement                                       838           863
    Deferred tooling revenues                            4,088         3,116
    Long-term debt                                       2,380         1,811
    Warranty provision                                   2,064         1,647
    Future income tax liability                            858           858
                                                  ---------------------------
                                                        32,712        31,182
                                                  ---------------------------
    Shareholders' Equity
    Capital stock                                       72,927        71,954
    Preferred shares                                     7,622         7,622
    Contributed surplus                                  2,647         2,647
    Deficit                                            (67,895)      (65,379)
                                                  ---------------------------
                                                        15,301        16,844
                                                  ---------------------------
                                                        48,013        48,026
                                                  ---------------------------
                                                  ---------------------------



    Consolidated Statements of Operations and Comprehensive Loss
    For the quarter ended March 31, 2010 and 2009
    (unaudited, in thousands of Canadian dollars,
     except number of shares and per share amounts)
    -------------------------------------------------------------------------

    For the quarter ended March 31                        2010          2009
                                                  ---------------------------

    Revenues                                        $   17,376    $   22,087
                                                  ---------------------------

    Cost of sales and expenses
    Cost of sales                                       15,808        18,947
    Administrative and general expenses                  2,732         3,019
    Amortization and depreciation                          951         1,066
    Foreign exchange (gain) loss                           (42)        1,044
                                                  ---------------------------

                                                        19,449        24,076
                                                  ---------------------------
                                                  ---------------------------

    Loss from operations                                (2,073)       (1,989)

    Interest expense and financing charges                (257)         (529)
    Unrealized derivative loss                               -          (654)
                                                  ---------------------------

    Loss and comprehensive loss for the period          (2,330)       (3,172)
                                                  ---------------------------
                                                  ---------------------------

    Basic and diluted loss per common share              (0.01)        (0.10)
                                                  ---------------------------
                                                  ---------------------------
    Basic and diluted weighted average number
     of shares outstanding (000's)                     183,854        32,315
                                                  ---------------------------
                                                  ---------------------------



    Consolidated Statements of Deficit
    For the quarter ended March 31, 2010 and 2009
    (unaudited, in thousands of Canadian dollars)
    -------------------------------------------------------------------------

    For the quarter ended March 31                        2010          2009
                                                  ---------------------------

    Deficit - Beginning of period                   $  (65,379)   $  (56,213)

    Loss for the period                                 (2,330)       (3,172)

    Preferred share dividends                             (186)         (186)

                                                  ---------------------------
    Deficit - End of period                            (67,895)      (59,571)
                                                  ---------------------------
                                                  ---------------------------



    Consolidated Statements of Cash Flows
    For the quarter ended March 31, 2010 and 2009
    (unaudited, in thousands of Canadian dollars)
    -------------------------------------------------------------------------

    For the quarter ended March 31                        2010          2009
                                                  ---------------------------

    Cash flows from operating activities
    Loss for the period                             $   (2,330)   $   (3,172)
    Items not affecting cash                             1,314         2,491
                                                  ---------------------------
                                                        (1,016)         (681)
    Change in non-cash items related to
     operating activities                                1,463         1,447
                                                  ---------------------------

                                                           447           766
                                                  ---------------------------

    Cash flows from investing activities
    Purchase of property, plant and equipment             (189)         (193)
    Payments relating to development costs
     and tooling                                          (238)       (1,193)
                                                  ---------------------------

                                                          (427)       (1,386)
                                                  ---------------------------

    Cash flows from financing activities
    (Decrease) increase in bank indebtedness              (994)          886
    Proceeds from customer funding of program
     non-recurring expenditures                            369           149
    Repayment of current and long-term debt               (368)         (415)
    Issue of common shares                                 977             -
    Share issue expense                                     (4)            -
                                                  ---------------------------
                                                           (20)          620
                                                  ---------------------------

    Net change in cash and cash equivalents                  -             -

    Cash and cash equivalents - Beginning
     of period                                               -             -
                                                  ---------------------------
                                                  ---------------------------

    Cash and cash equivalents - End of period                -             -
                                                  ---------------------------
                                                  ---------------------------

    Interest paid                                          193           440
                                                  ---------------------------
                                                  ---------------------------
    

SOURCE Avcorp Industries Inc.

For further information: For further information: Sandi DiPrimo, Investor Relations Contact, (604) 587-4938


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