Avcorp announces 2010 Second Quarter Results

VANCOUVER, Aug. 13 /CNW/ - Avcorp (AVP on the Toronto Stock Exchange) today announced its financial results for the quarter ended June 30, 2010.

During the quarter ended June 30, 2010, the Company recorded a loss from operations of $1,991,000 on $18,710,000 revenue, as compared to $552,000 income from operations on $16,172,000 revenue for the same quarter of the preceding year; and a net loss for the current quarter of $2,297,000 as compared to a net income of $65,000 for the quarter ended June 30, 2009.

It should be noted that the current quarter loss includes a $285,000 foreign exchange gain, while income for the quarter ended June 30, 2009 included a $3,962,000 foreign exchange gain which occurred as a result of holding foreign-currency-denominated receivables, payables and debt.

The Company has realized the expected 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 revenue growth during the second half of 2010 as a result of program re-starts and production rate increases. The previously announced signing of an agreement with BAE Systems Operations Ltd. for the production of the F35 CV-OBW will further increase revenues in 2011.

Cash flows from operating activities during the current quarter utilized $1,042,000 of cash, as compared to providing $2,272,000 of cash during the quarter ended June 30, 2009. The Company has a working capital surplus of $2,130,000 as at June 30, 2010 (December 31, 2009: $820,000 surplus) and an accumulated deficit of $70,381,000 at June 30, 2010 (December 31, 2009: $65,379,000).

As at June 30, 2010, the Company was not in compliance with financial covenants 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 October 15, 2010. Also, as at June 30, 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 June 30, 2010 and December 31, 2009
    (unaudited, in thousands of Canadian dollars)
    -------------------------------------------------------------------------

                                                       June 30,  December 31,
                                                          2010          2009
                                                  ---------------------------
    Assets
    Current assets
    Accounts receivable                              $   7,536     $   6,689
    Inventories                                         13,278        15,497
    Prepayments                                          1,552         1,092
    Other assets                                            25            24
                                                  ---------------------------
                                                        22,391        23,302

    Development costs                                    4,349         3,923
    Property, plant and equipment                       16,110        17,346
    Warranty claim receivable                            1,637         1,637
    Intangible assets                                    1,650         1,818
                                                  ---------------------------
                                                        46,137        48,026
                                                  ---------------------------
                                                  ---------------------------
    Liabilities
    Current liabilities
    Bank indebtedness                                    4,618         8,422
    Accounts payable and accrued liabilities            10,305         7,929
    Current portion of long-term debt                    5,338         6,131
                                                  ---------------------------
                                                        20,261        22,482

    Deferred gain                                          382           405
    Lease inducement                                       813           863
    Deferred tooling revenues                            4,610         3,116
    Long-term debt                                       4,046         1,811
    Warranty provision                                   2,352         1,647
    Future income tax liability                            858           858
                                                  ---------------------------
                                                        33,322        31,182
                                                  ---------------------------
    Shareholders' Equity
    Capital stock                                       72,927        71,954
    Preferred shares                                     7,622         7,622
    Contributed surplus                                  2,647         2,647
    Deficit                                            (70,381)      (65,379)
                                                  ---------------------------
                                                        12,815        16,844
                                                  ---------------------------
                                                        46,137        48,026
                                                  ---------------------------
                                                  ---------------------------



    Consolidated Statements of Operations and Comprehensive Loss
    For the three and six months ended June 30, 2010 and 2009
    (unaudited, in thousands of Canadian dollars, except number
    of shares and per share amounts)
    -------------------------------------------------------------------------

                                  Three months ended        Six months ended
                                             June 30                 June 30
                             ------------------------------------------------
                                    2010        2009        2010        2009
                             ------------------------------------------------
                             ------------------------------------------------

    Revenues                   $  18,710   $  16,172   $  36,086   $  38,259
                             ------------------------------------------------

    Cost of sales and
     expenses
    Cost of sales                 17,030      15,598      32,838      34,545
    Administrative and
     general expenses              2,985       2,968       5,717       5,987
    Amortization and
     depreciation                    971       1,016       1,922       2,082
    Foreign exchange (gain)         (285)     (3,962)       (327)     (2,918)
                             ------------------------------------------------

                                  20,701      15,620      40,150      39,696
                             ------------------------------------------------
    Income (Loss) from
     operations                   (1,991)        552      (4,064)     (1,437)
    Interest expense and
     financing charges              (307)       (436)       (564)       (965)
    Unrealized derivative
     gain (loss)                       1         (51)          1        (705)
                             ------------------------------------------------
                             ------------------------------------------------

    Income (Loss) and
     comprehensive income
     (loss) for the period        (2,297)         65      (4,627)     (3,107)
                             ------------------------------------------------
                             ------------------------------------------------

    Basic and diluted income
     (loss) per common share       (0.01)       0.00       (0.02)      (0.10)
                             ------------------------------------------------
                             ------------------------------------------------

    Basic weighted average
     number of shares
     outstanding (000's)         195,505      32,315     189,712      32,315

    Diluted weighted
     average number of
     shares outstanding
     (000's)                     195,505      32,315     190,404      32,315
                             ------------------------------------------------
                             ------------------------------------------------



    Consolidated Statements of Deficit
    For the three and six months ended June 30, 2010 and 2009
    (unaudited, in thousands of Canadian dollars)
    -------------------------------------------------------------------------

                                  Three months ended        Six months ended
                                             June 30                 June 30
                             ------------------------------------------------
                                    2010        2009        2010        2009
                             ------------------------------------------------
                             ------------------------------------------------

    Deficit - Beginning
     of period                 $ (67,895)  $ (59,571)  $ (65,379)  $ (56,213)

    Income (Loss) for the
     period                       (2,297)         65      (4,627)     (3,107)

    Preferred share dividends       (189)       (189)       (375)       (375)
                             ------------------------------------------------

    Deficit - End of period      (70,381)    (59,695)    (70,381)    (59,695)
                             ------------------------------------------------
                             ------------------------------------------------



    Consolidated Statements of Cash Flows
    For the three and six months ended June 30, 2010 and 2009
    (unaudited, in thousands of Canadian dollars)
    -------------------------------------------------------------------------


                                  Three months ended        Six months ended
                                             June 30                 June 30
                             ------------------------------------------------
                                    2010        2009        2010        2009
                             ------------------------------------------------
                             ------------------------------------------------

    Cash flows from
     operating activities
    Income (loss) for
     the period                $  (2,297)  $      65   $  (4,627)  $  (3,107)
    Items not affecting
     cash                          1,255       2,207       2,569       4,698
                             ------------------------------------------------
                                  (1,042)      2,272      (2,058)      1,591
    Change in non-cash
     items related to
     operating activities          2,231         911       3,694       1,958
                             ------------------------------------------------

                                   1,189       3,183       1,636       3,549
                             ------------------------------------------------

    Cash flows from
     investing activities
    Purchase of property,
     plant and equipment           (329)        (85)       (518)       (278)
    Payments relating to
     development costs
     and tooling                   (288)     (1,412)       (526)     (2,605)
                             ------------------------------------------------

                                   (617)     (1,497)     (1,044)     (2,883)
                             ------------------------------------------------

    Cash flows from
     financing activities
    Net repayment of bank
     indebtedness                (2,810)     (2,920)     (3,804)     (2,034)
    Proceeds from customer
     funding of program
     development                    712         100       1,081         249
    Proceeds from current
     and long-term debt           1,771       1,552       1,771       1,952
    Repayment of current
     and long-term debt            (245)       (418)       (613)       (833)
    Issue of common shares            -           -         977           -
    Share issue expense               -           -          (4)          -
                             ------------------------------------------------

                                   (572)     (1,686)       (592)       (666)
                             ------------------------------------------------

    Net change in cash
     and cash equivalents             -           -           -           -

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

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

    Interest paid                   187         204         380         644
                             ------------------------------------------------
                             ------------------------------------------------
    

SOURCE Avcorp Industries Inc.

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


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