Mr. Matthew Graham reports

UNISYNC UPDATE ON COVID-19 AFFECT ON OPERATIONS

Unisync Corp. is a broad-based vertically integrated North American enterprise with exceptional capabilities in garment design, domestic manufacturing and offshore outsourcing, including state-of-the-art Web-based business-to-business ordering, distribution and program management systems. Unisync operates through two business units: Unisync Group Ltd. (UGL) and 90-per-cent-owned Peerless Garments LP. The Canadian operations of UGL and Peerless are considered essential services and, as such, are expected to continue to operate.

UGL provides full-service, managed apparel programs for major corporations and government-related entities through operations across Canada and has recently expanded into the U.S. marketplace through the establishment of a 45,000-square-foot distribution and service facility in Henderson, Nev., and a sales and service facility in Farmingdale, N.J.

UGL Canadian operations

UGL's larger managed apparel programs in Canada include major airlines such as Air Canada and WestJet, both of which have announced substantial reductions in their flights in conjunction with temporarily laying off 60 per cent or more of their staff. In addition, UGL services a number of companies in the hospitality sector, including casinos, which have been severely impacted by the COVID-19 pandemic. These layoffs will have an immediate and proportional effect on UGL business revenues during the shutdown period, gradually returning to more normal levels over the following months.

On a more positive note, the transit, grocery and drugstore business segments, as well as the public safety sectors, do not appear to be as impacted and, in some cases, the company is seeing signs of improvement over last year. In addition, the company has brought on new major corporate accounts, as well as the Canadian Coast Guard in the public safety sector, which will mitigate some of the fall-off in sales being experienced in the transportation and hospitality sectors.

Over all, the company is estimating that it could experience a reduction in Q3 revenues from UGL's Canadian operations by as much as 60 per cent from the same quarter last year. As a result, the company has no alternative but to place 112 of UGL's 254 Canadian employees on temporary layoff effective close of business this Friday, April 3. Based on the projected drop-off in revenues, UGL expects to recover 75 per cent of the base salary of the employees who continue to work, up to an annualized maximum of $44,000 per employee under the Canada emergency wage subsidy (CEWS).

UGL U.S. operations

As at the end of last month, the company completed the kitting and delivery of new uniforms for all Alaska/Horizon Airline employees with the exception of the Alaska pilots. Alaska converted over to these new uniforms in mid-March, at which time the company officially assumed full responsibility for the continuing management of this portion of the program. The new uniforms are on hand for the pilot portion of the program but kitting and delivery have been temporarily deferred as a result of the current disruption caused by the pandemic.

A ramp-up in staff at the Henderson, Nev., distribution facility was commenced last year to receive and stock the incoming inventory and then process and deliver the on-line starter uniform kits to Alaska employees. Since the bulk of that rollout is now complete, peak temporary staffing levels will drop significantly as the company moves into the maintenance and continuing service aspect of this long-term contract.

As the Farmingdale, N.J., operation primarily services the hospitality sector, the company was forced to temporarily lay off five of 14 employees at that location also on April 3, 2020.

Peerless operations

Winnipeg-based Peerless specializes in the manufacturing and distribution of highly technical protective garments, military operational clothing and accessories for a broad spectrum of federal, provincial and municipal government agencies in Canada. Peerless is expected to continue to outperform last year through the balance of fiscal 2020. No federal government support is expected or needed for Peerless at this time.

Effect on 2020 fiscal performance

Prior to the COVID-19 pandemic, Unisync was on target for consolidated revenues to reach a new milestone of over $100-million for the current fiscal year. The company estimates that consolidated revenues for the just completed first six months of fiscal 2020 were approximately $55-million, a 52-per-cent increase over the $36-million reported for the corresponding period in fiscal 2019. The company is implementing cost-saving measures where appropriate including eliminating 100 per cent of directors fees for at least six months and implementing temporary reductions in compensation at the senior executive levels.

The company raised $3-million in additional equity capital at the end of last December and obtained a $5-million (U.S.) loan facility to finance its U.S. operations. Combined with the support of the federal government in the form of wage subsidies and a positive cash flow from operations for the just completed first half of fiscal 2020, Unisync is in a good position to weather the projected drop in revenues associated with the substantial layoffs of the many uniformed employees of its valued clients.

The company is seeing a buildup in business opportunities both here in Canada and the United States which, when coupled with the long-term contracts the company has with most of its larger clients, causes it to be optimistic that its business will gradually return to normal levels once the pandemic is controlled.

The company wants to thank its dedicated and capable staff who are working every day to see it through this truly unprecedented event. For those of you who have been laid off, the company appreciates the stress you are under and can only hope, as much as possible, that you are able to spend much of this time with your family -- your Unisync family will be waiting for you when you return. The company believes in the future of Unisync and will work to earn the continued support of its shareholders.

We seek Safe Harbor.