SOURCE: WPCS International Inc

WPCS International Inc

March 10, 2016 09:00 ET

WPCS Announces Financial Results for 3rd Quarter and Nine Months Ended January 31, 2016

Suisun Year-to-Date Operating Income at $886,000

SUISUN, CA--(Marketwired - Mar 10, 2016) - WPCS International Incorporated (NASDAQ: WPCS), which specializes in low voltage communications and security contracting services, today announced its fiscal 2016 third quarter and nine-month financial results for the period ended January 31, 2016.

Sebastian Giordano, Interim CEO of WPCS, commented, "The most telling facts at this juncture are that:

(i) Suisun Operations continues to operate profitably, generating operating income of $286,000 and $886,000 for the three months and nine months ended January 31, 2016, respectively;

(ii) Over 96% of our approximately $7,000,000 of assets are current assets;

(iii) Other than $150,000 in vehicle loans for operations, the Company is debt-free; and,

(iv) We have no further preferred dividend requirements.

"We believe that our results continue to demonstrate that, not only have we successfully restructured the Company and dramatically cleaned-up our balance sheet, but more importantly, we have a sound, core profitable business from which to build upon. In addition to just recently establishing operations in Texas and forming a unique technology alliance, we are currently evaluating various other growth alternatives that we believe will yield positive results in the near term."

Financial Results for the Three Months Ended January 31, 2016

Revenue for the three months ended January 31, 2016 decreased $1,944,000, or 37%, to $3,318,000 as compared to $5,262,000 for the same period in 2015, as one, multi-year, high revenue project was completed in the prior fiscal year.

The Company's $819,000 loss from continuing operations for the three months ended January 31, 2016 was comprised of the $286,000 operating income from the Suisun Operations and offset by: (i) $1,073,000 of corporate overhead, of which $656,000 was attributable to stock compensation expense for stock options issued to employees and the Board of Directors, and (ii) $32,000 of start-up costs for our new Texas Operations. This compared to a net operating loss from continuing operations of $2,865,000 for the same period in 2015.

WPCS has recorded the financial results for its divested subsidiaries as discontinued operations. For the three months ended January 31, 2016, WPCS recorded no income or loss from discontinued operations. Meanwhile, the net loss attributable to common shareholders for the three-month period totaled $1,233,000, due primarily to the $819,000 loss from continuing operations and $414,000 in dividends declared on preferred stock.

Financial Results for the Nine Months Ended January 31, 2016

Revenue for the nine months ended January 31, 2016 decreased $5,810,000, or 33%, to $11,606,000 as compared to $17,416,000 for the same period in 2015, as one, multi-year, high revenue project was completed in the prior fiscal year.

The Company's $2,776,000 loss from continuing operations for the nine months ended January 31, 2016 was primarily comprised of the $886,000 operating income from the Suisun Operations and $400,000 income from Section 16 settlements, and which was offset by: (i) $4,030,000 of corporate overhead, of which $2,174,000 was attributable to stock compensation expense for stock options issued to employees and the Board of Directors and (ii) $32,000 in start-up costs for our new Texas Operations. This compared to a net operating loss from continuing operations of $7,395,000 for the same period in 2015.

WPCS has recorded the financial results for its divested subsidiaries as discontinued operations. For the nine months ended January 31, 2016, WPCS recorded income from discontinued operations of approximately $863,000. Meanwhile, the net loss attributable to common shareholders for the nine-month period totaled $7,400,000 due primarily to the $2,776,000 loss from continuing operations, $5,487,000 in dividends declared on preferred stock, and which was partially offset by the income from discontinued operations of $879,000.

About WPCS International Incorporated
WPCS provides low voltage communication and security contracting services to the public services, healthcare, energy and corporate enterprise markets in the United States. For more information, please visit www.wpcs.com.

Cautionary Note Regarding Forward-Looking Statements

This press release contains "forward-looking statements" within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995, including, but not limited to, statements with respect to the Company's future growth opportunities and strategic plan. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy, and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Any forward-looking statement made by us in this press release is based only on information currently available to us and speaks only as of the date on which it is made. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.

   
WPCS INTERNATIONAL INCORPORATED AND SUBSIDIARIES  
CONDENSED CONSOLIDATED BALANCE SHEETS  
(UNAUDITED)  
   
    January 31,     April 30,  
    2016     2015  
                 
ASSETS                
Current assets:                
  Cash and cash equivalents   $ 2,408,297     $ 2,364,360  
  Accounts receivable, net of allowance of $92,000 at January 31, 2016 and April 30, 2015     3,769,383       6,494,890  
  Costs and estimated earnings in excess of billings on uncompleted contracts     416,047       420,434  
  Prepaid expenses and other current assets     93,558       159,769  
  Current assets held for sale     -       4,566,251  
    Total current assets     6,687,285       14,005,704  
                 
Property and equipment, net     227,300       162,986  
                 
Other assets     27,494       25,384  
                 
Other assets held for sale     -       963,119  
                 
Total assets   $ 6,942,079     $ 15,157,193  
                 
LIABILITIES AND EQUITY                
Current liabilities:                
  Current portion of loans payable   $ 49,747     $ 39,935  
  Accounts payable and accrued expenses     2,264,725       5,414,269  
  Billings in excess of costs and estimated earnings on uncompleted contracts     1,721,301       1,346,461  
  Other payable to Zurich     -       360,000  
  Short-term promissory notes     -       1,703,000  
  Dividends payable     -       677,546  
  Current liabilities held for sale     -       5,710,807  
    Total current liabilities     4,035,773       15,252,018  
                 
Loans payable, net of current portion     98,492       44,239  
Total liabilities     4,134,265       15,296,257  
                 
Commitments                
                 
Equity (deficit):                
WPCS equity (deficit):                
  Preferred stock - $0.0001 par value, 5,000,000 shares authorized at January 31, 2016 and April 30, 2015, respectively                
    Convertible Series F - 0 and 5,268 shares issued and outstanding at January 31, 2016 and April 30, 2015, respectively     -       1,589,933  
    Convertible Series F-1 - 0 and 5,642 shares issued and outstanding at January 31, 2016 and April 30, 2015, respectively     -       1,702,808  
    Convertible Series G - 0 and 2,088 shares issued and outstanding at January 31, 2016 and April 30, 2015, respectively     -       731,706  
    Convertible Series G-1 - 0 and 3,128 shares issued and outstanding at January 31, 2016 and April 30, 2015, respectively     -       1,096,250  
    Convertible Series H - 2,638 and 0 shares issued and outstanding at January 31, 2016 and April 30, 2015, respectively; liquidation preference of $406,000     406,262       -  
    Convertible Series H-1 - 8,119 and 0 shares issued and outstanding at January 31, 2016 and April 30, 2015, respectively; liquidation preference of $1,348,000     699,324       -  
  Common stock - $0.0001 par value, 100,000,000 shares authorized, 2,673,803 and 982,660 shares issued and outstanding as of January 31, 2016 and April 30, 2015, respectively     267       98  
  Additional paid-in capital     85,653,220       70,380,397  
  Accumulated deficit     (83,951,259 )     (76,550,894 )
  Accumulated other comprehensive income on foreign currency translation     -       349,723  
Total WPCS equity (deficit)     2,807,814       (699,979 )
                 
Noncontrolling interest     -       560,915  
Total equity (deficit)     2,807,814       (139,064 )
                 
Total liabilities and equity (deficit)   $ 6,942,079     $ 15,157,193  
                 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
 
WPCS INTERNATIONAL INCORPORATED AND SUBSIDIARIES  
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS  
(Unaudited)  
   
    For the three months ended     For the nine months ended  
    January 31,     January 31,  
    2016     2015     2016     2015  
                                 
Revenue   $ 3,317,636     $ 5,262,154     $ 11,605,880     $ 17,416,283  
                                 
Costs and expenses:                                
  Cost of revenue     2,521,627       4,486,949       9,263,395       14,379,893  
  Selling, general and administrative expenses     1,602,751       1,237,402       5,470,760       3,600,820  
  Depreciation and amortization     16,075       14,282       45,537       46,106  
      4,140,453       5,738,633       14,779,692       18,026,819  
                                 
Operating loss     (822,817 )     (476,479 )     (3,173,812 )     (610,536 )
                                 
Other income (expense):                                
  Interest expense     (523 )     (380 )     (2,021 )     (2,837,852 )
  Inducement expense     -       (3,622,344 )     -       (5,492,842 )
  Income from Section 16 settlements     -       1,051,516       400,000       1,401,516  
  Other income, net     4,871       197,220       1,965       188,778  
                                 
Loss from continuing operations before income tax provision     (818,469 )     (2,850,467 )     (2,773,868 )     (7,350,936 )
Income tax provision     607       14,726       1,706       43,914  
Loss from continuing operations     (819,076 )     (2,865,193 )     (2,775,574 )     (7,394,850 )
                                 
Discontinued operations:                                
  Income (loss) from discontinued operations     -       (88,807 )     41,261       (2,414,305 )
  Gain from disposal     -       -       837,720       798,896  
  Gain from disposal of BTX     -       19,700       -       19,700  
  Income (loss) from discontinued operations, net of tax     -       (69,107 )     878,981       (1,595,709 )
                                 
Consolidated net loss     (819,076 )     (2,934,300 )     (1,896,593 )     (8,990,559 )
Net income (loss) attributable to noncontrolling interest     -       8,682       16,505       (93,453 )
Net loss attributable to WPCS     (819,076 )     (2,942,982 )     (1,913,098 )     (8,897,106 )
Dividends declared on preferred stock     (372,810 )     (509,389 )     (4,742,768 )     (700,088 )
Deemed dividends on convertible preferred Series H-1 stock, due to beneficial conversion feature     (40,729 )     -       (744,499 )     -  
Net loss attributable to WPCS common shareholders   $ (1,232,615 )   $ (3,452,371 )   $ (7,400,365 )   $ (9,597,194 )
                                 
Basic and diluted net loss attributable to WPCS common shareholders:                                
  Loss from continuing operations   $ (0.47 )   $ (5.33 )   $ (3.82 )   $ (12.80 )
  Income (loss) from discontinued operations   $ -     $ (0.15 )   $ 0.01     $ (3.67 )
  Gain from disposal   $ -     $ 0.03     $ 0.39     $ 1.29  
  Basic and diluted net income (loss) from discontinued operations   $ -     $ (0.12 )   $ 0.40     $ (2.38 )
  Basic and diluted net loss per common share attributable to WPCS   $ (0.47 )   $ (5.45 )   $ (3.42 )   $ (15.18 )
                                 
Basic and diluted weighted average number of common shares outstanding     2,597,952       633,158       2,161,104       632,664  
                                 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
 
WPCS INTERNATIONAL INCORPORATED AND SUBSIDIARIES  
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  
(Unaudited)  
   
    For the nine months ended  
    January 31,  
    2016     2015  
Operating activities:                
  Net loss from operations   $ (2,775,574 )   $ (7,394,850 )
  Consolidated net income (loss) from discontinued operations     878,981       (1,595,709 )
Adjustments to reconcile consolidated net loss to net cash used by operating activities:                
  Depreciation and amortization     45,537       107,931  
  Amortization of notes discount     -       853,417  
  Inducement expenses     -       5,492,842  
  Share based compensation     2,219,068       115,200  
  Interest expense related to make-whole amount     -       1,889,716  
  Gain on sale of Pride     -       (798,896 )
  Gain on sale of China Operations     (837,720 )     -  
  Gain on sale of BTX     -       (19,700 )
  Loss on sale of Seattle Operations     -       374,932  
  Income on Section 16 settlements     (400,000 )     (1,401,516 )
  Cash received on Section 16 settlements     -       650,000  
  Changes in operating assets and liabilities:                
  Accounts receivable     2,725,507       (2,889,583 )
  Costs and estimated earnings in excess of billings on uncompleted contracts     4,387       (247,240 )
  Current assets held for sale     (3,853,621 )     850,592  
  Prepaid expenses and other current assets     66,211       (146,878 )
  Other assets     (2,110 )     15,591  
  Other assets held for sale     (34,523 )     3,580,379  
  Income taxes payable     -       (2,934 )
  Accounts payable and accrued expenses     (3,149,544 )     2,414,902  
  Current liabilities held for sale     2,200,030       (3,284,660 )
  Accrued severance expense     -       (550,205 )
  Billings in excess of costs and estimated earnings on uncompleted contracts     374,840       447,386  
Net cash (used in) operating activities     (2,538,531 )     (1,539,283 )
                 
Investing activities:                
  Cash received on sale of Seattle     -       1,561,000  
  Sale of property and equipment, net     -       27,024  
  Acquisition of property and equipment     (109,851 )     -  
  Addition on acquisition of BTX capitalized software     -       (2,279 )
  Payment for sale of BTX     -       (59,097 )
  Proceeds from sale of China Operations, net of acquisition cost     1,325,744       -  
Net cash provided by investing activities     1,215,893       1,526,648  
                 
Financing activities:                
  Proceeds from issuance of Series H-1 preferred stock and warrants     1,575,000       -  
  Borrowings under loan payable obligations     99,369       -  
  Repayment under loan payable obligations     (35,304 )     (8,627 )
  Repayments under other payable to Zurich     (360,000 )     -  
  Repayments of short term promissory notes     (4,000 )     -  
  Dividends paid on preferred stock     -       (146,521 )
Net cash provided by (used in) financing activities     1,275,065       (155,148 )
                 
Effect of exchange rate changes on cash     91,510       (132,889 )
                 
Net increase in cash and cash equivalents     43,937       (300,672 )
Cash and cash equivalents, beginning of the period     2,364,360       2,177,070  
Cash and cash equivalents, end of the period   $ 2,408,297     $ 1,876,398  
                 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
 
WPCS INTERNATIONAL INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Unaudited)
 
    For the nine months ended
    January 31,
    2016   2015
Schedule of non-cash investing and financing activities:            
  Declaration of preferred dividends payable   $ 4,742,768   $ 700,088
  Conversion of senior secured convertible note and related make-whole amount to Series F-1 preferred stock Series G-1 preferred stock   $ -   $ 4,918,360
  Conversion of senior secured convertible note and related make-whole amount to Series F preferred stock Series G preferred stock   $ -   $ 2,321,640
  Conversion of dividends payable related to make-whole amount to common stock   $ 4,457,356   $ -
  Conversion of dividends payable related to Series F-1 preferred stock   $ 624,977   $ -
  Conversion of dividends payable related to Series G-1 preferred stock   $ 337,981   $ -
  Conversion of short term convertible note to Series H preferred stock   $ 1,299,000   $ -
  Conversion of Preferred E to short term promissory note   $ -   $ 2,438,000
  Conversion of Series F and F-1 preferred stock through the issuance of common stock   $ 3,292,741   $ 181,086
  Conversion of Series G and G-1 preferred stock through the issuance of common stock   $ 1,827,927   $ -
  Conversion of Series H preferred stock through the issuance of common stock   $ 892,680   $ -
  Conversion of Series H-1 preferred stock through the issuance of common stock   $ 75,000   $ -
  Section 16 settlements gain for cancellation of short term promissory notes   $ -   $ 735,000
  Section 16 settlements gain for cancellation of make-whole interest expense   $ -   $ 17,000
  Sale of BTX   $ -   $ 79,000
  Settlement of severance obligation and sale of Pride   $ -   $ 970,000
               
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
 

Contact Information

  • INVESTOR CONTACT:
    WPCS International Incorporated
    David Allen
    Chief Financial Officer
    Phone: 707-759-6008
    Email: Email Contact