SOURCE: WPCS International Inc.

September 24, 2014 09:00 ET

WPCS Announces Financial Results for the Fiscal 2015 First Quarter Ended July 31, 2014

SUISUN CITY, CA--(Marketwired - Sep 24, 2014) - WPCS International Incorporated (NASDAQ: WPCS) (the "Company"), which specializes in contracting services for communications infrastructure and the development of a digital currency trading platform, today announced its fiscal 2015 first quarter financial results for the period ended July 31, 2014.

Sebastian Giordano, Interim CEO of WPCS, commented, "We continue to diligently make progress across several fronts. First, we are pleased with our fiscal 2015 first quarter revenue growth of 59% on a year-over-year basis, which was mostly attributable to our Suisun City Operations. This segment of our operations is doing very well and we anticipate this trend to continue in the foreseeable future. In addition to the restructuring measures previously reported for fiscal year end 2014, we continue to make steady progress in this area during the first quarter of 2015, as we completed the sale of our Australian Operations and obtained shareholder approval for the sale of our Seattle Operations. These accomplishments are part of a comprehensive restructuring effort that, when completed, should better financially position the Company going forward. We continue to pursue the sale of our China joint venture interest, debt restructuring and further reduction of expenses and liabilities. As such, our financials for this period still reflect the impact of these legacy issues and the remaining areas that still need to be addressed. Finally, we continue our commitment to developing our digital currency business, which has resulted in an increased user base on our platforms and new product launches, such as Celery, which began generating nominal revenues during this quarter. On behalf of the management team, we are excited about the future of WPCS and thank our shareholders for their continued support during this process."

Company and Financial Highlights:

  • Revenue for the fiscal 2015 first quarter increased 59% to $6.8 million as compared to $4.3 million for the same period the prior year, mostly attributable to contracting services project revenue in the Company's Suisun City Operations.
  • On July 31, 2014, the Company completed the sale of The Pride Group (QLD) Pty Ltd. (the "Australia Operations"), to Turquino Equity LLC, whose managing member is Andrew Hidalgo ("Hidalgo"), the former Chairman and CEO of WPCS. With the sale, the Company eliminated its outstanding $1.0 million severance obligation to Hidalgo.
  • On August 15, 2014, the Company held a special meeting of stockholders at which the Company's shareholders approved the sale of substantially all of the assets of its wholly-owned subsidiary WPCS International -- Seattle, Inc. (the "Seattle Operations"). The Company expects that this transaction will close on September 30, 2014 and it may generate approximately $1.5 million in working capital.
  • The Company appointed David Horin, CPA, as its new Chief Financial Officer, effective September 1, 2014.
  • Received a letter from NASDAQ, dated September 3, 2014, indicating that WPCS has regained compliance with Listing Rule 5550(a)(2), as the closing bid price of the Company's common stock has been $1.00 per share or greater for the last 10 consecutive business days. Accordingly, NASDAQ advised that the matter is now closed.

Financial Results for the Three Month Period Ended July 31, 2014
Revenue for the three months ended July 31, 2014 was approximately $6,771,000, as compared to approximately $4,256,000 for the three months ended July 31, 2013. The increase in revenue was due primarily to an increase in revenue of the contracting services segment, as a result of the significant increase in contracting services project revenue in our Suisun City Operations. There was nominal revenue for the virtual currency trading platform segment.

Cost of revenue consists of direct costs on contracts: materials, direct labor, third party subcontractor services, union benefits and other overhead costs. Cost of revenue was approximately $5,293,000, or 78.2% of revenue, for the three months ended July 31, 2014, as compared to $3,155,000, or 74.1%, for the same period the prior year. The increase in total cost of revenue was due to the increase in revenue as compared to the prior year. The increase as a percentage of revenue is primarily due to the revenue blend of project work completed during the year. 

For the three months ended July 31, 2014, total selling, general and administrative expenses were approximately $1,361,000 or 20.1%, of total revenue. For the three months ended July 31, 2013, total selling, general and administrative expenses were approximately $1,412,000, or 33.2%, of total revenue. Included in selling, general and administrative expenses for the three months ended July 31, 2014 were salaries, commissions, payroll taxes and other employee benefits incurred in the normal course of business of $468,000, which was a $571,000 decrease compared to the prior year, due primarily to lower salaries from cost reduction strategies.

As a result of the execution of the agreement on September 19, 2013 for the divestiture of the Australia Operations, we have recorded the Australia Operations' financial results as discontinued operations. As a result of the execution of the purchase agreement on March 31, 2014 for the divestiture of the Seattle Operations, we have recorded the Seattle Operations' financial results as discontinued operations. For the three months ended July 31, 2014, we recorded an income from discontinued operations of approximately $948,000.

About WPCS International Incorporated
WPCS operates in two business segments: (1) providing communications infrastructure contracting services to the public services, healthcare, energy and corporate enterprise markets worldwide; and (2) developing a digital currency trading platform. For more information, please visit www.wpcs.com, www.btxtrader.com and www.gocelery.com.

Statements about the Company's future expectations, including future revenue and earnings and all other statements in this press release, other than historical facts, are "forward looking" statements and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve risks and uncertainties and are subject to change at any time. The Company's actual results could differ materially from expected results. In reflecting subsequent events or circumstances, the Company undertakes no obligation to update forward-looking statements.

   
   
WPCS INTERNATIONAL INCORPORATED AND SUBSIDIARIES  
CONDENSED CONSOLIDATED BALANCE SHEETS  
   
    July 31,     April 30,  
    2014     2014  
    (Unaudited)        
ASSETS                
CURRENT ASSETS:                
  Cash and cash equivalents   $ 1,318,949     $ 2,177,070  
  Accounts receivable, net of allowance of $1,086,000 and $1,034,000 at July 31, 2014 and April 30, 2014, respectively     9,697,262       8,614,396  
  Costs and estimated earnings in excess of billings on uncompleted contracts     567,186       431,348  
  Deferred contract costs     1,221,201       1,166,734  
  Prepaid expenses and other current assets     239,173       217,235  
  Current assets held for sale     2,972,938       4,001,812  
    Total current assets     16,016,709       16,608,595  
                 
PROPERTY AND EQUIPMENT, net     1,652,387       1,780,520  
                 
CAPITALIZED SOFTWARE COSTS, net     2,940,793       3,207,305  
                 
OTHER ASSETS     20,675       52,376  
                 
OTHER ASSETS HELD FOR SALE     193,339       372,930  
                 
Total assets   $ 20,823,903     $ 22,021,726  
                 
                 
LIABILITIES AND EQUITY                
CURRENT LIABILITIES:                
  Current portion of loans payable   $ 37,549     $ 31,680  
  Senior secured convertible notes, net of debt discount of $0 and $853,000, respectively     898,338       44,921  
  Make-whole amount on senior secured convertible notes     1,889,716       -  
  Accounts payable and accrued expenses     6,121,161       4,956,232  
  Accrued severance     301,455       1,520,205  
  Billings in excess of costs and estimated earnings on uncompleted contracts     1,213,690       1,448,563  
  Due related party     789,710       778,573  
  Other payable to Zurich     1,533,757       1,533,757  
  Short-term bank loan     3,240,700       3,195,000  
  Income taxes payable     9,731       30,855  
  Dividend payable     74,487       72,034  
  Current liabilities held for sale     1,415,351       1,886,019  
    Total current liabilities     17,525,645       15,497,839  
                 
Loans payable, net of current portion     61,227       56,537  
Secured promissory note, related parties     500,000       500,000  
                 
Total liabilities     18,086,872       16,054,376  
                 
COMMITMENTS AND CONTINGENCIES                
                 
EQUITY:                
                 
WPCS EQUITY:                
  Preferred stock - 5,000,000 shares authorized, 2,438 shares of Series E Convertible Preferred Stock issued with $1,000 stated value, and liquidation preference of $5,617,000     2,438,000       2,438,000  
  Common stock - $0.0001 par value, 14,285,714 shares authorized, 13,913,164 and 13,913,164 shares issued and outstanding as of July 31, 2014 and April 30, 2014, respectively     1,391       1,391  
    Additional paid-in capital     66,672,106       66,672,106  
    Accumulated deficit     (67,534,540 )     (65,222,355 )
                     
    Accumulated other comprehensive income on foreign currency translation     358,274       1,232,003  
                 
Total WPCS equity     1,935,231       5,121,145  
                 
Noncontrolling interest     801,800       846,205  
Total equity     2,737,031       5,967,350  
                 
Total liabilities and equity   $ 20,823,903     $ 22,021,726  
                 
                 
                 
WPCS INTERNATIONAL INCORPORATED AND SUBSIDIARIES  
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS  
   
    Three months ended  
    July 31,  
    2014     2013  
                 
REVENUE   $ 6,770,884     $ 4,255,743  
                 
COSTS AND EXPENSES:                
  Cost of revenue     5,293,104       3,154,715  
  Selling, general and administrative expenses     1,360,814       1,412,132  
  Severance expense     -       1,474,277  
  Depreciation and amortization     442,545       200,348  
                 
      7,096,463       6,241,472  
                 
OPERATING LOSS     (325,579 )     (1,985,729 )
                 
OTHER EXPENSE (INCOME):                
  Interest expense     2,901,396       1,159,493  
  Change in fair value of derivative liabilities     -       3,041,905  
  Other expenses     7,500       -  
                 
Loss from continuing operations before income tax provision     (3,234,475 )     (6,187,127 )
                 
Income tax provision     -       24,151  
                 
LOSS FROM CONTINUING OPERATIONS     (3,234,475 )     (6,211,278 )
                 
Discontinued operations:                
  Income from discontinued operations     148,861       339,952  
  Gain on sale of Australia operations     798,896       -  
                   
  Income from discontinued operations, net of tax     947,757       339,952  
                 
CONSOLIDATED NET LOSS     (2,286,718 )     (5,871,326 )
                 
Net (loss) income attributable to noncontrolling interest     (49,020 )     21,744  
                 
NET LOSS ATTRIBUTABLE TO WPCS     (2,237,698 )     (5,893,070 )
                 
Dividend declared on preferred stock     (74,487 )     -  
                 
NET LOSS ATTRIBUTABLE TO WPCS COMMON SHAREHOLDERS   $ (2,312,185 )   $ (5,893,070 )
                 
Basic and diluted net loss attributable to WPCS common shareholders:                
  Loss from continuing operations   $ (0.23 )   $ (6.21 )
  Income from discontinued operations   $ 0.01     $ 0.34  
  Gain from disposal   $ 0.06     $ -  
  Basic and diluted net income from discontinued operations   $ 0.07     $ 0.34  
  Basic and diluted net loss per common share attributable to WPCS   $ (0.17 )   $ (5.89 )
                 
Basic and diluted weighted average number of common shares outstanding     13,913,164       1,000,624  
                 
                 
                 
WPCS INTERNATIONAL INCORPORATED AND SUBSIDIARIES  
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  
   
    Three months ended  
    July 31,  
    2014     2013  
OPERATING ACTIVITIES :                
  Consolidated net loss from continuing operations   $ (3,234,475 )   $ (6,233,022 )
  Less: net income (loss) attributable to noncontrolling interests     (49,020 )     21,744  
  Net loss attributable to WPCS     (3,185,455 )     (6,211,278 )
  Consolidated net income from discontinued operations     947,757       339,952  
Adjustments to reconcile consolidated net (loss) income to net cash provided by (used in) operating activities:                
  Depreciation and amortization     442,545       253,240  
  Amortization of notes discount     853,417       1,032,741  
  make-whole amount     1,889,716       -  
  Gain on sale of Australia operations     (798,896 )     -  
  Stock-based compensation     -       21,371  
  Change in the fair value of derivative liabilities     -       3,041,905  
  Provision for doubtful accounts     -       (2,465 )
  Amortization of debt issuance costs     -       40,549  
  Gain on sale of fixed assets     -       (3,892 )
Changes in operating assets and liabilities:                
  Restricted cash     -       1,213,424  
  Accounts receivable     (1,837,261 )     (507,627 )
                 
  Costs and estimated earnings in excess of billings on uncompleted contracts     (169,500 )     (160,805 )
  Deferred contract costs     (53,538 )     38,001  
  Current assets held for sale     1,028,874       (1,477,022 )
  Prepaid expenses and other current assets     (60,539 )     (99,851 )
  Other assets     15,825       (22,751 )
  Other assets held for sale     179,591       30,995  
  Income taxes payable     (21,124 )     19,342  
  Accounts payable and accrued expenses     2,011,957       342,451  
  Current liabilities held for sale     (470,668 )     974,020  
  Accrued severance expense     (1,218,750 )     1,462,500  
  Billings in excess of costs and estimated earnings on uncompleted contracts     (182,441 )     (155,594 )
  Deferred revenue     -       162,930  
NET CASH USED IN OPERATING ACTIVITIES     (628,490 )     332,136  
                 
INVESTING ACTIVITIES:                
  Acquisition of property and equipment, net     (159,384 )     -  
  Addition on acquisition of BTX software     (833 )     -  
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES     (160,217 )     -  
                 
FINANCING ACTIVITIES:                
  Borrowings (repayments) under loans payable, net     10,559       (14,791 )
  Repayments under other payable     -       (157,000 )
  Dividend paid on preferred stock     (72,034 )     -  
NET CASH USED IN FINANCING ACTIVITIES     (61,475 )     (171,791 )
                 
Effect of exchange rate changes on cash     (7,939 )     (59,063 )
                 
NET DECREASE IN CASH AND CASH EQUIVALENTS     (858,121 )     101,282  
CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD     2,177,070       1,410,223  
CASH AND CASH EQUIVALENTS, END OF THE PERIOD   $ 1,318,949     $ 1,511,505  
                 
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:                
  Settlement of severance obligation and sale of Australia   $ 970,000     $ -  
  Declaration on preferred dividend payable   $ 74,487     $ -  
                 

Contact Information

  • INVESTOR CONTACT:
    Capital Markets Group, LLC
    Valter Pinto
    PH: (914) 669-0222 or (212) 398-3486
    Email Contact