SOURCE: WPCS International Inc

WPCS International Inc

March 23, 2015 17:52 ET

WPCS Announces Financial Results for Fiscal 2015 Third Quarter and Nine-Month Periods

Results Reflect Losses From Restructuring but Profitable Domestic Operations

SUISUN, CA--(Marketwired - Mar 23, 2015) - WPCS International Incorporated (NASDAQ: WPCS), which specializes in contracting services for communications infrastructure and natural gas and petroleum transmission pipelines, today announced its fiscal 2015 third quarter and nine month financial results for the period ended January 31, 2015.

Sebastian Giordano, Interim CEO of WPCS, commented, "Operational results this quarter demonstrate that our core business, Suisun City Operations, continues to perform very well, achieving a 21.7% increase in revenue over the same period last year. While the Company had a loss from operations of $408,000 and $702,000 for the three months and nine months ended January 31, 2015, Suisun City had operating income of $236,000 and $1,292,000 for the same periods, which we believe provides an excellent foundation for future growth."

Financial Results for the Three Months Ended January 31, 2015
Revenue for the three months ended January 31, 2015 increased $94,000, or 1.5%, to $6.4 million as compared to $6.3 million for the same period in 2014, primarily due to a 21.7% increase in revenue from our Suisun City Operations to $5.3 million from $4.3 million, which was partially offset by a 45.6% decrease in revenue from our China Operations, to $1.1 million from $2.0 million.

The Company's loss from continuing operations for the three months ended January 31, 2015 was $2.8 million, due primarily from the $408,000 operating loss and a non-cash charge for inducement expense of $3.6 million, which was partially offset by income from Section 16 settlements of $1.1 million, and $0.2 million of other income. This compared to a net operating loss from continuing operations of approximately $3.0 million for the same period in 2014.

WPCS has recorded the financial results for our divested subsidiaries as discontinued operations. For the three months ended January 31, 2015, WPCS recorded a loss from discontinued operations of approximately $111,000. Net loss attributable to common shareholders for the three-month period totaled approximately $3.5 million.

Financial Results for the Nine Months Ended January 31, 2015
Revenue for the nine months ended January 31, 2015 increased $5.2 million, or 34.9%, to $20.2 million as compared to $15.0 million for the same period in 2014, primarily due to a 66.6% increase in revenue from our Suisun City Operations to $17.4 million from $10.5 million, which was partially offset by a 29.7% decrease in revenue from our China Operations to $2.9 million from $4.0 million.

The Company's loss from continuing operations for the nine months ended January 31, 2015 was $7.6 million, due primarily from the $702,000 operating loss, interest expense of $3.0 million and a non-cash charge for inducement expense of $5.5 million, which was partially offset by income from Section 16 settlements of $1.4 million, and $200,000 of other income. This compared to a net operating loss from continuing operations of approximately $10.0 million for the same period in 2014.

WPCS has recorded the financial results for our divested subsidiaries as discontinued operations. For the nine months ended January 31, 2015, WPCS recorded a loss from discontinued operations of approximately $1.8 million. Net loss attributable to common shareholders for the six-month period totaled approximately $9.6 million.

"As expected, overall financial results reflect a Company still in the midst of a significant operational and financial restructuring. We continue to aggressively pursue additional debt and expense reductions, as well as the sale of our majority interest in the China Operations, while simultaneously seeking profitable growth opportunities for the Company," Giordano concluded.

About WPCS International Incorporated
WPCS provides contracting services to the public services, healthcare, energy and corporate enterprise markets in the United States and China. 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  
   
    January 31,     April 30,  
    2015     2014  
    (Unaudited)        
ASSETS                
CURRENT ASSETS:                
  Cash and cash equivalents   $ 1,876,398     $ 2,177,070  
  Accounts receivable, net of allowance of $1,141,000 and $1,034,000 at January 31, 2015 and April 30, 2014, respectively     10,755,652       8,614,396  
  Costs and estimated earnings in excess of billings on uncompleted contracts     340,097       431,348  
  Deferred contract costs     224,538       1,166,734  
  Prepaid expenses and other current assets     294,084       201,001  
  Current assets held for sale     -       4,018,046  
    Total current assets     13,490,769       16,608,595  
                 
PROPERTY AND EQUIPMENT, net     1,268,711       1,769,976  
                 
OTHER ASSETS     11,384       48,776  
                 
OTHER ASSETS HELD FOR SALE     14,000       3,594,379  
                 
Total assets   $ 14,784,864     $ 22,021,726  
                 
LIABILITIES AND EQUITY                
CURRENT LIABILITIES:                
  Current portion of loans payable   $ 36,493     $ 31,680  
  Senior secured convertible notes, net of debt discount of $0 and $853,000, respectively     -       44,921  
  Accounts payable and accrued expenses     5,016,607       4,782,906  
  Accrued severance     -       1,520,205  
  Billings in excess of costs and estimated earnings on uncompleted contracts     1,843,517       1,448,563  
  Due to related party     795,732       778,573  
  Other payable to Zurich     1,533,757       1,533,757  
  Short-term bank loan     3,199,760       3,195,000  
  Short-term promissory Notes     1,703,000       -  
  Income taxes payable     23,265       30,855  
  Dividend payable     625,601       72,034  
  Current liabilities held for sale     -       2,559,345  
    Total current liabilities     14,777,732       15,997,839  
                 
Loans payable, net of current portion     43,097       56,537  
Total liabilities     14,820,829       16,054,376  
                 
COMMITMENTS AND CONTINGENCIES                
                 
(DEFICIT) EQUITY:                
WPCS (DEFICIT) EQUITY:                
  Preferred stock - $0.0001 par value, 5,000,000 shares authorized at January 31, 2015 and April 30, 2014, respectively                
    Convertible Series E - 0 and 2,438 shares issued and outstanding at January 31, 2015 and April 30, 2014, respectively; liquidation preference of $0 and $5,617,000 as of January 31, 2015 and April 30, 2014, respectively     -       2,438,000  
    Convertible Series F - 5,268 and 0 shares issued and outstanding at January 31, 2015 and April 30, 2014, respectively; liquidation preference of $8,538,567     1,589,933       -  
    Convertible Series F-1 - 10,575 and 0 shares issued and outstanding at January 31, 2015 and April 30, 2014, respectively; liquidation preference of $16,960,709     3,191,637       -  
    Convertible Series G - 2,088 and 0 shares issued and outstanding at January 31, 2015 and April 30, 2014, respectively; liquidation preference of $3,384,307     731,706       -  
    Convertible Series G-1 - 3,442 and 0 shares issued and outstanding at January 31, 2015 and April 30, 2014, respectively; liquidation preference of $5,559,704     1,206,285          
  Common stock - $0.0001 par value, 100,000,000 shares authorized, 14,513,164 and 13,913,164 shares issued and outstanding as of January 31, 2015 and April 30, 2014, respectively     1,451       1,391  
  Additional paid-in capital     66,968,332       66,672,106  
  Accumulated deficit     (74,819,549 )     (65,222,355 )
  Accumulated other comprehensive income on foreign currency translation     345,430       1,232,003  
Total WPCS (deficit) equity     (784,775 )     5,121,145  
                 
Non-controlling interest     748,810       846,205  
Total (deficit) equity     (35,965 )     5,967,350  
                 
Total liabilities and equity   $ 14,784,864     $ 22,021,726  
                 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

   
   
WPCS INTERNATIONAL INCORPORATED AND SUBSIDIARIES  
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS  
(Unaudited)  
   
    Three months ended     Nine months ended  
    January 31,     January 31,  
    2015     2014     2015     2014  
                                 
REVENUE   $ 6,363,597     $ 6,269,742     $ 20,266,607     $ 15,025,632  
                                 
COSTS AND EXPENSES:                                
  Cost of revenue     5,210,427       4,829,942       16,348,515       11,559,485  
  Selling, general and administrative expenses     1,393,321       1,454,045       4,102,848       4,251,442  
  Severance expense     -       -       -       1,474,277  
  Depreciation and amortization     167,959       188,574       517,480       577,446  
      6,771,707       6,472,561       20,968,843       17,862,650  
                                 
OPERATING LOSS     (408,110 )     (202,819 )     (702,236 )     (2,837,018 )
                                 
OTHER EXPENSE (INCOME):                                
  Interest expense     61,769       2,679,411       3,023,691       4,918,386  
  Change in fair value of derivative liabilities     -       -       -       833,750  
  Loss on extinguishment of Notes     -       -       -       1,299,304  
  Inducement expense     3,622,344       -       5,492,842       -  
  Income from section 16 settlement     (1,051,516 )     -       (1,401,516 )     -  
  Other expenses     (197,220 )     -       (188,778 )     -  
                                 
Loss from continuing operations before income tax provision     (2,843,487 )     (2,882,230 )     (7,628,475 )     (9,888,458 )
Income tax provision     -       104,225       -       122,513  
LOSS FROM CONTINUING OPERATIONS     (2,843,487 )     (2,986,455 )     (7,628,475 )     (10,010,971 )
                                 
Discontinued operations:                                
  (Loss) income from discontinued operations     (110,513 )     (408,579 )     (1,805,748 )     253,297  
  (Loss) gain from disposal     -       (104,446 )     798,896       (104,446 )
  Gain from disposal of BTX     19,700       -       19,700       -  
  Loss from disposal of Seattle Operations     -       -       (374,932 )     -  
  (Loss) income from discontinued operations, net of tax     (90,813 )     (513,025 )     (1,362,084 )     148,851  
                                 
CONSOLIDATED NET LOSS     (2,934,300 )     (3,499,480 )     (8,990,559 )     (9,862,120 )
Net income (loss) attributable to non-controlling interest     8,682       49,439       (93,453 )     52,873  
NET LOSS ATTRIBUTABLE TO WPCS     (2,942,982 )     (3,548,919 )     (8,897,106 )     (9,914,993 )
Dividend declared on preferred stock     (509,389 )     -       (700,088 )     (36,993 )
NET LOSS ATTRIBUTABLE TO WPCS COMMON SHAREHOLDERS   $ (3,452,371 )   $ (3,548,919 )   $ (9,597,194 )   $ (9,951,986 )
                                 
Basic and diluted net loss attributable to WPCS common shareholders:                                
  Loss from continuing operations   $ (0.20 )   $ (0.46 )   $ (0.55 )   $ (3.43 )
  (Loss) income from discontinued operations   $ (0.01 )   $ (0.06 )   $ (0.13 )   $ 0.09  
  Gain (loss) from disposal   $ 0.00     $ (0.02 )   $ 0.03     $ (0.04 )
  Basic and diluted net (loss) income from discontinued operations   $ (0.01 )   $ (0.08 )   $ (0.10 )   $ 0.05  
  Basic and diluted net loss per common share attributable to WPCS   $ (0.21 )   $ (0.54 )   $ (0.65 )   $ (3.38 )
                                 
Basic and diluted weighted average number of common shares outstanding     13,929,468       6,475,773       13,918,599       2,916,425  
                                 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 

   
   
WPCS INTERNATIONAL INCORPORATED AND SUBSIDIARIES  
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  
(Unaudited)  
   
    Nine months ended  
    January 31,  
    2015     2014  
OPERATING ACTIVITIES :                
  Net loss attributable to WPCS   $ (7,535,022 )   $ (10,063,844 )
  Consolidated net (loss) income from discontinued operations     (1,362,084 )     148,851  
Adjustments to reconcile consolidated net loss to net cash used in operating activities:                
  Depreciation and amortization     517,480       577,446  
  Inducement expense     5,492,842       -  
  Amortization of notes discount     853,417       4,278,687  
  Loss on extinguishment of Notes     -       1,299,304  
  Make-whole amount     1,889,716       -  
  Gain on sale of Pride     (798,896 )     104,446  
  Gain on sale of BTX     (19,700 )     -  
  Loss on sale of Seattle Operations     374,932       -  
  Stock-based compensation     115,200       23,651  
  Income on section 16 settlement     (1,401,516 )     -  
  Cash received on section 16 settlement     650,000       -  
  Change in the fair value of derivative liabilities     -       833,750  
  Provision for doubtful accounts     -       33,223  
  Amortization of debt issuance costs     -       277,970  
  Gain on sale of fixed assets     -       8,601  
                   
  Changes in operating assets and liabilities:                
  Restricted cash     -       1,869,178  
  Accounts receivable     (4,008,257 )     (2,661,869 )
  Costs and estimated earnings in excess of billings on uncompleted contracts     (247,240 )     (82,735 )
  Deferred contract costs     944,824       (457,041 )
  Current assets held for sale     492,679       497,401  
  Prepaid expenses and other current assets     (154,055 )     (254,681 )
  Other assets     15,591       34,284  
  Other assets held for sale     3,580,379       218,200  
  Income taxes payable     (8,323 )     (130,326 )
  Accounts payable and accrued expenses     2,127,417       (994,750 )
  Current liabilities held for sale     (3,029,345 )     1,984,037  
  Accrued severance expense     (550,205 )     1,300,000  
  Billings in excess of costs and estimated earnings on uncompleted contracts     447,386       (185,706 )
  Deferred revenue     -       179,772  
NET CASH USED IN OPERATING ACTIVITIES     (1,612,780 )     (1,162,151 )
                 
INVESTING ACTIVITIES:                
  Cash received on sale of Seattle     1,561,000       -  
  Sale (purchase) of property and equipment     100,521       (54,400 )
  Addition on acquisition of BTX capitalized software     (2,279 )     -  
  Cash issued in the sale of BTX     (59,097 )     -  
  Cash received from acquisition of BTX software     -       1,185,000  
NET CASH PROVIDED BY INVESTING ACTIVITIES     1,600,145       1,130,600  
                 
FINANCING ACTIVITIES:                
  Repayments under loans payable, net     (8,627 )     (35,753 )
  Repayment to senior secured convertible notes     -       (9,507 )
  Repayments under other payable     -       (210,229 )
  Borrowings under short-term bank loan     -       818,550  
  Borrowings from related party     -       790,256  
  Debt issuance costs     -       (102,182 )
  Dividend paid on preferred stock     (146,521 )     -  
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES     (155,148 )     1,251,135  
                 
Effect of exchange rate changes on cash     (132,889 )     (65,886 )
                 
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS     (300,672 )     1,153,698  
CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD     2,177,070       917,752  
CASH AND CASH EQUIVALENTS, END OF THE PERIOD   $ 1,876,398     $ 2,071,450  
                 
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:                
  Settlement of severance obligation and sale of Pride   $ 970,000     $ -  
  Conversion of Series E preferred stock to promissory notes   $ 2,438,000     $ -  
  Declaration on preferred dividend payable   $ 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 Series F-1 preferred stock to common stock   $ 181,066     $ -  
  Section 16 settlement gain for cancellation of short term promissory notes   $ 735,000     $ -  
  Section 16 settlement gain for cancellation of make-whole interest expense   $ 17,000     $ -  
  Sale of BTX   $ 79,000     $ -  
  Issuance of common stock for the conversion of Notes and accrued interest   $ -     $ 3,114,816  
  Acquisition of BTX Software from issuance of Series E Preferred Stock   $ -     $ 2,635,147  
  Reclassification of fair value of derivative liability on Notes and Warrants to additional paid-in capital upon the Amendment and Note Amendment   $ -     $ 7,166,991  
  Reclassification of fair value of derivative liability on Notes to additional paid-in capital upon conversion of Notes   $ -     $ 686,856  
                   

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Contact Information

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