SOURCE: WPCS International Inc.

WPCS International Inc.

December 23, 2014 16:05 ET

WPCS Announces Over 60% Revenue Growth for Fiscal 2015 Second Quarter and Six-Month Periods

SUISUN, CA--(Marketwired - Dec 23, 2014) - WPCS International Incorporated (NASDAQ: WPCS), which specializes in contracting services for communications infrastructure, today announced its fiscal 2015 second quarter and year-to-date six month financial results for the period ended October 31, 2014. During both periods revenue increased over 60% as compared to the same periods in fiscal year 2014.

Sebastian Giordano, Interim CEO of WPCS, commented, "Suisun City Operations for our contracting services segment continues to do exceedingly well and we expect this trend to continue for the foreseeable future, offering our Company a steady baseline of revenue and cash flow. Concurrently with continued growth in our operations, the restructuring of our other business lines is moving forward, as planned. Both Australia and Seattle Operations have been sold and, more recently, we made a strategic decision to sell our ownership in BTX. We continue to pursue the sale of our China joint venture interest and further reducing our expenses and liabilities. Going forward, Management and the Board of Directors are evaluating all strategic options available to it, the goal of which is to create long-term value for our shareholders."

Company and Financial Highlights:

  • Revenue for the fiscal 2015 second quarter increased 61.7% to $7.3 million as compared to $4.5 million for the same period the prior year, mostly attributable to contracting services project revenue in the Company's Suisun City Operations.
  • Revenue for the fiscal 2015 first six months increased 60.5% to $14.1 million as compared to $8.8 million for the same period the prior year.
  • On July 31, 2014, completed the sale of its 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 severance obligation of approximately $1.1 million to Mr. Hidalgo.
  • On September 30, 2014, sold substantially all of the assets of the Seattle Operations for an all-cash purchase price of approximately $2.0 million.
  • As of November 2014, eliminated all of our approximately $900,000 of secured convertible debt, the approximately $1.9 million liability related to the make-whole amount on such secured convertible debt and the $500,000 secured promissory note related to BTX.
  • Appointed David Allen as Chief Financial Officer on December 12, 2014.

Financial Results for the Three Month Period Ended October 31, 2014
 
Revenue for the three months ended October 31, 2014 was approximately $7.3 million, as compared to approximately $4.5 million for the three months ended October 31, 2013, an increase of 61.7% as compared to the same period last year. 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.

The Company's loss from continuing operations for the three months ended October 31, 2014 was approximately $3.4 million as compared to approximately $598,000 for the same period last year. Such change was due primarily to non-cash items, including approximately $1.9 million in inducement expense, $827,000 in impairment loss on capitalized software and a $254,000 increase in depreciation and amortization.
WPCS has recorded the Australia and Seattle Operations' financial results as discontinued operations. For the three months ended October 31, 2014, WPCS recorded a loss from discontinued operations of approximately $346,000. Net loss attributable to common shareholders for the three-month period totaled approximately $3.8 million.

Financial Results for the Six Month Period Ended October 31, 2014
Revenue for the six months ended October 31, 2014 was approximately $14.1 million, as compared to approximately $8.8 million for the six months ended October 31, 2013, an increase of 60.5% as compared to the same period last year. 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. For the six months ended October 31, 2014, there was one customer who comprised 50.9% of the consolidated total revenue.

The Company's loss from continuing operations for the six months ended October 31, 2014 was approximately $6.7 million as compared to approximately $6.8 million as compared to the same period last year. WPCS has recorded the Company's Australia and Seattle Operations' financial results as discontinued operations. For the six months ended October 31, 2014, WPCS recorded an income from discontinued operations of approximately $601,000. Net loss attributable to common shareholders for the six-month period totaled approximately $6.1 million.

Finally, WPCS has filed a Certificate of Correction with the Secretary of State of the State of Delaware on December 19, 2014 in order that the Company's Certificate of Incorporation accurately reflects that the total number of authorized shares of Common Stock is 100,000,000. The Certificate of Correction, which became effective immediately upon filing, corrected the Certificate of Amendment previously filed in May 2013. 

About WPCS International Incorporated
 
WPCS provides communications infrastructure contracting services to the public services, healthcare, energy and corporate enterprise markets worldwide. For more information, please visit www.wpcs.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
 
    October 31,   April 30,
    2014   2014
    (Unaudited)    
ASSETS            
CURRENT ASSETS:            
  Cash and cash equivalents   $ 2,244,166   $ 2,177,070
  Accounts receivable, net of allowance of $1,210,000 and $1,034,000 at October 31, 2014 and April 30, 2014, respectively     10,217,958     8,614,396
  Costs and estimated earnings in excess of billings on uncompleted contracts     319,066     431,348
  Deferred contract costs     1,199,240     1,166,734
  Prepaid expenses and other current assets     132,966     217,235
  Current assets held for sale     250,000     4,001,812
    Total current assets     14,363,396     16,608,595
             
PROPERTY AND EQUIPMENT, net     1,492,573     1,780,520
             
CAPITALIZED SOFTWARE COSTS, net     1,847,406     3,207,305
             
OTHER ASSETS     20,675     52,376
             
OTHER ASSETS HELD FOR SALE     14,000     372,930
             
Total assets   $ 17,738,050   $ 22,021,726
             
             
    October 31,     April 30,  
    2014     2014  
    (Unaudited)        
LIABILITIES AND EQUITY                
CURRENT LIABILITIES:                
  Current portion of loans payable   $ 36,999     $ 31,680  
  Senior secured convertible notes, net of debt discount of $0 and $853,000, respectively     752,976       44,921  
  Make-whole amount on senior secured convertible notes     1,583,937       -  
  Accounts payable and accrued expenses     5,466,989       4,956,232  
  Accrued severance     216,913       1,520,205  
  Billings in excess of costs and estimated earnings on uncompleted contracts     2,074,307       1,448,563  
  Due related party     797,342       778,573  
  Other payable to Zurich     1,533,757       1,533,757  
  Short-term bank loan     3,272,020       3,195,000  
  Short-term note     794,000       -  
  Income taxes payable     9,515       30,855  
  Dividend payable     116,212       72,034  
  Current liabilities held for sale     133,607       1,886,019  
    Total current liabilities     16,788,574       15,497,839  
                 
Loans payable, net of current portion     52,841       56,537  
Secured promissory note, related parties     500,000       500,000  
Total liabilities     17,341,415       16,054,376  
                 
COMMITMENTS AND CONTINGENCIES                
                 
EQUITY:                
WPCS (DEFICIT) EQUITY:                
  Preferred stock - $0.0001 par value, 5,000,000 shares authorized at October 31, 2014 and April 30, 2014, respectively                
  Convertible Series E - 1,644 and 2,438 shares issued and outstanding at October 31, 2014 and April 30, 2014, respectively; liquidation preference of $3,804,346 and $5,617,000 as of October 31, 2014 and April 30, 2014, respectively     1,644,000       2,438,000  
  Convertible Series F - 5,268 and 0 shares issued and outstanding at October 31, 2014 and April 30, 2014, respectively; liquidation preference of $8,224,655     1,589,933       -  
  Convertible Series G - 2,088 and 0 shares issued and outstanding at October 31, 2014 and April 30, 2014, respectively; liquidation preference of $3,259,886     731,706       -  
  Common stock - $0.0001 par value, 100,000,000 shares authorized, 13,913,164 and 13,913,164 shares issued and outstanding as of October 31, 2014 and April 30, 2014, respectively     1,391       1,391  
  Additional paid-in capital     66,672,106       66,672,106  
  Accumulated deficit     (71,367,178 )     (65,222,355 )
  Accumulated other comprehensive income on foreign currency translation     368,902       1,232,003  
    Total WPCS (deficit) equity     (359,140 )     5,121,145  
                 
Non-controlling interest     755,775       846,205  
Total equity     396,635       5,967,350  
                 
Total liabilities and equity   $ 17,738,050     $ 22,021,726  
                 
                 
                 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS  
(Unaudited)  
   
    Three months ended     Six months ended  
    October 31,     October 31,  
    2014     2013     2014     2013  
                                 
REVENUE   $ 7,279,153     $ 4,500,147     $ 14,050,037     $ 8,755,890  
                                 
COSTS AND EXPENSES:                                
  Cost of revenue     6,022,828       3,574,036       11,315,932       6,728,751  
  Selling, general and administrative expenses     1,818,030       1,170,720       3,178,844       2,582,852  
  Severance expense     -       -       -       1,474,277  
  Impairment loss on capitalized software     827,448       -       827,448       -  
  Depreciation and amortization     443,463       188,524       886,008       388,872  
      9,111,769       4,933,280       16,208,232       11,174,752  
                                 
OPERATING LOSS     (1,832,616 )     (433,133 )     (2,158,195 )     (2,418,862 )
                                 
OTHER EXPENSE (INCOME):                                
  Interest expense     69,103       2,378,786       2,970,499       3,538,279  
  Change in fair value of derivative liabilities     -       (2,208,155 )     -       833,750  
  Inducement expense     1,870,498       -       1,870,498       -  
  Other income     (350,000 )     -       (350,000 )     -  
  Other expenses     942       -       8,442       -  
                                 
Loss from continuing operations before income tax provision     (3,423,159 )     (603,764 )     (6,657,634 )     (6,790,891 )
Income tax provision     -       (5,863 )     -       18,288  
LOSS FROM CONTINUING OPERATIONS     (3,423,159 )     (597,901 )     (6,657,634 )     (6,809,179 )
                                 
Discontinued operations:                                
  (Loss) income from discontinued operations     (346,382 )     106,587       (197,521 )     446,539  
  Gain on sale of Australia operations     -       -       798,896       -  
  (Loss) income from discontinued operations, net of tax     (346,382 )     106,587       601,375       446,539  
                                 
CONSOLIDATED NET LOSS     (3,769,541 )     (491,314 )     (6,056,259 )     (6,362,640 )
Net (loss) income attributable to non-controlling interest     (53,115 )     (18,310 )     (102,135 )     3,434  
NET LOSS ATTRIBUTABLE TO WPCS     (3,716,426 )     (473,004 )     (5,954,124 )     (6,366,074 )
Dividend declared on preferred stock     (116,212 )     -       (190,699 )     -  
NET LOSS ATTRIBUTABLE TO WPCS COMMON SHAREHOLDERS   $ (3,832,638 )   $ (473,004 )   $ (6,144,823 )   $ (6,366,074 )
                                 
Basic and diluted net loss attributable to WPCS common shareholders:                                
  Loss from continuing operations   $ (0.25 )   $ (0.47 )   $ (0.48 )   $ (5.99 )
  (Loss) Income from discontinued operations   $ (0.02 )   $ 0.08     $ (0.01 )   $ 0.39  
  Gain from disposal   $ -     $ -     $ 0.06     $ -  
  Basic and diluted net (loss) income from discontinued operations   $ (0.02 )   $ 0.08     $ 0.05     $ 0.39  
  Basic and diluted net loss per common share attributable to WPCS   $ (0.27 )   $ (0.39 )   $ (0.43 )   $ (5.60 )
                                 
Basic and diluted weighted average number of common shares outstanding     13,913,164       1,272,877       13,913,164       1,136,750  
                                 
                                 
                                 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  
(Unaudited)  
   
    Six months ended  
    October 31,  
    2014     2013  
OPERATING ACTIVITIES :                
  Consolidated net loss from continuing operations   $ (6,657,634 )   $ (6,812,613 )
  Less: net (loss) income attributable to non-controlling interests     (102,135 )     3,434  
  Net loss attributable to WPCS     (6,555,499 )     (6,809,179 )
  Consolidated net income from discontinued operations     601,375       446,539  
                 
Adjustments to reconcile consolidated net loss to net cash provided by operating activities:                
  Depreciation and amortization     886,008       398,872  
  Inducement expense     1,870,498       -  
  Impairment loss on long term assets     827,448       -  
  Amortization of notes discount     853,417       3,053,867  
  Make-whole amount     1,889,716       -  
  Gain on sale of Australia operations     (798,896 )     -  
  Stock-based compensation     -       22,511  
  Change in the fair value of derivative liabilities     -       833,750  
  Provision for doubtful accounts     -       29,784  
  Amortization of debt issuance costs     -       277,095  
  Gain on sale of fixed assets     -       13,509  
  Changes in operating assets and liabilities:                
  Restricted cash     -       1,869,178  
  Accounts receivable     (2,273,372 )     (1,518,741 )
  Costs and estimated earnings in excess of billings on uncompleted contracts     78,620       (12,321 )
  Deferred contract costs     (25,843 )     (126,513 )
  Current assets held for sale     3,751,812       (422,718 )
  Prepaid expenses and other current assets     45,668       (115,955 )
  Other assets     15,825       50,800  
  Other assets held for sale     358,930       (2,721 )
  Income taxes payable     (24,356 )     (94,919 )
  Accounts payable and accrued expenses     1,357,618       284,124  
  Current liabilities held for sale     (1,752,412 )     359,903  
  Accrued severance expense     (1,303,292 )     1,381,249  
  Billings in excess of costs and estimated earnings on uncompleted contracts     678,176       (10,259 )
  Deferred revenue     -       303,804  
NET CASH PROVIDED BY OPERATING ACTIVITIES     481,441       211,659  
                 
INVESTING ACTIVITIES:                
  Acquisition of property and equipment, net     (140,064 )     (17,620 )
  Addition on acquisition of BTX capitalized software     (2,279 )     -  
NET CASH USED IN INVESTING ACTIVITIES     (142,343 )     (17,620 )
                 
FINANCING ACTIVITIES:                
  Borrowings (repayments) under loans payable, net     1,623       (23,534 )
  Repayment to senior secured convertible notes     -       (9,507 )
  Repayments under other payable     -       (251,411 )
  Borrowings under short-term bank loan     -       816,100  
  Debt issuance costs     -       (102,182 )
  Dividend paid on preferred stock     (146,521 )     -  
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES     (144,898 )     429,466  
                 
Effect of exchange rate changes on cash     (127,104 )     (41,051 )
                 
NET INCREASE IN CASH AND CASH EQUIVALENTS     67,096       582,454  
CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD     2,177,070       915,752  
CASH AND CASH EQUIVALENTS, END OF THE PERIOD   $ 2,244,166     $ 1,498,206  
                 
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:                
  Settlement of severance obligation and sale of Australia   $ 970,000     $ -  
  Conversion of Preferred E to short term note   $ 794,000     $ -  
  Declaration on preferred dividend payable   $ 190,699     $ -  

Contact Information

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