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WPCS Announces Financial Results for Fiscal Year Ended April 30, 2016

SUISUN, CA--(Marketwired - Jul 29, 2016) - WPCS International Incorporated (NASDAQ: WPCS), a full-service low-voltage solutions provider in the business of developing, installing and servicing integrated structured cabling, audio-visual and security systems, today announced that on July 28, 2016, it filed its Form 10-K, Annual Report for the fiscal year ended April 30, 2016.

Sebastian Giordano, CEO of WPCS, commented, "Operational results this past year demonstrated that our core business, Suisun City Operations, continues to perform profitably as it generated $1,064,000 in operating income on revenues of $14,555,000."

Financial Results for the Year Ended April 30, 2016

Revenue for the twelve months ended April 30, 2016 decreased $9,863,000, or 40%, to $14,555,000, as compared to $24,418,000, for the same period in 2015. Such decrease was attributable to the completion of one large customer contract during the prior fiscal year.

The Company's loss from continuing operations for the year ended April 30, 2016 was $3,631,000, due primarily from a $4,032,000 operating loss and interest expense of $3,200, which were partially offset by income from a Section 16 settlement of $400,000 and other income of $5,300. This compared to a loss from continuing operations of $6,998,000 for the same period in 2015.

The $4,032,000 loss from operations was comprised of $1,064,000 in operating income from the Suisun City Operations, which was offset by $4,813,000 of corporate overhead expenses, of which $2,439,000 related to non-cash compensation expense recognized on the issuance of employee stock options, a $237,000 loss from the start-up of our Texas Operations and the write-off of the remainder of the previously closed Trenton Operations assets of $47,000.

ABOUT WPCS INTERNATIONAL INCORPORATED

WPCS provides 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

CONSOLIDATED BALANCE SHEETS

April 30,

April 30,

2016

2015

ASSETS

Current assets:

Cash and cash equivalents

$

2,235,597

$

2,364,360

Accounts receivable, net of allowance of $92,000 at April 30, 2016 and April 30, 2015, respectively

2,886,154

6,494,890

Costs and estimated earnings in excess of billings on uncompleted contracts

357,210

420,434

Prepaid expenses and other current assets

66,256

159,769

Current assets held for sale

-

4,566,251

Total current assets

5,545,217

14,005,704

Property and equipment, net

237,800

162,986

Other assets

21,162

11,384

Other assets held for sale

-

977,119

Total assets

$

5,804,179

$

15,157,193

LIABILITIES AND EQUITY

Current liabilities:

Current portion of loans payable

$

53,996

$

39,935

Accounts payable and accrued expenses

2,071,765

5,414,269

Billings in excess of costs and estimated earnings on uncompleted contracts

1,358,289

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

3,484,050

15,252,018

Loans payable, net of current portion

94,825

44,239

Total liabilities

3,578,875

15,296,257

Commitments and contingencies

Equity (deficit):

WPCS equity (deficit):

Preferred stock - $0.0001 par value, 5,000,000 shares authorized at April 30, 2016 and April 30, 2015, respectively

Convertible Series F, 5,268 shares designated, - 0 and 5,268 shares issued and outstanding at April 30, 2016 and April 30, 2015, respectively

-

1,589,933

Convertible Series F-1, 27,287 shares designated, - 0 and 5,642 shares issued and outstanding at April 30, 2016 and April 30, 2015, respectively

-

1,702,808

Convertible Series G, 2,088 shares designated, - 0 and 2,088 shares issued and outstanding at April 30, 2016 and April 30, 2015, respectively

-

731,706

Convertible Series G-1, 4,247 shares designated, - 0 and 3,128 shares issued and outstanding at April 30, 2016 and April 30, 2015, respectively

-

1,096,250

Convertible Series H, 8,500 shares designated, - 2,638 and 0 shares issued and outstanding at April 30, 2016 and April 30, 2015, respectively; liquidation preference of $406,000

406,262

-

Convertible Series H-1, 9,488 shares designated, - 8,119 and 0 shares issued and outstanding at April 30, 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, 2,691,055 and 982,660 shares issued and outstanding as of April 30, 2016 and April 30, 2015, respectively

269

98

Additional paid-in capital

85,940,389

70,380,397

Accumulated deficit

(84,820,940

)

(76,550,894

)

Accumulated other comprehensive income on foreign currency translation

-

349,723

Total WPCS equity (deficit)

2,225,304

(699,979

)

Noncontrolling interest

-

560,915

Total equity (deficit)

2,225,304

(139,064

)

Total liabilities and equity

$

5,804,179

$

15,157,193

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

WPCS INTERNATIONAL INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

For the years ended

April 30,

2016

2015

Revenue

$

14,555,102

$

24,417,686

Costs and expenses:

Cost of revenue

11,570,364

20,559,427

Selling, general and administrative expenses

6,951,637

4,867,056

Depreciation and amortization

64,738

60,207

18,586,739

25,486,690

Operating loss

(4,031,637

)

(1,069,004)

Other income (expense):

Interest expense

(3,196

)

(2,838,739)

Inducement expense

-

(5,492,842)

Income from section 16 settlement

400,000

1,401,516

Gain on forgiveness of other payable to Zurich

-

883,757

Other income

5,284

187,209

Loss from continuing operations before income tax provision

(3,629,549

)

(6,928,103)

Income tax provision

1,706

69,679

Loss from continuing operations

(3,631,255

)

(6,997,782)

Discontinued operations:

Income (loss) from discontinued operations

27,261

(2,550,113)

Gain from disposal

837,720

798,896

Gain from disposal of BTX

-

19,700

Loss from disposal of Seattle Operations

-

(374,932)

Income (loss) from discontinued operations, net of tax

864,981

(2,106,449)

Consolidated net loss

(2,766,274

)

(9,104,231)

Net income (loss) attributable to noncontrolling interest

16,505

(284,210)

Net loss attributable to WPCS

(2,782,779

)

(8,820,021)

Dividends declared on preferred stock

(4,742,768

)

(2,508,518)

Deemed dividend on convertible preferred stock, due to beneficial conversion feature

(744,499

)

-

Net loss attributable to WPCS common shareholders

$

(8,270,046

)

$

(11,328,539)

Basic and diluted net loss attributable to WPCS common shareholders:

Loss from continuing operations

$

(3.98

)

$

(14.13)

Income (loss) from discontinued operations

$

0.00

$

(3.37)

Gain from disposal

$

0.37

$

0.66

Basic and diluted net income from discontinued operations

$

0.37

$

(2.71)

Basic and diluted net loss per common share attributable to WPCS

$

(3.61

)

$

(16.84)

Basic and diluted weighted average number of common shares outstanding

2,290,050

672,723

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

WPCS INTERNATIONAL INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the years ended

April 30,

2016

2015

Operating activities:

Net loss from operations

$

(3,631,255

)

$

(6,997,782

)

Consolidated net income (loss) from discontinued operations

864,981

(2,106,449

)

Adjustments to reconcile consolidated net loss to net cash provided by operating activities:

Depreciation and amortization

64,738

60,207

Amortization of notes discount

-

853,417

Inducement expenses

-

5,492,842

Shares based compensation

2,506,239

170,562

Interest expense related to make-whole amount

-

1,889,716

Gain on sale of Pride

-

(798,897

)

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 settlement

(400,000

)

(1,401,516

)

Cash received on section 16 settlement

-

650,000

Gain on forgiveness of other payable to Zurich

-

(883,757

)

Changes in operating assets and liabilities:

Accounts receivable

3,608,736

(1,879,137

)

Costs and estimated earnings in excess of billings on uncompleted contracts

63,224

10,914

Current assets held for sale

(3,853,621

)

928,403

Prepaid expenses and other current assets

93,513

(7,706

)

Other assets

(9,778

)

37,392

Other assets held for sale

(20,523

)

1,085,405

Income taxes payable

-

(2,366

)

Accounts payable and accrued expenses

(3,342,504

)

1,583,312

Current liabilities held for sale

2,200,030

742,106

Accrued severance expense

-

(550,205

)

Billings in excess of costs and estimated earnings on uncompleted contracts

11,828

(102,102

)

Net cash used in operating activities

(2,682,112

)

(870,409

)

Investing activities:

Cash received on sale of Seattle

-

1,561,000

Acquisition of property and equipment

(139,552

)

(46,912

)

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

1,186,192

1,452,712

Financing activities:

Proceeds from issuance of Series H-1 preferred stock and warrants

1,575,000

-

Borrowings under loan payable obligations

115,753

-

Repayment under loan payable obligations

(51,106

)

(4,043

)

Repayments under other payable to Zurich

(360,000

)

(290,000

)

Repayments of short term promissory notes

(4,000

)

-

Dividends paid on preferred stock

-

(146,520

)

Net cash provided by (used in) financing activities

1,275,647

(440,563

)

Effect of exchange rate changes on cash

91,510

45,550

Net (decrease) increase in cash and cash equivalents

(128,763

)

187,290

Cash and cash equivalents, beginning of the year

2,364,360

2,177,070

Cash and cash equivalents, end of the year

$

2,235,597

$

2,364,360

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

WPCS INTERNATIONAL INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

For the years ended

April 30,

2016

2015

Schedule of non-cash investing and financing activities:

Declaration on preferred dividend payable

$

4,742,768

$

2,508,518

Conversion of senior secured convertible note and related make-whole amount to Series F-1 preferred stock Series G-1 preferred stock

$

-

$

973,180

Conversion of senior secured convertible note and related make-whole amount to Series F preferred stock Series G preferred stock

$

-

$

451,141

Conversion of dividends payable related to make-whole amount to common stock

$

4,457,356

$

1,622,954

Conversion of dividends payable related to Series F-1 preferred stock

$

624,977

$

133,532

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

$

1,669,915

Conversion of Series G and G-1 preferred stock through the issuance of common stock

$

1,827,956

$

110,035

Conversion of Series H preferred stock through the issuance of common stock

$

892,738

$

-

Conversion of Series H-1 preferred stock through the issuance of common stock

$

75,000

$

-

Settlement of debt, make-whole interest and other liabilities on sale of BTX

$

-

$

1,962,000

Settlement of capitalized software and other assets on sale of BTX

$

-

$

1,883,000

Settlement of severance obligation and sale of Pride

$

-

$

970,000

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