UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of the Securities and Exchange Act of 1934
Date of Report (Date of earliest reported): August 22, 2003
WPCS INTERNATIONAL INCORPORATED
(Exact name of registrant as specified in charter)
Delaware 0-26277 98-0204758
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
140 South Village Avenue, Suite 20, Exton, Pennsylvania 19341
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (610) 903-0400
ITEM 1. ACQUISITION OR DISPOSITION OF ASSETS
Acquisition of Clayborn Contracting Group, Inc.
On August 22, 2003, WPCS International Incorporated, a Delaware corporation (the
"Company"), entered into and completed an Agreement and Plan of Merger with
Clayborn Contracting Acquisition Corp. a California corporation wholly-owned by
the Company (the "Subsidiary"), Clayborn Contracting Group, Inc., a California
corporation ("Clayborn"), David G. Gove, as trustee ("D. Gove") and Sharon Gove,
as trustee ("S. Gove" and together with D. Gove, the "Clayborn Shareholders").
Pursuant to the terms of the Agreement and Plan of Merger (the "Acquisition"),
the Company acquired all of the issued and outstanding shares of capital stock
of Clayborn from the Clayborn Shareholders in exchange for $900,000 cash
consideration and 826,446 newly issued shares of the Company's common stock (the
"Shares") with a fair value of approximately $868,000 based on the average value
of the Company's common stock a few days before and after the merger terms were
agreed to and announced. An additional $1,100,000 is payable to the Clayborn
shareholders of 50% of the post tax profits of Clayborn, payable in quarterly
distributions, which would increase the purchase price. As part of the
Acquisition, the Company's Board of Directors entered into employment contracts
with D. Gove, Charles H. Madenford, and Marilyn Engelking to serve as President,
Area Manager, and Controller, respectively, of Clayborn.
Clayborn is a diversified project services firm that operates primarily on the
west coast. Clayborn's services extend to both the public and private sector.
Clayborn holds A, B and C10 licenses with the Contractors State Licensing Board.
As a diverse services engineering company, Clayborn has designed and installed
smart highway systems and substations for state and local municipalities in
California. In addition, Clayborn has performed structured cabling, underground
and utility work. Recently, Clayborn has expanded its services to include
wireless SCADA design and deployment for water treatment facilities.
The 826,446 shares of common stock issued in the merger were not registered
under the Securities Act of 1933, as amended (the "Act") and were issued in the
reliance upon the exemption from registration provided by section 4(2) of the
Act, on the basis that the Acquisition is a transaction not involving a public
offering. All certificates evidencing the Shares bear a customary form of
investment legend and may not be sold, pledged, hypothecated or otherwise
transferred unless first registered under the Act or pursuant to an available
exemption from such registration requirements.
As part of the Acquisition, the Company caused the Subsidiary and Clayborn to be
merged pursuant to an Agreement of Merger filed with the California Secretary of
State on August 22, 2003. Clayborn survived the merger and the Company intends
to continue to hold the surviving company as a wholly owned subsidiary and to
continue its operations.
The amount of consideration paid to the Clayborn Shareholders for Clayborn was
determined through arm's-length negotiations between these parties and the
Company. Other than as disclosed herein, there are no material relationships
between the Clayborn Shareholders and the Company or any of its affiliates, any
directors or officers of the Company, or any associate of such directors or
officers.
Following the closing of the merger, the Company had 20,135,690 shares of its
common stock issued and outstanding.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of businesses acquired.
1. Audited Financial Statements of Clayborn for the years ended September
30, 2002 and September 30, 2001- Filed herewith.
2. Unaudited Financial Statements of Clayborn for the nine month period
ended June 30, 2003 and 2002- Filed herewith.
(b) Proforma Financial Information
Proforma Financial Information- Filed herewith.
(c) Exhibits.
3. Agreement and Plan of Merger by and among WPCS International
Incorporated, Clayborn Contracting Acquisition Corp., Clayborn
Contracting Group, Inc., David G. Gove and Sharon Gove made as of the
22nd day of August, 2003 (Previously filed).
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
WPCS INTERNATIONAL INCORPORATED
Date: October 28, 2003 /s/ ANDREW HIDALGO
-------------------- ---------------------------
Andrew Hidalgo
Chairman, Chief Executive Officer & Director
CLAYBORN CONTRACTING GROUP, INC.
INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Report F-2
Balance Sheets as of September 30, 2002 and 2001 F-3 to F-4
Statements of Income and Retained Earnings
September 30, 2002 and 2001 F-5
Statements of Cash Flows for the years ended
September 30, 2002 and 2001 F-6
Notes to Financial Statements F-7
F-1
To the Board of Directors
CLAYBORN CONTRACTING GROUP, INC.
Auburn, California
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying balance sheets of CLAYBORN CONTRACTING GROUP,
INC. as of September 30, 2002 and 2001, and the related statements of income and
retained earnings, cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial positions of CLAYBORN CONTRACTING GROUP,
INC. as of September 30, 2002 and 2001, and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles generally accepted in the United States of America.
/s/ Burnett + Company LLP
Rancho Cordova, California
September 15, 2003
F-2
CLAYBORN CONTRACTING GROUP, INC.
BALANCE SHEETS
September 30, 2002 and 2001
ASSETS 2002 2001
---------------- -----------------
CURRENT ASSETS
Cash and cash equivalents $ 459,580 $ 33,702
Cash held in lieu of retentions 19,170 66,209
Contract receivables 678,284 756,901
Costs and estimated earnings
in excess of billings 319,726 198,938
Prepaid expenses 48,329 27,536
Prepaid income tax 15,224 30,405
---------------- -----------------
Total current assets 1,540,313 1,113,691
EQUIPMENT,
net of accumulated depreciation of $458,242
and $331,695, for 2002 and 2001, respectively 368,918 453,905
OTHER ASSETS 55,265 37,150
---------------- -----------------
Total assets $ 1,964,496 $ 1,604,746
================ =================
The accompanying notes are an integral part of these financial statements.
F-3
LIABILITIES AND STOCKHOLDERS' EQUITY 2002 2001
---------------- ----------------
CURRENT LIABILITIES
Accounts payable $ 517,688 $ 404,997
Accrued expenses 176,036 50,431
Current maturity of long-term debt 47,735 49,890
Billings in excess of costs and
estimated earnings 8,092 34,382
Income taxes payable 13,882 0
Deferred income taxes 76,000 94,500
---------------- ----------------
Total current liabilities 839,433 634,200
LONG-TERM LIABILITIES
Long-term debt, net of current maturity 123,604 150,450
Deferred income taxes 44,000 19,500
---------------- ----------------
Total long-term liabilities 167,604 169,950
---------------- ----------------
Total liabilities 1,007,037 804,150
---------------- ----------------
STOCKHOLDERS' EQUITY
Common stock, no par value,
50,000 shares authorized,
1,000 shares issued and outstanding 100,000 100,000
Retained earnings 857,459 700,596
---------------- ----------------
Total stockholders' equity 957,459 800,596
---------------- ----------------
Total liabilities and stockholders' equity $ 1,964,496 $ 1,604,746
================ ================
The accompanying notes are an integral part of these financial statements.
F-4
CLAYBORN CONTRACTING GROUP, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
For the Year Ended September 30, 2002 and 2001
2002 2001
------------ ------------
CONTRACT REVENUE $ 6,059,117 $ 5,059,214
COST OF SALES . 4,612,703 3,917,962
------------ ------------
Gross profit from contracting 1,446,414 1,141,252
GENERAL AND ADMINISTRATIVE EXPENSES 1,178,827 888,840
------------ ------------
Income from operations 267,587 252,412
------------ ------------
OTHER INCOME (EXPENSE)
Loss on sale of assets . (3,311) (6,986)
Interest income 5,117 22,192
Interest expense (12,717) (10,416)
------------ ------------
Total other income (expenses) (10,911) 4,790
------------ ------------
Income before taxes 256,676 257,202
PROVISION FOR INCOME TAXES 99,813 105,000
------------ ------------
NET INCOME 156,863 152,202
RETAINED EARNINGS, beginning of year 700,596 548,394
------------ ------------
RETAINED EARNINGS, end of year $ 857,459 $ 700,596
============ ============
The accompanying notes are an integral part of these financial statements.
F-5
CLAYBORN CONTRACTING GROUP, INC.
STATEMENTS OF CASH FLOWS
For the Year Ended September 30, 2002 and 2001
CASH FLOWS FROM OPERATING ACTIVITIES 2002 2001
----------------- ----------------
Net income $ 156,863 $ 152,202
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 136,633 122,822
Loss on sale of assets 3,311 6,986
Appreciation in cash surrender
value of life insurance (6,115) (10,902)
(Increase) decrease in assets:
Contract receivables 66,617 (327,315)
Costs and estimated earnings in
excess of billings (120,788) (63,313)
Prepaid expenses (20,793) (5,342)
Prepaid income tax 15,181 (30,405)
Increase (decrease) in liabilities:
Accounts payable 112,691 136,254
Accrued expenses 125,605 (24,812)
Billings in excess of costs and
estimated earnings (26,290) 28,838
Income taxes payable 13,882 (22,200)
Deferred income taxes 6,000 53,000
Other assets 0 2,687
---------------- ----------------
Net cash provided by operating activities 462,797 18,500
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of equipment (41,064) (158,215)
Proceeds from sale of assets 25,075 13,000
Decrease (increase) in cash held in lieu of retentions 47,039 (66,209)
Proceeds from employee receivable 0 1,900
---------------- ----------------
Net cash provided by (used in) investing activities 31,050 (209,524)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long-term debt (67,969) (56,545)
---------------- ----------------
NET INCREASE (DECREASE) IN CASH 425,878 (247,569)
CASH, beginning of year 33,702 281,271
---------------- ----------------
CASH, end of year $ 459,580 $ 33,702
================ ================
SUPPLEMENTAL DISCLOSURES REGARDING CASH FLOWS
Cash paid for interest $ 12,717 $ 10,416
================ ================
Cash paid for income taxes $ 64,750 $ 104,605
================ ================
The accompanying notes are an integral part of these financial statements.
F-6
CLAYBORN CONTRACTING GROUP, INC.
NOTES TO THE FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Company's Activities - Clayborn Contracting Group, Inc. ("the Company") is
engaged in electrical and heavy construction primarily in the public works
sector. The work is performed under fixed price bid contracts. The Company
performs the majority of their work in Northern and Central California.
Estimates and Assumptions - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Accounting Basis for Recording Income - The Company records income on
construction contracts using the percentage-of-completion method of accounting
based on the proportion of costs incurred on the contract to total estimated
contract costs, except that material estimated losses which are apparent prior
to completion are provided for in their entirety. No profit is taken into income
until a contract has reached a stage of completion sufficient to reasonably
determine, in the opinion of management, the ultimate realizable profit. Base
percentages which range from 1% to 5%, depending on the type of contract, are
generally used to determine when a sufficient stage of completion has been
reached. Claims for additional contract compensation due the Company are not
reflected in the accounts until the year in which such claims are allowed. As
contracts extend over one or more periods, revisions in estimated costs and
profits are reflected in the accounting period in which the facts which require
the revisions become known.
Cost of sales includes all direct labor and labor costs, materials,
subcontractors, equipment costs and other costs related to contract performance,
such as indirect labor, supplies, tools and repairs. General and administrative
costs are charged to expense as incurred.
The asset, "Costs and estimated earnings in excess of billings," represents
revenues recognized in excess of amounts billed on construction contracts in
progress. The liability, "Billings in excess of costs and estimated earnings,"
represents billings in excess of revenues recognized on construction contracts
in progress.
Financial Statement Classification - In accordance with normal practice in the
construction industry, the Company includes in current assets and liabilities
amounts realizable and payable over a period in excess of one year. Consistent
with this practice, asset and liability accounts relating to construction
contracts, including related deferred income taxes, are classified as current.
The lives of the contracts entered into by the Company generally range from
three to eighteen months.
Cash and Cash Equivalents - For financial statement purposes, the Company
considers all highly liquid investments with original maturities of three months
or less to be cash equivalents.
F-7
CLAYBORN CONTRACTING GROUP, INC.
NOTES TO THE FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Concentration of Credit Risk - The Company maintains cash balances in excess of
Federal Deposit Insurance Corporation insurable limits.
The Company performed a significant amount of work for one customer, comprising
approximately 75% of outstanding contract receivables as of September 30, 2002.
The Company performed a significant amount of work for two customers, comprising
approximately 82% of outstanding contract receivables as of September 30, 2001.
Contract revenue earned from one customer was approximately 62% and 56% of total
contract revenue for the years ended September 30, 2002 and 2001, respectively.
Contract Receivables - The Company writes off contract receivables when
uncollectible and payments subsequently received on such receivables are
credited to revenue. Included in contract receivables is retainage receivable of
$107,579 and $164,551 for the years ended September 30, 2002 and 2001,
respectively, which is expected to be collected within one year.
Equipment - Equipment is recorded at cost and includes improvements that
significantly add to its productivity or extend its useful life. Costs of
maintenance and repairs are charged to expense. Upon retirement or disposal of
equipment, the costs and related depreciation are removed from the accounts, and
gain or loss, if any, is reflected in the earnings for both financial statement
and income tax reporting purposes. Depreciation is provided for using the
straight-line method. The estimated useful lives used for calculating
depreciation for equipment classifications are as follows:
Lives
-----------
Automotive equipment 5-7 Years
Construction equipment 5-7 Years
Office equipment 7-10 Years
Income Taxes - For income tax purposes, the Company reports income on the
completed contract method of accounting. Under this method, billings and costs
are accumulated during the period of construction, but profits or losses are not
recorded until completion of the contracts.
Straight-line and accelerated depreciation are used for tax reporting purposes.
Assets purchased after December 31, 1986, are subject to modified ACRS rules
under the guidelines of the Tax Reform Act of 1986 (TRA 86).
Deferred income taxes are recorded using the asset and liability method of
accounting for income taxes. Under the asset and liability method, deferred tax
assets and liabilities are recognized for the estimated future tax consequences
attributable to differences between the financial statement carrying amount of
existing assets and liabilities and their respective tax basis. Significant
differences between the financial statement amounts and the tax basis for the
Company arise from the recording of depreciation and the recognition of income
from construction contracts. Deferred tax assets and liabilities are measured
using enacted tax rates in effect for the year in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period of enactment.
F-8
CLAYBORN CONTRACTING GROUP, INC.
NOTES TO THE FINANCIAL STATEMENTS
2. CASH HELD IN LIEU OF RETENTIONS
In exchange for the early release of retentions on various contracts, escrow
accounts have been established in the amounts of $19,170 and $66,209 at
September 30, 2002 and 2001, respectively.
3. COSTS AND ESTIMATED EARNINGS ON CONSTRUCTION CONTRACTS
IN PROGRESS
Costs and estimated earnings on construction contracts in progress contrast
related billings at September 30, 2002 and 2001 as follows:
2002 2001
---------------- ----------------
Cost of sales to date $ 928,866 $ 868,308
Gross profit to date 219,809 269,333
---------------- ----------------
Earned contract revenue 1,148,675 1,137,641
Contract billings to date 837,041 973,085
---------------- ----------------
Net under billings $ 311,634 $ 164,556
================ ================
Included in the accompanying balance sheet under the following captions:
Costs and estimated earnings in excess of billings $ 319,726 $ 198,938
Billings in excess of costs and estimated earnings (8,092) (34,382)
---------------- ----------------
Net under billings $ 311,634 $ 164,556
================ ================
F-9
CLAYBORN CONTRACTING GROUP, INC.
NOTES TO THE FINANCIAL STATEMENTS
4. EQUIPMENT
Equipment consists of the following as of September 30:
2002 2001
---------------- ----------------
Automotive equipment $ 409,409 $ 397,659
Construction equipment 382,594 351,030
Office equipment 35,157 36,911
---------------- ----------------
Subtotals 827,160 785,600
Less accumulated depreciation 458,242 331,695
---------------- ----------------
Totals $ 368,918 $ 453,905
================ ================
Depreciation charged to equipment costs and general and administrative expenses
amounted to $121,789 and $14,844, respectively, for the year ended September 30,
2002, and $106,337 and $16,485 respectively, for the year ended September 30,
2001.
5. LINES OF CREDIT
The Company has an unsecured revolving line of credit with Wells Fargo Bank, due
on demand with interest at prime plus 1.00% per annum, which expired March 10,
2003 and was subsequently renewed until March 10, 2004. The line of credit
available with Wells Fargo Bank is $250,000. As of September 30, 2002 and 2001,
there was no balance due.
The Company has a second line of credit with Wells Fargo Bank to finance
equipment purchases. Upon the use of this line of credit, equipment purchases
are financed in separate term notes (Note 6). The amounts financed under this
credit facility bear interest at the bank's current fixed or variable rate in
effect when the individual equipment is financed. The line of credit available
annually is $200,000. Balances of $161,032 and $182,407 were available on the
line of credit as of September 30, 2002 and 2001, respectively. The line of
credit expired on March 5, 2003 and was subsequently renewed until March 5,
2004.
F-10
CLAYBORN CONTRACTING GROUP, INC.
NOTES TO THE FINANCIAL STATEMENTS
6. LONG-TERM DEBT
Long-term debt consists of the following:
Interest
Rate 2002 2001
---------------- -------------------- ----------------
General Motors Acceptance Corporation,
secured by automotive equipment, aggregate 6.90%
monthly principal and interest payments to
of $834, due through January 2005 8.49% $ 13,916 $ 27,853
Wells Fargo Bank, secured by equipment, 6.65%
aggregate monthly principal and interest to
payments of $4,252, due through September 2007 8.90% 141,593 151,751
Chrysler Financial Corporation, secured by
automotive equipment, monthly principal and
interest payments of $423, due November 2005 0.90% 15,830 20,736
-------------------- ----------------
Current maturity of long-term debt 47,735 49,890
-------------------- ----------------
Long-term debt, net of current maturity $ 123,604 $ 150,450
==================== ================
Aggregate maturities on long-term debt are as follows:
Year Ending September 30: 2002 2001
------------------------ -------------------- ----------------
2002 $ 0 $ 49,890
2003 47,735 45,153
2004 48,913 46,175
2005 43,415 40,477
2006 22,274 18,645
2007 9,002 0
--------------------- ----------------
$ 171,339 $ 200,340
===================== ================
F-11
CLAYBORN CONTRACTING GROUP, INC.
NOTES TO THE FINANCIAL STATEMENTS
7. PROVISION FOR INCOME TAXES
The provision for income taxes consists of the following for the year ended
September 30:
2002 2001
---------------- ----------------
Current tax expense $ 93,813 $ 52,000
Deferred tax expense 6,000 53,000
---------------- ----------------
Total provision for income taxes $ 99,813 $ 105,000
================ ================
The September 30, 2002 and 2001 income tax expense differed
from the amounts computed by applying the federal statutory
income tax rate of 34% to the pre-tax net income as a result
of the following:
2002 2001
---------------- ----------------
Federal tax at the statutory rate $ 87,300 $ 87,400
State income taxes, net of federal tax benefit 15,000 15,000
Utilization of tax credits (5,500) 0
Permanent differences 4,400 2,800
Other (1,387) (200)
---------------- ----------------
$ 99,813 $ 105,000
================ ================
The components of the temporary differences that give rise to
significant portions of the deferred tax liabilities are as follows:
2002 2001
---------------- ----------------
Contract revenue recognition $ 79,500 $ 98,300
Depreciation 44,000 19,500
Other (3,500) (3,800)
---------------- ----------------
Net deferred tax liabilities $ 120,000 $ 114,000
================ ================
F-12
CLAYBORN CONTRACTING GROUP, INC.
NOTES TO THE FINANCIAL STATEMENTS
8. EMPLOYEE PROFIT SHARING PLAN
The Company has an employee profit sharing plan under Section 401(k) covering
eligible employees. The Company matches 25% of employee deferrals up to 3% of
wages. The Company's contribution for the year ended September 30, 2002 and 2001
amounted to $7,256 and $7,814, respectively, and is included in employee
benefits in general and administrative expenses.
9. LITIGATION
From time to time, the Company may become involved in various lawsuits and legal
proceedings, which arise in the ordinary course of business. However, litigation
is subject to inherent uncertainties, and an adverse result in these or other
matters may arise from time to time that may harm the Company. The Company's
management is currently not aware of any such legal proceedings or claims that
they believe will have, individually or in the aggregate, a material adverse
affect on the Company's financial condition or operating results.
10. SUPPLEMENTAL DISCLOSURES REGARDING CASH FLOWS
Non-cash investing and financing activities for the years ended September 30,
2002 and 2001 consisted of the acquisition of equipment through long-term debt
totaling $38,968 and $170,805, respectively.
11. SUBSEQUENT EVENT
In August 2003, the Board of Directors of the Company approved an Agreement and
Plan of Merger with WPCS International Incorporated ("WPCS"). The merger closed
effective August 22, 2003. The change in ownership resulting from the merger
constitutes an event of default under the line of credit agreement with the Bank
referred to in Note 5. WPCS acquired all of the issued and outstanding shares of
the Company in exchange for $900,000 cash consideration and 826,446 newly issued
shares of WPCS common stock. An additional $1,100,000 is payable by delivery to
the Company shareholders of 50% of the post tax profits of the Company, payable
in quarterly distributions.
F-13
CLAYBORN CONTRACTING GROUP, INC.
INDEX TO FINANCIAL STATEMENTS
Condensed Balance Sheets as of June 30, 2003 (unaudited) and September 30, 2002 F-15 to F-16
Condensed Statements of Income for the nine months ended
June 30, 2003 and 2002 F-17
Condensed Statements of Cash Flows for the nine months ended
June 30, 2003 and 2002 F-18
Notes to Condensed Financial Statements F-19
F-14
CLAYBORN CONTRACTING GROUP, INC.
CONDENSED BALANCE SHEETS
(unaudited)
June 30, September 30,
ASSETS 2003 2002
----------------- -----------------
CURRENT ASSETS
Cash and cash equivalents $ 298,069 $ 459,580
Cash held in lieu of retentions 45,760 19,170
Contract receivables 569,462 678,284
Costs and estimated earnings
in excess of billings 128,807 319,726
Prepaid expenses 9,787 48,329
Prepaid income tax 3,224 15,224
----------------- -----------------
Total current assets 1,055,109 1,540,313
EQUIPMENT, NET 365,940 368,918
OTHER ASSETS 61,515 55,265
----------------- -----------------
Total assets $ 1,482,564 $ 1,964,496
================= =================
The accompanying notes are an integral part of these financial statements.
F-15
CLAYBORN CONTRACTING GROUP, INC.
CONDENSED BALANCE SHEETS (continued)
(unaudited)
June 30, September 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 2003 2002
----------------- -----------------
CURRENT LIABILITIES
Accounts payable $ 136,405 $ 517,688
Accrued expenses 13,149 176,036
Current maturity of long-term debt 55,287 47,735
Billings in excess of costs and
estimated earnings 47,509 8,092
Income taxes payable - 13,882
Deferred income taxes 120,000 76,000
----------------- -----------------
Total current liabilities 372,350 839,433
LONG-TERM LIABILITIES
Long-term debt, net of current maturity 118,141 123,604
Deferred income taxes - 44,000
----------------- -----------------
Total long-term liabilities 118,141 167,604
----------------- -----------------
Total liabilities 490,491 1,007,037
----------------- -----------------
STOCKHOLDERS' EQUITY
Common stock, no par value,
50,000 shares authorized,
1,000 shares issued and outstanding 100,000 100,000
Retained earnings 892,073 857,459
----------------- -----------------
Total stockholders' equity 992,073 957,459
----------------- -----------------
Total liabilities and stockholders' equity $ 1,482,564 $ 1,964,496
================= =================
The accompanying notes are an integral part of these financial statements.
F-16
CLAYBORN CONTRACTING GROUP, INC.
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
Nine months ended
June 30,
2003 2002
---------------- -----------------
CONTRACT REVENUE $ 3,472,102 $ 3,941,780
COST OF SALES 2,753,577 2,895,320
---------------- ----------------
Gross profit from contracting 718,525 1,046,460
GENERAL AND ADMINISTRATIVE EXPENSES 619,580 759,510
--------------- ----------------
Income from operations 98,945 286,950
---------------- ----------------
OTHER INCOME (EXPENSE)
Loss on sale of assets (1,450) -
Interest income 4,282 6,214
Interest expense (8,063) (9,942)
---------------- ----------------
Total other income (expense) (5,231) (3,728)
----------------- -----------------
Income before taxes 93,714 283,222
PROVISION FOR INCOME TAXES 59,100 19,261
---------------- -----------------
NET INCOME $ 34,614 $ 263,961
================ =================
The accompanying notes are an integral part of these financial statements.
F-17
CLAYBORN CONTRACTING GROUP, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine months ended
June 30,
CASH FLOWS FROM OPERATING ACTIVITIES 2003 2002
--------------- ---------------
Net income $ 34,614 $ 263,961
Adjustments to reconcile net income to net cash (used in) provided by operating
activities:
Depreciation 98,555 106,284
Appreciation in cash surrender
value of life insurance (11,185) 0
(Increase) decrease in assets:
Contract receivables 108,822 (3,445)
Costs and estimated earnings in
excess of billings 190,919 (123,656)
Prepaid expenses 38,542 23,323
Prepaid income tax 12,000 (20,989)
Increase (decrease) in liabilities:
Accounts payable (381,283) 153,912
Accrued expenses (162,887) (41,971)
Billings in excess of costs and
estimated earnings 39,417 36,730
Income taxes payable (13,882) (5,300)
Other assets 4,934 0
--------------- ---------------
Net cash (used in) provided by operating activities (41,434) 388,849
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of equipment (95,576) (9,874)
(Increase) decrease in cash held in lieu of retentions (26,590) 37,049
--------------- ---------------
Net cash (used in) provided by investing activities (122,166) 27,175
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt 39,463 0
Principal payments on long-term debt (37,374) (38,019)
--------------- ---------------
Net cash provided by (used in) financing activities 2,089 (38,019)
--------------- ---------------
NET (DECREASE) INCREASE IN CASH (161,511) 378,005
CASH, beginning of year 459,580 33,702
--------------- ---------------
CASH, end of period $ 298,069 $ 411,707
=============== ===============
The accompanying notes are an integral part of these financial statements.
F-18
CLAYBORN CONTRACTING GROUP, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - The accompanying unaudited condensed interim financial
statements have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC") and do not include all of the
information and footnote disclosures required by accounting principles generally
accepted in the United States of America. Accordingly, the unaudited condensed
financial statements should be read in conjunction with the audited financial
statements and notes thereto for the fiscal year ended September 30, 2002.
Operating results for the nine month period ended June 30, 2003 are not
necessarily indicative of the results that may be expected for the full year.
Company's Activities - Clayborn Contracting Group, Inc. ("the Company") is
engaged in electrical and heavy construction primarily in the public works
sector. The work is performed under fixed price bid contracts. The Company
performs the majority of their work in Northern and Central California.
Estimates and Assumptions - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Accounting Basis for Recording Income - The Company records income on
construction contracts using the percentage-of-completion method of accounting
based on the proportion of costs incurred on the contract to total estimated
contract costs, except that material estimated losses which are apparent prior
to completion are provided for in their entirety. No profit is taken into income
until a contract has reached a stage of completion sufficient to reasonably
determine, in the opinion of management, the ultimate realizable profit. Base
percentages which range from 1% to 5%, depending on the type of contract, are
generally used to determine when a sufficient stage of completion has been
reached. Claims for additional contract compensation due the Company are not
reflected in the accounts until the year in which such claims are allowed. As
contracts extend over one or more periods, revisions in estimated costs and
profits are reflected in the accounting period in which the facts which require
the revisions become known.
Cost of sales includes all direct labor and labor costs, materials,
subcontractors, equipment costs and other costs related to contract performance,
such as indirect labor, supplies, tools and repairs. General and administrative
costs are charged to expense as incurred.
The asset, "Costs and estimated earnings in excess of billings," represents
revenues recognized in excess of amounts billed on construction contracts in
progress. The liability, "Billings in excess of costs and estimated earnings,"
represents billings in excess of revenues recognized on construction contracts
in progress.
F-19
CLAYBORN CONTRACTING GROUP, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
2. COSTS AND ESTIMATED EARNINGS ON CONSTRUCTION CONTRACTS
IN PROGRESS
Costs and estimated earnings on construction contracts in progress contrast
related billings at June 30, 2003 and September 30, 2002 as follows:
June 30, September 30,
2003 2002
(unaudited)
---------------- ----------------
Cost of sales to date $ 1,959,467 $ 928,866
Gross profit to date 708,496 219,809
---------------- ----------------
Earned contract revenue 2,667,963 1,148,675
Contract billings to date 2,586,665 837,041
---------------- ----------------
Net under billings $ 81,298 $ 311,634
================ ================
Included in the accompanying balance sheet under the following captions:
Costs and estimated earnings in excess of billings $ 128,807 $ 319,726
Billings in excess of costs and estimated earnings (47,509) (8,092)
---------------- ----------------
Net under billings $ 81,298 $ 311,634
================ ================
F-20
CLAYBORN CONTRACTING GROUP, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
3. LONG-TERM DEBT
Long-term debt consists of the following:
June 30, September 30,
Interest 2003 2002
Rate (unaudited)
--------------- --------------- ---------------
General Motors Acceptance Corporation,
secured by automotive equipment, aggregate 6.50%
monthly principal and interest payments to
of $946, due through May 2008 8.49% $ 23,072 $ 13,916
Wells Fargo Bank, secured by equipment, 6.65%
aggregate monthly principal and interest to
payments of $4,088, due through February 2008 8.90% 87,940 141,593
Chrysler Financial Corporation, secured by
automotive equipment, monthly principal and
interest payments of $423, due November 2005 0.90% 7,127 15,830
--------------- ---------------
Current maturity of long-term debt 55,287 47,735
--------------- ---------------
Long-term debt, net of current maturity $ 118,141 $ 123,604
--------------- ---------------
Aggregate maturities on long-term debt are as follows:
June 30, September 30,
2003 2002
(unaudited)
--------------- ---------------
2003 $ 0 $ 47,735
2004 55,287 $ 48,913
2005 65,040 43,415
2006 30,001 22,274
2007 17,263 9,002
2008 5,837 0
--------------- ---------------
$ 173,428 $ 171,339
=============== ===============
4. LITIGATION
From time to time, the Company may become involved in various lawsuits and legal
proceedings, which arise in the ordinary course of business. However, litigation
is subject to inherent uncertainties, and an adverse result in these or other
matters may arise from time to time that may harm the Company. The Company's
management is currently not aware of any such legal proceedings or claims that
they believe will have, individually or in the aggregate, a material adverse
affect on the Company's financial condition or operating results.
F-21
5. SUBSEQUENT EVENT
In August 2003, the Board of Directors of the Company approved an Agreement and
Plan of Merger with WPCS International Incorporated ("WPCS"). The merger closed
effective August 22, 2003. The change in ownership resulting from the merger
constitutes an event of default under the line of credit agreement with the Bank
referred to in Note 5. WPCS acquired all of the issued and outstanding shares of
the Company in exchange for $900,000 cash consideration and 826,446 newly issued
shares of WPCS common stock. An additional $1,100,000 is payable by delivery to
the Company shareholders of 50% of the post tax profits of the Company, payable
in quarterly distributions.
F-22
WPCS INTERNATIONAL INCORPORATED
INDEX TO UNAUDITED CONDENSED CONSOLIDATED
PRO FORMA FINANCIAL INFORMATION
INTRODUCTION TO PRO FORMA FINANCIAL INFORMATION F-24 to F-25
PRO FORMA UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET-
"WPCS" AT JULY 31, 2003 AND "CLAYBORN" AT JUNE 30, 2003 F-26 to F-27
PRO FORMA UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS -"WPCS" FOR TWELVE MONTHS ENDED APRIL 30, 2003
AND "CLAYBORN " FOR TWELVE MONTHS ENDED MARCH 31, 2003 F-28
NOTES TO PRO FORMA UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS FOR TWELVE MONTHS ENDED APRIL 30, 2003 F-29 to F-30
PRO FORMA UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS -"WPCS" FOR THREE MONTHS ENDED JULY 31, 2003
AND "CLAYBORN " FOR THREE MONTHS ENDED JUNE 30, 2003 F-31
NOTES TO PRO FORMA UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS FOR THREE MONTHS ENDED JULY 31, 2003 F-32
F-23
WPCS INTERNATIONAL INCORPORATED
INTRODUCTION TO PRO FORMA FINANCIAL INFORMATION
We are providing the following unaudited pro forma condensed combined financial
information of WPCS International ("WPCS") and its acquisition of Clayborn
Contracting Group, Inc. ("Clayborn") to present the results of operations and
financial position of WPCS had the merger been completed at an earlier date.
ACQUISITION OF CLAYBORN CONTRACTING GROUP, INC.
On August 22, 2003, WPCS International Incorporated, a Delaware corporation (the
"Company"), entered into and completed an Agreement and Plan of Merger with
Clayborn Contracting Acquisition Corp. a California corporation wholly-owned by
the Company (the "Subsidiary"), Clayborn Contracting Group, Inc., a California
corporation ("Clayborn"), David G. Gove, as trustee ("D. Gove") and Sharon Gove,
as trustee ("S. Gove" and together with D. Gove, the "Clayborn Shareholders").
Pursuant to the terms of the Agreement and Plan of Merger (the "Acquisition"),
the Company acquired all of the issued and outstanding shares of capital stock
of Clayborn from the Clayborn Shareholders in exchange for $900,000 cash
consideration and of 826,446 newly issued shares of the Company's common stock
with a fair value of approximately $868,000 based on the average value of the
Company's common stock as of a few days before and after the merger terms were
agreed to and announced. An additional $1,100,000 is payable by the delivery to
the Clayborn shareholders of 50% of the post tax profits of Clayborn, payable in
quarterly distributions, which would increase the purchase price. Based on the
June 30, 2003 historical net assets acquired from Clayborn of approximately
$992,000, the Company preliminarily expects to recognize goodwill of
approximately $816,000, including transaction costs. Upon completion of a formal
purchase price allocation there may be a decrease in the amount assigned to
goodwill and a corresponding increase in tangible or intangible assets.
The unaudited pro forma condensed consolidated balance sheet of the Company
gives effect to the merger as if it had occurred on July 31, 2003 and the
unaudited pro forma condensed consolidated statement of operations of the
Company gives effect to the merger as if it had occurred on May 1, 2002 for the
twelve months ended April 30, 2003, and on May 1, 2003, for the three months
ended July 31, 2003, respectively.
The acquisition of Clayborn was accounted for under the purchase method of
accounting in accordance with the Statement of Financial Accounting Standards
No. 141, Business Combinations ("SFAS 141"). Under the purchase method of
accounting, assets acquired and liabilities assumed are recorded at their
estimated fair values. Goodwill is created to the extent that the merger
consideration, including certain acquisition and closing costs, exceeds the fair
value of the net identifiable assets acquired at the date of the merger. Based
on the preliminary information currently available, the acquisition resulted in
approximately $816,000 of goodwill.
F-24
This unaudited pro forma condensed consolidated financial information is based
on the estimates and assumptions set forth herein and in the notes thereto. The
unaudited pro forma results for the twelve months ended April 30, 2003 have been
prepared utilizing (a) the audited financial statements of WPCS included in Form
10-KSB for the fiscal year ended April 30, 2003; (b) the unaudited financial
statements of Clayborn for the twelve months ended March 31, 2003; (c) unaudited
financial statements of Invisinet, Inc. for the six months ended September 30,
2002; and (d) the unaudited financial statements of Walker Comm, Inc. for the
eight months ended December 31, 2002.
The unaudited pro forma results for the three months ended July 31, 2003 have
been prepared utilizing (a) the unaudited interim financial statements of WPCS
included in Form 10-QSB for the three months ended July 31, 2003; and (b) the
unaudited financial statements of Clayborn for the three months ended June 30,
2003.
The following unaudited pro forma financial information is presented for
informational purposes only and is not necessarily indicative of (i) the results
of operations of the Company that actually would have occurred had the
"Agreement and Plan of Merger" been consummated on the dates indicated or (ii)
the results of operations of the Company that may occur or be attained in the
future. The following information is qualified in its entirety by reference to
and should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations", WPCS's audited consolidated
financial statements, including the notes thereto contained in its Annual Report
on Form 10-KSB for the year ended April 30, 2003 incorporated herein by
reference, Clayborn's audited financial statements, including the notes thereto,
for the years ended September 30, 2002 and 2001 and other historical financial
information appearing elsewhere herein.
F-25
WPCS INTERNATIONAL INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED PRO FORMA UNAUDITED BALANCE SHEET
JULY 31, JUNE 30, PRO FORMA
2003 2003
WPCS CLAYBORN ADJUSTMENTS CONSOLIDATED
--------------- --------------- --------------- ---------------
ASSETS
Current Assets
Cash $ 929,084 $ 298,069 (a) ($900,000) $ 327,153
Accounts receivable, net 3,070,588 615,222 - 3,685,810
Costs in excess of billings 946,658 128,807 - 1,075,465
Inventory 90,352 - - 90,352
Prepaid expenses 196,473 13,011 - 209,484
Deferred tax assets 70,000 - - 70,000
--------------- --------------- --------------- ---------------
Total current assets 5,303,155 1,055,109 (900,000) 5,458,264
Property and Equipment, net 612,470 365,940 - 978,410
Customer lists, net 472,000 - - 472,000
Goodwill 5,538,882 - (b) 815,695 6,354,577
Other Assets 22,771 61,515 - 84,286
--------------- --------------- --------------- ---------------
$ 11,949,278 $ 1,482,564 $ (84,305) $ 13,347,537
=============== =============== =============== ===============
F-26
WPCS INTERNATIONAL INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED PRO FORMA UNAUDITED BALANCE SHEET
JULY 31, JUNE 30, PRO FORMA
2003 2003
WPCS CLAYBORN ADJUSTMENTS CONSOLIDATED
--------------- --------------- --------------- ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses $ 1,145,131 $ 149,554 (b)$ 40,000 $ 1,334,685
Billings in excess of cost 1,407,155 47,509 - 1,454,664
Current maturities-capital lease obligation 2,294 - - 2,294
Current maturities-equipment loans payable 10,327 55,287 - 65,614
Notes payable, officer 100,000 - - 100,000
Due to shareholders 208,207 - - 208,207
Income taxes payable 143,000 - - 143,000
Deferred taxes- current portion 129,000 120,000 - 249,000
--------------- --------------- --------------- ---------------
Total current liabilities 3,145,114 372,350 40,000 3,557,464
--------------- --------------- --------------- ---------------
Capital lease obligation-net of current
maturities 4,056 - - 4,056
Long-term debt, net of current maturities - 118,141 - 118,141
Deferred taxes, net of current portion 434,000 - - 434,000
--------------- --------------- --------------- ---------------
Total liabilities 3,583,170 490,491 40,000 4,113,661
--------------- --------------- --------------- ---------------
Stockholders' equity
Common stock 1,486 100,000 (d) 83 1,569
(c) (100,000)
Additional paid-in capital 9,030,426 - (d) 867,685 9,898,111
(Accumulated deficit)/retained earnings (655,804) 892,073 (c) (892,073) (655,804)
--------------- --------------- --------------- ---------------
Total stockholders equity 8,366,108 992,073 (124,305) 9,233,876
--------------- --------------- --------------- ---------------
$ 11,949,278 $ 1,482,564 $ (84,305) $ 13,347,537
=============== =============== =============== ===============
F-27
WPCS International Incorporated and Subsidiaries
Condensed Consolidated Pro Forma Unaudited Statement of Operations for the Year Ended April 30, 2003
FOR THE FOR THE SIX FOR THE EIGHT PRO FORMA FOR THE TWELVE PRO FORMA
YEAR ENDED MONTHS ENDED MONTHS ENDED CONSOLIDATED MONTHS ENDED CONSOLIDATED
APRIL 30, SEPTEMBER 30, DECEMBER 31, before MARCH 31, after
2003 2002 2002 CLAYBORN 2003 CLAYBORN
WPCS INVISINET WALKER ADJUSTMENTS ACQUISITION CLAYBORN ACQUISITION
------------- ----------- ------------ ----------- ------------- ------------ --------------
Net sales $ 5,422,858 $ 656,295 $4,599,372 $ - $ 10,678,525 $ 5,976,308 $ 16,654,833
Cost of sales 3,768,495 521,630 4,093,286 - 8,383,411 4,614,228 12,997,639
------------- ----------- ------------ ----------- ------------- ------------ --------------
Gross profit 1,654,363 134,665 506,086 - 2,295,114 1,362,080 3,657,194
------------- ----------- ------------ ----------- ------------- ------------ --------------
Operating expenses
Selling expenses 27,741 - 29,786 - 57,527 - 57,527
General and administrative 1,833,086 172,516 1,288,532 - 3,294,134 1,044,303 4,338,437
Provision for doubtful
accounts 38,779 6,000 (14,393) - 30,386 - 30,386
Depreciation and amortization 116,501 3,366 134,353 (a) 106,949 361,169 16,109 377,278
------------- ----------- ------------ ----------- ------------- ------------ --------------
Total operating expenses 2,016,107 181,882 1,438,278 106,949 3,743,216 1,060,412 4,803,628
------------- ----------- ------------ ----------- ------------- ------------ --------------
Income (loss) from operations (361,744) (47,217) (932,192) (106,949) (1,448,102) 301,668 (1,146,434)
Other income (expense)
Interest income - - 2,435 - 2,435 - 2,435
Interest expense - (297) - - (297) (11,982) (12,279)
------------- ----------- ------------ ----------- ------------- ------------ --------------
Total other income
(expense) - (297) 2,435 - 2,138 (11,982) (9,844)
------------- ----------- ------------ ----------- ------------- ------------ --------------
Income (loss) before
provision for income
taxes (361,744) (47,514) (929,757) (106,949) (1,445,964) 289,686 (1,156,278)
Provision for income taxes (19,550) - 60,246 - 40,696 (135,152) (94,456)
------------- ----------- ------------ ----------- ------------- ------------ --------------
Net Income (loss) $ (381,294) $ (47,514) $ (869,511) $ (106,949) $ (1,405,268) $ 154,534 $ (1,250,734)
Imputed dividends accreted
on Convertible
Seried B Preferred Stock (173,000) - - - (173,000) - (173,000)
------------- ----------- ------------ ----------- ------------- ------------ --------------
Net loss attributable to
common
Shareholders $ (554,294) $ (47,514) $ (869,511) $ (106,949) $ (1,578,268) $ 154,534 $ (1,423,734)
============= ============ ============ =========== ============= ============ =============
Basic net loss per common
share $ (0.05) $ (0.13) $ (0.11)
============= ============= =============
Basic weighted average number
of common shares
outstanding 10,376,685 12,571,474 13,397,920
------------- ------------- -------------
F-28
WPCS INTERNATIONAL INCORPORATED and SUBSIDIARIES
NOTES TO PRO FORMA UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS for the year ended April 30, 2003
NOTE 1. WPCS International Incorporated ("WPCS") is a publicly held
corporation whose newly formed subsidiaries completed the following
transactions: (a) on November 13, 2002, merged with Invisinet, Inc.
("Invisinet") (b) on December 30, 2002, merged with Walker Comm, Inc,
("Walker") and (c) on August 22, 2003, merged with Clayborn
Contracting Group, Inc. ("Clayborn"). For accounting purposes, each of
these transactions has been treated as an acquisition with the net
assets of each acquired company being stated at fair value in
accordance with the purchase method of accounting.
NOTE 2. The unaudited pro forma consolidated balance sheet at July 31, 2003
presented herein has been prepared as if the merger of WPCS and
Clayborn had been consummated on May 1, 2003. Pro forma balance sheet
adjustments have been made for the following:
(a) To record the cash consideration of $900,000 paid to the
shareholders of Clayborn at the closing of the acquisition.
(b) To reflect the excess of acquisition cost over the estimated fair
value of the net assets acquired (goodwill). The allocation of
the purchase price is based on financial information of Clayborn
as of June 30, 2003. There might be further adjustments to the
purchase price allocation upon finalization of financial
information as of the date of the merger. However, we do not
believe that the final purchase price allocation will have a
material impact on our pro forma results of operations or
financial position. The purchase price and purchase price
allocation are summarized as follows:
F-29
Purchase price paid as:
Cash consideration $ 900,000
Common stock issued 867,768
Transaction costs 40,000
-----------------
Total purchase price consideration 1,807,768
Allocated to:
Historical net book value of Clayborn at June 30,
2003 $ 992,073
-----------------
Cost in excess of net assets acquired $ 815,695
=================
(c) To reflect the elimination of the shareholders' equity accounts
of Clayborn of ($992,073) and the issuance of WPCS common stock.
To effect the merger, WPCS issued 826,446 shares of WPCS common
stock with a fair value of approximately $868,000, based upon the
average value of WPCS common stock a few days before and after
the merger terms were agreed to and announced.
(d) To reflect the issuance of 826,446 shares of WPCS common stock to
effect the merger as if these shares were outstanding at the
beginning of the periods presented.
NOTE 3. The unaudited pro forma condensed consolidated statements of operations
for the twelve months ended April 30, 2003 presented herein has been prepared as
if the merger of WPCS and Clayborn had been consummated as of May 1, 2002.
Likewise, the pro forma condensed consolidated statement of operations for the
twelve months ended April 30, 2003 include the unaudited statements of
operations of Invisinet for the six months ended September 30, 2002, and Walker
for the eight months ended December 31, 2002, as if the merger of these
companies had been consummated as of May 1, 2002. Pro forma statement of
operations adjustments for the twelve months ended April 30, 2003 have been made
for the following.
(a) To record a full year of depreciation and amortization for the
fair value of property and equipment and customer lists acquired
related to the Invisinet and Walker acquisitions, as if the
merger of these companies had been consummated as of May 1, 2002.
Accordingly, addition depreciation on property and equipment of
$39,949 and amortization of $67,000, totaling $106,949, is
included as a pro forma adjustment.
F-30
WPCS INTERNATIONAL INCORPORATED and SUBSIDIARIES
NOTES TO PRO FORMA UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS for the Three Months ended July 31, 2003
WPCS INTERNATIONAL INC AND SUBSIDIARIES
PROFORMA STATEMENT OF EARNINGS
FOR THE THREE FOR THE THREE PRO FORMA
MONTHS ENDED MONTHS ENDED CONSOLIDATED
JULY 31, JUNE 30, FOR THE THREE
2003 2003 MONTHS ENDED
WPCS CLAYBORN JULY 31, 2003
--------------- --------------- ---------------
Net sales $ 3,096,483 $ 1,438,162 $ 4,534,645
Cost of sales 2,029,246 1,086,598 3,115,844
--------------- --------------- ---------------
Gross profit 1,067,237 351,564 1,418,801
--------------- --------------- ---------------
Operating expenses
Selling expenses 16,236 - 16,236
General and administrative 1,069,063 194,414 1,263,477
Depreciation and amortization 63,682 4,344 68,026
--------------- --------------- ---------------
Total operating expenses 1,148,981 198,758 1,347,739
--------------- --------------- ---------------
Income (loss) from operations (81,744) 152,806 71,062
Other income (expense)
Interest income - 1,310 -
Interest expense - (3,005) (3,005)
--------------- --------------- ---------------
Total other income (expense) - (1,695) (3,005)
--------------- --------------- ---------------
Income (loss) before
provision for income taxes (81,744) 151,111 68,057
Provision for income taxes (41,000) (23,700) (64,700)
--------------- --------------- ---------------
Net Income (loss) $ (122,744) $ 127,411 $ 3,357
=============== =============== ===============
Basic net income (loss) per common share $ (0.01) $ 0.00
=============== ===============
Basic weighted average number of
common shares outstanding 13,252,755 14,079,201
=============== ===============
F-31
WPCS INTERNATIONAL INCORPORATED and SUBSIDIARIES
NOTES TO PRO FORMA UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS for the Three Months ended July 31, 2003
NOTE 1. The statement of operations of WPCS was derived from its interim
unaudited financial statements on Form 10Q-SB for the th
ree months
ended July 31, 2003.
The statement of operations of Clayborn was derived from its interim
unaudited financial statements for the three months ended June 30,
2003.
F-32