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): April 2, 2004
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 Heinz Corporation
On April 2, 2004, WPCS International Incorporated, a Delaware corporation (the
"Company"), entered into and completed an Agreement and Plan of Merger with
Heinz Acquisition Corp., a Missouri corporation wholly-owned by the Company (the
"Subsidiary"), Heinz Corporation, a Missouri corporation ("Heinz") and James
Heinz ( "J. Heinz"). 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 Heinz from J. Heinz for $1,000,000 in cash and
Company common stock as follows: (1) $700,000 of the Company's common stock,
based on the closing price of the Company's common stock on March 30, 2004, for
an aggregate of 714,286 newly issued shares of the Company's common stock (the
"Shares"); and (2) $300,000 total cash consideration, of which $100,000 was paid
at closing and $200,000 was given in a promissory note. As part of the
Acquisition, the Company's Board of Directors entered into employment contracts
with J. Heinz, Richard Fann, and Michael Caponi to serve as President, Vice
President and Chief Technology Officer, and Senior RF Engineer, respectively, of
Heinz.
Heinz Corporation is a St. Louis, Missouri based provider of in-building
wireless infrastructure services for both cellular and WiFi applications,
including consulting, integration and installation services for wireless
infrastructure. In addition, Heinz has performed fixed wireless services,
structured cabling, and cellular base station equipment installation and
testing. The acquisition of Heinz gives the Company additional project
engineering expertise for wireless infrastructure services, broadens its
customer base, and expands its geographical presence in the Midwest.
The 714,286 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 Heinz to be
merged pursuant to Articles of Merger filed with the Missouri Secretary of State
on April 7, 2004. Heinz 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 J. Heinz for Heinz was determined through
arm's-length negotiations between these parties and the Company. Other than as
disclosed herein, there are no material relationships between J. Heinz 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 20,849,976 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 Heinz for the years ended December 31,
2002 and December 31, 2003 - Filed Herewith.
(b) Proforma Financial Information
Proforma Financial Information - Filed Herewith.
(c) Exhibits.
2. Agreement and Plan of Merger by and among WPCS International
Incorporated, Heinz Acquisition Corp., Heinz Corporation and James
Heinz made as of the 2nd day of April, 2004 (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: June 4, 2004 /s/ ANDREW HIDALGO
-------------------
Andrew Hidalgo, Chairman, Chief
Executive Officer and Director
HEINZ CORPORATION
INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Report F-2
Balance Sheets as of December 31, 2003 and 2002 F-3 to F-4
Statements of Income for the years ended
December 31, 2003 and 2002 F-5
Statements of Retained Earnings for the years ended
December 31, 2003 and 2002 F-6
Statements of Cash Flows for the years ended
December 31, 2003 and 2002 F-7
Notes to Financial Statements F-8 to F-12
Pro Forma Financial Statements F-13 to F-20
F-1
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholder of Heinz Corporation
I have audited the accompanying balance sheets of Heinz Corporation, a Missouri
Corporation, as of December 31, 2003 and 2002, and the related statements of
income, retained earnings, and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. My
responsibility is to express an opinion on these financial statements based on
my audit.
I conducted my audit in accordance with auditing standards generally accepted in
the United States of America. Those standards require that I plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. And audit includes, 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. I believe that my audit provides a reasonable basis for my
opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Heinz Corporation as of December
31, 2003 and 2002, and the results of its operations and its cash flow for the
years then ended in conformity with generally accepted accounting principles.
/s/ Michael N. Fitzgerald
Fenton, Missouri
March 5, 2004
F-2
HEINZ CORPORATION
BALANCE SHEET
DECEMBER 31, 2003 and 2002
ASSETS
2003 2002
---- ----
Current Assets
Cash and cash equivalents $ 30,308 $ 167,187
Contract receivable, net of allowance
for doubtful accounts of $0 for 2003 and
2002 395,159 1,079,593
Billings below cost and estimated
earnings on uncompleted
contracts 57,962 269,340
Prepaid assets 14,353 -
------------- --------------
497,782 1,516,120
Equipment and vehicles at cost
Equipment and vehicles 290,246 290,246
Accumulated depreciation (261,276) (237,488)
------------- ---------------
28,970 52,758
Other Assets
Deposits 18,342 14,515
Life insurance - CSV 42,970 -
------------- --------------
61,312 14,515
------------- --------------
TOTAL ASSETS $ 588,064 $1,583,393
============= ==============
See accompanying notes.
F-3
HEINZ CORPORATION
BALANCE SHEET
DECEMBER 31, 2003 and 2002
LIABILITIES AND STOCKHOLDERS EQUITY
2003 2002
----- ----
Current Liabilities
Accounts payable $ 466,553 $ 829,453
Current portion long term debt 92,114 203,049
Billings in excess of cost and
estimated earnings on
uncompleted contracts 56,638 20,516
------------ ------------
615,305 1,053,018
Long Term Debt 3,677 21,133
Stockholders Equity
Common stock - $1 par value,
30,000 shares authorized
2,500 shares issued and out-
standing, including 1,500 shares held
as treasury stock 2,500 2,500
Capital in excess of par 99,500 99,500
Retained earnings 1,115,598 1,655,758
Treasury stock (1,248,516) (1,248,516)
----------- ----------
(30,918) 509,242
TOTAL LIABILITIES AND
----------- ----------
STOCKHOLDERS EQUITY $ 588,064 $1,583,393
=========== ==========
See accompanying notes.
F-4
HEINZ CORPORATION
STATEMENT OF INCOME
YEARS ENDED DECEMBER 31, 2003 and 2002
2003 2002
---- ----
Contract revenues - net of allowances $4,152,922 $6,940,260
Contract costs - net of allowances 3,954,653 6,245,480
-------------- ------------
Gross profit 198,269 694,780
General & administrative expenses 766,309 1,165,338
Depreciation 23,788 38,660
Interest expense 13,289 30,791
------------- ------------
803,386 1,234,789
Other income 67,456 1,165
------------- ------------
Net income $ (537,661) $ (538,844)
============== =============
See accompanying notes.
F-5
HEINZ CORPORATION
STATEMENT OF RETAINED EARNINGS
YEARS ENDED DECEMBER 31, 2003 and 2002
2003 2002
---- ----
Retained earnings
- beginning of year $1,655,758 $2,564,602
Stockholder distribution (2,499) (370,000)
Net income (537,661) (538,844)
Retained earning
----------------- -----------------
- end of year $1,115,598 $1,655,758
================= =================
See accompanying notes.
F-6
HEINZ CORPORATION
STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2003 and 2002
2003 2002
---- ----
Cash Flows from Operating Activities
Net income/(loss) $ (537,661) $(538,844)
Adjustment to reconcile net
income to net cash provided
by operating activities
Depreciation 23,788 38,660
(Increase)/ decrease in
Contract receivable 684,434 2,013,475
Prepaid assets (14,353) -
Billings below cost and
estimated earnings 211,378 (58,412)
Deposits (3,827) (5,000)
Cash surrender value (42,970) -
Increase/(decrease) in
Accounts payable (362,900) (213,590)
Profit sharing payable - (28,109)
Billing over cost and
estimated earnings 36,122 (303,869)
---------------- ----------------
(5,989) 904,311
Cash Flow from Investing Activities
Acquisition of equipment - (18,966)
Disposition of equipment - -
---------------- ----------------
- (18,966)
Cash Flow from Financing Activities
Distribution to stockholders (2,499) (370,000)
New borrowings - -
Debt reduction (128,391) (446,115)
---------------- ----------------
(130,890) (816,115)
---------------- ----------------
Net Change in Cash (136,879) $ 69,230
================ ================
Cash and cash equivalents
Beginning of year $ 167,187 $ 97,957
End of year $ 30,308 $ 167,187
================ ================
Supplemental information
Interest paid $ 13,289 $ 30,791
Income taxes paid $ 0 $ 0
See accompanying notes.
F-7
HEINZ CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2003 and 2002
NOTE A. SIGNIFICANT ACCOUNTING POLICIES
A summary of significant accounting policies consistently applied in the
preparation of the accompanying consolidated financial statements follows:
Accounts receivable are due within contractual payment terms and are stated at
amounts due from customers net of an allowance for doubtful accounts. Credit is
extended based on evaluation of a customer's financial condition. Accounts
outstanding longer than the contractual payment terms are considered past due.
The Company determines its allowance by considering a number of factors,
including the length of time trade accounts receivable are past due, the
Company's previous loss history, the customer's current ability to pay its
obligation to the Company, and the condition of the general economy and the
industry as a whole. The Company writes off accounts receivable when they become
uncollectible, and payment subsequently received on such receivables are
credited to the allowance for doubtful accounts.
Contract receivables are recorded when invoices are issued and are presented in
the balance sheet net of the allowance for doubtful accounts. Contract
receivables are written off when they are determined to be uncollectible.
Property and equipment are stated at cost, normal repairs and maintenance are
expensed as incurred. When properties are retired or otherwise disposed of, the
related cost and accumulated depreciation are removed from the accounts and
gains or losses on the disposition are reflected in operations.
Depreciation of property and equipment is computed over their estimated useful
lives. The Company uses an accelerated method of depreciation. The Company also
has elected to expense certain equipment items purchased during the year.
The Company recognizes revenues from fixed-price and modified fixed-price
construction contracts on the percentage-of-completion method, measured by the
percentage of cost incurred to date to estimated total cost for each contract.
That method is used because management considers total cost to be the best
available measure of progress on the contracts. Because of inherent uncertain-
ties in estimating costs, it is at least reasonably possible that the estimates
used will change within the near term.
Contract costs include all direct material and labor costs and those indirect
costs related to contract performance, such as indirect labor, supplies, tools
and repairs. Selling, general, and administrative costs are charged to expense
as incurred. Provisions for estimated losses on uncompleted contracts are made
in the period.
F-8
HEINZ CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2003 and 2002
in which such losses are determined. Changes in job performance, job conditions,
and estimated profitability may result in revisions to costs and income, which
are recognized in the period in which the revisions are determined. Changes in
estimated job profitability resulting from job performance, job conditions,
contract penalty provisions, claims, change orders, and settlements, are
accounted for as changes in estimates in the current period.
The asset, "Billings below cost and estimated earnings on uncompleted contracts"
represents revenues recognized in excess of amounts billed. The liability,
"Billings in excess of costs and earnings on uncompleted contracts," represents
billings in excess of revenues recognized.
Management uses estimates and assumptions in preparing these financial
statements in accordance with accounting principles generally accepted in the
United States of America. Those estimates and assumptions affect the reported
amounts of assets and liabilities and the reported revenues and expenses. Actual
results could vary from the estimates that were used.
For purposes of the statements of cash flows, the Company considers all highly
liquid investments available for current use with an initial maturity of three
months or less to be cash equivalents.
NOTE B. ORGANIZATION
The Company was incorporated in Missouri on December 6, 1993 and began business
on January 1, 1994. The Company is authorized to issue 30,000 shares of $1.00
par value stock. As of December 31, 2000, 2,500 shares were issued and and
outstanding. James J. Heinz owns 1,000 shares. The Company has repurchased the
remaining 1,500 shares. See Note F.
The Company is engaged in consulting, engineering, integration and
implementation services relating to wireless infrastructure, including macro
wireless networks, in building antenna systems, low voltage installations, and
cell site construction. The Company operates on a nationwide basis.
The Company has made an election under Subchapter "S" of the Internal Revenue
Code to be treated as an S-Corporation for income tax purposes. The Company
received notification of acceptance as an S-Corporation on March 14, 1994. As an
S-Corporation the Company does not pay any federal or state income tax on income
that it earns; those taxes are paid by the stockholders. Consequently, there are
no accruals for income taxes.
F-9
HEINZ CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2003 and 2002
NOTE C. LINE OF CREDIT
The Company negotiated a $200,000 line of credit with First National Bank on
September 16, 2003 The note matures on September 16, 2004 interest. The rate is
First National Bank's prime rate. The line was secured by a first lien on
contract receivable, business equipment and general intangibles and the personal
guarantee and assets of the stockholder. The Company had a balance of $0 and $0
as of December 31, 2003 and 2002 respectively.
NOTE D. PROFIT SHARING PLAN
The Company adopted a regional prototype standardized profit sharing and trust
from Retirement Plan Services, Inc. effective for the year beginning January 1,
1997. The plan is designed to generally exclude any employee covered by a
collectively bargained union contract. Contributions to the plan amounted to $0
and $0 in 2003 and 2002 respectively.
NOTE E. COLLECTIVELY BARGAINED AGREEMENTS
The Company, through its participation in the Associated General Contractors of
St. Louis, has a labor agreement with Laborers' Local Unions Nos. 42, 53 and 110
affiliated with the Eastern Missouri Laborers' District Council. The agree- ment
covers the period March 1, 1999 through March 1, 2004.
The Company also has agreements with the Southern Illinois District Council of
Carpenters covering the period August 1, 2003 through July 31, 2008.
The Company, through its participation in the St. Louis Area Building
Contractors, has a labor agreement with Carpenters' District Council of Greater
St. Louis affiliated with the United Brotherhood of Carpenters and Joiners of
America, AFL-CIO. The current agreement covers the period May 5, 1999 through
May 3, 2004.
The Company, through its participation in the Associated General Contractors of
Missouri has a labor agreement with the Western Missouri and Kansas Laborer's
District Council and their affiliated local unions. The current agreement covers
the period May 1, 2002 through April 30, 2006.
F-10
HEINZ CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2003 and 2002
The Company negotiated additional agreements with the Electrical Insurance
Trustees in Chicago, Illinois which automatically renews yearly; the Mason
Tenders District of Greater New York from 2002 through 2005; and the
Construction and General Laborers' District Council of Chicago Illinois and
vicinity which renews annually.
The Company has a labor agreement with the International Brotherhood of
Electrical Workers, Local Union No. 1, AFL-CIO, effective January 10, 2000. The
agreement expires March 10, 2004.
NOTE F. TREASURY STOCK
On January 1, 1998 the Company entered into a contract to repurchase 1,000
shares of stock held/owned by a stockholder representing that stockholder's 100%
interest in the Company. The purchase price was $1,044,316 and was
collateralized by a promissory note carrying an interest rate of 8.5%. The note
is for a term of 84 months with monthly payments of $16,117.38 which includes
principal and interest. The payments began on February 1, 1998.
On August 25, 2000 the Company entered into a contract to repurchase 250 shares
of stock held/owned by a stockholder representing that stockholder's 100%
interest in the Company. The purchase price was $134,200 consisting of cash of
$2,701, forgiveness of stock subscription agreement note of $50,000 and a
promissory note of $81,499. The note is payable in 36 monthly payments and
carries on interest rate of 8.5%. Monthly payments are $2,572.72.
On December 30, 2000 the Company entered into a contract to repurchase 250
shares of stock held/owned by a stockholder representing that stockholder's 100%
interest in the Company. The purchase price was $170,000 consisting of cash of
$70,000, forgiveness of a stock subscription agreement note of $50,000 and a
promissory note of $50,000. The note was paid in two equal installments during
2001.
NOTE G. CONCENTRATION OF BUSINESS
As noted earlier, the Company is engaged in the construction of cellular towers
for a number of telecommunications companies. This is a highly competitive
industry and the Company must operate in numerous mid-western geographical
venues.
F-11
HEINZ CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2003 and 2002
NOTE H. SCHEDULE OF WORK IN PROCESS (OVER)/UNDER BILLED
The following Schedule of Work in Process (Over)/Under Billed reflects the
following:
2003 2002
---- ----
Billings below cost and estimated earnings on
on uncompleted contracts $ 57,962 $263,940
Billings in excess of costs and estimated
earnings on uncompleted contracts $ 56,638 $ 20,516
========= =========
Where a loss on a contract is anticipated, the full amount of the loss has been
recognized in the financial statements.
NOTE I. SUBSIDIARY-HEINZ TOWER SERVICES, INC.
Heinz Tower Services, Inc., is a wholly owned subsidiary of Heinz Corporation.
Heinz Tower provides tower erection, antenna erection, and cable communication
installation services to Heinz Corporation.
NOTE J. LEASE OBLIGATIONS-VEHICLES
The Company has annual lease obligations for vehicles as follows:
2003 2002
---- ----
YEAR $ AMOUNT YEAR $ AMOUNT
- ---- -------- ---- --------
2003 $101,581
2004 $ 32,589 2004 $ 31,839
2005 $ 11,762 2005 $ 3,357
2006 $ 4,266 2006 $ -
2007 $ - 2007 $ -
2008 $ -
F-12
WPCS INTERNATIONAL INCORPORATED
INTRODUCTION TO PRO FORMA FINANCIAL INFORMATION
We are providing the following unaudited pro forma condensed combined financial
information of WPCS International Incorporated ("WPCS" or the "Company") and its
acquisition of Heinz Corporation ("Heinz") to present the results of operations
and financial position of WPCS had the merger been completed at an earlier date.
ACQUISITION OF HEINZ CORPORATION
On April 2, 2004, ( the "Closing Date") WPCS entered into and completed an
Agreement and Plan of Merger to acquire all of the issued and outstanding common
stock of Heinz. Heinz is a St. Louis, Missouri based provider of in-building
wireless infrastructure services for both cellular and WiFi applications
including consulting, integration and installation services for wireless
infrastructure. WPCS acquired all of the issued and outstanding shares of Heinz
for $1,000,000, as follows: (1) $700,000 of its common stock, based on the
closing price of its common stock on March 30, 2004 or $0.98 per share, for an
aggregate of 714,286 newly issued shares of WPCS common stock and (2) $300,000
total cash consideration, of which $100,000 was paid at closing and a $200,000
non-interest bearing promissory note. Of the $200,000, $75,000 is payable on the
first and second anniversaries of the closing date and $50,000 is payable on the
third anniversary of the closing date.
The unaudited pro forma condensed consolidated balance sheet of the Company
gives effect to the merger as if it had occurred on January 31, 2004 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 nine months
ended January 31, 2004, respectively.
The acquisition of Heinz is 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, we expect to recognize
goodwill of approximately $1,000,000. 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 other intangible assets.
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 Heinz for the twelve months ended March 31, 2003; (c) the
unaudited financial statements of Invisinet, Inc. for the six months ended
September 30, 2002; (d) the unaudited financial statements of Walker Comm, Inc.
for the eight months ended December 31, 2002; and (e) the unaudited financial
statements of Clayborn Contracting Group, Inc. for the twelve months ended March
31, 2003.
The unaudited pro forma results for the nine months ended January 31, 2004 have
been prepared utilizing (a) the unaudited interim financial statements of WPCS
included in Form 10-QSB for the nine months ended January 31, 2004; (b) the
unaudited financial statements of Heinz for the nine months ended December 31,
2003; and (c) the unaudited financial statements of Clayborn for the four months
ended August 31, 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, Heinz' audited financial statements, including the notes thereto, for
the years ended December 31, 2003 and 2002, and other historical financial
information appearing elsewhere herein.
F-13
WPCS INTERNATIONAL INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED PROFORMA UNAUDITED BALANCE SHEETS
JANUARY 31, DECEMBER 31,
2004 2003 PRO FORMA
WPCS HEINZ ADJUSTMENTS CONSOLIDATED
------------------- ------------------ ---- -------------------- -----------------------
ASSETS
Current Assets
Cash and cash equivalents $ 1,094,422 $ 30,308 (a) $ (100,000) $ 1,024,730
Accounts receivable - net 3,286,681 395,159 - 3,681,840
Costs in excess of billings 972,564 57,962 - 1,030,526
Inventory 72,324 - - 72,324
Prepaid expenses 219,818 14,353 - 234,171
Income tax refund receivable 104,765 - - 104,765
------------------- ------------------ ---- -------------------- -----------------------
Total current assets
5,750,574 497,782 (100,000) 6,148,356
Property and Equipment - net 902,059 28,970 - 931,029
Customer Lists, net 418,000 - - 418,000
Goodwill 7,967,593 - (b) 1,013,566 8,981,159
Other Assets 84,162 61,312 - 145,474
------------------- ------------------ ---- -------------------- -----------------------
Total Assets $ 15,122,388 $ 588,064 $ 913,566 $ 16,624,018
=================== ================== ==== ==================== =======================
F-14
WPCS INTERNATIONAL INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED PROFORMA UNAUDITED BALANCE SHEETS
JANUARY 31, DECEMBER 31,
2004 2003 PRO FORMA
WPCS HEINZ ADJUSTMENTS CONSOLIDATED
----------------- --------------- ---- ----------------- -------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses $ 1,956,486 $ 466,553 $ - $ 2,423,039
Billings in excess of cost 883,065 56,638 - 939,703
Current maturities of capital lease obligation 2,472 - - 2,472
Current maturities of equipment loans payable 19,623 - - 19,623
Borrowings under line of credit 100,000 92,114 - 192,114
Due to shareholders 1,203,016 - (c) 182,648 1,385,664
Income taxes payable 19,517 - - 19,517
Deferred income taxes, current portion 196,100 - - 196,100
----------------- --------------- ---- ----------------- -------------------
Total current liabilities 4,380,279 615,305 182,648 5,178,232
----------------- --------------- ---- ----------------- -------------------
Capital lease obligations, net of current
maturities 2,731 - - 2,731
Long-term debt, net of current maturities 35,839 3,677 - 39,516
Deferred income taxes, net of current portion 416,900 - - 416,900
----------------- --------------- ---- ----------------- -------------------
Total liabilities 4,835,749 618,982 182,648 5,637,379
----------------- --------------- ---- ----------------- -------------------
Stockholders' equity
Common stock 2,014 2,500 (d) (2,430) 2,084
Additional paid-in capital 11,262,012 99,500 (d) 600,430 11,961,942
Treasury stock - (1,248,516) (d) 1,248,516 -
(Accumulated deficit) retained earnings (977,387) 1,115,598 (d) (1,115,598) (977,387)
----------------- --------------- ----------------- -------------------
Total shareholder's equity 10,286,639 (30,918) 730,918 10,986,639
----------------- --------------- ----------------- -------------------
$ 15,122,388 $ 588,064 $ 913,566 $ 16,624,018
================= =============== ================= ===================
F-15
WPCS International Incorporated and Subsidiaries Condensed Consolidated Pro
Forma Unaudited Statement of Operations for the Year Ended April 30, 2003
WPCS INTERNATIONAL INC AND SUBSIDIARIES
PROFORMA STATEMENTS OF OPERATIONS
FOR THE FOR THE SIX FOR THE EIGHT FOR THE TWELVE FOR THE TWELVE
YEAR ENDED MONTHS ENDED MONTHS ENDED MONTHS ENDED MONTHS ENDED
APRIL 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, MARCH 31,
2003 2002 2002 2003 2003
WPCS INVISINET WALKER CLAYBORN HEINZ
-------------- --------------- -------------- --------------- ----------------- ----
Revenue $ 5,422,858 $ 656,295 $ 4,599,372 $ 5,976,308 $ 6,061,729
-------------- --------------- -------------- --------------- ----------------- ----
Costs and Expenses:
Cost of revenue 3,768,495 521,630 4,093,286 4,614,228 5,360,403
Selling, general and
adminstrative expenses 1,860,827 172,516 1,318,318 1,044,303 1,082,564
Provision for doubtful
accounts 38,779 6,000 (14,393) - -
Depreciation and amortization 116,501 3,366 134,353 16,109 38,660 (a)
-------------- --------------- -------------- --------------- ----------------- ----
Total costs and expenses 5,784,602 703,512 5,531,564 5,674,640 6,481,627
-------------- --------------- -------------- --------------- ----------------- ----
Income (loss) from operations (361,744) (47,217) (932,192) 301,668 (419,898)
-------------- --------------- -------------- --------------- ----------------- ----
Other income (expense)
Interest income - - 2,435 - 599
Interest expense - (297) - (11,982) (19,384)
-------------- --------------- -------------- --------------- ----------------- ----
Total other income
(expense) - (297) 2,435 (11,982) (18,785)
-------------- --------------- -------------- --------------- ----------------- ----
Income (loss) before
provision for income
taxes (361,744) (47,514) (929,757) 289,686 (438,683)
Provision for income taxes (19,550) - 60,246 (135,152) -
-------------- --------------- -------------- --------------- ----------------- ----
Net Income (loss) $ (381,294) $ (47,514) $ (869,511) $ 154,534 $ (438,683)
-------------- --------------- -------------- --------------- ----------------- ----
Imputed dividends accreted
on Convertible Series B
Preferred Stock (173,000) - - -
-------------- --------------- -------------- --------------- ----------------- ----
Net loss attributable to
common shareholders $ (554,294) $ (47,514) $ (869,511) $ 154,534 $(438,683)
============== =============== ============== =============== ================= ====
Basic net loss per common
share $ (0.05)
==============
Basic weighted average number
of common shares outstanding 10,376,685
==============
F-16
PRO FORMA
CONSOLIDATED
after
PRO FORMA HEINZ
ADJUSTMENTS ACQUISITION
--------------- -----------------
Revenue $ - $ 22,716,562
--------------- -----------------
Costs and Expenses:
Cost of revenue 18,358,042
Selling, general and
adminstrative expenses 5,478,528
Provision for doubtful
accounts 30,386
Depreciation and amortization 106,949 415,938
--------------- -----------------
Total costs and expenses 106,949 24,282,894
--------------- -----------------
Income (loss) from operations (106,949) (1,566,332)
Other income (expense)
Interest income 3,034
Interest expense (31,663)
--------------- -----------------
Total other income
(expense) - (28,629)
--------------- -----------------
Income (loss) before
provision for income
taxes (106,949) (1,594,961)
Provision for income taxes (94,456)
--------------- -----------------
Net Income (loss) $ (106,949) $ (1,689,417)
--------------- -----------------
Imputed dividends accreted
on Convertible Series B
Preferred Stock - (173,000)
--------------- -----------------
Net loss attributable to
common shareholders $ (106,949) $ (1,862,417)
=============== =================
Basic net loss per common
share $ (0.13)
=================
Basic weighted average number
of common shares outstanding 14,112,206
=================
F-17
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") (c) on August 22, 2003, merged
with Clayborn Contracting Group, Inc. ("Clayborn"), and (d) on April 2, 2004
merged with Heinz. 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 January 31, 2004
presented herein has been prepared as if the merger of WPCS and Heinz 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 $100,000 paid to the shareholders of
Heinz 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 Heinz as of December 31, 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:
Purchase price paid as:
Cash consideration $ 100,000
Common stock issued 700,000
Promissory note 182,648
------------------
Total purchase price consideration 982,648
Allocated to:
Historical net book value of Heinz at December 31, 2003 $ (30,918)
------------------
Cost in excess of net assets acquired $ 1,013,566
------------------
(c) To record the present value, discounted at 5%, of the $200,000 non-interest
bearing promissory note related to the remaining purchase price payments. Of the
$200,000, $75,000 is payable on the first and second anniversaries of the
Closing Date and $50,000 is payable on the third anniversary of the Closing
Date.
(d) To reflect the elimination of the shareholders' equity accounts of Heinz of
($30,918) and the issuance of WPCS common stock. To effect the merger, WPCS
issued 714,286 shares of WPCS common stock with a fair value of approximately
$700,000, based on the closing price of its common stock on March 30, 2004 of
$0.98 per share.
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 Heinz 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, Walker for
the eight months ended December 31, 2002, and Clayborn for the twelve months
ended March 31, 2003, 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-18
WPCS INTERNATIONAL INC AND SUBSIDIARIES
PROFORMA STATEMENT OF OPERATIONS
FOR THE NINE FOR THE FOUR FOR THE NINE PRO FORMA
MONTHS ENDED MONTHS ENDED MONTHS ENDED CONSOLIDATED
JANUARY 31, AUGUST 31, DECEMBER 31, after
2004 2003 2003 HEINZ
WPCS CLAYBORN HEINZ ACQUISITION
----------------- ----------------- ---------------- ------------------
Revenue $ 13,874,616 $ 1,532,979 $3,052,761 $ 18,460,356
----------------- ----------------- ---------------- ------------------
Costs and expenses:
Cost of revenue 10,084,508 1,092,206 2,772,341 13,949,055
Selling, general and administrative
expenses 3,930,352 605,512 473,229 5,009,093
Provision for doubtful accounts 35,669 - 14,998 50,667
Depreciation and amortization 254,214 47,610 23,788 325,612
----------------- ----------------- ---------------- ------------------
Total costs and expenses 14,304,743 1,745,328 3,284,356 19,334,427
----------------- ----------------- ---------------- ------------------
Loss from operations (430,127) (212,349) (231,595) (874,071)
Provision for income taxes (4,200) 84,041 - 79,841
----------------- ----------------- ---------------- ------------------
Net Loss $ (434,327) $ (128,308) $ (231,595) $ (794,230)
================= ================= ================ ==================
Basic net loss per common share $(0.02) $ (0.04)
================= ==================
Basic weighted average number of
common shares outstanding 17,573,786 18,626,435
================= ==================
F-19
WPCS INTERNATIONAL INCORPORATED and SUBSIDIARIES
NOTES TO PRO FORMA UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED JANUARY 31, 2004
NOTE 1. The statement of operations of WPCS was derived from its interim
unaudited financial statements on Form 10Q-SB for the nine months ended January
31, 2004.
The statement of operations of Clayborn was derived from its interim unaudited
financial statements for the four months ended August 31, 2003.
The statement of operations of Heinz was derived from its interim unaudited
financial statements for the nine months ended December 31, 2003.
F-20