Engineering group WPCS International Inc. (Nasdaq: WPCS) is selling a business unit after it raised doubts about the company’s ability to continue without liquidating.
WPCS agreed to sell its Australian operations, called the Pride Group Pty Ltd., to Turquino Equity LLC for $1.4 million. Turquino is managed by Andrew Hidalgo, the former CEO of WPCS. On July 24, the company entered into a separation agreement with Hidalgo. He resigned on July 30. Part of that agreement included Hidalgo’s submitting an offer for a WPCS subsidiary.
For the fiscal year ended April 30, Pride Group generated a net loss of about $2.4 million and was considered a non-core underperforming asset. The deal is expected to close on Nov. 1.
Exton, Pa.-based engineering WPCS focuses on communications infrastructure, including specialty construction. The company designs wireless networks and provides technology integration to create wireless communication systems, including WiFi networks, post-to-point systems, mesh networks, microwave systems, cellular networks, in-building systems and two-way communications systems. WPCS provides services mainly to the public services, health care and energy sectors.
The company raised doubt about its ability to continue as a going concern, or without the threat of liquidation in a Sept. 16 filing with the U.S. Securities and Exchange Commission because of losses for operations.
In that SEC filing, WPCS says the future of the company depends on the ability to generate operating income, reduce operating expenses, repay or modify its debt and obtain additional funds, through financing or the sale of assets. The sale of Pride Group was announced on Sept. 19.
As of July 31, WPCS had a working capital deficiency of about $3.4 million and about $1.6 million due on a loan. At that time, the company had about $15.5 million in assets and $18.9 million in liabilities.
In July 2012, the company accepted $793,927 from Zurich American Insurance Co. so that it could finish a project at the Cooper Medical Center of Rowan University. The company came to a forbearance agreement with Zurich in April. Now, WPCS owes Zurich about $1.6 million.
For the three months ended July 31, the company had revenues of about $9.7 million, compared with $13.4 million for that period the previous year.
To raise some money, the company sold about $4 million in notes in December 2012 that accrue interest at 4 percent and mature June 5, 2014. WPCS used about $2 million from the proceeds to pay a loan from Sovereign Bank NA.
Looking forward, WPCS says in the SEC filing that it sees opportunities in the sectors it serves. The company’s bid list as of July 31 was about $52.2 million, compared with $61.1 million the previous year. To improve business, WPCS says its goal is to convert more of the bids into awarded contracts. The company announced in July that it won $5.4 million in new projects.
For last week’s edition of Turnaround Tuesday, see “Implant Sciences Needs More Capital to Fund Operations.”
For more struggling companies, check out Mergers & Acquisitions’ Distressed Company Watch List.