8-K/A 1 august8k.txt SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Amendment No. 2 to FORM 8-K/A CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 May 24, 2002 (Date of report) WPCS INTERNATIONAL INCORPORATED (Exact Name of Registrant as Specified in its Charter) Delaware 0-26277 98-0204758 (State of Incorporation) (Commission File Number) (IRS Employer ID) 140 South Village Avenue Suite 20 Exton, Pennsylvania 19341 (Address of Principal Executive Offices) (610) 903-0400 (Registrant's telephone number, including area code) ITEM 1. Changes in Control of Registrant. On May 17, 2002, the Company entered into an Agreement and Plan of Merger with WPCS Acquisition Corp., a Delaware corporation wholly-owned by the Company ("Subsidiary"), WPCS Holdings, Inc., a Delaware corporation ("WPCS"), and Andy Hidalgo. Pursuant to the terms of the Agreement and Plan of Merger which closed on May 24, 2002, Subsidiary acquired all of the issued and outstanding shares of capital stock of WPCS from Mr. Hidalgo in exchange for an aggregate of 5,500,000 newly issued shares of the Company's common stock (the "Acquisition"). Concurrently with the Acquisition, WPCS was merged with and into Subsidiary. As a condition to the Acquisition, the Company's director prior to the transaction was required to appoint Mr. Hidalgo as a member of the Company's Board of Directors. Stephen C. Jackson, the Company's current member of the Board of Directors, will resign effective as of the appointment of Mr. Hidalgo. Concurrently with the Acquisition, and as a condition thereof, a principal stockholder of the Company returned shares of the Company's common stock to the Company, without compensation. Century Capital Management Ltd. returned an aggregate of 500,000 shares of Common Stock to the Company. In addition, the Company changed its name to WPCS International Incorporation. Voting Securities The Common Stock is the only class of voting securities of the Company outstanding. As of May 24, 2002, there were 9,025,632 shares outstanding and entitled to one vote per share. Security Ownership of Certain Beneficial Owners and Management The following table sets forth certain information with respect to the beneficial ownership of the Company's Common Stock immediately after the Acquisition, by: o each person known to beneficially own more than five percent of the Common Stock; o each director of the Company (including proposed directors); and o all directors and executive officers as a group.
Name and Address Shares of Percent of Beneficial Owner Common Stock of Class Andy Hidalgo 5,500,000 60.9% 140 South Village Avenue Suite 20 Exton, Pennsylvania 19341 All officers and directors, after completion of the Acquisition (1 person) 5,500,000 60.9% ----------------------
Appointment of New Directors The Agreement and Plan of Merger provides that, subject to compliance with applicable law, the Company will take all action necessary to cause Andy Hidalgo to be appointed to the Board of Directors. Set forth below is certain information with respect to Mr. Hidalgo: Mr. Hidalgo has been Chairman and Chief Executive Officer of WPCS, a fixed wireless services provider, responsible for the development and implementation of the company's business plan. From September 2000 until December 2001, Mr. Hidalgo was President of Wireless Professional Communication Services Incorporated, a technology distribution company. From November 1999 until September 2000, Mr. Hidalgo was Chairman and Chief Executive Officer of CommSpan Incorporated, a holding company for the communications infrastructure subsidiaries acquired from Applied Digital Solutions. From December 1997 until September 1999, Mr. Hidalgo was Senior Vice President for Applied Digital Solutions, a telecommunications company, where he was responsible for the core business group that represented five divisions, 30 subsidiaries and $200 million in annual revenue. From December 1995 until December 1997, Mr. Hidalgo was Divisional Director of Bentley Systems Incorporated, a privately held engineering software company, where he developed and implemented the sales and marketing strategies for the manufacturing market sector. ITEM 7. Exhibits 1. Agreement and Plan of Merger by and among Phoenix Star Ventures, Inc., WPCS Acquisition Corp., a Delaware corporation, WPCS Holdings, Inc., a Delaware corporation, and Andy Hidalgo, dated as of May 17, 2002 (previously filed) 2. Financial statements of WPCS Holdings, Inc., together with pro forma financial information. [remainder intentionally blank] 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 By: /s/ ANDREW HIDALGO Andrew Hidalgo, President and Chief Executive Officer Dated: August 5, 2002 WPCS INTERNATIONAL INCORPORATED (FORMERLY PHOENIX STAR VENTURES, INC.) INDEX TO PRO FORMA INFORMATION
SELECTED FINANCIAL DATA 1 PRO FORMA CONSOLIDATED BALANCE SHEET- APRIL 30, 2002 (UNAUDITED) 2-3 PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS - YEAR ENDED DECEMBER 31,2001 (UNAUDITED) 4 NOTES TO PRO FORMA FINANCIAL STATEMENTS (UNAUDITED) 5-6
WPCS INTERNATIONAL INCORPORATED (FORMERLY PHOENIX STAR VENTURES, INC.) SELECTED FINANCIAL DATA PRO FORMA FINANCIAL STATEMENTS The following unaudited pro forma financial information reflects the merger of WPCS Holdings, Inc. ("Holdings") into a newly formed, wholly owned subsidiary of Phoenix Star Ventures, Inc. ("PVSI"), a public company. Pursuant to an Agreement and Plan of Merger dated May 17, 2002, the stockholders of Holdings exchanged all of their shares of stock for 5,500,000 shares of common stock of PVSI. The merger, which was consummated on May 17, 2002, will be recorded as a reverse acquisition inasmuch as the Holdings stockholders became the controlling stockholders of PVSI. As described in Note 1, in connection with the merger, PVSI changed its name to WPCS International Incorporated. (the Company). The unaudited pro forma consolidated balance sheet of the Company gives effect to the merger as if it had occurred on April 30, 2002 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, 2001. This pro forma financial information is based on the estimates and assumptions set forth herein and in the notes thereto, and has been prepared utilizing (a) the annual audited financial statements of PVSI on Form 10K-SB for the fiscal year ended April 30, 2002; and (b) the annual audited financial statements of Holdings for the period November 15, 2001 (date of inception) to April 30, 2002. 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", PVSI's audited consolidated financial statements, including the notes thereto, Holdings' audited financial statements, including the notes thereto, and other historical financial information appearing elsewhere herein. 1 WPCS INTERNATIONAL INCORPORATED (FORMERLY PHOENIX STAR VENTURES, INC.) PRO FORMA CONSOLIDATED BALANCE SHEET APRIL 30, 2002 (UNAUDITED)
PRO FORMA --------------------------------------------- Holdings PSVI ADJUSTMENTS CONSOLIDATED -------- ---- ----------- ------------ ASSETS Current Assets Cash $ 15,554 $ 3,257 $ 18,811 Accounts receivable - net 91,183 - 91,183 Inventories 7,975 - 7,975 Prepaid expenses and other current assets - 7,500 7,500 -------- ------ ----------- ------------ Total current assets 114,712 10,757 125,469 -------- ------ ----------- ------------ Property and Equipment - at cost, less Accumulated depreciation 28,271 - 28,271 -------- ------ ----------- ------------ Other Assets Security deposits 2,242 - 2,242 -------- ------ ----------- ------------ Total other assets 2,242 - 2,242 -------- ------ ----------- ------------ $ 145,225 $ 10,757 $ 155,982 ======== ====== =========== ============
See the accompanying notes to pro forma financial statements WPCS INTERNATIONAL INCORPORATED (FORMERLY PHOENIX STAR VENTURES, INC.) PRO FORMA CONSOLIDATED BALANCE SHEET APRIL 30, 2002 (UNAUDITED)
PRO FORMA ---------------------------------- Holdings PSVI ADJUSTMENTS CONSOLIDATED LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $ 93,866 $ 59,572 $ 153,438 Taxes payable - other than income 1,053 - 1,053 Current maturities of capital lease obligation 2,077 - 2,077 Advances from stockholder 20,743 32,000 52,743 Income taxes payable 200 - 200 ------------------ ------------ --------------- ---------- Total current liabilities 117,939 91,572 209,511 ------------------ ------------ --------------- ---------- Noncurrent Liabilities Capital lease obligation - noncurrent 6,902 6,902 Deferred tax liabilities 4,150 - 4,150 ------------------ ------------ --------------- ---------- Total noncurrent liabilities 11,052 - 11,052 ------------------ ------------ --------------- ---------- Total liabilities 128,991 91,572 220,563 ------------------ ------------ --------------- ---------- Stockholders' equity Preferred Stock: Series A convertible, liquidation preference of $250,000 1 1 Common stock 3,000 103 550 (a) 603 (50)(b) (3,000)(c) Additional paid-in capital 2,000 2,092,164 (2,089,664)(a),(b) 4,500 (c,d) Accumulated deficit 11,234 (2,173,083) 2,092,164 (d) (69,685) ------------------ ------------ --------------- ---------- Total stockholders' equity 16,234 (80,815) - (64,581) ------------------ ------------ --------------- ---------- $ 145,225 $10,757 $ 155,982 ================= ============ =============== ==========
See the accompanying notes to pro forma financial statements 3 WPCS INTERNATIONAL INCORPORATED (FORMERLY PHOENIX STAR VENTURES, INC.) PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS YEAR ENDED APRIL 30, 2002 (UNAUDITED)
PRO FORMA ------------------------------- Holdings PSVI ADJUSTMENTS CONSOLIDATED -------- ---- ----------- ------------ Net sales $402,289 $ - $ 402,289 Cost of sales 267,032 - 267,032 ------------------------------------------------------------------------------ Gross profit 135,257 - 135,257 ------------------------------------------------------------------------------ Operating expenses Selling expenses 4,857 4,857 General and administrative 111,606 89,354 200,960 Depreciation and amortization 2,570 - 2,570 ------------------------------------------------------------------------------ Total operating expenses 208,387 119,033 89,354 ------------------------------------------------------------------------------ Loss before other income (expense) (73,130) 16,224 (89,354) ------------------------------------------------------------------------------ Other income (expense): Gain on settlement of debt - 22,652 22,652 Expenses of former subsidiary (17,812) (17,812) Interest expense (640) - (640) ------------------------------------------------------------------------------ Total other income (expense) (640) 4,840 4,200 ------------------------------------------------------------------------------ Net income/(loss) before provision for income tax 15,584 (84,514) (68,930) Provision for income tax 4,350 - 4,350 ------------------------------------------------------------------------------ Net loss attributable to common stockholders 11,234 (84,514) (73,280) ============================================================================== Basic and diluted earnings per share of common stock $ (0.01) ===================== Common shares used in the calculation of earnings per share 6,025,632 =====================
See the accompanying notes to pro forma financial statements 4 WPCS INTERNATIONAL INCORPORATED (FORMERLY PHOENIX STAR VENTURES, INC.) NOTES TO PRO FORMA FINANCIAL STATEMENTS (UNAUDITED) Note 1. Phoenix Star Ventures, Inc. ("PVSI") is a publicly held corporation whose newly formed subsidiary merged with WPCS Holdings, Inc. ("Holdings") on May 17, 2002. In connection with the merger PVSI changed its name to WPCS International Incorporated (the Company). For accounting purposes, this transaction has been treated as a reverse acquisition with the net assets of PVSI being stated at fair value in accordance with the purchase method of accounting. Accordingly, the then outstanding shares of PVSI remain outstanding commencing with the date of merger. The historical financial statements of PVSI prior to the merger will no longer be reported, as Holdings' financial statements are now considered the financial statements of the ongoing reporting entity. Note 2. The unaudited pro forma consolidated balance sheet at April 30, 2002 presented herein has been prepared as if the merger had been consummated on April 30, 2002. The unaudited pro forma condensed consolidated statement of operations for the year ended April 30, 2002 presented herein has been prepared as if the merger described above had been consummated as of May 1, 2001. Pro forma adjustments have been made for the following: (a) To record the issuance of 5,500,000 shares of PVSI's common stock to the stockholders of Holdings in exchange for all of their shares; (b) To record the return and cancellation of 500,000 shares of PVSI's common stock by certain of its stockholders; (c) To record the elimination of the common stock of Holdings; (d) To record the elimination of PVSI's accumulated deficit by $2,092,164, limited to the additional paid-in capital. Note 3. The statement of operations of PVSI was derived from its annual audited financial statements on Form 10K-SB for the fiscal year ended April 30, 2002. The statement of operations of Holdings was derived from its annual audited financial statements for the period November 15, 2001 (date of inception) to April 30, 2002. 5 WPCS INTERNATIONAL INCORPORATED (FORMERLY PHOENIX STAR VENTURES, INC.) NOTES TO PRO FORMA FINANCIAL STATEMENTS (UNAUDITED) Note 4. Net loss per common share was calculated under SFAS No. 128 "Earnings Per Share". Basic net loss per share is calculated by treating all shares of common stock issued and outstanding at May 17, 2002, net of such shares as were cancelled on May 17, 2002 (as described in Note 2(b)) as if they were outstanding for the entire period reported. Note 5. Changes in ownership contemplated herein are expected to result in a restriction for income tax purposes on the availability of net operating loss carryforwards of approximately $2,000,000 applicable to PVSI which shall be limited annually to the value of PVSI on the date of such ownership change multiplied by the Federal long-term tax exempt rate ("annual limitation"). To the extent amounts available under this annual limitation are not used, they may be carried forward for the remainder of the 20-year period following the years in which the losses were originally incurred. 6 WPCS HOLDINGS, INC. INDEX TO FINANCIAL STATEMENTS
Independent Auditor's Report 1 Financial Statements Balance Sheets at April 30, 2002 2-3 Statement of Earnings and Retained Earnings for the period November 15, 2001 (date of inception) To April 30, 2002 4 Statement of Cash Flows for the period November 15, 2001 (date of inception) To April 30, 2002 5 Notes to Financial Statements 6-9
LEONARD FRIEDMAN Certified Public Accountant 385 Old Westbury Road East Meadow, New York 11554 Tel. # (516) 735-0824 Fax # (516) 735-6301 INDEPENDENT AUDITOR'S REPORT Board of Directors and Shareholders of WPCS Holdings, Inc. I have audited the accompanying balance sheet of WPCS Holdings, Inc. as of April 30, 2002, and the related statement of earnings and retained earnings and cash flows for the period 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 our 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. 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. 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 WPCS Holdings, Inc. as of April 30, 2002, and the result of their operations and their cash flows for the period then ended, in conformity with accounting principles generally accepted in the United States of America. /s/LEONARD FRIEDMAN East Meadow, New York July 1, 2002 1 WPCS HOLDINGS, INC. BALANCE SHEETS APRIL 30, 2002 ASSETS
CURRENT ASSETS Cash and cash equivalents $ 15,554 Accounts receivable 91,183 Inventory 7,975 TOTAL CURRENT ASSETS $ 114,712 PROPERTY AND EQUIPMENT - NET 28,271 ----------------------- OTHER ASSETS Security deposits 2,242 TOTAL OTHER ASSETS 2,242 $ 145,225
The accompanying notes are an integral part of these financial statements 2 WPCS HOLDINGS, INC. BALANCE SHEETS APRIL 30, 2002 LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES Accounts payable 93,866 Capital lease obligation - current 2,077 Taxes payable - other than on income 1,053 Income taxes payable 200 Due to Stockholder 20,743 TOTAL CURRENT LIABILITIES 117,939 NONCURRENT LIABILITIES Capital lease obligation - noncurrent 6,902 Deferred tax liabilities 4,150 TOTAL NONCURRENT LIABILITIES 11,052 TOTAL LIABILITIES 128,991 STOCKHOLDER'S EQUITY Common Stock - $0.001 par value, 20,000,000 shares authorized, 3,000,000 shares issued and outstanding 3,000 Additional paid-in capital 2,000 Retained earnings 11,234 TOTAL STOCKHOLDER'S EQUITY 16,234 $ 145,225
The accompanying notes are an integral part of these financial statements 3 WPCS HOLDINGS, INC. STATEMENT OF EARNINGS AND RETAINED EARNINGS FOR THE PERIOD NOVEMBER 15, 2001 (DATE OF INCEPTION) TO APRIL 30,2002
SALES $ 402,289 COST OF SALES 267,032 GROSS PROFIT 135,257 OPERATING EXPENSES Selling expenses 4,857 General and administrative expenses 111,606 Depreciation and amortization 2,570 TOTAL OPERATING EXPENSES 119,033 INCOME BEFORE OTHER EXPENSE 16,224 OTHER EXPENSE - INTEREST 640 NET INCOME BEFORE PROVISION FOR INCOME TAXES 15,584 Provision for income taxes 4,350 NET INCOME 11,234 RETAINED EARNINGS - BEGINNING - RETAINED EARNINGS - ENDING $ 11,234
The accompanying notes are an integral part of these financial statements 4 WPCS HOLDINGS, INC. STATEMENT OF CASH FLOWS FOR THE PERIOD NOVEMBER 15, 2001 (DATE OF INCEPTION) TO APRIL 30,2002
CASH FLOW FROM OPERATING ACTIVITIES : Net Income $ 15,584 Adjustments to reconcile net income to net cash provided by operating activities: Noncash items: Depreciation and amortization 2,570 (Increase)/Decrease in assets: Accounts receivable (91,183) Inventory (7,974) Security deposits (2,242) Increase/(Decrease) in liabilities: Accounts payable 93,866 Taxes payable - other than on income 1,053 (3,910) NET CASH PROVIDED BY OPERATING ACTIVITIES 11,674 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (20,895) NET CASH USED IN INVESTING ACTIVITIES (20,895) CASH FLOWS FROM FINANCING ACTIVITIES Subscription of capital stock 5,000 Loan from stockholder 20,743 Repayment of capital lease obligations (968) NET CASH PROVIDED BY FINANCING ACTIVITIES 24,775 INCREASE IN CASH 15,554 CASH AT BEGINNING OF PERIOD - CASH AT END OF PERIOD $ 15,554 The accompanying notes are an integral part of these financial statements 5
WPCS HOLDINGS, INC. NOTES TO FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization WPCS Holdings, Inc. (the "Company") was incorporated in the State of Delaware on November 15, 2001. The Company provides complete fixed wireless solutions and various other telecommunication services to a wide spectrum of businesses and government institutions. Use of estimates In preparing financial statements in conformity with accounting principles generally accepted in the United States, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and revenue and expenses during the reported period. Actual results could differ from those estimates. Accounts receivable The Company utilizes the allowance method for recognizing the collectibility of its accounts receivable. The allowance method recognizes bad debt expense based on reviews of the individual accounts outstanding based on the surrounding facts. As of April 30, 2002, no allowance was deemed necessary by management. Inventory Inventory that consists of parts and supplies used by the company, is valued at lower of cost or market value. Property and equipment Property and equipment are recorded at cost less accumulated depreciation, which is provided on the straight-line basis over the estimated useful lives of five to seven years. Expenditures for maintenance and repairs are expensed as incurred. A long-term lease transaction relating to certain equipment acquired by the Company has been accounted for as a capital lease in accordance with Financial Accounting Standards Board Statement No. 13. The lease obligation has been capitalized as at the beginning of the lease term, reflecting the present value of future rental payments. A corresponding amount has been capitalized as the cost of the equipment and depreciation will be charged over the five year estimated economic life of the asset when it is placed in service. 6 WPCS HOLDINGS, INC. NOTES TO FINANCIAL STATEMENTS Revenue Recognition Revenue consists of sales of wireless solutions and its deployment to business houses and government institutions. Equipment sales are recognized when installation is completed. Maintenance revenues are recognized when services are provided. Prepayments for services and/or installations are deferred and recognized as revenue as installations are completed and services are provided. Direct Cost of Revenue Direct cost of revenue consists primarily of cost of equipment sold, labor cost incurred on installing equipment and shipping cost incurred on equipment sold to customers. Income Taxes The Company accounts for income taxes under the liability method in accordance with SFAS No. 109, Accounting for Income Taxes. Under this method, deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities. Fair Value of Financial Instruments The carrying value of cash, accounts receivable, accounts payable and accrued expenses are a reasonable estimate of their fair value because of the short-term maturity of these instruments. The carrying value of short-term debt closely approximates its fair value based on the instruments' interest rate terms, maturity date and collateral, if any, in comparison to the Company's incremental borrowing rates of similar financial instruments. NOTE 2 - PLANT AND EQUIPMENT Property and equipment consists of the following as of April 30, 2002: Office Equipment $ 17,718 Furniture and fixtures 13,123 ----------- $ 30,841 Less: accumulated depreciation 2,570 ----------- $ 28,271 =========== Fixed assets under capital lease aggregate $9,947 at April 30, 2002. The accumulated depreciation related to these assets is $829 at April 30, 2002. 7 WPCS HOLDINGS, INC. NOTES TO FINANCIAL STATEMENTS NOTE 3 -CAPITAL LEASE OBLIGATION On December 1, 2001, the Company assumed a lease agreement for purchase of office equipment from one of its vendors. As of that date, the principal balance payable on the lease was $9,947 payable in 45 monthly payments of $240.09. Future minimum lease payments at April 30, 2002 are as follows: Year Ending April 30, Amount 2003 $2,881 2004 2,881 2005 2,881 2006 2,161 ------- Total minimum lease payments 10,804 Less: Amount representing interest 1,825 ------- Present value of minimum lease payments 8,979 Less - Current maturities 2,077 ------- Notes Payable - long term $6,902 ------- Interest expense on capital lease obligations for the period ended April 30, 2002 was $492. NOTE 4 - PROVISION FOR INCOME TAX Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related to differences between the financial statement and tax bases of assets and liabilities for financial statement and income tax reporting purposes. Deferred tax assets and liabilities represent the future tax return consequences of these temporary differences, which will either be taxable or deductible in the year when the assets or liabilities are recovered or settled. Accordingly, measurement of the deferred tax assets and liabilities attributable to the book-tax basis differentials are computed at a rate of 15% federal and 15% state. The only material tax effect of significant items comprising the Company's current deferred tax assets as of April 30, 2002, is the difference in depreciation per book and taxes, which amounted to approximately $18,000 as of April 30, 2002. The deferred tax liability associated with the depreciation adjustment amounted to approximately $4,150 as of April 30, 2002. 8 WPCS HOLDINGS, INC. NOTES TO FINANCIAL STATEMENTS NOTE 5 - COMMITMENTS Lease Commitments In November 2001, the Company entered into a lease agreement for its administrative office. The Company's approximate future minimum rental under non-cancelable operating lease in effect on April 30, 2002 is as follows: Year ended April 30, ----------------- 2003 $ 27,253 2004 28,000 2005 15,386 ------------ $ 70,639 ============ NOTE - 5 - SUBSEQUENT EVENTS On May 17, 2002, the Company entered into an Agreement and Plan of Merger with Phoenix Star Ventures, Inc. ("Phoenix"), a publicly traded entity incorporated in the State of Delaware, WPCS Acquisition Corp. ("Subsidiary"), a wholly owned subsidiary of Phoenix and Andy Hidalgo, the sole shareholder of the company. Pursuant to the terms of the Agreement and Plan of Merger which closed on May 24, 2002, Subsidiary acquired all of the issued and outstanding shares of capital stock of the company from Mr. Hidalgo in exchange for an aggregate of 5,500,000 newly issued shares of Phoenix's common stock (the "Acquisition"). Concurrently with the Acquisition, the company was merged with and into the Subsidiary. As a condition to the Acquisition, Phoenix's director prior to the transaction was required to appoint Mr. Hidalgo as a member of its Board of Directors. Stephen C. Jackson, Phoenix's current member of the Board of Directors, will resign effective as of the appointment of Mr. Hidalgo. Concurrently with the Acquisition, and as a condition thereof, a principal stockholder of Phoenix returned an aggregate of 500,000 shares of its Common Stock to Phoenix. In addition, Phoenix changed its name to WPCS International Incorporated. 9