WDSP Restates Q1 Revenue to Gross Basis, Swings to $308K Loss

TL;DR

**WDSP's restatement reveals a cash-burning operation with a massive net loss, making it a high-risk bet despite the revenue bump.**

AI Summary

World Scan Project, Inc. (WDSP) filed a 10-Q/A to restate its prior quarterly report, revising revenue recognition from a net to a gross basis for crypto miner sales. For the three months ended January 31, 2024, total revenues were restated to $6,635,195, a significant increase from the previously reported $1,805,445, but still a decrease from $7,743,164 in the prior year period. Cost of revenues also increased substantially to $5,148,757 from $319,007 as reported, reflecting the change to gross revenue recognition. The company reported a net loss of $308,261 for the quarter, a sharp decline from a net income of $2,022,241 in the same period last year. Operating expenses, including general and administrative expenses of $1,582,961 and research and development of $179,625, contributed to an operating loss of $276,148. Cash and cash equivalents decreased significantly from $5,698,883 at October 31, 2023, to $767,210 at January 31, 2024, primarily due to $10,594,097 in cash used in operating activities, despite receiving $5,832,000 from share subscriptions.

Why It Matters

This restatement significantly alters World Scan Project's financial picture, moving from a net to a gross revenue recognition for crypto miner sales, which inflates top-line revenue but also cost of goods sold. For investors, this change impacts profitability metrics and makes year-over-year comparisons challenging, especially with the swing from a $2.02 million net income to a $308,261 net loss. The company's substantial cash burn of over $10 million in operating activities, despite a $5.8 million capital injection, raises concerns about liquidity and sustainable growth in a competitive drone and crypto miner market. Employees and customers might face uncertainty regarding the company's financial stability and long-term viability if cash reserves continue to dwindle.

Risk Assessment

Risk Level: high — The company reported a net loss of $308,261 for the three months ended January 31, 2024, a significant deterioration from a $2,022,241 net income in the prior year. Furthermore, cash and cash equivalents plummeted from $5,698,883 to $767,210, with $10,594,097 used in operating activities, indicating severe liquidity challenges despite a $5,832,000 capital raise.

Analyst Insight

Investors should exercise extreme caution and consider divesting from World Scan Project, Inc. (WDSP). The substantial net loss, significant cash burn, and ongoing restatement issues signal fundamental operational and financial instability. Further due diligence is required to understand the long-term viability of their drone and crypto miner businesses.

Financial Highlights

debt To Equity

0.85

revenue

$6,635,195

operating Margin

-4.2%

total Assets

$15,932,576

total Debt

$7,311,963

net Income

$(308,261)

eps

N/A

gross Margin

22.4%

cash Position

$767,210

revenue Growth

-14.3%

Revenue Breakdown

Key Numbers

• $6,635,195 — Restated Total Revenues (For the three months ended January 31, 2024, revised from $1,805,445 as reported.)
• $5,148,757 — Restated Cost of Revenues (For the three months ended January 31, 2024, revised from $319,007 as reported.)
• $(308,261) — Net Loss (For the three months ended January 31, 2024, compared to $2,022,241 net income in the prior year.)
• $767,210 — Cash and Cash Equivalents (As of January 31, 2024, down from $5,698,883 at October 31, 2023.)
• $(10,594,097) — Net Cash Used in Operating Activities (For the three months ended January 31, 2024.)
• $5,832,000 — Cash Received for Share Subscriptions (For the three months ended January 31, 2024, from financing activities.)
• 11,560,350 — Common Shares Outstanding (As of November 19, 2024.)
• 10,000,000 — Preferred Shares Outstanding (As of November 19, 2024.)

Key Players & Entities

• World Scan Project, Inc. (company) — Registrant and parent company
• WDSP (company) — Ticker symbol for World Scan Project, Inc.
• Ryohei Uetaki (person) — CEO, CFO, President, Director, Secretary, Treasurer, and founder of World Scan Project, Inc.
• Yasumasa Ichikawa (person) — Chief Technology Officer of World Scan Project, Inc.
• World Scan Project Corporation (company) — Wholly owned subsidiary of World Scan Project, Inc. based in Japan
• SKYPR LLC (company) — Delaware LLC owned and controlled by Ryohei Uetaki, received shares from him
• SEC (regulator) — Securities and Exchange Commission
• Bloomberg (company) — Financial news and data provider

FAQ

Risk Factors

• Significant Cash Burn [high — financial]: The company experienced a net cash outflow of $10,594,097 from operating activities in the three months ended January 31, 2024. This led to a substantial decrease in cash and cash equivalents from $5,698,883 to $767,210.
• Shift to Gross Revenue Recognition [medium — financial]: The restatement to recognize revenue on a gross basis for crypto miner sales significantly increased reported revenues from $1,805,445 to $6,635,195. However, it also substantially increased the cost of revenues to $5,148,757, impacting profitability.
• Deterioration in Profitability [high — financial]: The company reported a net loss of $308,261 for the three months ended January 31, 2024, a sharp decline from a net income of $2,022,241 in the prior year period. This is driven by increased cost of revenues and operating expenses.
• Inventory Increase [medium — operational]: Inventories increased significantly from $358,635 as of October 31, 2023, to $7,145,995 as of January 31, 2024. This could indicate slower sales or increased production costs.
• Restatement of Financials [medium — regulatory]: The company filed a 10-Q/A to restate its prior quarterly report due to a change in revenue recognition policy. This indicates potential weaknesses in internal controls or accounting practices.

Industry Context

World Scan Project, Inc. operates in the autonomous aerial vehicles (drones) and potentially cryptocurrency mining hardware sectors. The drone market is competitive and rapidly evolving, with increasing demand for advanced features and applications. The crypto mining sector is highly volatile, subject to fluctuating cryptocurrency prices and regulatory changes.

Regulatory Implications

The need to restate financial statements due to a change in revenue recognition policy suggests potential issues with accounting controls or initial reporting accuracy. Investors should monitor for any further SEC inquiries or restatements. The company's operations may also be subject to regulations concerning drone usage and potentially cryptocurrency mining.

What Investors Should Do

1. Review the detailed notes to the financial statements for a deeper understanding of the revenue recognition change and its impact.
2. Analyze the significant increase in inventories and assess its implications for future sales and working capital management.
3. Monitor the company's cash burn rate and its ability to secure additional financing to sustain operations.
4. Evaluate the sustainability of the current operating model given the shift to gross revenue recognition and the resulting lower gross margins.

Key Dates

• 2024-01-31: End of Q3 2024 (Restated) — Represents the period for which the 10-Q/A was filed, showing significant changes in revenue recognition and profitability.
• 2023-10-31: End of Q2 2024 — Prior period balance sheet date, showing a much higher cash position of $5,698,883.
• 2023-08-28: S-1 Registration Statement Effective — Date related to prior equity issuances, indicating a history of capital raising activities.

Glossary

10-Q/A

An amended quarterly report filed with the SEC, used to correct or supplement information previously filed in a 10-Q. (This filing indicates that World Scan Project, Inc. had to revise its previously reported financial information.)

Revenue Recognition

The accounting principle that determines when revenue is recorded in the financial statements. Changing from net to gross basis significantly impacts reported revenue and cost of revenue. (The core reason for the restatement, changing how crypto miner sales revenue is reported.)

Gross Profit

Revenue minus the cost of goods sold (or cost of revenues). (Significantly decreased from $7,739,672 in the prior year to $1,486,438 in the restated period due to the change in revenue recognition.)

Operating Expenses

Costs incurred in the normal course of business, excluding cost of goods sold. Includes general and administrative, and research and development expenses. (Contributed to the operating loss, with G&A expenses being particularly high at $1,582,961.)

Cash and Cash Equivalents

Highly liquid short-term investments that are readily convertible to known amounts of cash and have an insignificant risk of changes in value. (Showed a dramatic decrease, highlighting the company's cash burn.)

Share Subscriptions

Agreements where investors commit to purchasing shares of a company's stock in the future. (Provided $5,832,000 in cash, partially offsetting the operating cash outflow.)

Year-Over-Year Comparison

Compared to the prior year period (three months ended January 31, 2023), total revenues have decreased from $7,743,164 to $6,635,195, despite the restatement to a gross basis. Gross profit has plummeted from $7,739,672 to $1,486,438, and net income has reversed to a net loss of $308,261 from a profit of $2,022,241. Operating expenses have also seen a significant shift, with G&A expenses decreasing substantially but R&D expenses appearing for the first time.

Key Financial Figures

• $0.0001 — 0,000 shares of Common Stock, par value $0.0001 per share and 10,000,000 shares of Seri
• $2,000 — Series A Preferred Stock, is valued at $2,000. On October 25, 2019, Ryohei Uetaki w
• $323,675 — otal to these shareholders and received $323,675 as aggregate consideration. At the time
• $1,740,000 — otal to these shareholders and received $1,740,000 as aggregate consideration. At the time
• $ — rrency is not US$ are translated into US$, using the exchange rate on the balance
• $357,659 — eived related to product sales totaling $357,659. Revenue from crypto miners sales D

Filing Documents

• worldscan_qa1241ao.htm (10-Q/A) — 492KB
• ex31_124.htm (EX-31) — 11KB
• ex32_124.htm (EX-32) — 7KB
• 0001599916-25-000111.txt ( ) — 2496KB
• wdsp-20240131.xsd (EX-101.SCH) — 29KB
• wdsp-20240131_cal.xml (EX-101.CAL) — 14KB
• wdsp-20240131_def.xml (EX-101.DEF) — 27KB
• wdsp-20240131_lab.xml (EX-101.LAB) — 167KB
• wdsp-20240131_pre.xml (EX-101.PRE) — 131KB
• worldscan_qa1241ao_htm.xml (XML) — 318KB

- FINANCIAL INFORMATION

PART I - FINANCIAL INFORMATION ITEM 1

FINANCIAL STATEMENTS - UNAUDITED

FINANCIAL STATEMENTS - UNAUDITED F1 Consolidated Balance Sheets - UNAUDITED F1 CONSOLIDATED Statements of Operations AND COMPREHENSIVE INCOME- UNAUDITED F2 cONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)- UNAUDITED F3 cONSOLIDATED Statement of Cash Flows - unaudited F4 Notes to CONSOLIDATED Financial Statements - unaudited F5 ITEM 2

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS 3 ITEM 3

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 3 ITEM 4

CONTROLS AND PROCEDURES

CONTROLS AND PROCEDURES 4

- OTHER INFORMATION

PART II - OTHER INFORMATION ITEM 1

LEGAL PROCEEDINGS

LEGAL PROCEEDINGS 5 ITEM 1A

RISK FACTORS

RISK FACTORS ITEM 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 5 ITEM 3 DEFAULTS UPON SENIOR SECURITIES 5 ITEM 4 MINE SAFETY DISCLOSURES 5 ITEM 5 OTHER INFORMATION 5 ITEM 6 EXHIBITS 5

SIGNATURES

SIGNATURES 6 -2- Table of Contents Explanatory Note: This Amendment No. 1 to the Form 10-Q for the period is being filed to restate the prior quarterly report. Revenue previously presented on a net basis has been revised to a gross basis based on discussions with the Company's current auditor. Table of Contents

- FINANCIAL INFORMATION

PART I - FINANCIAL INFORMATION WORLD SCAN PROJECT, INC. RESTATED CONSOLIDATED BALANCE SHEETS January 31, 2024 (Unaudited) October 31, 2023 ASSETS Current Assets Cash and cash equivalents $ 767,210 $ 5,698,883 Accounts receivable, trade - 125,981 Other receivables, current 104,828 - Advance payments and prepaid expenses 4,719,439 5,122,849 Inventories 7,145,995 358,635 TOTAL CURRENT ASSETS 12,737,472 11,306,348 Non-current assets Furniture, fixtures and equipment, net 266,054 244,277 Lease asset long term 740,181 788,150 Investment securities 1,626,567 1,605,244 Long term prepaid expenses and security deposits, net 49,140 52,769 Deferred tax assets 92,349 27,841 Other intangible assets, non-current 420,813 15,147 TOTAL NON-CURRENT ASSETS 3,195,104 2,733,428 TOTAL ASSETS $ 15,932,576 $ 14,039,776 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Accrued expenses and other payables $ 6,166,607 $ 983,068 Accounts payable - related party 19,941 19,679 Income taxes payable 119 117 Consumption tax payable - 29,027 Short-term lease liability 168,728 186,351 Advance received 357,659 3,358,529 Due to related party 458 458 Share application pending allotment - 120,618 TOTAL CURRENT LIABILITIES 6,713,512 4,697,847 Non-Current Liabilities Lease liability long term 598,451 626,242 TOTAL LIABILITIES $ 7,311,963 $ 5,324,089 Shareholders' Equity Preferred stock ($ 0.0001 par value, 200,000,000 shares authorized; 10,000,000 shares issued and outstanding as of January 31, 2024 and October 31, 2023) $ 1,000 $ 1,000 Common stock ($ 0.0001 par value, 200,000,000 shares authorized, 10,817,350 shares issued and outstanding as of January 31, 2024 and October 31, 2023) 1,082 1,082 Additional paid-in capital 2,063,973 2,063,973 Accumulated earnings 8,830,294 9,138,555 Accumulated other c

NOTES TO FINANCIAL STATEMENTS

NOTES TO FINANCIAL STATEMENTS JANUARY 31, 2024 (UNAUDITED) NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS World Scan Project, Inc., a Delaware corporation ("the Company") was incorporated under the laws of the State of Delaware on October 25, 2019. On October 25, 2019, Ryohei Uetaki, our officer and director, paid for expenses involved with the incorporation of the Company with personal funds on behalf of the Company, in exchange for 10,000,000 shares of Common Stock, par value $0.0001 per share and 10,000,000 shares of Series A Preferred stock, par value $0.0001 per share, which issuance was exempt from the registration provisions of Section 5 of the Securities Act under Section 4(2) of such same said act. The value of the stock provided to Mr. Uetaki, based on the par value of $.0001 per share of common stock and Series A Preferred Stock, is valued at $2,000. On October 25, 2019, Ryohei Uetaki was appointed as Chief Executive Officer, Chief Financial Officer, President, Director, Secretary, and Treasurer. On November 18, 2019, Yasumasa Ichikawa was appointed as Chief Technology Officer. On January 25, 2020, the Company entered into and consummated a Share Contribution Agreement with Ryohei Uetaki. Pursuant to this agreement Mr. Uetaki gifted to the Company, at no cost, 300 shares of common stock of World Scan Project Corporation, a Japan corporation ("WSP Japan"), which represented all of its issued and outstanding shares. The Company has since gained a 100% interest in the issued and outstanding shares of WSP Japan's common stock and WSP Japan is now a wholly owned subsidiary of the Company. The Company and WSP Japan were under common control at the time of the acquisition. WSP Japan was incorporated under the laws of Japan on January 22, 2020. Currently, WSP Japan is headquartered in Tokyo, Japan. The Company's primary business is focused on developing and manufacturing autonomous aerial vehicles including drones. On February 19, 2020, Ryo

View Full Filing

View this 10-Q/A filing on SEC EDGAR