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WPCS Reports 4th Quarter and FY2013 Results


WPCS Reports 4th Quarter and FY2013 Results

EXTON, PA -- (Marketwired) -- 07/29/13 -- WPCS International Incorporated (NASDAQ: WPCS), a leader in design-build engineering services for communications infrastructure, today announced financial results for the fiscal year 2013 ended April 30, 2013. For the year ended April 30, 2013, the company generated consolidated EBITDA of approximately $818,000, on revenue of $42.3 million. This compares to an EBITDA loss of $12.2 million on $65.5 million in for the same period in the prior year. For the fourth quarter of fiscal year 2013 ended April 30, 2013, due primarily to project delays, the company generated a $311,000 EBITDA loss on revenue of $9.4 million. This compares to an EBITDA loss of $7.9 million on revenue of $12.0 million for the same period a year ago. WPCS currently has a backlog of $26.4 million in orders to fulfill and a bid list of $60.7 million in potential projects.

For the fourth quarter and year ended April 30, 2013, WPCS recorded a goodwill impairment charge of approximately $1.9 million, as the company determined that the carrying value of its Australia Operations exceeded the fair value. The company emphasized that this impairment charge is a non-cash charge and will have no impact on the operating cash flow or working capital of the company. In connection with the completion of the $4 million senior secured convertible note financing facility on December 5, 2012, the conversion features of the notes and the common stock warrants issued are considered derivative financial instruments that are accounted for as a note discount with each being a derivative liability. WPCS is required to determine the fair value of these liabilities, with the changes in fair value recorded in the financial results each period as a non-cash charge or gain. For the fourth quarter and year ended April 30, 2013, WPCS recorded non-cash charges of approximately $2.7 million and $4.1 million respectively, for the amortization of note discounts and change in fair value of the derivative liabilities. These are also non-cash charges and do not affect the operating cash flow or working capital of the company.

For the fourth quarter of fiscal year 2013 ended April 30, 2013, WPCS reported a net loss of approximately $6.2 million or $6.23 per diluted share, which includes the aforementioned non-cash charges as well as a non-cash charge of $2.3 million related to valuation allowances for deferred taxes. This compares to a net loss of $8.5 million or $8.58 per diluted share, for the same period one year ago, which includes a loss from discontinued operations for the Hartford and Lakewood Operations of approximately $777,000, or $0.78 per diluted share.

For fiscal year 2013 ended April 30, 2013, WPCS reported a net loss of approximately $6.9 million, or $6.95 per diluted share, which includes the aforementioned non-cash charges, and includes income from discontinued operations for the Hartford and Lakewood Operations of approximately $1.2 million, or $1.17 per diluted share. This compares to a net loss of $20.5 million or $20.68 per diluted share, for the same period one year ago, which includes a non-cash charge of $6.6 million related to valuation allowances for deferred taxes and a loss from discontinued operations of approximately $3.9 million, or $3.90 per diluted share related to the sale of the Hartford, Lakewood, St. Louis and Sarasota Operations.

Andrew Hidalgo, CEO of WPCS, commented, "We are pleased to report that fiscal year 2013 was successful and a significant turnaround from the prior fiscal year. The management team worked diligently to mitigate the past project losses and improve the efficiency of the organization so that we could post positive EBITDA. The company looks forward to building on this momentum for fiscal year 2014."

As a reminder, there will be an investor conference call at 5:00 pm ET today. To participate on the conference call, please dial 800-875-3456 for calls within the U.S. or 302-607-2001 for calls from international locations. Upon reaching the operator, verbally transmit the participant code VH40215. When the overview concludes, your questions can be asked by pressing *1 and your questions can be removed from the queue by pressing the number sign. Replays of the call will be available for a period of five days by dialing 800-355-2355 and entering 40215 # as the program identification number.

About WPCS International Incorporated:

WPCS is a design-build engineering company that focuses on the implementation requirements of communications infrastructure. The company provides its engineering capabilities including wireless communication, specialty construction and electrical power to the public services, healthcare, energy and corporate enterprise markets worldwide. For more information, please visit www.wpcs.com

Statements about the company's future expectations, including future revenue and earnings and all other statements in this press release, other than historical facts, are "forward looking" statements and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward looking statements involve risks and uncertainties and are subject to change at any time. The company's actual results could differ materially from expected results. In reflecting subsequent events or circumstances, the company undertakes no obligation to update forward looking statements.

The press release references a financial measure, EBITDA that is not in accordance with GAAP. WPCS defines EBITDA in the traditional sense of earnings before interest, income taxes, depreciation and amortization but in addition, WPCS has incurred one-time charges (credits) for the (gain) loss from discontinued operations and the strategic alternatives effort as well as non-cash charges from changes in fair value of derivative liabilities, deferred tax asset valuation allowances, acquisition related earn-out costs and goodwill impairments. These charges are also excluded from the EBITDA calculation so that the company can provide a more meaningful perspective on the results for the continuing operations. The company uses EBITDA to evaluate its operating and financial performance in light of business objectives, for planning purposes, when publicly providing our business outlook and to facilitate period-to-period comparisons. The company believes that this measure is useful to investors because it enhances investors' ability to review the Company's business from the same perspective as our management and to facilitate comparisons of this period's results with prior periods. Non-GAAP measures are used at times by investors to assess the ongoing financial performance of the company. These financial measures are not in accordance with GAAP and may differ from non-GAAP methods of accounting and reporting used by other companies. The presentation of the additional information should not be considered a substitute for net income (loss) or net income (loss) per diluted share prepared in accordance with GAAP. The primary material limitations associated with the use of non-GAAP measures as compared to the most directly comparable GAAP financial measures are (i) they may not be comparable to similarly titled measures used by other companies in our industry, and (ii) they exclude financial information that some may consider important in evaluating our performance. Pursuant to the Requirements of Regulation G, WPCS has included a reconciliation of EBITDA to the most directly com parable GAAP financial measure.


 
                                                                            
                                                                            
              WPCS INTERNATIONAL INCORPORATED AND SUBSIDIARIES              
                   CONSOLIDATED STATEMENTS OF OPERATIONS                    
                                                                            
                          Three Months Ended             Years Ended        
                               April 30,                  April 30,         
                           2013         2012         2013          2012     
                       -----------  -----------  -----------  ------------- 
                                      (Note 1)                   (Note 1)   
REVENUE                $ 9,426,821  $11,968,914  $42,328,675  $  65,462,157 
                       -----------  -----------  -----------  ------------- 
                                                                            
COSTS AND EXPENSES:                                                         
 Cost of revenue         6,505,910   16,207,526   29,948,760     63,504,085 
 Selling, general and                                                       
  administrative                                                            
  expenses               3,231,465    3,689,700   11,562,370     14,102,129 
 Depreciation and                                                           
  amortization             327,114      439,128    1,332,169      1,775,672 
 Goodwill and                                                               
  intangible assets                                                         
  impairment             1,936,059       20,167    1,936,059         20,167 
 Change in fair value                                                       
  of acquisition-                                                           
  related contingent                                                        
  consideration                  -            -            -         83,628 
                       -----------  -----------  -----------  ------------- 
                                                                            
                        12,000,548   20,356,521   44,779,358     79,485,681 
                       -----------  -----------  -----------  ------------- 
                                                                            
OPERATING LOSS          (2,573,727)  (8,387,607)  (2,450,683)   (14,023,524)
                                                                            
OTHER EXPENSE                                                               
 (INCOME):                                                                  
 Interest expense          794,778      264,926    2,124,833        845,502 
 Change in fair value                                                       
  of derivative                                                             
  liabilities            2,000,674            -    2,703,248              - 
 Interest income           (36,550)       5,133      (54,620)       (54,245)
                       -----------  -----------  -----------  ------------- 
                                                                            
Loss from continuing                                                        
 operations before                                                          
 income tax provision   (5,332,629)  (8,657,666)  (7,224,144)   (14,814,781)
                                                                            
Income tax provision       877,705     (787,587)     758,144      1,876,476 
                                                                            
                       -----------  -----------  -----------  ------------- 
LOSS FROM CONTINUING                                                        
 OPERATIONS             (6,210,334)  (7,870,079)  (7,982,288)   (16,691,257)
                       -----------  -----------  -----------  ------------- 
Discontinued                                                                
 operations                                                                 
 Loss from operations                                                       
  of discontinued                                                           
  operations, net of                                                        
  tax provision of                                                          
  $4,491 and                                                                
  $2,646,224,                                                               
  respectively             106,027     (772,048)    (589,619)    (2,845,677)
 (Loss) gain from                                                           
  disposal                 (69,953)      (5,100)   1,756,586     (1,032,737)
                                                                            
                       -----------  -----------  -----------  ------------- 
Income (loss) from                                                          
 discontinued                                                               
 operations                 36,074     (777,148)   1,166,967     (3,878,414)
                       -----------  -----------  -----------  ------------- 
                                                                            
CONSOLIDATED NET LOSS   (6,174,260)  (8,647,227)  (6,815,321)   (20,569,671)
                                                                            
Net income                                                                  
 attributable to                                                            
 noncontrolling                                                             
 interest                   12,484     (118,400)      95,406        (21,840)
                       -----------  -----------  -----------  ------------- 
                                                                            
NET LOSS ATTRIBUTABLE                                                       
 TO WPCS               $(6,186,744) $(8,528,827)  (6,910,727) $ (20,547,831)
                       ===========  ===========  ===========  ============= 
Basic and diluted net                                                       
 loss per common share                                                      
 attributable to WPCS:                                                      
 Loss from continuing                                                       
  operations                                                                
  attributable to WPCS $     (6.26) $     (7.80) $     (8.12) $      (16.78)
 Income (loss) from                                                         
  discontinued                                                              
  operations                                                                
  attributable to WPCS $      0.04  $     (0.78) $      1.17  $       (3.90)
                       -----------  -----------  -----------  ------------- 
 Basic and diluted net                                                      
  loss per common                                                           
  share attributable                                                        
  to WPCS              $     (6.23) $     (8.58) $     (6.95) $      (20.68)
                       ===========  ===========  ===========  ============= 
                                                                            
Basic and diluted                                                           
 weighted average                                                           
 number of common                                                           
 shares outstanding        993,538      993,538      993,538        993,538 
                       ===========  ===========  ===========  ============= 
                                                                            
(1) The prior year financial statements contain certain reclassifications to
present discontinued operations and to conform to current presentation.     
                                                                            
                                                                            
 
                                                                            
                                                                            
              WPCS INTERNATIONAL INCORPORATED AND SUBSIDIARIES              
                         CONSOLIDATED BALANCE SHEETS                        
                                                                            
                                                   April 30,     April 30,  
                     ASSETS                           2013          2012    
                                                 ------------- -------------
                                                                            
CURRENT ASSETS:                                                             
                                                                            
  Cash and cash equivalents                      $   1,410,223 $     811,283
  Restricted cash                                    1,869,178             -
Accounts receivable, net of allowance of                                    
 $1,427,308 and $1,794,729 at April 30, 2013 and                            
 2012, respectively                                  8,363,089    22,343,304
  Costs and estimated earnings in excess of                                 
   billings on uncompleted contracts                 1,148,855     1,340,379
  Deferred contract costs                            1,597,894     1,816,116
  Inventory                                                  -     1,475,266
  Prepaid expenses and other current assets            204,492       326,075
  Prepaid income taxes                                   2,185       137,279
  Deferred tax assets                                        -       307,550
                                                 ------------- -------------
  Total current assets                              14,595,916    28,557,252
                                                                            
PROPERTY AND EQUIPMENT, net                          3,053,455     4,309,450
                                                                            
OTHER INTANGIBLE ASSETS, net                           250,632       382,852
                                                                            
GOODWILL                                                     -     1,930,826
                                                                            
DEFERRED TAX ASSETS                                          -       243,999
                                                                            
OTHER ASSETS                                           244,963       371,020
                                                 ------------- -------------
                                                                            
Total assets                                     $  18,144,966 $  35,795,399
                                                 ============= =============
                             
                                               
                                                                            
                                                                            
                                                                            
              WPCS INTERNATIONAL INCORPORATED AND SUBSIDIARIES              
                  CONSOLIDATED BALANCE SHEETS (continued)                   
                                                                            
            LIABILITIES AND EQUITY               April 30,      April 30,   
                                                    2013           2012     
                                               -------------  ------------- 
                                                                            
CURRENT LIABILITIES:                                                        
                                                                            
  Current portion of loans payable             $      43,942  $     143,514 
  Borrowings under line of credit                          -      4,964,140 
  Senior secured convertible notes, net of                                  
   debt discount                                   1,111,111              - 
  Derivative liability - senior secured                                     
   convertible notes                               3,088,756              - 
  Current portion of capital lease obligations             -         15,465 
  Accounts payable and accrued expenses            4,764,487     16,669,621 
  Billings in excess of costs and estimated                                 
   earnings on uncompleted contracts               1,642,501      3,594,193 
  Deferred revenue                                   113,503        790,270 
  Due joint venture partner                                -      3,314,708 
  Other payable                                    1,743,986              - 
  Short-term bank loan                             2,432,205              - 
  Income taxes payable                               139,557        194,963 
                                               -------------  ------------- 
    Total current liabilities                     15,080,048     29,686,874 
                                                                            
Loans payable, net of current portion                133,838        223,561 
Derivative liability - warrants                    3,858,508              - 
                                               -------------  ------------- 
    Total liabilities                             19,072,394     29,910,435 
                                               -------------  ------------- 
                                                                            
COMMITMENTS AND CONTINGENCIES                                               
                                                                            
EQUITY:                                                                     
                                                                            
WPCS EQUITY:                                                                
  Preferred stock - $0.0001 par value,                                      
   5,000,000 shares authorized, none issued                -              - 
  Common stock - $0.0001 par value, 14,285,715                              
   shares authorized, 993,538                                               
  shares issued and outstanding at April 30,                                
   2013 and 2012                                          99             99 
  Additional paid-in capital                      50,844,183     50,478,139 
  Accumulated deficit                            (54,054,389)   (47,143,662)
  Accumulated other comprehensive income on                                 
   foreign currency translation                    1,433,541      1,433,066 
                                               -------------  ------------- 
                                                                            
    Total WPCS equity (deficit)                   (1,776,566)     4,767,642 
                                                                            
  Noncontrolling interest                            849,138      1,117,322 
                                               -------------  ------------- 
  Total equity (deficit)                            (927,428)     5,884,964 
                                               -------------  ------------- 
                                                                            
    Total liabilities and equity               $  18,144,966  $  35,795,399 
                                               =============  ============= 
                                                                            
                                                                            
                                                                            
                                                                            
Reconciliation of GAAP to Non-GAAP Financial Measure (Unaudited)            
(1) Reconciliation of Non-GAAP EBITDA as Adjusted:                          
                                                                            
                           Three Months Ended            Years Ended        
                                April 30,                 April 30,         
                            2013         2012         2013         2012     
                        -----------  -----------  -----------  ------------ 
                                                                            
NET LOSS ATTRIBUTABLE                                                       
 TO WPCS, GAAP          $(6,186,744) $(8,528,827) $(6,910,727) $(20,547,831)
                                                                            
Plus:                                                                       
 Net income
 (loss)                                                          
  attributable to                                                           
  noncontrolling                                                            
  interest                   12,484     (118,400)      95,406       (21,840)
 (Income) Loss from                                                         
  discontinued                                                              
  operations, net of                                                        
  tax                      (106,027)     772,048      589,619     2,845,677 
 Loss (gain) from                                                           
  disposal of                                                               
  discontinued                                                              
  operations                 69,953        5,100   (1,756,586)    1,032,737 
 Income tax (benefit)                                                       
  provision                 877,705     (787,587)     758,144     1,876,476 
 Interest expense           794,778      264,926    2,124,833       845,502 
 Change in fair value                                                       
  of derivative                                                             
  liabilities             2,000,674            -    2,703,248             - 
 Interest income            (36,550)       5,133      (54,620)      (54,245)
 Change in fair value                                                       
  of acquisition-                                                           
  related contingent                                                        
  consideration                   -            -            -        83,628 
 One time strategic                                                         
  costs                           -       13,402            -       (45,346)
 Goodwill and                                                               
  intangible assets                                                         
  impairment              1,936,059       20,167    1,936,059        20,167 
 Depreciation and                                                           
  amortization              327,114      439,128    1,332,169     1,775,672 
                                                                            
                        -----------  -----------  -----------  ------------ 
Consolidated EBITDA, as                                                     
 adjusted, Non-GAAP     $  (310,554) $(7,914,910) $   817,545  $(12,189,403)
                        ===========  ===========  ===========  ============ 

CONTACT:

WPCS International Incorporated 610-903-0400 x104 ir@wpcs.com

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