WPCS Reports 1st Quarter FY2014 Results

WPCS Reports 1st Quarter FY2014 Results 
EXTON, PA -- (Marketwired) -- 09/16/13 --  WPCS International
Incorporated (NASDAQ: WPCS), which specializes in design-build
engineering services for communications infrastructure, today
announced financial results for the fiscal year 2014 first quarter
ended July 31, 2013. In the first quarter, the company generated
consolidated EBITDA of approximately $118,000 on revenue of $9.7
million, compared to an EBITDA loss of $311,000 on revenue of $9.4
million in the preceding quarter ended April 30, 2013. For the same
period in the prior year, the company generated an EBITDA loss of
$81,000 on revenue of $13.4 million. WPCS currently has a backlog of
$26.1 million in orders to fulfill and a bid list of $52.2 million in
potential projects. 
For the first quarter of fiscal year 2014 ended July 31, 2013, WPCS
reported a net loss of approximately $5.9 million or $5.89 per
diluted share, which includes a one-time charge for severance expense
of approximately $1.5 million related to the separation agreement
with the company's former CEO, Andy Hidalgo. As part of the
separation agreement, Mr. Hidalgo intends to acquire certain
underperforming operation center assets, which is consistent with the
company's plan to improve its financial results. 
For the first quarter ended July 31, 2013, WPCS recorded non-cash
charges of approximately $4.1 million for the amortization of note
discounts and change in fair value of the derivative liabilities. 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. These are non-cash charges and
do not affect the operating cash flow of the company.  
The net loss for the first quarter ended July 31, 2013, compares to
net income of $994,000 or $0.99 per diluted share, for the same
period one year ago, which includes income from discontinued
operations for the Hartford and Lakewood operations of approximately
$1.7 million, or $1.68 per diluted share. 
Sebastian Giordano, Interim CEO of WPCS, commented, "The management
team is pleased to report positive EBITDA performance, and since
taking over the interim CEO role, the company is evaluating a number
of opportunities for improvement, including seeking a shareholder
value proposition in the near future."  
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 VH61282. 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 61282 # as the program identification
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
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
severance expenses, 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 comparable
GAAP financial measure.  

                                                     Three Months Ended     
                                                          July 31,          
                                                     2013          2012     
                                                 ------------  ------------ 
REVENUE                                          $  9,712,088  $ 13,444,417 
                                                 ------------  ------------ 
COSTS AND EXPENSES:                                                         
  Cost of revenue                                   7,149,494    10,514,076 
  Selling, general and administrative expenses      2,444,811     3,010,966 
  Severance expense                                 1,474,277             - 
  Depreciation and amortization                       291,489       361,714 
                                                 ------------  ------------ 
                                                   11,360,071    13,886,756 
                                                 ------------  ------------ 
OPERATING LOSS                                     (1,647,983)     (442,339)
OTHER EXPENSE (INCOME):                                                     
  Interest expense                                  1,160,057       125,115 
  Change in fair value of derivative liabilities    3,041,905             - 
  Interest income                                      (2,770)       (9,798)
                                                 ------------  ------------ 
Loss from continuing operations before income                               
 tax provision                                     (5,847,175)     (557,656)
Income tax provision                                   24,151       134,529 
                                                 ------------  ------------ 
LOSS FROM CONTINUING OPERATIONS                    (5,871,326)     (692,185)
                                                 ------------  ------------ 
Discontinued operations                                                     
  Loss from operations of discontinued                                      
   operations, net of tax provision of $54,164              -      (639,292)
  Gain from disposal                                        -     2,324,631 
                                                 ------------  ------------ 
  Income from discontinued operations, net of                               
   tax                                                      -     1,685,339 
                                                 ------------  ------------ 
CONSOLIDATED NET (LOSS) INCOME                     (5,871,326)      993,154 
Net income (loss) attributable to noncontrolling                            
 interest                                              21,744          (547)
                                                 ------------  ------------ 
NET (LOSS) INCOME ATTRIBUTABLE TO WPCS           $ (5,893,070) $    993,701 
                                                 ============  ============ 
Basic and diluted net (loss) income per common                              
 share attributable to WPCS:                                                
  Loss from continuing operations attributable                              
   to WPCS                                       $      (5.89) $      (0.69)
  Income from discontinued operations                                       
   attributable to WPCS                          $          -  $       1.68 
                                                 ------------  ------------ 
  Basic and diluted net (loss) income per common                            
   share attributable to WPCS                    $      (5.89) $       0.99 
                                                 ============  ============ 
Basic and diluted weighted average number of                                
 common shares outstanding                          1,000,624     1,000,624 
                                                 ============  ============ 
                    CONDENSED CONSOLIDATED BALANCE SHEETS                   
                                                    July 31,     April 30,  
                     ASSETS                           2013          2013    
                                                 ------------- -------------
CURRENT ASSETS:                                                             
  Cash and cash equivalents                      $   1,511,505 $   1,410,223
  Restricted cash                                      655,754     1,869,178
  Accounts receivable, net of allowance of                                  
   $1,382,778 and $1,427,308 at July 31, 2013                               
   and April 30, 2013, respectively                  9,986,639     8,363,089
  Costs and estimated earnings in excess of                                 
   billings on uncompleted contracts                 1,453,436     1,148,855
  Deferred contract costs                            1,569,341     1,597,894
  Prepaid expenses and other current assets            318,913       204,492
  Prepaid income taxes                                   2,185         2,185
                                                 ------------- -------------
    Total current assets                            15,497,773    14,595,916
PROPERTY AND EQUIPMENT, net                          2,847,148     3,053,455
OTHER INTANGIBLE ASSETS, net                           187,937       250,632
OTHER ASSETS                                           201,996       244,963
                                                 ------------- -------------
Total assets                                     $  18,734,854 $  18,144,966
                                                 ============= =============
             CONDENSED CONSOLIDATED BALANCE SHEETS (continued)              
             LIABILITIES AND DEFICIT               July 31,      April 30,  
                                                     2013          2013     
                                                 ------------  ------------ 
CURRENT LIABILITIES:                                                        
  Current portion of loans payable               $     49,653  $     43,942 
  Senior secured convertible notes, net of debt                             
   discount                                         1,549,928     1,111,111 
  Derivative liability - senior secured                                     
   convertible note                                 3,939,029     3,088,756 
  Accounts payable and accrued expenses             5,779,215     4,764,487 
  Accrued severance expense                         1,462,500             - 
  Billings in excess of costs and estimated                                 
   earnings on uncompleted contracts                1,713,702     1,642,501 
  Deferred revenue                                    277,287       113,503 
  Other payable                                     1,633,757     1,743,986 
  Short-term bank loan                              2,446,650     2,432,205 
  Income taxes payable                                 74,126       139,557 
                                                 ------------  ------------ 
    Total current liabilities                      18,925,847    15,080,048 
Loans payable, net of current portion                 168,127       133,838 
Derivative liability - warrants                     5,363,285     3,858,508 
                                                 ------------  ------------ 
Total liabilities                                  24,457,259    19,072,394 
                                                 ------------  ------------ 
COMMITMENTS AND CONTINGENCIES                                               
WPCS DEFICIT:                                                               
  Preferred stock - $0.0001 par value, 5,000,000                            
   shares authorized, none issued                           -             - 
  Common stock - $0.0001 par value, 14,285,714                              
   shares authorized, 1,269,929 and 994,187                                 
   shares issued and outstanding at July 31,                                
   2013 and April 30, 2013 respectively                   127            99 
  Additional paid-in capital                       52,146,305    50,844,183 
  Accumulated deficit                             (59,947,459)  (54,054,389)
  Accumulated other comprehensive income on                                 
   foreign currency translation                     1,202,993     1,433,541 
                                                 ------------  ------------ 
    Total WPCS deficit                             (6,598,034)   (1,776,566)
    Noncontrolling interest                           875,629       849,138 
                                                 ------------  ------------ 
    Total deficit                                  (5,722,405)     (927,428)
                                                 ------------  ------------ 
    Total liabilities and deficit                $ 18,734,854  $ 18,144,966 
                                                 ============  ============ 
Reconciliation of GAAP to Non-GAAP Financial Measure (Unaudited)            
(1) Reconciliation of Non-GAAP EBITDA as Adjusted:                          
                                                Three Months Ended          
                                        July 31,     July 31,    April 30,  
                                          2013         2012         2013    
                                      -----------  -----------  ----------- 
NET (LOSS) INCOME ATTRIBUTABLE TO                                           
 WPCS, GAAP                           $(5,893,070) $   993,701  $(6,186,744)
  Net income (loss) attributable to                                         
   noncontrolling interest                 21,744         (547)      12,484 
  Loss (income) from discontinued                                           
   operations, net of tax                       -      639,292     (106,027)
  (Gain) loss from disposal of                                              
   discontinued operations                      -   (2,324,631)    
  Income tax provision                     24,151      134,529      877,705 
  Interest expense                      1,160,057      125,115      794,778 
  Change in fair value of derivative                                        
   liabilities                          3,041,905            -    2,000,674 
  Interest income                          (2,770)      (9,798)     (36,550)
  Goodwill and intangible assets                                            
   impairment                                   -            -    1,936,059 
  Depreciation and amortization           291,489      361,714      327,114 
  One time charge - severance expense   1,474,277            -            - 
                                      -----------  -----------  ----------- 
Consolidated EBITDA, as adjusted,                                           
 Non-GAAP                             $   117,783  $   (80,625) $  (310,554)
                                      ===========  ===========  =========== 

WPCS International Incorporated
610-903-0400 x104
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