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WPCS Reports 2nd Quarter FY2014 Results


WPCS Reports 2nd Quarter FY2014 Results

EXTON, PA -- (Marketwired) -- 12/16/13 -- WPCS International Incorporated (NASDAQ: WPCS), which specializes in design-build engineering services for communications infrastructure, today announced financial results for the fiscal year 2014 second quarter ended October 31, 2013. WPCS currently has a backlog of $25.4 million in orders to fulfill and a bid list of $40.5 million in potential projects.

For the second quarter of fiscal year 2014 ended October 31, 2013, WPCS reported a net loss of approximately $473,000 or $0.37 per diluted share. The net loss for the second quarter ended October 31, 2013, compares to a net loss of $493,000 or $0.50 per diluted share, for the same period one year ago, which includes a loss from discontinued operations for the Hartford, Lakewood and Australia operations of approximately $959,000, or $.97 per diluted share.

For the six months ended October 31, 2013, WPCS reported a net loss of approximately $6.4 million or $5.60 per diluted share which includes a loss from discontinued operations of $40,000, or $0.03 per diluted share, related to the pending sale of the Australia Operations, and 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, WPCS reached agreement with Mr. Hidalgo to acquire the Australia Operations, which is consistent with the company's plan to improve its financial results. The closing is anticipated by January 31, 2014, and is subject to WPCS shareholder approval.

The net loss for the first six months of fiscal 2014 compares to a net income of $500,000 or $0.50 per diluted share, for the same period a year ago, which includes income from discontinued operations of approximately $355,000, or $0.35 per diluted share, primarily related to the sale of the Hartford and Lakewood Operations.

For the six months ended October 31, 2013, WPCS recorded non-cash charges of approximately $3.9 million related to the amortization of notes discount and change in fair value of 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 not es and the common stock warrants issued were historically considered derivative financial instruments, with the fair value accounted for as derivative liabilities, with the changes in fair value recorded in the financial results each period as a non-cash charge or gain. Effective as of October 31, 2013, WPCS entered into amendments with the holders of its notes and warrants to modify certain features of the notes and warrants which eliminated the derivative liability accounting treatment and permitted the Company to reclassify these former derivative liabilities to stockholders' equity at October 31, 2013. As a result of this reclassification, our stockholders' equity is approximately $4.5 million as of October 31, 2013, which allowed us to regain compliance with the continued listing requirements of the Nasdaq Capital Market.

Sebastian Giordano, Interim CEO of WPCS, commented, "While we continue to consider and develop organic growth opportunities, we are also seeking opportunities to improve our balance sheet. Since coming on board, we have sought and implemented a number of opportunities for improvement, including: (i) the execution of an aggressive plan over the past several months to stabilize the operations, improve cash flows of the business through, amongst other things, operating cost reductions; (ii) the divestiture of underperforming operations, as evidenced by the sale of the Pride business described above, and the wind-down of the unprofitable Trenton Operations; and (iii) the restructuring of the Notes and Warrants which has enabled the Company to eliminate the former derivative liabilities and rebuild our stockholders' equity to regain compliance with the NASDAQ minimum stockholder equity requirements. As a result, we believe that all of these actions, as well as continuing efforts to improve the Company's performance and financial position, will contribute favorably to providing the Company with an opportunity to deliver improved shareholder value in the future."

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.


 
                                                                            
                                                                            
              WPCS INTERNATIONAL INCORPORATED AND SUBSIDIARIES              
              CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS               
                                 (UNAUDITED)                                
                                                                            
                            Three Months Ended         Six Months Ended     
                                October 31,               October 31,       
                             2013         2012         2013         2012    
                         -----------  -----------  -----------  ----------- 
                                          (Note 1)     (Note 1)     (Note 1)
REVENUE                  $ 7,355,744  $ 7,958,243  $15,187,127  $19,246,260 
                         -----------  -----------  -----------  ----------- 
                                                                            
COSTS AND EXPENSES:                                                         
  Cost of revenue          5,602,337    5,013,329   11,346,996   13,968,212 
  Selling, general and                                                      
   administrative                                                           
   expenses                1,854,241    2,061,126    3,837,815    4,156,282 
  Severance expense                -            -    1,474,277            - 
  Depreciation and                                                          
   amortization              214,895      268,179      457,952      572,286 
                         -----------  -----------  -----------  ----------- 
                                                                            
                           7,671,473    7,342,634   17,117,040   18,696,780 
                         -----------  -----------  -----------  ----------- 
                                                                            
OPERATING (LOSS) INCOME     (315,729)     615,609   (1,929,913)     549,480 
                                                                 
           
OTHER EXPENSE (INCOME):                                                     
  Interest expense         2,380,885      320,608    3,540,942      441,013 
  Change in fair value                                                      
   of derivative                                                            
   liabilities            (2,208,155)           -      833,750            - 
                         -----------  -----------  -----------  ----------- 
                                                                            
(Loss) income from                                                          
 continuing operations                                                      
 before income tax                                                          
 provision                  (488,459)     295,001   (6,304,605)     108,467 
                                                                            
Income tax (benefit)                                                        
 provision                    (5,863)    (199,705)      18,288      (65,176)
                                                                            
                         -----------  -----------  -----------  ----------- 
(LOSS) INCOME FROM                                                          
 CONTINUING OPERATIONS      (482,596)     494,706   (6,322,893)     173,643 
                         -----------  -----------  -----------  ----------- 
                                                                            
Discontinued operations                                                     
  Loss from operations                                                      
   of discontinued                                                          
   operations, net of                                                       
   tax provision of $0,                                                     
   $215,700, $0, and                                                        
   $269,864 respectively      (8,718)    (473,728)     (39,747)  (1,484,142)
                                                                            
  (Loss) gain from                                                          
   disposal                        -     (485,212)           -    1,839,419 
                          ----------   ----------   ----------   ---------- 
  (Loss) income from                                                        
   discontinued                                                             
   operations, net of                                                       
   tax                        (8,718)    (958,940)     (39,747)     355,277 
                         -----------  -----------  -----------  ----------- 
                                                                            
CONSOLIDATED NET (LOSS)                                                     
 INCOME                     (491,314)    (464,234)  (6,362,640)     528,920 
                                                                            
Net (loss) income                                                           
 attributable to                                                            
 noncontrolling interest     (18,310)      29,152        3,434       28,605 
                         -----------  -----------  -----------  ----------- 
                                                                            
NET (LOSS) INCOME                                                           
 ATTRIBUTABLE TO WPCS    $  (473,004) $  (493,386)  (6,366,074) $   500,315 
                         ===========  ===========  ===========  =========== 
                                                                            
Basic and diluted net                                                       
 (loss) income per                                                          
 common share                                                               
 attributable to WPCS:                                                      
  (Loss) income from                                                        
   continuing operations                                                    
   attributable to WPCS  $     (0.36) $      0.47  $     (5.57) $      0.15 
  (Loss) income from                                                        
   discontinued                                                             
   operations                                                               
   attributable to WPCS  $     (0.01) $     (0.97) $     (0.03) $      0.35 
                         -----------  -----------  -----------  ----------- 
  Basic and diluted net                                                     
   (loss) income per                                                        
   common share                                                             
   attributable to WPCS  $     (0.37) $     (0.50) $     (5.60) $      0.50 
                         ===========  ===========  ===========  =========== 
                                                                            
Basic weighted average                                                      
 number of common shares                                                    
 outstanding               1,272,877      994,187    1,136,750      994,187 
                         ===========  ===========  ===========  =========== 
Diluted weighted average                                                    
 number of common shares                                                    
 outstanding               1,272,877      995,469    1,136,750      998,160 
                         ===========  ===========  ===========  =========== 
                                                                            
                                                                            
                                                                            
              WPCS INTERNATIONAL INCORPORATED AND SUBSIDIARIES              
                    CONDENSED CONSOLIDATED BALANCE SHEETS                   
                                                                            
                                                  October 31,    April 30,  
                     ASSETS                           2013          2013    
                                                 ------------- -------------
                                                  (unaudited)     (Note 1)  
CURRENT ASSETS:                                                             
                                                                            
  Cash and cash equivalents                      $   1,498,206 $     915,752
  Restricted cash                                            -     1,869,178
  Accounts receivable, net of allowance of                                  
   $999,643 and $1,107,593 at October 31, 2013                              
   and April 30, 2013, respectively                  9,099,911     7,085,969
  Costs and estimated earnings in excess of                                 
   billings on uncompleted contracts                 1,149,409     1,079,367
  Deferred contract costs                            1,745,324     1,597,894
  Prepaid expenses and other current assets            237,962       140,122
  Prepaid income ta
xes                                   2,185         2,185
  Current assets held for sale                       1,843,353     1,905,449
                                                 ------------- -------------
    Total current assets                            15,576,350    14,595,916
                                                                            
PROPERTY AND EQUIPMENT, net                          2,370,591     2,754,734
                                                                            
OTHER INTANGIBLE ASSETS, net                                 -        16,228
                                                                            
OTHER ASSETS                                            63,347       227,259
                                                                            
OTHER ASSETS HELD FOR SALE                             405,542       550,829
                                                 ------------- -------------
                             
                                               
    Total assets                                 $  18,415,830 $  18,144,966
                                                 ============= =============
                                                                            
                                                                            
                                                                            
              WPCS INTERNATIONAL INCORPORATED AND SUBSIDIARIES              
              CONDENSED CONSOLIDATED BALANCE SHEETS (continued)             
                                                                            
            LIABILITIES AND EQUITY              October 31,     April 30,   
                                                    2013           2013     
                                               -------------  ------------- 
                                                (unaudited)      (Note 1)   
CURRENT LIABILITIES:                                                        
                                                                            
  Current portion of loans payable             $      46,773  $      43,942 
  Senior secured convertible notes, net of                                  
   debt discount $3,400,000 and $2,888,889,                                 
   October 31, 2013 and April 30, 2013,                                     
   respectively                                            -      1,111,111 
  Derivative liability - senior secured                                     
   convertible notes                                       -      3,088,756 
  Accounts payable and accrued expenses            4,316,412      4,102,050 
  Accrued severance expense                        1,381,249              - 
  Billings in excess of costs and estimated                                 
   earnings on uncompleted contracts               1,998,367      1,619,307 
  Deferred revenue                                   420,550        113,503 
  Other payable                                    1,533,757      1,743,986 
  Short-term bank loan                             3,283,860      2,432,205 
  Income taxes payable                                46,816        139,557 
  Current liabilities held for sale                  700,430        685,631 
                                               -------------  ------------- 
    Total current liabilities                     13,728,214     15,080,048 
                                                                            
Loans payable, net of current portion                147,222        133,838 
Derivative liability - warrants                            -      3,858,508 
                                               -------------  ------------- 
    Total liabilities                             13,875,436     19,072,394 
                                               -------------  ------------- 
                                                                            
COMMITMENTS AND CONTINGENCIES                                               
                                                                            
EQUITY:                                                                     
                                                                            
 WPCS EQUITY (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, 1,308,669 and 994,187                                 
   shares issued and outstanding at October                                 
   31, 2013 and                                                             
  April 30, 2013, respectively                           131             99 
  Additional paid-in capital                      62,803,147     50,844,183 
  Accumulated deficit                            (60,420,463)   (54,054,389)
  Accumulated other comprehensive income on                                 
   foreign currency translation                    1,294,816      1,433,541 
                                               -------------  ------------- 
                                                                            
    Total WPCS equity (deficit)                    3,677,631     (1,776,566)
                                                                            
    Noncontrolling interest                          862,763        849,138 
                                               -------------  ------------- 
    Total equity (deficit)                         4,540,394       (927,428)
                                               -------------  ------------- 
                                                                            
    Total liabilities and equity (deficit)     $  18,415,830  $  18,144,966 
                                               =============  ============= 

CONTACT:

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

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