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WPCS Reports 1st Quarter FY2014 Results

Companies mentioned in this article: WPCS International Incorporated

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 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 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
                                                 ------------  ------------

  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)

  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
                                                 ============  ============


                                                    July 31,     April 30,
                     ASSETS                           2013          2013
                                                 ------------- -------------

  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
                                                 ============= =============


             LIABILITIES AND DEFICIT               July 31,      April 30,
                                                     2013          2013
                                                 ------------  ------------

  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
                                                 ------------  ------------



  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
                                      -----------  -----------  -----------

 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)      69,953
  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
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