WPCS Reports 1st Quarter FY2014 Results

Marketwired

EXTON, PA--(Marketwired - Sep 16, 2013) -  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.

   
   
WPCS INTERNATIONAL INCORPORATED AND SUBSIDIARIES  
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS  
(UNAUDITED)  
   
    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  
                 
                 
                 
WPCS INTERNATIONAL INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
 
    July 31,   April 30,
ASSETS   2013   2013
    (Unaudited)    
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
             
             
             
WPCS INTERNATIONAL INCORPORATED AND SUBSIDIARIES  
CONDENSED CONSOLIDATED BALANCE SHEETS (continued)  
   
LIABILITIES AND DEFICIT   July 31,     April 30,  
    2013     2013  
    (Unaudited)        
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                
                 
EQUITY:                
                 
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 )
                         
Plus:                        
  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 )
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WPCS International Incorporated
610-903-0400 x104
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