UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
To Section 13 Or 15(D) of The Securities Exchange Act of
1934
Date
of report (date of earliest event reported): March 17,
2006
WPCS
INTERNATIONAL INCORPORATED
(Exact
name of registrant as specified in its charter)
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Delaware
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0-26277
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98-0204758
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(State
or Other Jurisdiction
of
Incorporation)
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(Commission
File
Number)
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(IRS
Employer
Identification
No.)
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One
East Uwchlan Avenue, Suite 301, Exton, PA 19341
(Address
of principal executive offices)
Registrant’s
telephone number, including area code: (610) 903-0400
Copy
of correspondence to:
Marc
J.
Ross, Esq.
Sichenzia
Ross Friedman Ference LLP
1065
Avenue of the Americas
New
York,
New York 10018
Tel:
(212) 930-9700 Fax: (212) 930-9725
Check
the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions (see General Instruction A.2. below):
[
]
Written communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
[
]
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[
]
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
Act
(17 CFR 240.14d-2(b))
[
]
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
Act
(17 CFR 240.13e-4(c))
ITEM
2.02 Results
of Operations and Financial Condition
On
March
22, 2006, WPCS International Incorporated (the “Company”) announced its
operating results for the third quarter ended January 31, 2006. A copy of the
press release that discusses this matter is filed as Exhibit 99.1 to, and
incorporated by reference in, this report. The information in this Current
Report is being furnished and shall not be deemed "filed" for the purposes
of
Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the
liabilities of that Section. The information in this Current Report shall not
be
incorporated by reference into any registration statement or other document
pursuant to the Securities Act of 1933, except as shall be expressly set forth
by specific reference in any such filing.
ITEM
4.02 Non-Reliance
on Previously Issued Financial Statements or a Related Audit Report or Completed
Interim Review
On
November 16, 2004, WPCS International Incorporated (the “Company”) completed a
private placement with certain investors for an aggregate of 2,083,887 shares
of
its common stock and 2,083,887 common stock purchase warrants for $10,000,000.
Under the terms of the sale, the investors were granted certain registration
rights. In the event the Company fails to timely perform under the registration
rights agreement, the Company agrees to pay the investors liquidated damages
in
an amount equal to 1.5% of the aggregate amount invested by the investors for
each 30-day period or pro rata for any portion thereof following the date by
which the registration statement should have been effective. The initial
registration statement was filed and declared effective by the SEC within the
allowed time and the Company has maintained the effectiveness of the
registration statement to date, and has not been required to pay any liquidated
damages in connection with the filing or on-going effectiveness of the
registration statement.
In
accordance with Emerging Issues Task Force ("EITF") 00-19, "Accounting for
Derivative Financial Instruments Indexed To, and Potentially Settled in the
Company's Own Stock," and EITF 05-04, "The Effect of a Liquidated Damages Clause
on a Freestanding Financial Instrument Subject to EITF 00-19," because the
maximum potential liquidated damages for failure to maintain an effective
registration statement is greater than the difference in fair values between
registered and unregistered shares, the value of the common stock subject to
registration should be classified as temporary equity. Additionally, in
accordance with EITF 00-19 and the terms of the above warrants, the fair value
of the warrants should be recorded as a liability, with an offsetting reduction
to shareholders' equity. The warrant liability is initially measured
at fair value using the Black-Scholes option pricing model, and is then
re-valued at each reporting date, with changes in the fair value reported as
non-cash charges or credits to earnings.
The
SEC
recently announced its interpretation of the accounting for common stock
and warrants with registration rights under EITF 00-19. The SEC concluded that
for agreements containing registration rights where significant liquidated
damages could be required to be paid to the holder of the instrument in the
event the issuer fails to maintain the effectiveness of a registration statement
for a preset time period, the common stock subject to such liquidated damages
does not meet the tests required for shareholders' equity classification, and
accordingly must be reflected between liabilities and shareholders’ equity
in the balance sheet until the conditions are eliminated. In
analyzing instruments under EITF 00-19, the SEC concluded that the likelihood
or
probability related to the failure to maintain an effective registration
statement is not a factor.
Historically,
the Company classified the common stock and warrants with registration rights
described above as shareholders’ equity, as it believed these securities met the
requirements necessary to record them as shareholders’ equity. After further
review in accordance with the SEC’s recent interpretation of EITF 00-19 as it
relates to these common shares and warrants subject to registration rights,
the
Company’s audit commitee discussed the matter with the Company’s independent
registered public accounting firm, J.H. Cohn LLP (“J.H. Cohn”). On March 17,
2006, J.H. Cohn stated that these facts caused them to believe that our
accounting for the private placement of certain equity securities in November
2004 was incorrect and the Company determined that the effect of such
misstatements was material. As a result, J.H. Cohn indicated that their audit
report on our consolidated financial statements included in our Annual Report
on
Form 10-KSB for the year ended April 30, 2005 and their interim review with
respect to the consolidated financial statements included in our Quarterly
Reports on Form 10-QSB for the quarters ended January 31, 2005, July 31, 2005
and October 31, 2005 should no longer be relied upon. J.H. Cohn sent us a letter
to this effect, dated March 17, 2006, a copy of which is filed as an exhibit
hereto.
The
restated consolidated financial statements will be included in amended Form
10-KSB and Form 10-QSB filings, which are expected to be filed by March 31,
2006.
On
March
21, 2006, the Company provided J.H. Cohn with a copy of the disclosures it
is
making in response to Item 4.02 on this Form 8-K, and has requested that J.H.
Cohn furnish it with a letter addressed to the Securities and Exchange
Commission stating whether it agrees with the above statements as promptly
as
possible. Such letter is filed herewith as Exhibit 16.1.
ITEM
9.01 Financial
Statements and Exhibits.
(c) Exhibits.
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16.1
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Letter
on non-reliance on previously issued audit report on and reviews
of
financial statements, dated March 22, 2006 from J.H. Cohn
LLP
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99.1 |
Press Release, dated March 22, 2006, issued by
WPCS
International Incorporated. |
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99.2 |
Letter, dated March 19, 2006, from J.H. Cohn
LLP |
SIGNATURE
Pursuant
to the requirement of the Securities and Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
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WPCS
INTERNATIONAL INCORPORATED |
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Dated:
March 22, 2006
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By: |
/s/ JOSEPH
HEATER |
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Joseph
Heater
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Chief
Financial Officer |