Filed
Pursuant to Rule
424(b)(3)
Registration No. 333-140546
PROSPECTUS
WPCS
INTERNATIONAL INCORPORATED
1,109,023 Shares
of Common Stock
This
prospectus relates to 1,109,023 shares of our common stock, par value $.0001
per
share for sale from time to time by the selling stockholders identified in
this
prospectus.
We
will
not receive any of the proceeds from the sale of the shares sold pursuant to
this prospectus. We will bear all expenses in connection with the registration
of the shares, other than underwriting discounts and selling
commissions.
Our
common stock is traded on the NASDAQ Global Market under the symbol “WPCS.” On
March 1, 2007, the last reported sale price of our common stock on the NASDAQ
Global Market was $10.10 per share.
The
securities offered in this prospectus involve a high degree of risk. See "Risk
Factors" beginning on page 3 of this prospectus to read about factors you
should consider before buying shares of our common stock.
The
selling stockholders are offering these shares of common stock. The selling
stockholders may sell all or a portion of these shares from time to time in
market transactions through any market on which our common stock is then traded,
in negotiated transactions or otherwise, and at prices and on terms that will
be
determined by the then prevailing market price or at negotiated prices directly
or through a broker or brokers, who may act as agent or as principal or by
a
combination of such methods of sale. The selling stockholders will receive
all
proceeds from the sale of the common stock. For additional information on the
methods of sale, you should refer to the section entitled "Plan of
Distribution."
Neither
the Securities and Exchange Commission nor any state securities commission
has
approved or disapproved of these securities or determined whether this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The
date
of this Prospectus is March 2, 2007
TABLE
OF CONTENTS
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Summary
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1
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Risk
Factors
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4
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Forward-Looking
Statements
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9
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Use
of Proceeds
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9
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Selling
Stockholders
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10
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Plan
of Distribution
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11
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Legal
Matters
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12
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Experts
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12
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Where
You Can Find More Information
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13
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Incorporation
of Documents By Reference
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13
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You
should rely only on the information contained in this prospectus. We have not
authorized anyone to provide you with information that is different. This
prospectus is not an offer to sell, nor is it seeking an offer to buy, these
securities in any jurisdiction where the offer or sale of these securities
is
not permitted. You should assume that the information contained in this
prospectus is accurate as of the date on the front of this prospectus only.
Our
business, financial condition, results of operations and prospects may have
changed since that date.
This
summary highlights information contained elsewhere in this prospectus. This
summary does not contain all of the information that you should consider before
investing in our common stock. You should read the entire prospectus carefully,
including the section entitled “Risk Factors” included elsewhere in this
prospectus, before making an investment decision. Unless the context clearly
indicates otherwise, references in this prospectus to “we,” “us,” “our” and
“WPCS” refer to WPCS International Incorporated and its subsidiaries on a
consolidated basis.
Our
Company
WPCS
International Incorporated designs and deploys wireless networks. We provide
design-build engineering services for specialty communication systems and
wireless infrastructure. Specialty communication systems are wireless networks
designed to improve productivity for a specified application by communicating
data, voice or video information in situations where land line networks are
non-existent, more difficult to deploy or too expensive. Wireless infrastructure
services include the engineering, installation, integration and maintenance
of
wireless carrier equipment.
Wireless
technology has advanced substantially to the point where wireless networks
have
proven to be an effective alternative to land line networks, a key factor in
wireless’ broad acceptance. We believe the use of dedicated wireless networks
for specified applications has improved productivity for individuals and
organizations alike. Demand for wireless data services is accelerating the
adoption of new technologies that enable wireless networks to deliver enhanced
features and capabilities. These new technologies have increased the complexity
of wireless systems, and created demand for the services of companies such
as
ours with specialized skills to address that complexity.
With
nine
offices across the United States, we provide our services to our customers
nationwide. Because we are technology and vendor independent, we can integrate
multiple products and services across a variety of communication requirements,
creating the most appropriate solution for our customers. Wireless communication
is primarily achieved through radio frequency, or RF, signals. We have extensive
experience in RF engineering, a necessary skill in designing wireless networks
free from interference with other signals and amplified sufficiently to carry
data, voice or video with speed, accuracy and reliability. We believe the
strength of our experience in the design and deployment of specialty
communication systems gives us a competitive advantage, and has supported our
rapid growth, both organically and through acquisitions.
Our
goal
is to become a recognized leader in the design and deployment of wireless
networks for specialty communication systems and wireless infrastructure. For
the fiscal year ended April 30, 2006, we generated revenues of $52.1 million,
an
increase of 29.9% from the fiscal year ended April 30, 2005. For the six months
ended October 31, 2006, we generated revenues of approximately $34.2 million,
an
increase of 29.4% from the six months ended October 31, 2005. Our backlog at
October 31, 2006 was approximately $20.3 million.
Our
Strategy
Our
strategy focuses on both organic growth and the pursuit of acquisitions that
add
to our engineering capacity and geographic coverage. Specifically, we will
endeavor to:
• Increase
customer awareness by marketing the full range of our services to our
customers;
• Maintain
and expand our focus in existing vertical markets such as public safety and
gaming, and develop expertise in new vertical markets;
• Strengthen
our relationships with technology providers whose products offer benefits to
our
customers; and
• Seek
strategic acquisitions of compatible businesses that can be assimilated into
our
organization and that will add accretive earnings to our
business.
Our
Customers
Our
customers include corporations, government entities and educational
institutions. In our specialty communication systems segment, we believe our
design and deployment of innovative wireless networks specific to the needs
of
customers in certain vertical markets has brought us recognition in these
markets. We have worked with public safety customers such as the California
Department of Transportation, or CALTRANS, gaming customers such as Bally’s, and
healthcare customers such as Wake Forest University Baptist Hospital. In our
wireless infrastructure services segment, our customers are major wireless
service providers such as Sprint Nextel.
Risks
Affecting Us
Our
business is subject to numerous risks, as discussed more fully in the section
entitled “Risk Factors” immediately following this prospectus summary,
including:
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Our
success is dependent on growth in the deployment of wireless networks,
and
to the extent that such growth slows down, our revenues may decrease
and
our ability to continue operating profitably may be
harmed;
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We
have a limited history of profitability which may not
continue;
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If
we fail to accurately estimate costs associated with our fixed-price
contracts using percentage-of-completion, our actual results may
vary from
our assumptions, which may reduce our profitability or impair our
financial performance;
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Failure
to properly manage projects may result in unanticipated costs or
claims;
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The
industry in which we operate has relatively low barriers to entry
and
increased competition could result in margin erosion, which would
make
profitability even more difficult to
sustain;
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Our
business depends upon our ability to keep pace with the latest
technological changes, and our failure to do so could make us less
competitive in our industry;
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Our
failure to attract and retain engineering personnel or maintain
appropriate staffing levels could adversely affect our
business;
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If
we are unable to identify and complete future acquisitions, we may
be
unable to continue our growth;
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Future
acquired companies could be difficult to assimilate, disrupt our
business,
diminish stockholder value and adversely affect our operating
results;
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We
derive a significant portion of our revenues from a limited number
of
customers, the loss of which would significantly reduce our revenues;
and
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Amounts
included in our backlog may not result in actual revenue or translate
into
profits.
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Our
Corporate Information
We
have
seven operating subsidiaries: Clayborn Contracting Group, Inc., a California
corporation; Heinz Corporation, a Missouri corporation; Invisinet, Inc., a
Delaware corporation; New England Communications Systems, Inc., a Connecticut
corporation; Quality Communications & Alarm Company, Inc., a New Jersey
corporation; Southeastern Communication Service, Inc., a Florida corporation;
and Walker Comm, Inc., a California corporation.
References in this prospectus to Clayborn, Heinz, Invisinet, NECS, Quality,
SECS
and Walker Comm refer to these companies, respectively.
Our
principal executive offices are located at One East Uwchlan Avenue, Suite 301,
Exton, Pennsylvania 19341, and our telephone number is (610) 903-0400. We are
a
Delaware corporation. We maintain a website at www.wpcs.com and the information
contained on that website is not deemed to be a part of this
prospectus.
Recent
Developments
On
January 30, 2007, we sold an aggregate of 1,109,023 shares of our common stock
to 12 investors for aggregate proceeds of $10,092,109. The common stock was
issued in a private placement transaction pursuant to Section 4(2) under the
Securities Act of 1933. Pursuant to the terms of sale, we agreed to cause this
resale registration statement covering the common stock to be filed no later
than 30 days after the closing and declared effective no later than 120 days
after the closing. If we fail to comply with the registration statement filing
or effective date requirements, we will be required to pay the investors a
fee
equal to 2% of the aggregate amount invested by the purchasers per each 30
day
period of delay, not to exceed 10%.
We
recently announced that we have signed letters of intent to acquire the
following companies. These transactions are expected to close by April 1,
2007,
subject to completion of due diligence and the execution of definitive
agreements.
We
intend
to acquire 60% of Taian AGS Pipeline Construction Company Ltd. (TAGS), for
$1.6
million in cash and stock. Founded in 1997, TAGS is a communications
infrastructure engineering company serving the China market. TAGS is certified
by the People's Republic of China as both a Construction Enterprise of Reform
Development company and a Technically Advanced Construction Enterprise company
for the Province of Shandong, which are two of the highest certifications
achievable for engineering and construction based businesses in China. TAGS
is
also licensed in 17 other provinces and has completed projects for a diverse
customer base of businesses and government institutions in over 30 cities
in
China TAGS is certified.
We
intend
to acquire 100% of ATC International Holdings, Inc. (ATC) for $2.45 million
in
cash at closing with an additional earn out to be paid upon the achievement
of
certain earnings targets over a period of 24 months from the closing date.
Founded in 1993, ATC is an engineering organization in the design and deployment
of wireless solutions and security systems. The company is headquartered
in
Miami, FL with an office in El Salvador that services its customers in Central
America. ATC has completed many projects in the government and commercial
sectors.
We
intend
to acquire 100% of Voacolo Electric Incorporated (Voacolo) for $2.5 million
in
cash and stock at closing with an additional earn out to be paid upon the
achievement of a certain earnings target over a 12 month period from the
closing
date. Founded in 1994, Voacolo is an electrical contractor in the Mid-Atlantic
area that specializes in both high and low voltage applications as well as
structured cabling and voice/data/video solutions, as well as beginning to
expand its operations particularly in wireless video surveillance. The company
is headquartered in Trenton, NJ and has completed many major projects for
commercial and government entities.
RISK
FACTORS
This
investment has a high degree of risk. Before you invest you should carefully
consider the risks and uncertainties described below and the other information
in this prospectus. If any of the following risks actually occur, our business,
operating results and financial condition could be harmed and the value of
our
stock could go down. As a result, you could lose all or a part of your
investment.
Customers
are constantly re-evaluating their network deployment plans in response to
trends in the capital markets, changing perceptions regarding industry growth,
the adoption of new wireless technologies, increasing pricing competition and
general economic conditions in the United States and internationally. If the
rate of network deployment growth slows and customers reduce their capital
investments in wireless technology or fail to expand their networks, our
revenues and profits, if any, could be reduced.
We
have a limited history of profitability which may not
continue.
While
we
had net income of approximately $1.3 million for the fiscal year ended April
30,
2005, we incurred a net loss of approximately $1.6 million for the fiscal year
ended April 30, 2006. For the six months ended October 31, 2006, we had net
income of approximately $2.0 million compared to a net loss of approximately
$0.6 million for the six months ended October 31, 2005. There can be no
assurance that we will sustain profitability or generate positive cash flow
from
operating activities in the future. If we cannot achieve operating profitability
or positive cash flow from operating activities, we may not be able to meet
our
working capital requirements. If we are unable to meet our working capital
requirements, we may need to reduce or cease all or part of our
operations.
If
we fail to accurately estimate costs associated with our fixed-price contracts
using percentage-of-completion, our actual results may vary from our
assumptions, which may reduce our profitability or impair our financial
performance.
A
substantial portion of our revenue is derived from fixed price contracts. Under
these contracts, we set the price of our services on an aggregate basis and
assume the risk that the costs associated with our performance may be greater
than we anticipated. We recognize revenue and profit on these contracts as
the
work on these projects progresses on a percentage-of-completion basis. Under
the
percentage-of-completion method, contracts in process are valued at cost plus
accrued profits less earned revenues and progress payments on uncompleted
contracts.
The
percentage-of-completion method therefore relies on estimates of total expected
contract costs. These costs may be affected by a variety of factors, such as
lower than anticipated productivity, conditions at work sites differing
materially from what was anticipated at the time we bid on the contract and
higher costs of materials and labor. Contract revenue and total cost estimates
are reviewed and revised monthly as the work progresses, such that adjustments
to profit resulting from revisions are made cumulative to the date of the
revision. Adjustments are reflected in contract revenue for the fiscal period
affected by these revised estimates. If estimates of costs to complete long-term
contracts indicate a loss, we immediately recognize the full amount of the
estimated loss. Such adjustments and accrued losses could result in reduced
profitability and liquidity.
Failure
to properly manage projects may result in unanticipated costs or
claims.
Our
wireless network engagements may involve large scale, highly complex projects.
The quality of our performance on such projects depends in large part upon
our
ability to manage the relationship with our customers, and to effectively manage
the project and deploy appropriate resources, including third-party contractors
and our own personnel, in a timely manner. Any defects or errors or failure
to
meet customers’ expectations could result in claims for substantial damages
against us. Our contracts generally limit our liability for damages that arise
from negligent acts, errors, mistakes or omissions in rendering services to
our
customers. However, we cannot be sure that these contractual provisions will
protect us from liability for damages in the event we are sued. In addition,
in
certain instances, we guarantee customers that we will complete a project by
a
scheduled date or that the network will achieve certain performance standards.
If the project or network experiences a performance problem, we may not be
able
to recover the additional costs we would incur, which could exceed revenues
realized from a project.
The
industry in which we operate has relatively low barriers to entry and increased
competition could result in margin erosion, which would make profitability
even
more difficult to sustain.
Other
than the technical skills required in our business, the barriers to entry in
our
business are relatively low. We do not have any intellectual property rights
to
protect our business methods and business start-up costs do not pose a
significant barrier to entry. The success of our business is dependent on our
employees, customer relations and the successful performance of our services.
If
we face increased competition as a result of new entrants in our markets, we
could experience reduced operating margins and loss of market share and brand
recognition.
Our
business depends upon our ability to keep pace with the latest technological
changes, and our failure to do so could make us less competitive in our
industry.
The
market for our services is characterized by rapid change and technological
improvements. Failure to respond in a timely and cost-effective way to these
technological developments may result in serious harm to our business and
operating results. We have derived, and we expect to continue to derive, a
substantial portion of our revenues from deploying wireless networks that are
based upon today’s leading technologies and that are capable of adapting to
future technologies. As a result, our success will depend, in part, on our
ability to develop and market service offerings that respond in a timely manner
to the technological advances of our customers, evolving industry standards
and
changing preferences.
Our
failure to attract and retain engineering personnel or maintain appropriate
staffing levels could adversely affect our business.
Our
success depends upon our attracting and retaining skilled engineering personnel.
Competition for such skilled personnel in our industry is high and at times
can
be extremely intense, especially for engineers and project managers, and we
cannot be certain that we will be able to hire sufficiently qualified personnel
in adequate numbers to meet the demand for our services. We also believe that
our success depends to a significant extent on the ability of our key personnel
to operate effectively, both individually and as a group. Additionally, we
cannot be certain that we will be able to hire the requisite number of
experienced and skilled personnel when necessary in order to service a major
contract, particularly if the market for related personnel is competitive.
Conversely, if we maintain or increase our staffing levels in anticipation
of
one or more projects and the projects are delayed, reduced or terminated, we
may
underutilize the additional personnel, which could reduce our operating margins,
reduce our earnings and possibly harm our results of operations. If we are
unable to obtain major contracts or effectively complete such contracts due
to
staffing deficiencies, our revenues may decline and we may experience a drop
in
net income.
If
we are unable to identify and complete future acquisitions, we may be unable
to
continue our growth.
Since
November 1, 2002, we have acquired seven companies and we intend to further
expand our operations through targeted strategic acquisitions. However, we
may
not be able to identify suitable acquisition opportunities. Even if we identify
favorable acquisition targets, there is no guarantee that we can acquire
them on
reasonable terms or at all. If we are unable to complete attractive
acquisitions, the growth that we have experienced over the last three fiscal
years may decline. We recently signed a letter of intent to acquire 60% of
TAGS
and 100% of Voacolo and ATC with the closing of these transactions subject
to
the completion of due diligence and the execution of definitive
agreements.
Future
acquired companies could be difficult to assimilate, disrupt our business,
diminish stockholder value and adversely affect our operating
results.
Completing
acquisitions may require significant management time and financial resources
because we may need to assimilate widely dispersed operations with distinct
corporate cultures. Our failure to manage future acquisitions successfully
could
seriously harm our operating results. Also, acquisitions could cause our
quarterly operating results to vary significantly. Furthermore, our stockholders
would be diluted if we financed the acquisitions by issuing equity securities.
In addition, acquisitions expose us to risks such as undisclosed liabilities,
increased indebtedness associated with an acquisition and the potential for
cash
flow shortages that may occur if anticipated financial performance is not
realized or is delayed from such acquired companies.
We
derive a significant portion of our revenues from a limited number of customers,
the loss of which would significantly reduce our revenues.
We
have
derived, and believe that we will continue to derive, a significant portion
of
our revenues from a limited number of customers. To the extent that any
significant customer uses less of our services or terminates its relationship
with us, our revenues could decline significantly. As a result, the loss of
any
significant customer could seriously harm our business. For the fiscal year
ended April 30, 2006, we had two separate customers which accounted for 20.8%
and 14.5% of our revenues. For the fiscal year ended April 30, 2005, we had
one
customer which accounted for 15.5% of our revenues. For the six months ended
October 31, 2006, we had two separate customers which accounted for 18.0% and
14.0% of our revenues. For the six months ended October 31, 2005, we had two
customers which accounted for 16.6% and 12.7% of our revenues. Other than under
existing contractual obligations, none of our customers is obligated to purchase
additional services from us. As a result, the volume of work that we perform
for
a specific customer is likely to vary from period to period, and a significant
customer in one period may not use our services in a subsequent
period.
Amounts
included in our backlog may not result in actual revenue or translate into
profits.
As
of
October 31, 2006, we had a backlog of unfilled orders of approximately $20.3
million. This backlog amount is based on contract values and purchase orders
and
may not result in actual receipt of revenue in the originally anticipated period
or at all. In addition, contracts included in our backlog may not be profitable.
We have experienced variances in the realization of our backlog because of
project delays or cancellations resulting from external market factors and
economic factors beyond our control and we may experience delays or
cancellations in the future. If our backlog fails to materialize, we could
experience a reduction in revenue, profitability and liquidity.
Our
business could be affected by adverse weather conditions, resulting in variable
quarterly results.
Adverse
weather conditions, particularly during the winter season, could affect our
ability to perform outdoor services in certain regions of the United States.
As
a result, we might experience reduced revenue in the third and fourth quarters
of our fiscal year. Natural catastrophes such as the recent hurricanes in the
United States could also have a negative impact on the economy overall and
on
our ability to perform outdoor services in affected regions or utilize equipment
and crews stationed in those regions, which in turn could significantly impact
the results of any one or more of our reporting periods.
If
we are unable to retain the services of Messrs. Hidalgo, Schubiger, Heinz or
Walker, our operations could be disrupted.
Our
success depends to a significant extent upon the continued services of Mr.
Andrew Hidalgo, our Chief Executive Officer and Messrs. Richard Schubiger,
James
Heinz and Donald Walker, our Executive Vice Presidents. Mr. Hidalgo has overseen
our company since inception and provides leadership for our growth and
operations strategy. Messrs. Schubiger, Heinz and Walker run the day-to-day
operations of Quality, Heinz and Walker Comm, respectively. Loss of the services
of Messrs. Hidalgo, Schubiger, Heinz or Walker could disrupt our operations
and
harm our growth, revenues, and prospective business. We do not maintain key-man
insurance on the lives of Messrs. Hidalgo, Schubiger, Heinz or
Walker.
Employee
strikes and other labor-related disruptions may adversely affect our
operations.
Our
business is labor intensive, with certain projects requiring large numbers
of
engineers. Over 45% of our workforce is unionized. Strikes or labor disputes
with our unionized employees may adversely affect our ability to conduct our
business. If we are unable to reach agreement with any of our unionized work
groups on future negotiations regarding the terms of their collective bargaining
agreements, or if additional segments of our workforce become unionized, we
may
be subject to work interruptions or stoppages. Any of these events could be
disruptive to our operations and could result in negative publicity, loss of
contracts and a decrease in revenues.
We
may incur goodwill impairment charges in our reporting entities which could
harm
our profitability.
In
accordance with Statement of Financial Accounting Standards, or SFAS, No. 142,
“Goodwill and Other Intangible Assets,” we periodically review the carrying
values of our goodwill to determine whether such carrying values exceed the
fair
market value. All seven of our acquired companies, Clayborn, Heinz/Invisinet,
Quality, Walker Comm, NECS and SECS, each of which is a reporting unit, are
subject to annual review for goodwill impairment. If impairment testing
indicates that the carrying value of a reporting unit exceeds its fair value,
the goodwill of the reporting unit is deemed impaired. Accordingly, an
impairment charge would be recognized for that reporting unit in the period
identified, which could reduce our profitability.
Our
quarterly results fluctuate and may cause our stock price to
decline.
Our
quarterly operating results have fluctuated in the past and will likely
fluctuate in the future. As a result, we believe that period to period
comparisons of our results of operations are not a good indication of our future
performance. A number of factors, many of which are beyond our control, are
likely to cause these fluctuations. Some of these factors include:
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the
timing and size of network deployments and technology upgrades by
our
customers;
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fluctuations
in demand for outsourced network
services;
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the
ability of certain customers to sustain capital resources to pay
their
trade accounts receivable balances and required changes to our allowance
for doubtful accounts based on periodic assessments of the collectibility
of our accounts receivable
balances;
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reductions
in the prices of services offered by our
competitors;
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our
success in bidding on and winning new business;
and
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our
sales, marketing and administrative cost
structure.
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Because
our operating results may vary significantly from quarter to quarter, our
operating results may not meet the expectations of securities analysts and
investors, and our common stock could decline significantly which may expose
us
to risks of securities litigation, impair our ability to attract and retain
qualified individuals using equity incentives and make it more difficult to
complete acquisitions using equity as consideration.
Our
stock price may be volatile, which may result in lawsuits against us and our
officers and directors.
The
stock
market in general, and the stock prices of technology and telecommunications
companies in particular, have experienced volatility that has often been
unrelated to or disproportionate to the operating performance of those
companies. The market price of our common stock has fluctuated in the past
and
is likely to fluctuate in the future. Between February 1, 2006 and February
1,
2007, our common stock has traded as low as $6.53 and as high as $12.50 per
share, based upon information provided by the NASDAQ Capital Market and NASDAQ
Global Market. Factors which could have a significant impact on the market
price
of our common stock include, but are not limited to, the
following:
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quarterly
variations in operating results;
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announcements
of new services by us or our
competitors;
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the
gain or loss of significant
customers;
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changes
in analysts’ earnings estimates;
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rumors
or dissemination of false
information;
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short
selling of our common stock;
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general
conditions in the market;
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changing
the exchange or quotation system on which we list our common stock
for
trading;
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political
and/or military events associated with current worldwide conflicts;
and
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events
affecting other companies that investors deem comparable to
us.
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Companies
that have experienced volatility in the market price of their stock have
frequently been the object of securities class action litigation. Class action
and derivative lawsuits could result in substantial costs to us and a diversion
of our management’s attention and resources, which could materially harm our
financial condition and results of operations.
Future
changes in financial accounting standards may adversely affect our reported
results of operations.
A
change
in accounting standards could have a significant effect on our reported results
and may even affect our reporting of transactions completed before the change
is
effective. For example, in December 2004, the Financial Accounting Standards
Board issued SFAS No. 123(R), “Share-Based Payment,” a revision of SFAS No. 123,
“Accounting for Stock-Based Compensation,” which requires companies to expense
all employee stock options and other share-based payments over the service
period. Implementation of this standard as required during the first fiscal
quarter of our fiscal year 2007 may impair our ability to use equity
compensation to attract and retain skilled personnel. We have recognized
additional compensation expense in the periods after adoption of this
standard.
New
pronouncements and varying interpretations of pronouncements have occurred
and
may occur in the future. Changes to existing rules or the questioning of current
practices may adversely affect our reported financial results or the way we
conduct our business.
Compliance
with changing regulation of corporate governance and public disclosure may
result in additional expenses.
Changing
laws, regulations and standards relating to corporate governance and public
disclosure, including the Sarbanes-Oxley Act of 2002, newly enacted SEC
regulations and NASDAQ Stock Market rules, have created additional burdens
for
companies such as ours. We are committed to maintaining high standards of
corporate governance and public disclosure. As a result, we intend to invest
appropriate resources to comply with evolving standards. This investment will
result in increased general and administrative costs and a diversion of
management time and attention from revenue-generating activities to compliance
activities.
We
can issue shares of preferred stock without shareholder approval, which could
adversely affect the rights of common stockholders.
Our
certificate of incorporation permits us to establish the rights, privileges,
preferences and restrictions, including voting rights, of future series of
our
preferred stock and to issue such stock without approval from our stockholders.
The rights of holders of our common stock may suffer as a result of the rights
granted to holders of preferred stock that we may issue in the future. In
addition, we could issue preferred stock to prevent a change in control of
our
company, depriving common stockholders of an opportunity to sell their stock
at
a price in excess of the prevailing market price.
There
may be an adverse effect on the market price of our shares as a result of shares
being available for sale in the future.
As
of
February 1, 2007, holders of our outstanding options and warrants have the
right
to acquire 2,586,445 shares of common stock issuable upon the exercise of stock
options and warrants, at exercise prices ranging from $4.80 to $19.92 per share,
with a weighted average exercise price of $6.99. The sale or availability for
sale in the market of the shares underlying these options and warrants could
depress our stock price. We have registered substantially all of the underlying
shares described above for resale. Holders of registered underlying shares
may
resell the shares immediately upon issuance upon exercise of an option or
warrant.
If
our
stockholders sell substantial amounts of our shares of common stock, including
shares issued upon the exercise of outstanding options and warrants, the market
price of our common stock may decline. These sales also might make it more
difficult for us to sell equity or equity-related securities in the future
at a
time and price that we deem appropriate.
FORWARD-LOOKING
STATEMENTS
The
Private Securities Litigation Reform Act of 1995 (the "Act") provides a safe
harbor for forward-looking statements made by us or on our behalf. We and our
representatives may from time to time make written or oral statements that
are
"forward-looking," including statements contained in this prospectus and other
filings with the Securities and Exchange Commission, reports to our stockholders
and news releases. All statements that express expectations, estimates,
forecasts or projections are forward-looking statements within the meaning
of
the Act. In addition, other written or oral statements which constitute
forward-looking statements may be made by us or on our behalf. Words such as
"expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates,"
"projects," "forecasts," "may," "should," variations of such words and similar
expressions are intended to identify such forward-looking statements. These
statements are not guarantees of future performance and involve risks,
uncertainties and assumptions which are difficult to predict. Therefore, actual
outcomes and results may differ materially from what is expressed or forecasted
in or suggested by such forward-looking statements.
USE
OF PROCEEDS
We
will
not receive any of the proceeds from the sale of the shares sold pursuant to
this prospectus. We will bear all expenses in connection with the registration
of the shares, other than underwriting discounts and selling
commissions.
SELLING
STOCKHOLDERS
The
following table sets forth the common stock ownership of the selling
stockholders as of February 7, 2007, including the number of shares of common
stock issuable upon the exercise of warrants held by the selling stockholders.
Other than as set forth in the following table, the selling stockholders have
not held any position or office or had any other material relationship with
us
or any of our predecessors or affiliates within the past three
years.
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Beneficial
Ownership Prior to this Offering (1)
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Beneficial
Ownership After this Offering (1) ( 2)
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Selling
Stockholder
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Number
of
Shares
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Percent
of
Class
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Shares
That May be Offered and Sold Hereby
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Number
of
Shares
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Percent
of
Class
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Capital
Ventures International (3)
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110,000
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1.65
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%
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110,000
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0
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0
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Chestnut
Ridge Capital (4)
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55,500
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*
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55,500
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0
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0
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Crestview
Capital (5)
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330,000
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4.96
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%
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330,000
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0
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0
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Fort
Mason Master, L.P. (6)
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154,952
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2.33
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%
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154,952
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0
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0
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Fort
Mason Partners, L.P. (6)
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10,048
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*
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10,048
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0
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0
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Harvest
Capital, LP (7)
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10,177
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*
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10,177
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0
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0
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Harvest
Master Enhanced, Ltd (7)
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29,536
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*
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29,536
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0
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0
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Harvest
Offshore Investors Ltd (7)
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20,310
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*
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20,310
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0
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0
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Heller
Capital Investments (8)
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73,000
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1.10
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%
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73,000
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0
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0
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SF
Capital Partners Ltd. (9)
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250,000
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3.76
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%
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250,000
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0
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0
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WTC-CIF
Micro-Cap Equity Portfolio (nominee: FINWELL & CO)
(10)
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25,000
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*
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25,000
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0
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0
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WTC-CIF
Micro-Cap Equity Portfolio (nominee: FINWELL & CO)
(10)
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40,500
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*
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40,500
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0
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0
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*
Less
than 1%.
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(1)
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Percentage
calculated on the basis of 6,656,915 shares of common stock
outstanding on February 7, 2007.
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(2)
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Assumes
the sale of all shares of common stock registered pursuant to this
prospectus, although the selling stockholders are under no obligations
known to us to sell any shares of common stock at this
time.
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(3)
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Heights
Capital Management, Inc., the authorized agent of Capital Ventures
International ("CVI"), has discretionary authority to vote and dispose
of
the shares held by CVI and may be deemed to be the beneficial owner
of
these shares. Martin Kobinger, Investment Manager of Heights Capital
Management, Inc. may also be deemed to have investment discretion
and
voting power over the shares held by CVI. Mr. Kobinger disclaims
any
beneficial ownership of such shares and warrants, except to the extent
of
any pecuniary interest therein. CVI is affiliated with one or more
registered broker-dealers, and as a result, CVI may be deemed to
be an
affiliate of a broker-dealer. Accordingly, the selling security holder
may
be deemed to be an underwriter if it (i) did not acquire the shares
of common stock in the ordinary course of business or (ii) had any
agreement or understanding, directly or indirectly, with any person
to
distribute the shares of common stock. CVI has confirmed to the Company
that it acquired the shares of common stock being registered hereunder
in
the ordinary course of business and at the time of purchase, had
no
agreements or understandings, directly or indirectly, with any other
person to distribute such shares of common stock. Please see “Plan of
Distribution” for further disclosure regarding these selling security
holders.
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(4)
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Kenneth
Pasternak has voting and investment power of the shares that this
selling
stockholder owns.
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(5)
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Stewart
R. Flink, Robert Hoyt and Daniel I. Warsh have voting and investment
power
of the shares that this selling stockholder owns.
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(6)
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The
shares listed herein are owned by Fort Mason Master, L.P. and Fort
Mason
Partners, L.P. (collectively, the “Fort Mason Funds”). For Mason Capital,
LLC serves as the general partner of each of the Fort Mason Funds
and, in
such capacity, exercises sole voting and investment authority with
respect
to such shares. Mr. Daniel German serves as the sole managing member
of
Fort Mason Capital, LLC. Fort Mason Capital, LLC and Mr. German each
disclaim beneficial ownership of such shares, except to the extent
of its
or his pecuniary interest therein, if any.
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(7)
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Marjorie
G. Kellner, on behalf of Harvest Management, LLC, has the power to
vote or
dispose of the shares held by Harvest Capital, LP, Harvest Offshore
Investors, Ltd. and Harvest Master Enhanced, Ltd.
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(8)
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Ronald
I. Heller has voting and investment power of the shares that this
selling
stockholder owns.
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(9)
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Michael
A. Roth and Brian J. Stark have voting and investment power of the
shares
that this selling stockholder owns.
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(10)
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Wellington
Management Company, LLP (“Wellington”) is an investment adviser registered
under the Investment Advisers Act of 1940, as amended. Wellington,
in such
capacity, may be deemed to share beneficial ownership over the shares
of
common stock and warrants held by its client
accounts.
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The
selling stockholders, which as used herein includes donees, pledgees,
transferees or other successors-in-interest selling shares of common stock
or
interests in shares of common stock received after the date of this prospectus
from a selling stockholder as a gift, pledge, partnership distribution or other
transfer, may, from time to time, sell, transfer or otherwise dispose of any
or
all of their shares of common stock or interests in shares of common stock
on
any stock exchange, market or trading facility on which the shares are traded
or
in private transactions. These dispositions may be at fixed prices, at
prevailing market prices at the time of sale, at prices related to the
prevailing market price, at varying prices determined at the time of sale,
or at
negotiated prices.
The
selling stockholders may use any one or more of the following methods when
disposing of shares or interests therein:
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ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
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block
trades in which the broker-dealer will attempt to sell the shares
as
agent, but may position and resell a portion of the block as principal
to
facilitate the transaction;
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purchases
by a broker-dealer as principal and resale by the broker-dealer for
its
account;
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an
exchange distribution in accordance with the rules of the applicable
exchange;
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privately
negotiated transactions;
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short
sales effected after the date the registration statement of which
this
Prospectus is a part is declared effective by the
SEC;
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through
the writing or settlement of options or other hedging transactions,
whether through an options exchange or
otherwise;
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broker-dealers
may agree with the selling stockholders to sell a specified number
of such
shares at a stipulated price per
share;
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a
combination of any such methods of sale;
and
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any
other method permitted pursuant to applicable
law.
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The
selling stockholders may, from time to time, pledge or grant a security interest
in some or all of the shares of common stock owned by them and, if they default
in the performance of their secured obligations, the pledgees or secured parties
may offer and sell the shares of common stock, from time to time, under this
prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or
other applicable provision of the Securities Act amending the list of selling
stockholders to include the pledgee, transferee or other successors in interest
as selling stockholders under this prospectus. The selling stockholders also
may
transfer the shares of common stock in other circumstances, in which case the
transferees, pledgees or other successors in interest will be the selling
beneficial owners for purposes of this prospectus.
In
connection with the sale of our common stock or interests therein, the selling
stockholders may enter into hedging transactions with broker-dealers or other
financial institutions, which may in turn engage in short sales of the common
stock in the course of hedging the positions they assume. The selling
stockholders may also sell shares of our common stock short and deliver these
securities to close out their short positions, or loan or pledge the common
stock to broker-dealers that in turn may sell these securities. The selling
stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such
transaction).
The
aggregate proceeds to the selling stockholders from the sale of the common
stock
offered by them will be the purchase price of the common stock less discounts
or
commissions, if any. Each of the selling stockholders reserves the right to
accept and, together with their agents from time to time, to reject, in whole
or
in part, any proposed purchase of common stock to be made directly or through
agents. We will not receive any of the proceeds from this offering. Upon any
exercise of the warrants by payment of cash, however, we will receive the
exercise price of the warrants.
The
selling stockholders also may resell all or a portion of the shares in open
market transactions in reliance upon Rule 144 under the Securities Act of 1933,
provided that they meet the criteria and conform to the requirements of that
rule.
The
selling stockholders and any underwriters, broker-dealers or agents that
participate in the sale of the common stock or interests therein may be
"underwriters" within the meaning of Section 2(11) of the Securities Act. Any
discounts, commissions, concessions or profit they earn on any resale of the
shares may be underwriting discounts and commissions under the Securities Act.
Selling stockholders who are "underwriters" within the meaning of Section 2(11)
of the Securities Act will be subject to the prospectus delivery requirements
of
the Securities Act.
To
the
extent required, the shares of our common stock to be sold, the names of the
selling stockholders, the respective purchase prices and public offering prices,
the names of any agents, dealer or underwriter, any applicable commissions
or
discounts with respect to a particular offer will be set forth in an
accompanying prospectus supplement or, if appropriate, a post-effective
amendment to the registration statement that includes this
prospectus.
In
order
to comply with the securities laws of some states, if applicable, the common
stock may be sold in these jurisdictions only through registered or licensed
brokers or dealers. In addition, in some states the common stock may not be
sold
unless it has been registered or qualified for sale or an exemption from
registration or qualification requirements is available and is complied
with.
We
have
advised the selling stockholders that the anti-manipulation rules of Regulation
M under the Exchange Act may apply to sales of shares in the market and to
the
activities of the selling stockholders and their affiliates. In addition, we
will make copies of this prospectus (as it may be supplemented or amended from
time to time) available to the selling stockholders for the purpose of
satisfying the prospectus delivery requirements of the Securities Act. The
selling stockholders may indemnify any broker-dealer that participates in
transactions involving the sale of the shares against certain liabilities,
including liabilities arising under the Securities Act.
We
have
agreed to indemnify the selling stockholders against liabilities, including
liabilities under the Securities Act and state securities laws, relating to
the
registration of the shares offered by this prospectus.
We
have
agreed with the selling stockholders to keep the registration statement of
which
this prospectus constitutes a part effective until the earlier of (1) such
time
as all of the shares covered by this prospectus have been disposed of pursuant
to and in accordance with the registration statement or (2) the date on which
the shares may be sold pursuant to Rule 144(k) of the Securities
Act.
The
validity of the shares of common stock being offered hereby will be passed
upon
for us by Sichenzia Ross Friedman Ference LLP, New York, New York.
The
consolidated financial statements of WPCS International Incorporated as of
and
for the years ended April 30, 2006 and 2005 appearing in WPCS International
Incorporated’s annual report on Form 10-KSB for the year ended April 30, 2006
have been audited by J.H. Cohn LLP, independent registered public accounting
firm, as set forth in their report thereon included therein and incorporated
herein by reference. Such consolidated financial statements
are incorporated herein by reference in reliance upon such report given on
the
authority of such firm as experts in accounting and auditing.
WHERE
YOU CAN FIND MORE INFORMATION
This
prospectus is part of a registration statement that we filed on Form S-3 with
the Securities and Exchange Commission or SEC. This prospectus does not contain
all of the information in the registration statement and the exhibits and
schedules that were filed with the registration statement. You should refer
to
the registration statement for additional information about us and the common
stock being offered in this prospectus. Statements made in this prospectus
regarding the contents of any contract, agreement or other document that is
filed as an exhibit to the registration statement or any document incorporated
by reference into the registration statement are not necessarily complete,
and
you should review the referenced document itself for a complete understanding
of
its terms.
We
file
annual, quarterly and special reports, proxy statements and other information
with the SEC. You may read and copy any document that we file at the SEC's
public reference facilities located at 100 F Street, NE, Washington, DC 20549.
Copies of all or any part of the registration statement may be obtained from
the
SEC upon payment of the prescribed fee. Information regarding the operation
of
the public reference rooms may be obtained by calling the SEC at 1-800-SEC-0330.
Our SEC filings are also available to you free of charge at the SEC's web site
at http://www.sec.gov.
INCORPORATION
OF DOCUMENTS BY REFERENCE
The
SEC
allows us to 'incorporate by reference' the information into this prospectus.
This means that we can disclose important information to you by referring you
to
another document filed separately with the SEC. The information that we
incorporate by reference is considered to be part of this prospectus. Because
we
are incorporating by reference our future filings with the SEC, this prospectus
is continually updated and those future filings may modify or supersede some
or
all of the information included or incorporated in this prospectus. This means
that you must look at all of the SEC filings that we incorporate by reference
to
determine if any of the statements in this prospectus or in any document
previously incorporated by reference have been modified or superseded. This
prospectus incorporates by reference the documents listed below and any future
filings we will make with the SEC under Sections 13(a), 13(c), 14 or 15(d)
of
the Securities Exchange Act of 1934 until the selling stockholders sell all
of
our common stock registered under this prospectus.
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|
•
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our
annual report on Form 10-KSB for the fiscal year ended April 30,
2006
filed with the SEC on July 27, 2006;
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•
|
our
quarterly report on Form 10-Q for the fiscal quarter ended July 31,
2006
filed with the SEC on September 14, 2006;
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•
|
our
quarterly report on Form 10-Q for the fiscal quarter ended October
31,
2006 filed with the SEC on December 14, 2006;
|
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•
|
our
current report on Form 8-K, filed with the SEC on September 14,
2006;
|
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•
|
our
current report on Form 8-K, filed with the SEC on December 14,
2006;
|
| |
•
|
our
current report on Form 8-K, filed with the SEC on February 1, 2007;
and
|
|
|
•
|
the
description of our common stock contained in our Registration Statement
on
Form SB-2/A, filed with the SEC on April 7,
2006.
|
The
information about us contained in this prospectus should be read together with
the information in the documents incorporated by reference. You may request
a
copy of any or all of these filings, at no cost, by writing or telephoning
us
at:
WPCS
International Incorporated
One
East
Uwchlan Avenue, Suite 301
Exton,
Pennsylvania 19341
Phone
(610) 903-0400
Email
address: ir@wpcs.com
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