Exhibit 99.1

PRESS RELEASE                                                                                                                       SOURCE: WPCS International Incorporated




WPCS Reports FY2011 Second Quarter Financial Results


EXTON, PA - (PR Newswire - First Call - December 15, 2010) - WPCS International Incorporated (NASDAQ: WPCS), a leader in design-build engineering services for communications infrastructure, today announced financial results for the fiscal year 2011 second quarter ended October 31, 2010. For the second quarter, the company has incurred an estimated goodwill impairment charge of $4.3 million for its Suisun City Operations. The company emphasized that this goodwill impairment charge is a non-cash charge and will have no impact on its operations or cash flows. The $22.4 million in net tangible asset value for WPCS remains unchanged and equates to $3.22 per diluted share.

In the second quarter, WPCS reported revenue of $26.7 million compared to $24.3 million for the same period a year ago, which represents an increase of approximately 10%. In the second quarter, WPCS generated an EBITDA loss of approximately $1.1 million which is defined as earnings before interest, taxes, acquisition-related contingent earn-out costs, goodwill impairment, one-time charges related to seeking strategic alternatives including the possible sale of the company and depreciation and amortization. The company generated $1.3 million in EBITDA for the same period a year ago. For the second quarter ended October 31, 2010, WPCS reported a net loss of approximately $6.0 million or $0.86 per diluted share which includes the goodwill impairment and the one-time charges associated with seeking strategic alternatives including the possible sale of the company. This compares to net income of $337,000 or $0.05 per diluted share for the same period a year ago.

For the six months ended October 31, 2010, WPCS reported revenue of $55.6 million compared to $49.6 million for the same period a year ago, which represents an increase of approximately 12%. In the six months, WPCS generated an EBITDA loss of approximately $860,000. The company generated $2.5 million in EBITDA for the same period a year ago. For the six months ended October 31, 2010, WPCS reported a net loss of approximately $6.3 million or $0.91 per diluted share which includes the goodwill impairment and the one-time charges associated with seeking strategic alternatives including the possible sale of the company. This compares to net income of $772,000 or $0.11 per diluted share for the same period a year ago.

Andrew Hidalgo, CEO of WPCS, commented, “WPCS has ten operation centers that have evolved from the nineteen acquisitions made over the last several years. In the second quarter, we experienced performance issues with two of our ten operation centers. The unfavorable performance of the two operation centers adversely affected our consolidated results. This performance was primarily related to three projects that experienced cost overruns within these two operation centers. Excluding these two operation centers, the other eight performing operation centers generated $22.0 in revenue and $1.4 million in EBITDA. Furthermore, the eight operation centers are expected to generate $89.0 million in revenue and $7.3 million in EBITDA for the fiscal year ending April 30, 2011. Although the company has healthy and profitable operation centers, we will continue to focus on improving the performance of these two specific operations centers. WPCS is expecting positive EBITDA results for the third and fourth quarters on a consolidated basis.” Mr. Hidalgo continued, “WPCS still has a backlog of $37 million and a bid list of $176 million which reflects our growth opportunities. Our balance sheet remains strong with $19.9 million in working capital and $5.8 million in cash.  Although we have elected to estimate a write down of goodwill at our Suisun City Operations, this is a non-cash charge and therefore has no impact on our operations. On another note, the company continues to seek strategic alternatives including the possible sale of the company and although we cannot comment on the status of strategic alternatives, they are progressing.”
 
 
1

 

As a reminder, there will be an investor conference call at 5:00 pm ET today. To participate on the conference call, please dial 888-299-4099 for calls within the U.S. or 302-709-8337 for calls from international locations. Upon reaching the operator, verbally transmit the participant code VH73045. 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 conference call will be available for a period of five days by dialing 402-220-2946 and entering 73045 # as the program identification number.
 
The attached press release includes financial measures that are not in accordance with GAAP, consisting of EBITDA and net tangible asset value. Management uses EBITDA to evaluate the Company's 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. Management uses net tangible asset value to evaluate the strength of the Company’s balance sheet.  WPCS believes that these measures are useful to investors because they enhance 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 by some investors when assessing the ongoing operating and financial performance of our 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 or net income per diluted 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 the non-GAAP financial measures to the most directly comparable GAAP financial measures.
 
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.
_________________________________________________________________________________________________



CONTACT:

WPCS International Incorporated
610-903-0400 x101
ir@wpcs.com




 
2

 
WPCS INTERNATIONAL INCORPORATED AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF OPERATIONS
 
Unaudited
 
                         
   
Three Months Ended
   
Six Months Ended
 
   
October 31,
   
October 31,
 
   
2010
   
2009
   
2010
   
2009
 
                         
                         
REVENUE
  $ 26,723,078     $ 24,301,560     $ 55,575,576     $ 49,585,343  
                                 
COSTS AND EXPENSES:
                               
Cost of revenue
    22,000,010       16,752,484       44,697,985       34,910,296  
Selling, general and administrative expenses
    6,097,011       6,286,661       12,013,338       12,140,145  
Depreciation and amortization
    721,706       658,199       1,456,321       1,308,143  
Goodwill impairment
    4,300,000       -       4,300,000       -  
Change in fair value of acquisition-related contingent consideration
    73,594       -       136,646       -  
                                 
Total costs and expenses
    33,192,321       23,697,344       62,604,290       48,358,584  
                                 
OPERATING (LOSS) INCOME
    (6,469,243 )     604,216       (7,028,714 )     1,226,759  
                                 
OTHER EXPENSE (INCOME):
                               
Interest expense
    62,102       78,277       116,737       140,637  
Interest income
    (14,299 )     (1,612 )     (24,368 )     (3,531 )
                                 
(LOSS) INCOME BEFORE INCOME TAX (BENEFIT) PROVISION
    (6,517,046 )     527,551       (7,121,083 )     1,089,653  
                                 
Income tax (benefit) provision
    (478,069 )     254,605       (716,448 )     492,687  
                                 
NET (LOSS) INCOME
    (6,038,977 )     272,946       (6,404,635 )     596,966  
                                 
Net income (loss) attributable to noncontrolling interest
    (75,799 )     (63,841 )     (65,506 )     (174,738 )
                                 
NET (LOSS) INCOME ATTRIBUTABLE TO WPCS
  $ (5,963,178 )   $ 336,787     $ (6,339,129 )   $ 771,704  
                                 
Basic net (loss) income per common share attributable to WPCS
  $ (0.86 )   $ 0.05     $ (0.91 )   $ 0.11  
                                 
Diluted net (loss) income per common share attributable to WPCS
  $ (0.86 )   $ 0.05     $ (0.91 )   $ 0.11  
                                 
Basic weighted average number of common shares outstanding
    6,954,766       6,942,266       6,954,766       6,942,266  
                                 
Diluted weighted average number of common shares outstanding
    6,954,766       6,976,256       6,954,766       6,968,524  

 
3

 
 
WPCS INTERNATIONAL INCORPORATED AND SUBSIDIARIES
 
CONSOLIDATED BALANCE SHEETS
 
             
   
October 31,
   
April 30,
 
ASSETS
 
2010
   
2010
 
   
(Unaudited)
       
CURRENT ASSETS:
           
             
Cash and cash equivalents
  $ 5,785,473     $ 5,584,309  
Accounts receivable, net of allowance of $258,899 and $206,617 at October 31, 2010 and April 30, 2010, respectively
    27,399,574       26,011,955  
Costs and estimated earnings in excess of billings on uncompleted contracts
    7,026,212       8,859,056  
Inventory
    2,933,896       2,720,052  
Prepaid expenses and other current assets
    1,732,565       848,626  
Prepaid income taxes
    1,089,478       -  
Deferred tax assets
    497,266       666,000  
Total current assets
    46,464,464       44,689,998  
                 
PROPERTY AND EQUIPMENT, net
    6,312,862       6,468,787  
                 
OTHER INTANGIBLE ASSETS, net
    1,798,658       2,112,058  
                 
GOODWILL
    30,809,285       34,919,384  
                 
OTHER ASSETS
    124,870       162,858  
                 
Total assets
  $ 85,510,139     $ 88,353,085  

 
 
4

 

WPCS INTERNATIONAL INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (continued)

LIABILITIES AND EQUITY
 
October 31,
   
April 30,
 
   
2010
   
2010
 
   
(Unaudited)
       
CURRENT LIABILITIES:
           
             
Current portion of loans payable
  $ 42,363     $ 63,683  
Income taxes payable
    -       107,417  
Borrowings under line of credit
    7,626,056       -  
Current portion of capital lease obligations
    69,719       81,950  
Accounts payable and accrued expenses
    11,351,857       10,962,016  
Billings in excess of costs and estimated earnings on uncompleted contracts
    2,260,347       1,853,131  
Deferred revenue
    619,732       503,502  
Due joint venture partner
    3,606,922       3,288,294  
Acquisition-related contingent consideration
    968,896       851,516  
Total current liabilities
    26,545,892       17,711,509  
                 
Acquisition-related contingent consideration, net of current portion
    825,608       726,677  
Borrowings under line of credit
    -       5,626,056  
Loans payable, net of current portion
    27,114       46,364  
Capital lease obligations, net of current portion
    37,384       69,961  
Deferred tax liabilities
    1,917,385       2,018,462  
Total liabilities
    29,353,383       26,199,029  
                 
                 
                 
COMMITMENTS AND CONTINGENCIES
               
                 
EQUITY:
               
Preferred stock - $0.0001 par value, 5,000,000 shares authorized, none issued
    -       -  
Common stock - $0.0001 par value, 25,000,000 shares authorized, 6,954,766 shares issued and outstanding at October 31, 2010 and April 30, 2010
    695       695  
Additional paid-in capital
    50,399,437       50,346,655  
Retained earnings
    3,896,461       10,235,590  
Accumulated other comprehensive income on foreign currency translation
    735,051       398,116  
                 
Total WPCS shareholders' equity
    55,031,644       60,981,056  
                 
Noncontrolling interest
    1,125,112       1,173,000  
                 
Total equity
    56,156,756       62,154,056  
                 
Total liabilities and equity
  $ 85,510,139     $ 88,353,085  

 
5

 
 
WPCS INTERNATIONAL INCORPORATED AND SUBSIDIARIES
 
Reconciliations of GAAP to Non-GAAP Financial Measures (Unaudited)

(1) Non-GAAP EBITDA Reconciliations:
 
     
Three Months Ended
   
Six Months Ended
 
     
October 31,
   
October 31,
 
     
2010
   
2009
   
2010
   
2009
 
                           
NET (LOSS) INCOME ATTRIBUTABLE TO WPCS, GAAP
  $ (5,963,178 )   $ 336,787     $ (6,339,129 )   $ 771,704  
                                   
Plus:
                                 
 
Net income (loss) attributable to noncontrolling interest
    (75,799 )     (63,841 )     (65,506 )     (174,738 )
 
Income tax (benefit) provision
    (478,069 )     254,605       (716,448 )     492,687  
 
Interest expense
    62,102       78,277       116,737       140,637  
 
Interest income
    (14,299 )     (1,612 )     (24,368 )     (3,531 )
 
Change in fair value of acquisition-related contingent consideration
    73,594       -       136,646       -  
 
Goodwill impairment
    4,300,000       -       4,300,000       -  
 
One time strategic costs
    275,675       -       275,675       -  
 
Depreciation and amortization
    721,706       658,199       1,456,321       1,308,143  
                                   
Consolidated EBITDA, Non-GAAP
  $ (1,098,268 )   $ 1,262,415     $ (860,072 )   $ 2,534,902  
Plus:
                                 
 
Operating loss, Suisun City operations center
    1,073,607       (893,374 )     1,465,094       (1,928,739 )
 
Operating loss, Portland operations center
    470,975       36,586       519,788       122,335  
 
Corporate operating expenses
    920,647       1,143,645       1,737,511       1,950,545  
                                   
Performing Operation Centers EBITDA, Non-GAAP
  $ 1,366,961     $ 1,549,272     $ 2,862,321     $ 2,679,043  
 
            (2) Net Tangible Asset Value Reconciliation:
 
   
October 31,
   
April 30,
 
   
2010
   
2010
 
             
             
Total WPCS shareholders' equity
  $ 55,031,644     $ 60,981,056  
Less:
               
        Goodwill
    30,809,285       34,919,384  
        Other Intangible Assets, net
    1,798,658       2,112,058  
                 
Net Tangible Asset Value
  $ 22,423,701     $ 23,949,614  

 
6