ex991.htm

EXTON, PA - (PR Newswire - First Call - March 17, 2011) - WPCS International Incorporated (NASDAQ: WPCS), a leader in design-build engineering services for communications infrastructure, today announced financial results for the fiscal year 2011 third quarter ended January 31, 2011. In the third quarter, WPCS reported revenue of $23.4 million compared to $27.0 million for the same period a year ago. The decrease in revenue is due primarily to delays in projects and bid awards.

In the third quarter, WPCS generated an EBITDA loss of approximately $428,000, compared to an EBITDA loss of $1.1 million in the second quarter. EBITDA 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 $751,000 in EBITDA for the same period a year ago. The Company maintains a net tangible asset value of $21.7 million or $3.13 per diluted share.

For the third quarter, following the completion of a valuation for its Suisun City Operations, the company has incurred an additional goodwill impairment charge of $2.6 million. This additional charge was a result of finalizing the estimated goodwill charge recorded in the second quarter. The company emphasized that this goodwill impairment charge is a non-cash charge and will have no impact on its operations or cash flows. For the third quarter ended January 31, 2011, WPCS reported a net loss of approximately $3.5 million or $0.50 per diluted share which includes the goodwill impairment and the one-time charges of $205,000 associated with seeking strategic alternatives including the possible sale of the company. This compares to net income of $71,000 or $0.01 per diluted share for the same period a year ago.

For the nine months ended January 31, 2011, WPCS reported revenue of $79.0 million compared to $76.6 million for the same period a year ago, which represents an increase of approximately 3%. In the nine months, WPCS generated an EBITDA loss of approximately $1.3 million. The company generated $3.3 million in EBITDA for the same period a year ago. For the nine months ended January 31, 2011, WPCS reported a net loss of approximately $9.8 million or $1.41 per diluted share which includes the total goodwill impairment charge for Suisun City of $6.9 million and the one-time charges of $481,000 associated with seeking strategic alternatives including the possible sale of the company. This compares to net income of $843,000 or $0.12 per diluted share for the same period a year ago.

Andrew Hidalgo, CEO of WPCS, commented, “Fiscal year 2011 has been a transition year for WPCS. The primary issue centered around three projects that experienced cost overruns at two of our ten operation centers. The other eight operation centers continue to perform well and through nine months ended January 31, 2011, they have produced $64.7 million in revenue and $3.8 million in EBITDA. The positive news is that we have made significant strides in turning around the performance by containing the cost overruns at these three projects and improving the management efficiency at these two operation centers. The company was able to substantially reduce the quarter over quarter loss. Economic conditions are improving and we are seeing more potential bid activity in the public services, healthcare and energy markets. The company continues to be awarded significant contracts. WPCS maintains an extensive base of satisfied customers. This is an important factor for us in returning to the profitability and earnings level that we expect for our shareholders and employees. We see a prosperous year ahead for our company.”

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 VH63665. 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 63665 # 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 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 the non-GAAP financial measures to the most directly comparable GAAP financial measures.

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.

WPCS INTERNATIONAL INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Unaudited

	Three Months Ended						Nine Months Ended
	January 31,						January 31,
	2011			2010			2011			2010

REVENUE	$	23,434,729		$	26,972,380		$	79,010,305		$	76,557,723

COSTS AND EXPENSES:
Cost of revenue		18,424,200			20,561,172			63,122,185			55,471,468
Selling, general and administrative expenses		5,643,916			5,660,707			17,657,254			17,800,852
Depreciation and amortization		638,337			662,705			2,094,658			1,970,848
Goodwill impairment		2,600,000			-			6,900,000			-
Change in fair value of acquisition-related contingent consideration		41,784			-			178,430			-

Total costs and expenses		27,348,237			26,884,584			89,952,527			75,243,168

OPERATING (LOSS) INCOME		(3,913,508	)		87,796			(10,942,222	)		1,314,555

OTHER EXPENSE (INCOME):
Interest expense		293,274			53,294			410,011			193,931
Interest income		(11,436	)		(5,821	)		(35,804	)		(9,352	)

(LOSS) INCOME BEFORE INCOME TAX (BENEFIT) PROVISION		(4,195,346	)		40,323			(11,316,429	)		1,129,976

Income tax (benefit) provision		(874,089	)		(12,253	)		(1,590,537	)		480,434

NET (LOSS) INCOME		(3,321,257	)		52,576			(9,725,892	)		649,542

Net income (loss) attributable to noncontrolling interest		141,547			(18,250	)		76,041			(192,988	)

NET (LOSS) INCOME ATTRIBUTABLE TO WPCS	$	(3,462,804	)		70,826			(9,801,933	)	$	842,530

Basic net (loss) income per common share attributable to WPCS	$	(0.50	)	$	0.01		$	(1.41	)	$	0.12

Diluted net (loss) income per common share attributable to WPCS	$	(0.50	)	$	0.01		$	(1.41	)	$	0.12

Basic weighted average number of common shares outstanding		6,954,766			6,944,032			6,954,766			6,942,855

Diluted weighted average number of common shares outstanding		6,954,766			6,968,587			6,954,766			6,966,054

WPCS INTERNATIONAL INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

	January 31,		April 30,
ASSETS	2011		2010
	(Unaudited)		(Note 1)
CURRENT ASSETS:

Cash and cash equivalents	$	5,581,036	$	5,584,309
Accounts receivable, net of allowance of $189,724 and $206,617 at January 31, 2011 and April 30, 2010, respectively		23,587,456		26,011,955
Costs and estimated earnings in excess of billings on uncompleted contracts		6,444,060		8,859,056
Inventory		2,957,067		2,720,052
Prepaid expenses and other current assets		1,986,245		848,626
Prepaid income taxes		379,751		-
Income taxes receivable		1,429,634		-
Deferred tax assets		578,873		666,000
Total current assets		42,944,122		44,689,998

PROPERTY AND EQUIPMENT, net		6,335,993		6,468,787

OTHER INTANGIBLE ASSETS, net		1,708,326		2,112,058

GOODWILL		28,310,000		34,919,384

OTHER ASSETS		139,221		162,858

Total assets	$	79,437,662	$	88,353,085

LIABILITIES AND EQUITY	January 31,		April 30,
	2011		2010
	(Unaudited)		(Note 1)
CURRENT LIABILITIES:

Current portion of loans payable	$	37,407	$	63,683
Income taxes payable		-		107,417
Borrowings under line of credit		6,690,488		-
Current portion of capital lease obligations		61,648		81,950
Accounts payable and accrued expenses		9,517,705		10,962,016
Billings in excess of costs and estimated earnings on uncompleted contracts		2,341,700		1,853,131
Deferred revenue		584,256		503,502
Due joint venture partner		3,323,778		3,288,294
Acquisition-related contingent consideration		997,606		851,516
Total current liabilities		23,554,588		17,711,509

Acquisition-related contingent consideration, net of current portion		880,886		726,677
Borrowings under line of credit		-		5,626,056
Loans payable, net of current portion		18,048		46,364
Capital lease obligations, net of current portion		26,178		69,961
Deferred tax liabilities		1,921,508		2,018,462
Total liabilities		26,401,208		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 January 31, 2011 and April 30, 2010		695		695
Additional paid-in capital		50,418,824		50,346,655
Retained earnings		433,657		10,235,590
Accumulated other comprehensive income on foreign currency translation, net of tax effects of $25,197 and $19,581 at January 31, 2011 and April 30, 2010, respectively		908,756		398,116

Total WPCS shareholders' equity		51,761,932		60,981,056

Noncontrolling interest		1,274,522		1,173,000

Total equity		53,036,454		62,154,056

Total liabilities and equity	$	79,437,662	$	88,353,085

		Three Months Ended						Nine Months Ended
		January 31,						January 31,
		2011			2010			2011			2010

NET (LOSS) INCOME ATTRIBUTABLE TO WPCS, GAAP		$	(3,462,804	)	$	70,826		$	(9,801,933	)	$	842,530

Plus:
	Net income (loss) attributable to noncontrolling interest		141,547			(18,250	)		76,041			(192,988	)
	Income tax (benefit) provision		(874,089	)		(12,253	)		(1,590,537	)		480,434
	Interest expense		293,274			53,294			410,011			193,931
	Interest income		(11,436	)		(5,821	)		(35,804	)		(9,352	)
	Change in fair value of acquisition-related contingent consideration		41,784			-			178,430			-
	Goodwill impairment		2,600,000			-			6,900,000			-
	One time strategic costs		204,895			-			480,570			-
	Depreciation and amortization		638,337			662,705			2,094,658			1,970,848

Consolidated EBITDA, Non-GAAP		$	(428,492	)	$	750,501		$	(1,288,564	)	$	3,285,403
Plus:
	Operating loss (gain), Suisun City operations center		631,918			(50,716	)		2,097,012			(1,979,457	)
	Operating loss, Portland operations center		-			-			485,710			200,324
	Corporate operating expenses		584,902			666,427			2,459,059			2,616,972

Performing Operation Centers EBITDA, Non-GAAP		$	788,328		$	1,366,212		$	3,753,217		$	4,123,242