Quarterly report pursuant to Section 13 or 15(d)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)
6 Months Ended
Oct. 31, 2013
Summary Of Significant Accounting Policies  
Principles of Consolidation
Principles of Consolidation
 
All significant intercompany transactions and balances have been eliminated in these condensed consolidated financial statements.
Cash and Cash Equivalents
Cash and Cash Equivalents
 
Cash and cash equivalents include all cash and highly-liquid investments with a maturity at time of purchase of three months or less.
Restricted Cash
Restricted Cash
 
In connection with the terms of the Notes, all payments of accounts receivable of the Company (and its domestic subsidiaries) are deposited into an account (the Lockbox Account) controlled by Worldwide Stock Transfer, LLC (the Collateral Agent). The Company is permitted to receive from the Lockbox Account on a daily basis, such cash equal to (A) (i) the cash balance in the Lockbox Account plus (ii) 95% of the available qualified accounts receivable, less (iii) $250,000, minus (B) the amount of principal, accrued interest and costs and expenses owed pursuant to the Notes. At any given time, the Company considers the cash held in the Lockbox Account that it is not yet permitted to draw down based on the calculation above, to be restricted cash. Restricted cash is classified as a current asset, consistent with the classification of the Notes as a current liability. Based on the calculation above, the Company had the ability to draw down all of the cash held in the Lockbox Account, and as a result there was no restricted cash balance reported at October 31, 2013.
Accounts Receivable
Accounts Receivable
 
Accounts receivable are due within contractual payment terms and are stated at amounts due from customers net of an allowance for doubtful accounts. Credit is extended based on evaluation of a customer's financial condition. Accounts outstanding longer than the contractual payment terms are considered past due. The Company determines an allowance by considering a number of factors, including the length of time trade accounts receivable are past due, our previous loss history, the customer's current ability to pay its obligation to the Company, and the condition of the general economy and the industry as a whole. The Company writes off accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to the allowance for doubtful accounts.
Derivative Instruments
Derivative Instruments
 
The Company’s derivative liabilities are related to embedded conversion features of the Notes and the common stock Warrants issued in connection with the Purchase Agreement. For derivative instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in fair value recognized in earnings each reporting period. The Company uses the binomial lattice model to value the derivative instruments at inception and subsequent valuation dates and the value is re-assessed at the end of each reporting period, in accordance with Accounting Standards Codification (ASC) 815. Derivative instrument liabilities are classified in the consolidated balance sheets as current or non-current based on whether or not the net-cash settlement of the derivative instrument could be required within twelve months of the balance sheet date.
Fair Value of Financial Instruments
Fair Value of Financial Instruments
 
The Company’s material financial instruments at October 31, 2013 and for which disclosure of fair value is required by certain accounting standards consisted of cash and cash equivalents, accounts receivable, accounts payable, line of credit and loans payable. The fair values of cash and cash equivalents, accounts receivable, and accounts payable are equal to their carrying value because of their liquidity and short-term maturity. Management believes that the fair values of the line of credit and loans payable do not differ materially from their aggregate carrying values in that substantially all the obligations bear variable interest rates that are based on market rates or interest rates that are periodically adjustable to rates that are based on market rates.
Other Intangible Assets
Other Intangible Assets
 
Other intangible assets have finite useful lives and are comprised of customer lists. The Company reviews its other intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In performing a review for impairment, the Company compares the carrying value of the assets with their estimated future undiscounted cash flows from the use of the asset and eventual disposition. If the estimated undiscounted future cash flows are less than carrying value, an impairment loss is charged to operations based on the difference between the carrying amount and the fair value of the asset.
 
Other intangible assets consist of the following at October 31, 2013 and April 30, 2013:
 
 
 
Estimated useful life
 
October 31,
 
April 30,
 
 
 
(years)
 
2013
 
2013
 
 
 
 
 
 
 
 
 
 
 
Customer list
 
3-9
 
$
1,078,250
 
$
1,190,083
 
Less accumulated amortization
 
 
 
 
(1,078,250)
 
 
(1,173,855)
 
 
 
 
 
$
-
 
$
16,228
 
 
Amortization expense of other intangible assets for the six months ended October 31, 2013 and 2012 was $16,228 and $32,502, respectively. There are no expected residual values related to these intangible assets.
Revenue Recognition
Revenue Recognition
 
The Company generates its revenue by providing design-build engineering services for communications infrastructure. The Company’s design-build services report revenue pursuant to customer contracts that span varying periods of time. The Company reports revenue from contracts when persuasive evidence of an arrangement exists, fees are fixed or determinable, and collection is reasonably assured.
 
The Company records revenue and profit from long-term contracts on a percentage-of-completion basis, measured by the percentage of contract costs incurred to date to the estimated total costs for each contract. Contracts in process are valued at cost plus accrued profits less earned revenues and progress payments on uncompleted contracts. Contract costs include direct materials, direct labor, third party subcontractor services and those indirect costs related to contract performance. Contracts are generally considered substantially complete when engineering is completed and/or site construction is completed. 
 
The Company has numerous contracts that are in various stages of completion. Such contracts require estimates to determine the appropriate cost and revenue recognition. Cost estimates are reviewed monthly on a contract-by-contract basis, and are revised periodically throughout the life of the contract such that adjustments to profit resulting from revisions are made cumulative to the date of the revision. Significant management judgments and estimates, including the estimated cost to complete projects, which determines the project’s percent complete, must be made and used in connection with the revenue recognized in the accounting period. Current estimates may be revised as additional information becomes available. If estimates of costs to complete long-term contracts indicate a loss, provision is made currently for the total loss anticipated. For the six months ended October 31, 2013 and 2012, the Company has provided aggregate loss provisions of approximately $12,000 and $99,000, respectively, related to anticipated losses on long-term contracts.
 
The length of the Company’s contracts varies but is typically between three months and two years. Assets and liabilities related to long-term contracts are included in current assets and current liabilities in the accompanying condensed consolidated balance sheets as they will be liquidated in the normal course of contract completion, although this may require more than one year.
 
The Company records revenue and profit from short-term contracts for the China Operations under the completed contract method, whereas income is recognized only when a contract is completed or substantially completed. Accordingly, during the period of performance, billings and deferred contract costs are accumulated on the consolidated balance sheets, but no revenue or income is recorded before completion or substantial completion of the work. The Company’s decision is based on the short-term nature of the work performed.
 
The Company also recognizes certain revenue from short-term contracts when equipment is delivered or the services have been provided to the customer. For maintenance contracts, revenue is recognized ratably over the service period.
Income Taxes
Income Taxes
 
The Company accounts for income taxes pursuant to the asset and liability method which requires deferred income tax assets and liabilities to be computed annually for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
 
On a periodic basis, the Company evaluates its ability to realize its deferred tax assets net of its deferred tax liabilities and adjusts such amounts in light of changing facts and circumstances, including but not limited to the level of past and future taxable income, and the current and future expected utilization of tax benefit carryforwards. The Company considers all available evidence, both positive and negative, to determine whether, based on the weight of that evidence, a valuation allowance is required to reduce the net deferred tax assets to the amount that is more likely than not to be realized in future periods. The Company considers past performance, expected future taxable income and prudent and feasible tax planning strategies in assessing the amount of the valuation allowance. The Company’s forecast of expected future taxable income is based over such future periods that it believes can be reasonably estimated. Based on its analysis as of October 31, 2013, the Company continues to provide a full valuation allowance on its domestic and foreign deferred tax assets. The Company will continue to evaluate the realization of its deferred tax assets and liabilities on a periodic basis, and will adjust such amounts in light of changing facts and circumstances.
 
The Company performed a review for uncertainty in income tax positions in accordance with authoritative guidance. This review did not result in the recognition of any material unrecognized tax benefits as of October 31, 2013 and April 30, 2013. Management continually evaluates expiring statutes of limitations, audits, proposed settlements, changes in tax law and new authoritative rulings. The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in selling, general and administrative expenses. For the six months ended October 31, 2013 and 2012, the Company recognized no interest or penalties. The statute of limitations for the Company's Federal, state and foreign income tax returns prior to fiscal years 2009 are closed.
Net (Loss) Income Per Common Share
Net (Loss) Income Per Common Share
 
Basic and diluted net (loss) income per common share is computed as net (loss) income divided by the weighted average number of common shares outstanding for the period. Diluted net (loss) income per common share reflects the potential dilution that could occur from common stock issuable through exercise of stock options. The table below presents the computation of basic and diluted net (loss) income per common share from continuing operations for the three and six months ended October 31, 2013 and 2012, respectively:
 
Basic net (loss) income per share from continuing operations computation
 
 
 
Three Months Ended
 
Six Months Ended
 
 
 
October 31,
 
October 31,
 
 
 
2013
 
2012
 
2013
 
2012
 
Numerator:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net (loss) income attributable to WPCS
 
$
(464,286)
 
$
465,554
 
$
(6,326,327)
 
$
145,038
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic weighted average shares outstanding
 
 
1,272,877
 
 
994,187
 
 
1,136,750
 
 
994,187
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic net (loss) income per common share attributable to WPCS
 
$
(0.36)
 
$
0.47
 
$
(5.57)
 
$
0.15
 
 
Diluted net (loss) income per share from continuing operations computation
 
 
 
Three Months Ended
 
Six Months Ended
 
 
 
October 31,
 
October 31,
 
 
 
2013
 
2012
 
2013
 
2012
 
Numerator:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net (loss) income attributable to WPCS
 
$
(464,286)
 
$
465,554
 
$
(6,326,327)
 
$
145,038
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic weighted average shares outstanding
 
 
1,272,877
 
 
994,187
 
 
1,136,750
 
 
994,187
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Incremental shares from assumed conversion:
 
 
 
 
 
 
 
 
 
 
 
 
 
Conversion of stock options
 
 
-
 
 
1,282
 
 
-
 
 
3,973
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Diluted weighted average shares
 
 
1,272,877
 
 
995,469
 
 
1,136,750
 
 
998,160
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Diluted net (loss) income per common share attributable to WPCS
 
$
(0.36)
 
$
0.47
 
$
(5.57)
 
$
0.15
 
  
The following were excluded from the computation of diluted shares outstanding due to the losses from continuing operations for the three and six months ended October 31, 2013 as they would have had an anti-dilutive impact on the Company's net loss.
 
 
 
Three Months Ended
 
Six Months Ended
 
 
 
October 31
 
October 31
 
 
 
2013
 
2013
 
Common stock equivalents:
 
 
 
 
 
Stock options
 
1,273
 
1,831
 
Conversion of senior secured convertible notes
 
678,808
 
790,044
 
Stock warrants
 
1,646,426
 
1,136,479
 
 
 
 
 
 
 
Totals
 
2,326,507
 
1,928,354
 
Noncontrolling Interest
Noncontrolling Interest
 
Noncontrolling interest for the three and six months ended October 31, 2013 and 2012 consists of the following:
 
 
 
Three Months Ended
 
Six Months Ended
 
 
 
October 31,
 
October 31,
 
 
 
2013
 
2012
 
2013
 
2012
 
Balance, beginning of period
 
$
875,629
 
$
1,102,440
 
$
849,138
 
$
1,117,322
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net (loss) income attributable to noncontrolling interest
 
 
(18,310)
 
 
29,152
 
 
3,434
 
 
28,605
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income attributable to noncontrolling interest
 
 
5,444
 
 
21,729
 
 
10,191
 
 
7,394
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, end of period
 
$
862,763
 
$
1,153,321
 
$
862,763
 
$
1,153,321
 
Use of Estimates
Use of Estimates
 
In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenue and expenses during the reporting period. The most significant estimates relate to the calculation of percentage-of-completion on uncompleted contracts, allowance for doubtful accounts, realization of deferred tax assets, and amortization method and lives of customer lists. Actual results could differ from those estimates.
Recently Issued Accounting Pronouncements
Recently Issued Accounting Pronouncements
 
In December 2011, the FASB issued ASU No. 2011-11 (ASU 2011-11), Disclosures about Offsetting Assets and Liabilities where entities are required to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. This scope would include derivatives, sale and repurchase agreements, and reverse sale and repurchase agreements, and securities borrowing and securities lending arrangements. These disclosures assist users of financial statements in evaluating the effect or potential effect of netting arrangements on a company’s financial position. The adoption of ASU 2011-11 on May 1, 2013 did not have a material impact on the Company’s unaudited condensed consolidated financial statements.