WPCS Announces Financial Results for 2nd Quarter and Six Months Ended October 31, 2015

SUISUN, CA--(Marketwired - Dec 14, 2015) - WPCS International Incorporated (NASDAQ: WPCS), which specializes in contracting services for communications infrastructure, today announced its fiscal 2016 second quarter and six-month financial results for the period ended October 31, 2015.

Sebastian Giordano, Interim CEO of WPCS, commented, "While our Suisun Operations generated operating income of $55,000 and $600,000 for the three months and six months ended October 31, 2015, respectively, the other significant impact items reported this quarter were an $838,000 gain on sale of the China Operations and noncash charges of $783,000 for dividends on preferred stock and $1,518,000 in stock option expense related to issuance of stock options to employees and the Board of Directors."

Financial Results for the Three Months Ended October 31, 2015

Revenue for the three months ended October 31, 2015 decreased $2,266,000, or 37%, to $3,824,000 as compared to $6,090,000 for the same period in 2014, as one, multi-year, high revenue project was completed in the prior fiscal year.

The Company's $2,041,000 loss from continuing operations for the three months ended October 31, 2015 was comprised of the $55,000 operating income from the Suisun Operations, offset by $2,095,000 of corporate overhead, of which $1,518,000 was attributable to stock compensation expense for stock options issued to employees and the Board of Directors. This compared to a net operating loss from continuing operations of $1,882,000 for the same period in 2014.

WPCS has recorded the financial results for its divested subsidiaries as discontinued operations. For the three months ended October 31, 2015, WPCS recorded income from discontinued operations of approximately $838,000 due to the gain on the sale of the China Operations. Net loss attributable to common shareholders for the three-month period totaled $1,986,000 due primarily to the $2,041,00 loss from continuing operations, $783,000 in dividends declared on preferred stock, and which partially was offset by the $838,000 gain on the sale of the China Operations.

Financial Results for the Six Months Ended October 31, 2015

Revenue for the six months ended October 31, 2015 decreased $3,866,000, or 32%, to $8,288,000 as compared to $12,154,000 for the same period in 2014, as one, multi-year, high revenue project was completed in the prior fiscal year.

The Company's $1,957,000 loss from continuing operations for the six months ended October 31, 2015 was primarily comprised of the $600,000 operating income from the Suisun Operations and $400,000 income from Section 16 settlements, and which was offset by $2,951,000 of corporate overhead, of which $1,518,000 was attributable to stock compensation expense for stock options issued to employees and the Board of Directors. This compared to a net operating loss from continuing operations of $4,530,000 for the same period in 2014.

WPCS has recorded the financial results for its divested subsidiaries as discontinued operations. For the six months ended October 31, 2015, WPCS recorded income from discontinued operations of approximately $879,000. Net loss attributable to common shareholders for the six-month period totaled $6,168,000 due primarily to the $1,956,000 loss from continuing operations, $5,072,000 in dividends declared on preferred stock, and which was partially offset by the income from discontinued operations of $878,000.

About WPCS International Incorporated
WPCS provides contracting services to the public services, healthcare, energy and corporate enterprise markets in the United States. For more information, please visit www.wpcs.com.

Cautionary Note Regarding Forward-Looking Statements

This press release contains "forward-looking statements" within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995, including, but not limited to, statements with respect to the Company's future growth opportunities and strategic plan. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy, and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Any forward-looking statement made by us in this press release is based only on information currently available to us and speaks only as of the date on which it is made. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.

WPCS INTERNATIONAL INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
			October 31,			April 30,
			2015			2015
ASSETS
Current assets:
	Cash and cash equivalents		$	2,515,318		$	2,364,360
	Accounts receivable, net of allowance of $92,000 at October 31, 2015 and April 30, 2015			4,087,358			6,494,890
	Costs and estimated earnings in excess of billings on uncompleted contracts			585,721			420,434
	Prepaid expenses and other current assets			67,354			159,769
	Current assets held for sale			-			4,566,251
		Total current assets		7,255,751			14,005,704
Property and equipment, net				147,755			162,986
Other assets				25,384			25,384
Other assets held for sale				-			963,119
Total assets			$	7,428,890		$	15,157,193
LIABILITIES AND EQUITY
Current liabilities:
	Current portion of loans payable		$	37,156		$	39,935
	Accounts payable and accrued expenses			2,760,288			5,414,269
	Billings in excess of costs and estimated earnings on uncompleted contracts			1,549,500			1,346,461
	Other payable to Zurich			90,000			360,000
	Short-term promissory notes			-			1,703,000
	Dividends payable			105,885			677,546
	Current liabilities held for sale			-			5,710,807
		Total current liabilities		4,542,829			15,252,018
Loans payable, net of current portion				43,943			44,239
Total liabilities				4,586,772			15,296,257
Commitments
Equity (deficit):
WPCS equity (deficit):
	Preferred stock - $0.0001 par value, 5,000,000 shares authorized at October 31, 2015 and April 30, 2015, respectively
		Convertible Series F - 0 and 5,268 shares issued and outstanding at October 31, 2015 and April 30, 2015, respectively		-			1,589,933
		Convertible Series F-1 - 0 and 5,642 shares issued and outstanding at October 31, 2015 and April 30, 2015, respectively		-			1,702,808
		Convertible Series G - 0 and 2,088 shares issued and outstanding at October 31, 2015 and April 30, 2015, respectively		-			731,706
		Convertible Series G-1 - 1,359 and 3,128 shares issued and outstanding at October 31, 2015 and April 30, 2015, respectively; liquidation preference of $2,789,000		476,234			1,096,250
		Convertible Series H - 2,818 and 0 shares issued and outstanding at October 31, 2015 and April 30, 2015, respectively; liquidation preference of $209,000		433,982			-
		Convertible Series H-1 - 8,532 and 0 shares issued and outstanding at October 31, 2015 and April 30, 2015, respectively; liquidation preference of $1,348,000		733,595			-
	Common stock - $0.0001 par value, 100,000,000 shares authorized, 2,497,002 and 982,660 shares issued and outstanding as of October 31, 2015 and April 30, 2015, respectively			250			98
	Additional paid-in capital			83,916,701			70,380,397
	Accumulated deficit			(82,718,644	)		(76,550,894	)
	Accumulated other comprehensive income on foreign currency translation			-			349,723
Total WPCS equity (deficit)				2,842,118			(699,979	)
Noncontrolling interest				-			560,915
Total equity (deficit)				2,842,118			(139,064	)
Total liabilities and equity			$	7,428,890		$	15,157,193

The accompanying notes are an integral part of these condensed consolidated financial statements.

WPCS INTERNATIONAL INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
			For the three months ended								For the six months ended
			October 31,								October 31,
			2015				2014				2015				2014
Revenue			$	3,824,241			$	6,089,672			$	8,288,244			$	12,154,129
Costs and expenses:
	Cost of revenue			3,294,565				5,112,525				6,741,768				9,892,944
	Selling, general and administrative expenses			2,555,206				1,318,408				3,868,009				2,363,418
	Depreciation and amortization			14,493				15,641				29,462				31,824
				5,864,264				6,446,574				10,639,239				12,288,186
Operating loss				(2,040,023	)			(356,902	)			(2,350,995	)			(134,057	)
Other income (expense):
	Interest expense			(606	)			(1,990	)			(1,498	)			(2,837,472	)
	Inducement expense			-				(1,870,498	)			-				(1,870,498	)
	Income from section 16 settlement			-				350,000				400,000				350,000
	Other expenses			-				(942	)			(2,906	)			(8,442	)
Loss from continuing operations before income tax provision				(2,040,629	)			(1,880,332	)			(1,955,399	)			(4,500,469	)
Income tax provision				-				1,825				1,099				29,188
Loss from continuing operations				(2,040,629	)			(1,882,157	)			(1,956,498	)			(4,529,657	)
Discontinued operations:
	(Loss) income from discontinued operations			-				(1,887,384	)			41,261				(2,325,498	)
	Gain from disposal			837,720				-				837,720				798,896
	Income (loss) from discontinued operations, net of tax			837,720				(1,887,384	)			878,981				(1,526,602	)
Consolidated net loss				(1,202,909	)			(3,769,541	)			(1,077,517	)			(6,056,259	)
Net (loss) income attributable to noncontrolling interest				-				(53,115	)			16,505				(102,135	)
Net loss attributable to WPCS				(1,202,909	)			(3,716,426	)			(1,094,022	)			(5,954,124	)
Dividends declared on preferred stock				(782,837	)			(116,212	)			(4,369,958	)			(190,699	)
Deemed dividend on convertible preferred stock, due to beneficial conversion feature				-				-				(703,770	)			-
Net loss attributable to WPCS common shareholders			$	(1,985,746	)		$	(3,832,638	)		$	(6,167,750	)		$	(6,144,823	)
Basic and diluted net loss attributable to WPCS common shareholders:
	Loss from continuing operations		$	(1.17	)		$	(3.16	)		$	(3.62	)		$	(7.46	)
	(Loss) income from discontinued operations		$	-			$	(2.90	)		$	0.01			$	(3.52	)
	Gain from disposal		$	0.35			$	-			$	0.43			$	1.26
	Basic and diluted net income (loss) from discontinued operations		$	0.35			$	(2.91	)		$	0.44			$	(2.26	)
	Basic and diluted net loss per common share attributable to WPCS		$	(0.82	)		$	(6.06	)		$	(3.17	)		$	(9.72	)
Basic and diluted weighted average number of common shares outstanding				2,415,113				632,417				1,942,681				632,417

The accompanying notes are an integral part of these condensed consolidated financial statements.

WPCS INTERNATIONAL INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
			For the six months ended
			October 31,
			2015				2014
Operating activities:
	Net loss from continuing operations		$	(1,956,498	)		$	(4,529,657	)
	Consolidated net income (loss) from discontinued operations			878,981				(1,526,602	)
Adjustments to reconcile consolidated net loss to net cash (used in) provided by operating activities:
	Depreciation and amortization			14,969				29,462
	Amortization of notes discount			-				853,417
	Inducement expenses			-				1,870,498
	Shares based compensation			1,540,181				-
	Interest expense related to make-whole amount			-				1,889,716
	Gain on sale of Pride			-				(798,896	)
	Gain on sale of China Operations			(837,720	)			-
	Income on section 16 settlements			(400,000	)			-
	Changes in operating assets and liabilities:
	Accounts receivable			2,407,532				(2,195,156	)
	Costs and estimated earnings in excess of billings on uncompleted contracts			(165,287	)			78,620
	Deferred contract costs			-				(1,035	)
	Current assets held for sale			(3,853,621	)			5,465,396
	Prepaid expenses and other current assets			92,677				8,363
	Other assets			-				18,150
	Other assets held for sale			(34,523	)			358,930
	Accounts payable and accrued expenses			(2,653,981	)			1,456,978
	Current liabilities held for sale			2,200,030				(1,876,128	)
	Accrued severance expense			-				(1,303,292	)
	Billings in excess of costs and estimated earnings on uncompleted contracts			203,039				678,176
Net cash (used in) provided by operating activities				(2,564,221	)			476,940
Investing activities:
	Acquisition of property and equipment			-				(137,842	)
	Proceeds from sale of China Operations			1,325,744				-
Net cash provided by (used in) investing activities				1,325,744				(137,842	)
Financing activities:
	Proceeds from issuance of Series H-1 preferred stock and warrants			1,575,000				-
	Borrowings under loan payable obligations			7,762				1,623
	Repayment under loan payable obligations			(10,837	)			-
	Repayments under other payable to Zurich			(270,000	)			-
	Repayments of short term promissory notes			(4,000	)			-
	Dividends paid on preferred stock			-				(146,521	)
Net cash provided by (used in) financing activities				1,297,925				(144,898	)
Effect of exchange rate changes on cash				91,510				(127,104	)
Net increase in cash and cash equivalents				150,958				67,096
Cash and cash equivalents, beginning of the period				2,364,360				2,177,070
Cash and cash equivalents, end of the period			$	2,515,318			$	2,244,166
Schedule of non-cash investing and financing activities:
	Declaration on preferred dividend payable		$	4,369,958			$	190,699
	Conversion of dividends payable related to make-whole amount through the issuance of common stock		$	4,104,529			$	-
	Conversion of dividends payable related to Series F-1 preferred stock		$	624,977			$	-
	Conversion of dividends payable related to Series G-1 preferred stock		$	212,113			$	-
	Conversion of short term convertible note to Series H preferred stock		$	1,299,000			$	-
	Conversion of Preferred E to short term promissory note		$	-			$	794,000
	Conversion of Series F and F-1 preferred stock through the issuance of common stock		$	3,292,741			$	-
	Conversion of Series G and G-1 preferred stock through the issuance of common stock		$	1,351,722			$	-
	Conversion of Series H preferred stock through the issuance of common stock		$	865,018			$	-
	Settlement of severance obligation and sale of Pride		$	-			$	970,000

The accompanying notes are an integral part of these condensed consolidated financial statements.