WPCS Announces Financial Results for Fiscal 2015 Third Quarter and Nine-Month Periods

SUISUN, CA--(Marketwired - Mar 23, 2015) - WPCS International Incorporated (NASDAQ: WPCS), which specializes in contracting services for communications infrastructure and natural gas and petroleum transmission pipelines, today announced its fiscal 2015 third quarter and nine month financial results for the period ended January 31, 2015.

Sebastian Giordano, Interim CEO of WPCS, commented, "Operational results this quarter demonstrate that our core business, Suisun City Operations, continues to perform very well, achieving a 21.7% increase in revenue over the same period last year. While the Company had a loss from operations of $408,000 and $702,000 for the three months and nine months ended January 31, 2015, Suisun City had operating income of $236,000 and $1,292,000 for the same periods, which we believe provides an excellent foundation for future growth."

Financial Results for the Three Months Ended January 31, 2015
Revenue for the three months ended January 31, 2015 increased $94,000, or 1.5%, to $6.4 million as compared to $6.3 million for the same period in 2014, primarily due to a 21.7% increase in revenue from our Suisun City Operations to $5.3 million from $4.3 million, which was partially offset by a 45.6% decrease in revenue from our China Operations, to $1.1 million from $2.0 million.

The Company's loss from continuing operations for the three months ended January 31, 2015 was $2.8 million, due primarily from the $408,000 operating loss and a non-cash charge for inducement expense of $3.6 million, which was partially offset by income from Section 16 settlements of $1.1 million, and $0.2 million of other income. This compared to a net operating loss from continuing operations of approximately $3.0 million for the same period in 2014.

WPCS has recorded the financial results for our divested subsidiaries as discontinued operations. For the three months ended January 31, 2015, WPCS recorded a loss from discontinued operations of approximately $111,000. Net loss attributable to common shareholders for the three-month period totaled approximately $3.5 million.

Financial Results for the Nine Months Ended January 31, 2015
Revenue for the nine months ended January 31, 2015 increased $5.2 million, or 34.9%, to $20.2 million as compared to $15.0 million for the same period in 2014, primarily due to a 66.6% increase in revenue from our Suisun City Operations to $17.4 million from $10.5 million, which was partially offset by a 29.7% decrease in revenue from our China Operations to $2.9 million from $4.0 million.

The Company's loss from continuing operations for the nine months ended January 31, 2015 was $7.6 million, due primarily from the $702,000 operating loss, interest expense of $3.0 million and a non-cash charge for inducement expense of $5.5 million, which was partially offset by income from Section 16 settlements of $1.4 million, and $200,000 of other income. This compared to a net operating loss from continuing operations of approximately $10.0 million for the same period in 2014.

WPCS has recorded the financial results for our divested subsidiaries as discontinued operations. For the nine months ended January 31, 2015, WPCS recorded a loss from discontinued operations of approximately $1.8 million. Net loss attributable to common shareholders for the six-month period totaled approximately $9.6 million.

"As expected, overall financial results reflect a Company still in the midst of a significant operational and financial restructuring. We continue to aggressively pursue additional debt and expense reductions, as well as the sale of our majority interest in the China Operations, while simultaneously seeking profitable growth opportunities for the Company," Giordano concluded.

About WPCS International Incorporated
WPCS provides contracting services to the public services, healthcare, energy and corporate enterprise markets in the United States and China. 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
				January 31,				April 30,
				2015				2014
				(Unaudited)
ASSETS
CURRENT ASSETS:
	Cash and cash equivalents			$	1,876,398			$	2,177,070
	Accounts receivable, net of allowance of $1,141,000 and $1,034,000 at January 31, 2015 and April 30, 2014, respectively				10,755,652				8,614,396
	Costs and estimated earnings in excess of billings on uncompleted contracts				340,097				431,348
	Deferred contract costs				224,538				1,166,734
	Prepaid expenses and other current assets				294,084				201,001
	Current assets held for sale				-				4,018,046
		Total current assets			13,490,769				16,608,595
PROPERTY AND EQUIPMENT, net					1,268,711				1,769,976
OTHER ASSETS					11,384				48,776
OTHER ASSETS HELD FOR SALE					14,000				3,594,379
Total assets				$	14,784,864			$	22,021,726
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
	Current portion of loans payable			$	36,493			$	31,680
	Senior secured convertible notes, net of debt discount of $0 and $853,000, respectively				-				44,921
	Accounts payable and accrued expenses				5,016,607				4,782,906
	Accrued severance				-				1,520,205
	Billings in excess of costs and estimated earnings on uncompleted contracts				1,843,517				1,448,563
	Due to related party				795,732				778,573
	Other payable to Zurich				1,533,757				1,533,757
	Short-term bank loan				3,199,760				3,195,000
	Short-term promissory Notes				1,703,000				-
	Income taxes payable				23,265				30,855
	Dividend payable				625,601				72,034
	Current liabilities held for sale				-				2,559,345
		Total current liabilities			14,777,732				15,997,839
Loans payable, net of current portion					43,097				56,537
Total liabilities					14,820,829				16,054,376
COMMITMENTS AND CONTINGENCIES
(DEFICIT) EQUITY:
WPCS (DEFICIT) EQUITY:
	Preferred stock - $0.0001 par value, 5,000,000 shares authorized at January 31, 2015 and April 30, 2014, respectively
		Convertible Series E - 0 and 2,438 shares issued and outstanding at January 31, 2015 and April 30, 2014, respectively; liquidation preference of $0 and $5,617,000 as of January 31, 2015 and April 30, 2014, respectively			-				2,438,000
		Convertible Series F - 5,268 and 0 shares issued and outstanding at January 31, 2015 and April 30, 2014, respectively; liquidation preference of $8,538,567			1,589,933				-
		Convertible Series F-1 - 10,575 and 0 shares issued and outstanding at January 31, 2015 and April 30, 2014, respectively; liquidation preference of $16,960,709			3,191,637				-
		Convertible Series G - 2,088 and 0 shares issued and outstanding at January 31, 2015 and April 30, 2014, respectively; liquidation preference of $3,384,307			731,706				-
		Convertible Series G-1 - 3,442 and 0 shares issued and outstanding at January 31, 2015 and April 30, 2014, respectively; liquidation preference of $5,559,704			1,206,285
	Common stock - $0.0001 par value, 100,000,000 shares authorized, 14,513,164 and 13,913,164 shares issued and outstanding as of January 31, 2015 and April 30, 2014, respectively				1,451				1,391
	Additional paid-in capital				66,968,332				66,672,106
	Accumulated deficit				(74,819,549	)			(65,222,355	)
	Accumulated other comprehensive income on foreign currency translation				345,430				1,232,003
Total WPCS (deficit) equity					(784,775	)			5,121,145
Non-controlling interest					748,810				846,205
Total (deficit) equity					(35,965	)			5,967,350
Total liabilities and equity				$	14,784,864			$	22,021,726

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

WPCS INTERNATIONAL INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
			Three months ended								Nine months ended
			January 31,								January 31,
			2015				2014				2015				2014
REVENUE			$	6,363,597			$	6,269,742			$	20,266,607			$	15,025,632
COSTS AND EXPENSES:
	Cost of revenue			5,210,427				4,829,942				16,348,515				11,559,485
	Selling, general and administrative expenses			1,393,321				1,454,045				4,102,848				4,251,442
	Severance expense			-				-				-				1,474,277
	Depreciation and amortization			167,959				188,574				517,480				577,446
				6,771,707				6,472,561				20,968,843				17,862,650
OPERATING LOSS				(408,110	)			(202,819	)			(702,236	)			(2,837,018	)
OTHER EXPENSE (INCOME):
	Interest expense			61,769				2,679,411				3,023,691				4,918,386
	Change in fair value of derivative liabilities			-				-				-				833,750
	Loss on extinguishment of Notes			-				-				-				1,299,304
	Inducement expense			3,622,344				-				5,492,842				-
	Income from section 16 settlement			(1,051,516	)			-				(1,401,516	)			-
	Other expenses			(197,220	)			-				(188,778	)			-
Loss from continuing operations before income tax provision				(2,843,487	)			(2,882,230	)			(7,628,475	)			(9,888,458	)
Income tax provision				-				104,225				-				122,513
LOSS FROM CONTINUING OPERATIONS				(2,843,487	)			(2,986,455	)			(7,628,475	)			(10,010,971	)
Discontinued operations:
	(Loss) income from discontinued operations			(110,513	)			(408,579	)			(1,805,748	)			253,297
	(Loss) gain from disposal			-				(104,446	)			798,896				(104,446	)
	Gain from disposal of BTX			19,700				-				19,700				-
	Loss from disposal of Seattle Operations			-				-				(374,932	)			-
	(Loss) income from discontinued operations, net of tax			(90,813	)			(513,025	)			(1,362,084	)			148,851
CONSOLIDATED NET LOSS				(2,934,300	)			(3,499,480	)			(8,990,559	)			(9,862,120	)
Net income (loss) attributable to non-controlling interest				8,682				49,439				(93,453	)			52,873
NET LOSS ATTRIBUTABLE TO WPCS				(2,942,982	)			(3,548,919	)			(8,897,106	)			(9,914,993	)
Dividend declared on preferred stock				(509,389	)			-				(700,088	)			(36,993	)
NET LOSS ATTRIBUTABLE TO WPCS COMMON SHAREHOLDERS			$	(3,452,371	)		$	(3,548,919	)		$	(9,597,194	)		$	(9,951,986	)
Basic and diluted net loss attributable to WPCS common shareholders:
	Loss from continuing operations		$	(0.20	)		$	(0.46	)		$	(0.55	)		$	(3.43	)
	(Loss) income from discontinued operations		$	(0.01	)		$	(0.06	)		$	(0.13	)		$	0.09
	Gain (loss) from disposal		$	0.00			$	(0.02	)		$	0.03			$	(0.04	)
	Basic and diluted net (loss) income from discontinued operations		$	(0.01	)		$	(0.08	)		$	(0.10	)		$	0.05
	Basic and diluted net loss per common share attributable to WPCS		$	(0.21	)		$	(0.54	)		$	(0.65	)		$	(3.38	)
Basic and diluted weighted average number of common shares outstanding				13,929,468				6,475,773				13,918,599				2,916,425

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

WPCS INTERNATIONAL INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
			Nine months ended
			January 31,
			2015				2014
OPERATING ACTIVITIES :
	Net loss attributable to WPCS		$	(7,535,022	)		$	(10,063,844	)
	Consolidated net (loss) income from discontinued operations			(1,362,084	)			148,851
Adjustments to reconcile consolidated net loss to net cash used in operating activities:
	Depreciation and amortization			517,480				577,446
	Inducement expense			5,492,842				-
	Amortization of notes discount			853,417				4,278,687
	Loss on extinguishment of Notes			-				1,299,304
	Make-whole amount			1,889,716				-
	Gain on sale of Pride			(798,896	)			104,446
	Gain on sale of BTX			(19,700	)			-
	Loss on sale of Seattle Operations			374,932				-
	Stock-based compensation			115,200				23,651
	Income on section 16 settlement			(1,401,516	)			-
	Cash received on section 16 settlement			650,000				-
	Change in the fair value of derivative liabilities			-				833,750
	Provision for doubtful accounts			-				33,223
	Amortization of debt issuance costs			-				277,970
	Gain on sale of fixed assets			-				8,601
	Changes in operating assets and liabilities:
	Restricted cash			-				1,869,178
	Accounts receivable			(4,008,257	)			(2,661,869	)
	Costs and estimated earnings in excess of billings on uncompleted contracts			(247,240	)			(82,735	)
	Deferred contract costs			944,824				(457,041	)
	Current assets held for sale			492,679				497,401
	Prepaid expenses and other current assets			(154,055	)			(254,681	)
	Other assets			15,591				34,284
	Other assets held for sale			3,580,379				218,200
	Income taxes payable			(8,323	)			(130,326	)
	Accounts payable and accrued expenses			2,127,417				(994,750	)
	Current liabilities held for sale			(3,029,345	)			1,984,037
	Accrued severance expense			(550,205	)			1,300,000
	Billings in excess of costs and estimated earnings on uncompleted contracts			447,386				(185,706	)
	Deferred revenue			-				179,772
NET CASH USED IN OPERATING ACTIVITIES				(1,612,780	)			(1,162,151	)
INVESTING ACTIVITIES:
	Cash received on sale of Seattle			1,561,000				-
	Sale (purchase) of property and equipment			100,521				(54,400	)
	Addition on acquisition of BTX capitalized software			(2,279	)			-
	Cash issued in the sale of BTX			(59,097	)			-
	Cash received from acquisition of BTX software			-				1,185,000
NET CASH PROVIDED BY INVESTING ACTIVITIES				1,600,145				1,130,600
FINANCING ACTIVITIES:
	Repayments under loans payable, net			(8,627	)			(35,753	)
	Repayment to senior secured convertible notes			-				(9,507	)
	Repayments under other payable			-				(210,229	)
	Borrowings under short-term bank loan			-				818,550
	Borrowings from related party			-				790,256
	Debt issuance costs			-				(102,182	)
	Dividend paid on preferred stock			(146,521	)			-
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES				(155,148	)			1,251,135
Effect of exchange rate changes on cash				(132,889	)			(65,886	)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS				(300,672	)			1,153,698
CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD				2,177,070				917,752
CASH AND CASH EQUIVALENTS, END OF THE PERIOD			$	1,876,398			$	2,071,450
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
	Settlement of severance obligation and sale of Pride		$	970,000			$	-
	Conversion of Series E preferred stock to promissory notes		$	2,438,000			$	-
	Declaration on preferred dividend payable		$	700,088			$	-
	Conversion of senior secured convertible note and related make-whole amount to Series F-1 preferred stock Series G-1 preferred stock		$	4,918,360			$	-
	Conversion of senior secured convertible note and related make-whole amount to Series F preferred stock Series G preferred stock		$	2,321,640			$	-
	Conversion of Series F-1 preferred stock to common stock		$	181,066			$	-
	Section 16 settlement gain for cancellation of short term promissory notes		$	735,000			$	-
	Section 16 settlement gain for cancellation of make-whole interest expense		$	17,000			$	-
	Sale of BTX		$	79,000			$	-
	Issuance of common stock for the conversion of Notes and accrued interest		$	-			$	3,114,816
	Acquisition of BTX Software from issuance of Series E Preferred Stock		$	-			$	2,635,147
	Reclassification of fair value of derivative liability on Notes and Warrants to additional paid-in capital upon the Amendment and Note Amendment		$	-			$	7,166,991
	Reclassification of fair value of derivative liability on Notes to additional paid-in capital upon conversion of Notes		$	-			$	686,856

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