WPCS Announces Over 60% Revenue Growth for Fiscal 2015 Second Quarter and Six-Month Periods

SUISUN, CA--(Marketwired - Dec 23, 2014) - WPCS International Incorporated (NASDAQ: WPCS), which specializes in contracting services for communications infrastructure, today announced its fiscal 2015 second quarter and year-to-date six month financial results for the period ended October 31, 2014. During both periods revenue increased over 60% as compared to the same periods in fiscal year 2014.

Sebastian Giordano, Interim CEO of WPCS, commented, "Suisun City Operations for our contracting services segment continues to do exceedingly well and we expect this trend to continue for the foreseeable future, offering our Company a steady baseline of revenue and cash flow. Concurrently with continued growth in our operations, the restructuring of our other business lines is moving forward, as planned. Both Australia and Seattle Operations have been sold and, more recently, we made a strategic decision to sell our ownership in BTX. We continue to pursue the sale of our China joint venture interest and further reducing our expenses and liabilities. Going forward, Management and the Board of Directors are evaluating all strategic options available to it, the goal of which is to create long-term value for our shareholders."

Company and Financial Highlights:

• Revenue for the fiscal 2015 second quarter increased 61.7% to $7.3 million as compared to $4.5 million for the same period the prior year, mostly attributable to contracting services project revenue in the Company's Suisun City Operations.
• Revenue for the fiscal 2015 first six months increased 60.5% to $14.1 million as compared to $8.8 million for the same period the prior year.
• On July 31, 2014, completed the sale of its Australia Operations to Turquino Equity LLC, whose managing member is Andrew Hidalgo ("Hidalgo"), the former Chairman and CEO of WPCS. With the sale, the Company eliminated its outstanding severance obligation of approximately $1.1 million to Mr. Hidalgo.
• On September 30, 2014, sold substantially all of the assets of the Seattle Operations for an all-cash purchase price of approximately $2.0 million.
• As of November 2014, eliminated all of our approximately $900,000 of secured convertible debt, the approximately $1.9 million liability related to the make-whole amount on such secured convertible debt and the $500,000 secured promissory note related to BTX.
• Appointed David Allen as Chief Financial Officer on December 12, 2014.

Financial Results for the Three Month Period Ended October 31, 2014
 Revenue for the three months ended October 31, 2014 was approximately $7.3 million, as compared to approximately $4.5 million for the three months ended October 31, 2013, an increase of 61.7% as compared to the same period last year. The increase in revenue was due primarily to an increase in revenue of the contracting services segment, as a result of the significant increase in contracting services project revenue in our Suisun City Operations.

The Company's loss from continuing operations for the three months ended October 31, 2014 was approximately $3.4 million as compared to approximately $598,000 for the same period last year. Such change was due primarily to non-cash items, including approximately $1.9 million in inducement expense, $827,000 in impairment loss on capitalized software and a $254,000 increase in depreciation and amortization.
WPCS has recorded the Australia and Seattle Operations' financial results as discontinued operations. For the three months ended October 31, 2014, WPCS recorded a loss from discontinued operations of approximately $346,000. Net loss attributable to common shareholders for the three-month period totaled approximately $3.8 million.

Financial Results for the Six Month Period Ended October 31, 2014
Revenue for the six months ended October 31, 2014 was approximately $14.1 million, as compared to approximately $8.8 million for the six months ended October 31, 2013, an increase of 60.5% as compared to the same period last year. The increase in revenue was due primarily to an increase in revenue of the contracting services segment, as a result of the significant increase in contracting services project revenue in our Suisun City Operations. For the six months ended October 31, 2014, there was one customer who comprised 50.9% of the consolidated total revenue.

The Company's loss from continuing operations for the six months ended October 31, 2014 was approximately $6.7 million as compared to approximately $6.8 million as compared to the same period last year. WPCS has recorded the Company's Australia and Seattle Operations' financial results as discontinued operations. For the six months ended October 31, 2014, WPCS recorded an income from discontinued operations of approximately $601,000. Net loss attributable to common shareholders for the six-month period totaled approximately $6.1 million.

Finally, WPCS has filed a Certificate of Correction with the Secretary of State of the State of Delaware on December 19, 2014 in order that the Company's Certificate of Incorporation accurately reflects that the total number of authorized shares of Common Stock is 100,000,000. The Certificate of Correction, which became effective immediately upon filing, corrected the Certificate of Amendment previously filed in May 2013. 

About WPCS International Incorporated
 WPCS provides communications infrastructure contracting services 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
CONDENSED CONSOLIDATED BALANCE SHEETS
				October 31,			April 30,
				2014			2014
				(Unaudited)
ASSETS
CURRENT ASSETS:
	Cash and cash equivalents			$	2,244,166		$	2,177,070
	Accounts receivable, net of allowance of $1,210,000 and $1,034,000 at October 31, 2014 and April 30, 2014, respectively				10,217,958			8,614,396
	Costs and estimated earnings in excess of billings on uncompleted contracts				319,066			431,348
	Deferred contract costs				1,199,240			1,166,734
	Prepaid expenses and other current assets				132,966			217,235
	Current assets held for sale				250,000			4,001,812
		Total current assets			14,363,396			16,608,595
PROPERTY AND EQUIPMENT, net					1,492,573			1,780,520
CAPITALIZED SOFTWARE COSTS, net					1,847,406			3,207,305
OTHER ASSETS					20,675			52,376
OTHER ASSETS HELD FOR SALE					14,000			372,930
Total assets				$	17,738,050		$	22,021,726

				October 31,				April 30,
				2014				2014
				(Unaudited)
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
	Current portion of loans payable			$	36,999			$	31,680
	Senior secured convertible notes, net of debt discount of $0 and $853,000, respectively				752,976				44,921
	Make-whole amount on senior secured convertible notes				1,583,937				-
	Accounts payable and accrued expenses				5,466,989				4,956,232
	Accrued severance				216,913				1,520,205
	Billings in excess of costs and estimated earnings on uncompleted contracts				2,074,307				1,448,563
	Due related party				797,342				778,573
	Other payable to Zurich				1,533,757				1,533,757
	Short-term bank loan				3,272,020				3,195,000
	Short-term note				794,000				-
	Income taxes payable				9,515				30,855
	Dividend payable				116,212				72,034
	Current liabilities held for sale				133,607				1,886,019
		Total current liabilities			16,788,574				15,497,839
Loans payable, net of current portion					52,841				56,537
Secured promissory note, related parties					500,000				500,000
Total liabilities					17,341,415				16,054,376
COMMITMENTS AND CONTINGENCIES
EQUITY:
WPCS (DEFICIT) EQUITY:
	Preferred stock - $0.0001 par value, 5,000,000 shares authorized at October 31, 2014 and April 30, 2014, respectively
	Convertible Series E - 1,644 and 2,438 shares issued and outstanding at October 31, 2014 and April 30, 2014, respectively; liquidation preference of $3,804,346 and $5,617,000 as of October 31, 2014 and April 30, 2014, respectively				1,644,000				2,438,000
	Convertible Series F - 5,268 and 0 shares issued and outstanding at October 31, 2014 and April 30, 2014, respectively; liquidation preference of $8,224,655				1,589,933				-
	Convertible Series G - 2,088 and 0 shares issued and outstanding at October 31, 2014 and April 30, 2014, respectively; liquidation preference of $3,259,886				731,706				-
	Common stock - $0.0001 par value, 100,000,000 shares authorized, 13,913,164 and 13,913,164 shares issued and outstanding as of October 31, 2014 and April 30, 2014, respectively				1,391				1,391
	Additional paid-in capital				66,672,106				66,672,106
	Accumulated deficit				(71,367,178	)			(65,222,355	)
	Accumulated other comprehensive income on foreign currency translation				368,902				1,232,003
		Total WPCS (deficit) equity			(359,140	)			5,121,145
Non-controlling interest					755,775				846,205
Total equity					396,635				5,967,350
Total liabilities and equity				$	17,738,050			$	22,021,726

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
			Three months ended								Six months ended
			October 31,								October 31,
			2014				2013				2014				2013
REVENUE			$	7,279,153			$	4,500,147			$	14,050,037			$	8,755,890
COSTS AND EXPENSES:
	Cost of revenue			6,022,828				3,574,036				11,315,932				6,728,751
	Selling, general and administrative expenses			1,818,030				1,170,720				3,178,844				2,582,852
	Severance expense			-				-				-				1,474,277
	Impairment loss on capitalized software			827,448				-				827,448				-
	Depreciation and amortization			443,463				188,524				886,008				388,872
				9,111,769				4,933,280				16,208,232				11,174,752
OPERATING LOSS				(1,832,616	)			(433,133	)			(2,158,195	)			(2,418,862	)
OTHER EXPENSE (INCOME):
	Interest expense			69,103				2,378,786				2,970,499				3,538,279
	Change in fair value of derivative liabilities			-				(2,208,155	)			-				833,750
	Inducement expense			1,870,498				-				1,870,498				-
	Other income			(350,000	)			-				(350,000	)			-
	Other expenses			942				-				8,442				-
Loss from continuing operations before income tax provision				(3,423,159	)			(603,764	)			(6,657,634	)			(6,790,891	)
Income tax provision				-				(5,863	)			-				18,288
LOSS FROM CONTINUING OPERATIONS				(3,423,159	)			(597,901	)			(6,657,634	)			(6,809,179	)
Discontinued operations:
	(Loss) income from discontinued operations			(346,382	)			106,587				(197,521	)			446,539
	Gain on sale of Australia operations			-				-				798,896				-
	(Loss) income from discontinued operations, net of tax			(346,382	)			106,587				601,375				446,539
CONSOLIDATED NET LOSS				(3,769,541	)			(491,314	)			(6,056,259	)			(6,362,640	)
Net (loss) income attributable to non-controlling interest				(53,115	)			(18,310	)			(102,135	)			3,434
NET LOSS ATTRIBUTABLE TO WPCS				(3,716,426	)			(473,004	)			(5,954,124	)			(6,366,074	)
Dividend declared on preferred stock				(116,212	)			-				(190,699	)			-
NET LOSS ATTRIBUTABLE TO WPCS COMMON SHAREHOLDERS			$	(3,832,638	)		$	(473,004	)		$	(6,144,823	)		$	(6,366,074	)
Basic and diluted net loss attributable to WPCS common shareholders:
	Loss from continuing operations		$	(0.25	)		$	(0.47	)		$	(0.48	)		$	(5.99	)
	(Loss) Income from discontinued operations		$	(0.02	)		$	0.08			$	(0.01	)		$	0.39
	Gain from disposal		$	-			$	-			$	0.06			$	-
	Basic and diluted net (loss) income from discontinued operations		$	(0.02	)		$	0.08			$	0.05			$	0.39
	Basic and diluted net loss per common share attributable to WPCS		$	(0.27	)		$	(0.39	)		$	(0.43	)		$	(5.60	)
Basic and diluted weighted average number of common shares outstanding				13,913,164				1,272,877				13,913,164				1,136,750

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
			Six months ended
			October 31,
			2014				2013
OPERATING ACTIVITIES :
	Consolidated net loss from continuing operations		$	(6,657,634	)		$	(6,812,613	)
	Less: net (loss) income attributable to non-controlling interests			(102,135	)			3,434
	Net loss attributable to WPCS			(6,555,499	)			(6,809,179	)
	Consolidated net income from discontinued operations			601,375				446,539
Adjustments to reconcile consolidated net loss to net cash provided by operating activities:
	Depreciation and amortization			886,008				398,872
	Inducement expense			1,870,498				-
	Impairment loss on long term assets			827,448				-
	Amortization of notes discount			853,417				3,053,867
	Make-whole amount			1,889,716				-
	Gain on sale of Australia operations			(798,896	)			-
	Stock-based compensation			-				22,511
	Change in the fair value of derivative liabilities			-				833,750
	Provision for doubtful accounts			-				29,784
	Amortization of debt issuance costs			-				277,095
	Gain on sale of fixed assets			-				13,509
	Changes in operating assets and liabilities:
	Restricted cash			-				1,869,178
	Accounts receivable			(2,273,372	)			(1,518,741	)
	Costs and estimated earnings in excess of billings on uncompleted contracts			78,620				(12,321	)
	Deferred contract costs			(25,843	)			(126,513	)
	Current assets held for sale			3,751,812				(422,718	)
	Prepaid expenses and other current assets			45,668				(115,955	)
	Other assets			15,825				50,800
	Other assets held for sale			358,930				(2,721	)
	Income taxes payable			(24,356	)			(94,919	)
	Accounts payable and accrued expenses			1,357,618				284,124
	Current liabilities held for sale			(1,752,412	)			359,903
	Accrued severance expense			(1,303,292	)			1,381,249
	Billings in excess of costs and estimated earnings on uncompleted contracts			678,176				(10,259	)
	Deferred revenue			-				303,804
NET CASH PROVIDED BY OPERATING ACTIVITIES				481,441				211,659
INVESTING ACTIVITIES:
	Acquisition of property and equipment, net			(140,064	)			(17,620	)
	Addition on acquisition of BTX capitalized software			(2,279	)			-
NET CASH USED IN INVESTING ACTIVITIES				(142,343	)			(17,620	)
FINANCING ACTIVITIES:
	Borrowings (repayments) under loans payable, net			1,623				(23,534	)
	Repayment to senior secured convertible notes			-				(9,507	)
	Repayments under other payable			-				(251,411	)
	Borrowings under short-term bank loan			-				816,100
	Debt issuance costs			-				(102,182	)
	Dividend paid on preferred stock			(146,521	)			-
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES				(144,898	)			429,466
Effect of exchange rate changes on cash				(127,104	)			(41,051	)
NET INCREASE IN CASH AND CASH EQUIVALENTS				67,096				582,454
CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD				2,177,070				915,752
CASH AND CASH EQUIVALENTS, END OF THE PERIOD			$	2,244,166			$	1,498,206
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
	Settlement of severance obligation and sale of Australia		$	970,000			$	-
	Conversion of Preferred E to short term note		$	794,000			$	-
	Declaration on preferred dividend payable		$	190,699			$	-