WPCS Announces Financial Results for the Fiscal 2015 First Quarter Ended July 31, 2014

SUISUN CITY, CA--(Marketwired - Sep 24, 2014) - WPCS International Incorporated (NASDAQ: WPCS) (the "Company"), which specializes in contracting services for communications infrastructure and the development of a digital currency trading platform, today announced its fiscal 2015 first quarter financial results for the period ended July 31, 2014.

Sebastian Giordano, Interim CEO of WPCS, commented, "We continue to diligently make progress across several fronts. First, we are pleased with our fiscal 2015 first quarter revenue growth of 59% on a year-over-year basis, which was mostly attributable to our Suisun City Operations. This segment of our operations is doing very well and we anticipate this trend to continue in the foreseeable future. In addition to the restructuring measures previously reported for fiscal year end 2014, we continue to make steady progress in this area during the first quarter of 2015, as we completed the sale of our Australian Operations and obtained shareholder approval for the sale of our Seattle Operations. These accomplishments are part of a comprehensive restructuring effort that, when completed, should better financially position the Company going forward. We continue to pursue the sale of our China joint venture interest, debt restructuring and further reduction of expenses and liabilities. As such, our financials for this period still reflect the impact of these legacy issues and the remaining areas that still need to be addressed. Finally, we continue our commitment to developing our digital currency business, which has resulted in an increased user base on our platforms and new product launches, such as Celery, which began generating nominal revenues during this quarter. On behalf of the management team, we are excited about the future of WPCS and thank our shareholders for their continued support during this process."

Company and Financial Highlights:

• Revenue for the fiscal 2015 first quarter increased 59% to $6.8 million as compared to $4.3 million for the same period the prior year, mostly attributable to contracting services project revenue in the Company's Suisun City Operations.
• On July 31, 2014, the Company completed the sale of The Pride Group (QLD) Pty Ltd. (the "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 $1.0 million severance obligation to Hidalgo.
• On August 15, 2014, the Company held a special meeting of stockholders at which the Company's shareholders approved the sale of substantially all of the assets of its wholly-owned subsidiary WPCS International -- Seattle, Inc. (the "Seattle Operations"). The Company expects that this transaction will close on September 30, 2014 and it may generate approximately $1.5 million in working capital.
• The Company appointed David Horin, CPA, as its new Chief Financial Officer, effective September 1, 2014.
• Received a letter from NASDAQ, dated September 3, 2014, indicating that WPCS has regained compliance with Listing Rule 5550(a)(2), as the closing bid price of the Company's common stock has been $1.00 per share or greater for the last 10 consecutive business days. Accordingly, NASDAQ advised that the matter is now closed.

Financial Results for the Three Month Period Ended July 31, 2014
Revenue for the three months ended July 31, 2014 was approximately $6,771,000, as compared to approximately $4,256,000 for the three months ended July 31, 2013. 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. There was nominal revenue for the virtual currency trading platform segment.

Cost of revenue consists of direct costs on contracts: materials, direct labor, third party subcontractor services, union benefits and other overhead costs. Cost of revenue was approximately $5,293,000, or 78.2% of revenue, for the three months ended July 31, 2014, as compared to $3,155,000, or 74.1%, for the same period the prior year. The increase in total cost of revenue was due to the increase in revenue as compared to the prior year. The increase as a percentage of revenue is primarily due to the revenue blend of project work completed during the year. 

For the three months ended July 31, 2014, total selling, general and administrative expenses were approximately $1,361,000 or 20.1%, of total revenue. For the three months ended July 31, 2013, total selling, general and administrative expenses were approximately $1,412,000, or 33.2%, of total revenue. Included in selling, general and administrative expenses for the three months ended July 31, 2014 were salaries, commissions, payroll taxes and other employee benefits incurred in the normal course of business of $468,000, which was a $571,000 decrease compared to the prior year, due primarily to lower salaries from cost reduction strategies.

As a result of the execution of the agreement on September 19, 2013 for the divestiture of the Australia Operations, we have recorded the Australia Operations' financial results as discontinued operations. As a result of the execution of the purchase agreement on March 31, 2014 for the divestiture of the Seattle Operations, we have recorded the Seattle Operations' financial results as discontinued operations. For the three months ended July 31, 2014, we recorded an income from discontinued operations of approximately $948,000.

About WPCS International Incorporated
WPCS operates in two business segments: (1) providing communications infrastructure contracting services to the public services, healthcare, energy and corporate enterprise markets worldwide; and (2) developing a digital currency trading platform. For more information, please visit www.wpcs.com, www.btxtrader.com and www.gocelery.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
				July 31,				April 30,
				2014				2014
				(Unaudited)
ASSETS
CURRENT ASSETS:
	Cash and cash equivalents			$	1,318,949			$	2,177,070
	Accounts receivable, net of allowance of $1,086,000 and $1,034,000 at July 31, 2014 and April 30, 2014, respectively				9,697,262				8,614,396
	Costs and estimated earnings in excess of billings on uncompleted contracts				567,186				431,348
	Deferred contract costs				1,221,201				1,166,734
	Prepaid expenses and other current assets				239,173				217,235
	Current assets held for sale				2,972,938				4,001,812
		Total current assets			16,016,709				16,608,595
PROPERTY AND EQUIPMENT, net					1,652,387				1,780,520
CAPITALIZED SOFTWARE COSTS, net					2,940,793				3,207,305
OTHER ASSETS					20,675				52,376
OTHER ASSETS HELD FOR SALE					193,339				372,930
Total assets				$	20,823,903			$	22,021,726
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
	Current portion of loans payable			$	37,549			$	31,680
	Senior secured convertible notes, net of debt discount of $0 and $853,000, respectively				898,338				44,921
	Make-whole amount on senior secured convertible notes				1,889,716				-
	Accounts payable and accrued expenses				6,121,161				4,956,232
	Accrued severance				301,455				1,520,205
	Billings in excess of costs and estimated earnings on uncompleted contracts				1,213,690				1,448,563
	Due related party				789,710				778,573
	Other payable to Zurich				1,533,757				1,533,757
	Short-term bank loan				3,240,700				3,195,000
	Income taxes payable				9,731				30,855
	Dividend payable				74,487				72,034
	Current liabilities held for sale				1,415,351				1,886,019
		Total current liabilities			17,525,645				15,497,839
Loans payable, net of current portion					61,227				56,537
Secured promissory note, related parties					500,000				500,000
Total liabilities					18,086,872				16,054,376
COMMITMENTS AND CONTINGENCIES
EQUITY:
WPCS EQUITY:
	Preferred stock - 5,000,000 shares authorized, 2,438 shares of Series E Convertible Preferred Stock issued with $1,000 stated value, and liquidation preference of $5,617,000				2,438,000				2,438,000
	Common stock - $0.0001 par value, 14,285,714 shares authorized, 13,913,164 and 13,913,164 shares issued and outstanding as of July 31, 2014 and April 30, 2014, respectively				1,391				1,391
		Additional paid-in capital			66,672,106				66,672,106
		Accumulated deficit			(67,534,540	)			(65,222,355	)
		Accumulated other comprehensive income on foreign currency translation			358,274				1,232,003
Total WPCS equity					1,935,231				5,121,145
Noncontrolling interest					801,800				846,205
Total equity					2,737,031				5,967,350
Total liabilities and equity				$	20,823,903			$	22,021,726

WPCS INTERNATIONAL INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
			Three months ended
			July 31,
			2014				2013
REVENUE			$	6,770,884			$	4,255,743
COSTS AND EXPENSES:
	Cost of revenue			5,293,104				3,154,715
	Selling, general and administrative expenses			1,360,814				1,412,132
	Severance expense			-				1,474,277
	Depreciation and amortization			442,545				200,348
				7,096,463				6,241,472
OPERATING LOSS				(325,579	)			(1,985,729	)
OTHER EXPENSE (INCOME):
	Interest expense			2,901,396				1,159,493
	Change in fair value of derivative liabilities			-				3,041,905
	Other expenses			7,500				-
Loss from continuing operations before income tax provision				(3,234,475	)			(6,187,127	)
Income tax provision				-				24,151
LOSS FROM CONTINUING OPERATIONS				(3,234,475	)			(6,211,278	)
Discontinued operations:
	Income from discontinued operations			148,861				339,952
	Gain on sale of Australia operations			798,896				-
	Income from discontinued operations, net of tax			947,757				339,952
CONSOLIDATED NET LOSS				(2,286,718	)			(5,871,326	)
Net (loss) income attributable to noncontrolling interest				(49,020	)			21,744
NET LOSS ATTRIBUTABLE TO WPCS				(2,237,698	)			(5,893,070	)
Dividend declared on preferred stock				(74,487	)			-
NET LOSS ATTRIBUTABLE TO WPCS COMMON SHAREHOLDERS			$	(2,312,185	)		$	(5,893,070	)
Basic and diluted net loss attributable to WPCS common shareholders:
	Loss from continuing operations		$	(0.23	)		$	(6.21	)
	Income from discontinued operations		$	0.01			$	0.34
	Gain from disposal		$	0.06			$	-
	Basic and diluted net income from discontinued operations		$	0.07			$	0.34
	Basic and diluted net loss per common share attributable to WPCS		$	(0.17	)		$	(5.89	)
Basic and diluted weighted average number of common shares outstanding				13,913,164				1,000,624

WPCS INTERNATIONAL INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
			Three months ended
			July 31,
			2014				2013
OPERATING ACTIVITIES :
	Consolidated net loss from continuing operations		$	(3,234,475	)		$	(6,233,022	)
	Less: net income (loss) attributable to noncontrolling interests			(49,020	)			21,744
	Net loss attributable to WPCS			(3,185,455	)			(6,211,278	)
	Consolidated net income from discontinued operations			947,757				339,952
Adjustments to reconcile consolidated net (loss) income to net cash provided by (used in) operating activities:
	Depreciation and amortization			442,545				253,240
	Amortization of notes discount			853,417				1,032,741
	make-whole amount			1,889,716				-
	Gain on sale of Australia operations			(798,896	)			-
	Stock-based compensation			-				21,371
	Change in the fair value of derivative liabilities			-				3,041,905
	Provision for doubtful accounts			-				(2,465	)
	Amortization of debt issuance costs			-				40,549
	Gain on sale of fixed assets			-				(3,892	)
Changes in operating assets and liabilities:
	Restricted cash			-				1,213,424
	Accounts receivable			(1,837,261	)			(507,627	)
	Costs and estimated earnings in excess of billings on uncompleted contracts			(169,500	)			(160,805	)
	Deferred contract costs			(53,538	)			38,001
	Current assets held for sale			1,028,874				(1,477,022	)
	Prepaid expenses and other current assets			(60,539	)			(99,851	)
	Other assets			15,825				(22,751	)
	Other assets held for sale			179,591				30,995
	Income taxes payable			(21,124	)			19,342
	Accounts payable and accrued expenses			2,011,957				342,451
	Current liabilities held for sale			(470,668	)			974,020
	Accrued severance expense			(1,218,750	)			1,462,500
	Billings in excess of costs and estimated earnings on uncompleted contracts			(182,441	)			(155,594	)
	Deferred revenue			-				162,930
NET CASH USED IN OPERATING ACTIVITIES				(628,490	)			332,136
INVESTING ACTIVITIES:
	Acquisition of property and equipment, net			(159,384	)			-
	Addition on acquisition of BTX software			(833	)			-
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES				(160,217	)			-
FINANCING ACTIVITIES:
	Borrowings (repayments) under loans payable, net			10,559				(14,791	)
	Repayments under other payable			-				(157,000	)
	Dividend paid on preferred stock			(72,034	)			-
NET CASH USED IN FINANCING ACTIVITIES				(61,475	)			(171,791	)
Effect of exchange rate changes on cash				(7,939	)			(59,063	)
NET DECREASE IN CASH AND CASH EQUIVALENTS				(858,121	)			101,282
CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD				2,177,070				1,410,223
CASH AND CASH EQUIVALENTS, END OF THE PERIOD			$	1,318,949			$	1,511,505
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
	Settlement of severance obligation and sale of Australia		$	970,000			$	-
	Declaration on preferred dividend payable		$	74,487			$	-