Six Month 2016 $118,000 Net Income to Common Shareholders as Compared to $6,168,000 Net Loss to Common Shareholders in 2015

SUISUN, CA–(Marketwired – Dec 15, 2016) – WPCS International Incorporated (NASDAQ: WPCS), a full-service low-voltage solutions provider in the business of developing, installing and servicing integrated structured cabling, audio-visual and security systems, today announced its financial results for the second quarter ended October 31, 2016.

Sebastian Giordano, CEO of WPCS, commented, “We have improved the financial results of the Company during the first six months of our fiscal year on a year-over-year comparable basis. During the period, we experienced a positive swing of $6.0 million from a net loss to net income attributable to common shareholders. While we incurred an operating loss for the three and six months ended October 31, 2016, on a comparable basis to the same periods in 2015, it improved 72.2% and 50.7%, respectively. Additionally, our backlog has increased 23.6%, from $13,200,000 to $16,325,000 since the start of this new fiscal year, which we anticipate will have a positive impact in the quarters ahead. Our goal remains getting the Company back to profitability through revenue growth, expense reductions and new strategic opportunities.”

Financial Results for the Three Months Ended October 31, 2016

Revenue for the three months ended October 31, 2016 increased $1,024,000, or 26.8%, to $4,848,000, as compared to $3,824,000 for the same period in 2015. Such increase was due primarily to a $618,000 increase in revenue Suisun City Operations and a $405,000 increase in revenue in our newly established Texas Operations.

WPCS generated a net loss to common shareholders for the three months ended October 31, 2016 of approximately $439,000, as compared to a net loss to common shareholders of $1,986,000 for the same period last year. This quarter’s results were comprised of income from: (i) Suisun City Operations of $338,000; (ii) other income of $118,000; and (iii) arbitration settlement income of $31,000, and which were partially offset by: (i) corporate expenses of $548,000; (ii) a loss from our newly established Texas Operations of approximately $357,000; (iii) deemed dividend on convertible preferred stock of $20,000; and (iv) interest expense of $1,000.

Financial Results for the Six Months Ended October 31, 2016

Revenue for the six months ended October 31, 2016 decreased $24,000, or less than 1%, to $8,264,000, as compared to $8,288,000 for the same period in 2015. Such decrease was due primarily to a $692,000 decrease in revenue in our Suisun City Operations offset by $668,000 increase in revenues from our newly established Texas Operations.

WPCS generated net income to common shareholders for the six months ended October 31, 2016 of approximately $118,000, as compared to a net loss of approximately $6,168,000 for the same period last year. This quarter’s results were comprised of income from: (i) Suisun City Operations of $546,000; (ii) gain on an arbitration settlements of $1,181,000; and (iii) other income of $122,000, which were partially offset by: (i) a loss from our newly established Texas Operations of $663,000; (ii) corporate expenses of $1,043,000; (iii) deemed dividend on convertible stock of $20,000; (iv) interest expense of $3,000; and (v) an income tax provision of $3,000.

ABOUT WPCS INTERNATIONAL INCORPORATED

WPCS is a full-service, low-voltage solutions provider, installing and servicing integrated structured cabling, audio-visual and security systems for public services, healthcare, energy and corporate enterprise markets in the United States. The Company delivers end-to-end solutions, superior project management and best-in-class products and technology in California and Texas. For more information about WPCS, 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,
2016 2016
ASSETS
Current assets:
Cash and cash equivalents $ 2,070,388 $ 2,235,597
Accounts receivable, net of allowance of $92,000 3,211,144 2,886,154
Costs and estimated earnings in excess of billings on uncompleted contracts 729,618 357,210
Prepaid expenses and other current assets 113,164 66,256
Total current assets 6,124,314 5,545,217
Property and equipment, net 358,230 237,800
Other assets 19,163 21,162
Total assets $ 6,501,707 $ 5,804,179
LIABILITIES AND EQUITY
Current liabilities:
Current portion of loans payable $ 58,139 $ 53,996
Accounts payable and accrued expenses 2,215,242 2,071,765
Billings in excess of costs and estimated earnings on uncompleted contracts 1,730,996 1,358,289
Total current liabilities 4,004,377 3,484,050
Loans payable, net of current portion 111,305 94,825
Total liabilities 4,115,682 3,578,875
Commitments and contingencies
Stockholders’ equity
Preferred stock – $0.0001 par value, 5,000,000 shares authorized at October 31, 2016 and April 30, 2016, respectively
Convertible Series H, 8,500 shares designated, – 1,213 shares issued and outstanding at October 31, 2016 and 2,638 at April 30, 2016, respectively; liquidation preference of $187,000 186,812 406,262
Convertible Series H-1, 9,488 shares designated – 7,919 shares issued and outstanding at October 31, 2016 and 8,119 at April 30, 2016, respectively; liquidation preference of $1,315,000 682,128 699,324
Common stock – $0.0001 par value, 100,000,000 shares authorized, 2,868,659 and 2,691,055 shares issued and outstanding as of October 31, 2016 and April 30, 2016, respectively 287 269
Additional paid-in capital 86,219,242 85,940,389
Accumulated deficit (84,702,444 ) (84,820,940 )
Total stockholders’ equity 2,386,025 2,225,304
Total liabilities and equity $ 6,501,707 $ 5,804,179

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,
2016 2015 2016 2015
Revenue $ 4,847,710 $ 3,824,241 $ 8,264,163 $ 8,288,244
Costs and expenses:
Cost of revenue 3,819,187 3,294,565 6,454,695 6,741,768
Selling, general and administrative expenses 1,567,326 2,555,206 2,920,312 3,868,009
Depreciation and amortization 28,029 14,493 48,695 29,462
5,414,542 5,864,264 9,423,702 10,639,239
Operating loss (566,832 ) (2,040,023 ) (1,159,539 ) (2,350,995 )
Other income (expense):
Interest expense (1,029 ) (606 ) (3,010 ) (1,498 )
Income from Section 16 settlement 400,000
Income from arbitration settlements 30,902 1,180,902
Other income (expense) 117,947 122,434 (2,906 )
(Loss) income from continuing operations before income tax provision (419,012 ) (2,040,629 ) 140,787 (1,955,399 )
Income tax provision (51 ) 2,567 1,099
(Loss) income from continuing operations (418,961 ) (2,040,629 ) 138,220 (1,956,498 )
Discontinued operations:
Income from discontinued operations 41,261
Gain from disposal 837,720 837,720
Consolidated net (loss) income (418,961 ) (1,202,909 ) 138,220 (1,077,517 )
Net income attributable to noncontrolling interest 16,505
Net (loss) income attributable to WPCS (418,961 ) (1,202,909 ) 138,220 (1,094,022 )
Dividends declared on preferred stock (782,837 ) (4,369,958 )
Deemed dividend on convertible preferred stock, due to beneficial conversion feature (19,724 ) (19,724 ) (703,770 )
Net (loss) income attributable to WPCS common shareholders $ (438,685 ) $ (1,985,746 ) $ 118,496 $ (6,167,750 )
Basic (loss) income from continuing operations per common share $ (0.15 ) $ (1.17 ) $ 0.04 $ (3.62 )
Basic income from discontinued operations per common share 0.01
Basic gain from disposal $ $ 0.35 $ $ 0.43
Basic income from discontinued operations per common share $ $ 0.35 $ $ 0.44
Basic (loss) income per common share $ (0.15 ) $ (0.82 ) $ 0.04 $ (3.18 )
Diluted (loss) income from continuing operations per common share $ (0.15 ) $ (1.17 ) $ 0.03 $ (3.62 )
Diluted income from discontinued operations per common share 0.01
Diluted gain from disposal $ $ 0.35 $ $ 0.43
Diluted income from discontinued operations per common share $ $ 0.35 $ $ 0.44
Diluted (loss) income per common share $ (0.15 ) $ (0.82 ) $ 0.03 $ (3.18 )
Weighted average shares outstanding – basic 2,854,230 2,415,113 2,777,817 1,942,681
Weighted average shares outstanding – diluted 2,854,230 2,415,113 3,790,800 1,942,681

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,
2016 2015
Operating activities:
Net income (loss) from operations $ 138,220 $ (1,956,498 )
Consolidated net income from discontinued operations 878,981
Adjustments to reconcile consolidated net income (loss) to net cash provided by operating activities:
Depreciation and amortization 48,695 14,969
Shares based compensation 22,501 1,540,181
Gain on sale of China operations (837,720 )
Income on Section 16 settlement (400,000 )
Changes in operating assets and liabilities:
Accounts receivable (324,990 ) 2,407,532
Costs and estimated earnings in excess of billings on uncompleted contracts (372,408 ) (165,287 )
Current assets held for sale (3,853,621 )
Prepaid expenses and other current assets (46,908 ) 92,677
Other assets 1,999
Other assets held for sale (34,523 )
Accounts payable and accrued expenses 143,477 (2,653,981 )
Current liabilities held for sale 2,200,030
Billings in excess of costs and estimated earnings on uncompleted contracts 372,707 203,039
Net cash used in operating activities (16,707 ) (2,564,221 )
Investing activities:
Acquisition of property and equipment (96,475 )
Proceeds from sale of China operations, net of acquisition cost 1,325,744
Net cash (used in) provided by investing activities (96,475 ) 1,325,744
Financing activities:
Proceeds from issuance of Series H-1 preferred stock and warrants 1,575,000
Borrowings under loan payable obligations 7,762
Repayment under loan payable obligations (52,027 ) (10,837 )
Repayments under other payable to Zurich (270,000 )
Repayments of short term convertible note (4,000 )
Net cash (used in) provided by financing activities (52,027 ) 1,297,925
Effect of exchange rate changes on cash 91,510
Net (decrease) increase in cash and cash equivalents (165,209 ) 150,958
Cash and cash equivalents, beginning of the period 2,235,597 2,364,360
Cash and cash equivalents, end of the period $ 2,070,388 $ 2,515,318

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

WPCS INTERNATIONAL INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
For the six months ended
October 31,
2016 2015
Schedule of non-cash investing and financing activities:
Automobile financing $ 72,650 $
Declaration on preferred dividend payable $ $ 4,369,958
Conversion of dividends payable related to make-whole amount to 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 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 $ 219,450 $ 865,018
Conversion of Series H-1 preferred stock through the issuance of common stock $ 36,920 $
Deemed dividend on conversion of Series H-1 convertible preferred stock to common stock $ 19,724 $

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

COMPANY CONTACT

Mr. David Allen
Chief Financial Officer
WPCS International Incorporated
Phone: 707.759.6008
Email: Email Contact

INVESTOR CONTACT

KCSA Strategic Communications
Valter Pinto
Phone: 212.896.1254
Email Contact
www.KCSA.com

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