NOTE 1 - BASIS OF PRESENTATION AND LIQUIDITY

Basis of Presentation

The consolidated financial statements include the accounts of WPCS International Incorporated, a Delaware corporation (“WPCS”) and its wholly and majority-owned subsidiaries, (collectively, the “Company”). The Company’s subsidiaries based in the United States (“US”) include, or have included: WPCS International - Suisun City, Inc. (the “Suisun City Operations”), WPCS International - Lakewood, Inc. (the “Lakewood Operations”), WPCS International - Hartford, Inc. (the “Hartford Operations”), WPCS International - Trenton, Inc. (the “Trenton Operations”), WPCS International - Seattle, Inc. (the “Seattle Operations”), WPCS International - Portland, Inc. (the “Portland Operations”) and BTX Trader, LLC (“BTX”). International operations include WPCS Asia Limited, a 60% joint venture interest in Tai'an AGS Pipeline Construction Co. Ltd. (the “China Operations”), and WPCS Australia Pty Ltd, WPCS International – Brendale Pty Ltd., and The Pride Group (QLD) Pty Ltd., (collectively, the “Australia Operations”).

With the recent divestitures of The Pride Group (QLD) Pty Ltd. (“Pride”), BTX, substantially all of the assets of the Seattle Operations, and the sale of the China Operations (subsequent to July 31, 2015), the Suisun City Operations is the Company’s only remaining continuing operation as of July 31, 2015. As such, the Company intends to dissolve the remaining inactive domestic and international subsidiaries listed above, as soon as it is administratively feasible to do so.

Certain reclassifications associated with the discontinued operations of Pride, BTX, and the Seattle Operations have been made to the prior years’ financial information in order to conform to the current year’s presentation. The reclassifications had no impact on previously reported net loss or stockholders’ equity. In addition, as of July 31, 2015, the Company has entered into an Interest Purchase Agreement to sell all of its ownership in its China Operations and therefore has classified all activity related to its China Operations as discontinued operations in these financial statements. (Subsequent to July 31, 2015, the Company completed the sale of the China Operations).

The Company specializes in contracting services, with 56 (14 full-time and 42 part-time union) employees in one operation center and currently offers communications infrastructure services through the Suisun City Operations.

Liquidity and Capital Resources

As of July 31, 2015, the Company had working capital of approximately $2,208,000, which consisted of current assets of approximately $16,247,000 and current liabilities of approximately $14,039,000. This compares to a working capital deficiency of approximately $1,246,000 at April 30, 2015. The current liabilities as presented in the balance sheet at July 31, 2015 primarily include approximately $7,935,000 of liabilities held for sale (primarily associated with our China Operations), $4,132,000 of accounts payable and accrued expenses, $229,000 of dividends payable and approximately $1,472,000 of billings in excess of costs and estimated earnings on uncompleted contracts.

Our cash and cash equivalents balance at July 31, 2015 was approximately $5,540,000.

During the quarter ended July 31, 2015, the Company completed a series of transactions that it believes will provide it with sufficient working capital and equity to operate the next twelve months from the date of filing this report, while it continues its plan to seek growth opportunities, including, but not limited: (i) organic growth to complement and enhance existing operations; (ii) acquisitions; and/or (iii) a viable merger candidate.

The transactions included the: (i) elimination of $1,703,000 of promissory notes which were due and payable on September 30, 2015; (ii) issuance of common stock to satisfy approximately $660,000 of the $677,000 of preferred stock dividends payable at April 30, 2015; (iii) completion of a $1,575,000 equity financing; and (iv) closing of a $1,000,000 line of credit for our Suisun Operations.

These events have provided cash to the Company and eliminated future cash requirements. Along with expected continued operating profits from its Suisun Operations for fiscal year 2016 and lower corporate overhead, these are the primary factors that support the belief that the Company will have adequate liquidity for the next twelve months.