The Company

Reverse Merger and Exchange Ratio

On January 30, 2018, DC Acquisition Corporation (“Merger Sub”), a wholly-owned subsidiary of WPCS International Incorporated (“WPCS”), completed its merger with and into DropCar, Inc. (“Private Dropcar”), with Private Dropcar surviving as a wholly owned subsidiary of WPCS. This transaction is referred to as the “Reverse Merger”. The Reverse Merger was effected pursuant to an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”), dated September 6, 2017, by and among WPCS, Private Dropcar and Merger Sub.

As a result of the Reverse Merger, each outstanding share of Private Dropcar share capital (including shares of Private Dropcar share capital to be issued upon the conversion of outstanding convertible debt) automatically converted into the right to receive approximately 0.3273 shares of WPCS’s common stock, par value $0.0001 per share (the “Exchange Ratio”). Following the closing of the Reverse Merger, holders of WPCS’s common stock immediately prior to the Reverse Merger owned approximately 22.9% on a fully diluted basis, and holders of Private Dropcar common stock immediately prior to the Reverse Merger owned approximately 77.1% on a fully diluted basis, of WPCS’s common stock.

The Reverse Merger has been accounted for as a reverse acquisition under the acquisition method of accounting where Private Dropcar is considered the accounting acquirer and WPCS is the acquired company for financial reporting purposes. Private Dropcar was determined to be the accounting acquirer based on the terms of the Merger Agreement and other factors, such as relative voting rights and the composition of the combined company’s board of directors and senior management, which was deemed to have control. The pre-acquisition financial statements of Private Dropcar became the historical financial statements of WPCS following the Reverse Merger. The historical financial statement, outstanding shares and all other historical share information have been adjusted by multiplying the respective share amount by the Exchange Ratio as if the Exchange Ratio had been in effect for all periods presented.

Immediately following the Reverse Merger, the combined company changed its name from WPCS International Incorporation to DropCar, Inc. The combined company following the Reverse Merger may be referred to herein as “the combined company,” “DropCar,” or the “Company.”

The Company’s shares of common stock listed on The Nasdaq Capital Market, previously trading through the close of business on January 30, 2018 under the ticker symbol “WPCS,” commenced trading on The Nasdaq Capital Market, on a post-Reverse Stock Split adjusted basis, under the ticker symbol “DCAR” on January 31, 2018.

Acquisition Accounting

The fair value of WPCS assets acquired and liabilities assumed was based upon managements estimates assisted by an independent third-party valuation firm. The assumptions are subject to change within the measurement period up to one year from date of acquisition. Critical estimates in valuing certain intangible assets include but are not limited to future expected cash flows from customer relationships and the trade name, present value and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.

The preliminary purchase price allocation of $9.8 million was as follows:

Fair value of equity consideration, 4,685,164 common shares and warrants to purchase common shares	$	9,792,000
Liability assumed: notes payable		158,000
Total purchase price consideration	$	9,950,000

Tangible assets
Net working capital (1)	$	6,664,000
Deferred revenue		(2,300,000)
Fixed assets & equipment		376,000

Intangible assets (2)
Customer contracts		1,200,000
Trade name		600,000
Goodwill		3,410,000

Total allocation of purchase price consideration	$	9,950,000

(1)

Net working capital consists of cash of $4,947,000; account receivable of $3,934,000; and other assets of $318,000; and contract liabilities of $2,535,000.

(2)

The useful lives related to the acquired customer relationships and trade name are expected to be approximately 10 years.

The following summarized unaudited consolidated pro forma information shows the results of operations of the Company had the reverse acquisition occurred on January 1, 2017:

	Pro Forma (Unaudited) Three Months Ended March 31,
	2018		2017
Total Revenues	$	6,465,794	$	4,917,637
Net loss	$	(5,910,372)	$	(1,717,131)
Net loss per common share, basic and diluted	$	(0.98)	$	(1.05)

The summarized unaudited consolidated pro forma results are not necessarily indicative of results which would have occurred if the acquisition had been in effect for the periods presented. Further, the summarized unaudited consolidated pro forma results are not intended to be a projection of future results.

Unaudited Interim Consolidated Financial Information

The accompanying consolidated balance sheets as of March 31, 2018, the consolidated statements of operations and of cash flows for the three months ended March 31, 2018 and 2017, and the consolidated statement of stockholders’ equity (deficit) for the three months ended March 31, 2018 are unaudited. These financial statements should be read in conjunction with the DropCar, Inc’s. 2017 financial statements included in Form 8-K/A filed on April 2, 2018. The unaudited interim consolidated financial statements have been prepared on the same basis as the audited annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of March 31, 2018 and 2017 and the results of its operations and its cash flows for the three months ended March 31, 2018 and 2017. The financial data and other information disclosed in these consolidated notes related to the three months ended March 31, 2018 and 2017 are unaudited.

The Company has two reportable operating segments: DropCar Operating Company, Inc. and WPCS International Incorporated and subsidiaries (“WPCS”).

DropCar Operating Company, Inc.

DropCar Operating Company, Inc. (“Dropcar Operating”) delivers a comprehensive Enterprise Vehicle Assistance and Logistics (“VAL”) platform and mobile application to assist consumers and automotive-related companies reduce the costs, hassles and inefficiencies of owning a car, or fleet of cars, in urban centers. The Company’s VAL platform is a web-based interface to the Company’s core service that coordinates the movements and schedules of trained valets who pickup and drop off cars at dealerships and customer locations. The app tracks progress and provides email and text notifications on status to both dealers and customers, increasing the quality of communication and subsequent satisfaction with the service.

WPCS

WPCS provides low voltage communication infrastructure services. The Company specializes in the installation and service of low voltage communications, voice and data networks, security systems, audio-visual solutions, and distributed antenna systems and provide experienced project management and deliver complex projects to key vertical markets that include healthcare, education, transportation, energy and utilities, oil and gas, manufacturing, commercial real estate, financial, and government, etc.