form10q.htm

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

INDEX

PART I.	FINANCIAL INFORMATION

	ITEM 1.	Condensed consolidated balance sheets at October 31, 2008 (unaudited) and April 30, 2008	3-4

		Condensed consolidated statements of income for the three and six months ended October 31, 2008 and 2007 (unaudited)	5

		Condensed consolidated statement of shareholders’ equity for the six months ended October 31, 2008 (unaudited)	6

		Condensed consolidated statements of cash flows for the six months ended October 31, 2008 and 2007 (unaudited)	7-8

		Notes to unaudited condensed consolidated financial statements	9-23

	ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24-35

	ITEM 3.	Controls and Procedures	36

PART II.	OTHER INFORMATION

	ITEM 1	Legal proceedings	37
	ITEM 2	Unregistered sales of equity securities and use of proceeds	37
	ITEM 3	Defaults upon senior securities	37
	ITEM 4	Submission of matters to a vote of security holders	37
	ITEM 5	Other information	37
	ITEM 6	Exhibits	37

	SIGNATURES		38

	October 31,		April 30,
ASSETS	2008		2008
	(Unaudited)		(Note 1)
CURRENT ASSETS:

Cash and cash equivalents	$	13,235,880	$	7,449,530
Accounts receivable, net of allowance of $133,803 and $98,786 at October 31, 2008 and April 30, 2008, respectively		26,542,341		29,092,488

Costs and estimated earnings in excess of billings on uncompleted contracts		4,819,434		3,887,152
Inventory		3,186,090		2,791,782
Prepaid expenses and other current assets		1,826,629		1,002,993
Prepaid income tax		-		122,342
Deferred tax assets		166,329		35,939
Total current assets		49,776,703		44,382,226

PROPERTY AND EQUIPMENT, net		6,858,020		6,828,162

OTHER INTANGIBLE ASSETS, net		2,236,574		2,929,937

GOODWILL		32,081,048		28,987,501

OTHER ASSETS		154,765		820,315

Total assets	$	91,107,110	$	83,948,141

LIABILITIES AND SHAREHOLDERS' EQUITY	October 31,			April 30,
	2008			2008
	(Unaudited)			(Note 1)
CURRENT LIABILITIES:

Current portion of loans payable	$	107,475		$	1,272,112
Borrowings under line of credit		-			750,000
Current portion of capital lease obligations		105,908			91,491
Accounts payable and accrued expenses		10,715,483			9,305,791
Billings in excess of costs and estimated earnings on uncompleted contracts		6,144,343			3,602,422
Deferred revenue		808,251			602,560
Due to shareholders		3,194,611			2,300,083
Income taxes payable		170,816			-
Total current liabilities		21,246,887			17,924,459

Borrowings under line of credit		7,626,056			4,376,056
Loans payable, net of current portion		104,420			156,978
Capital lease obligations, net of current portion		203,766			215,780
Deferred tax liabilities		1,174,380			1,173,786
Total liabilities		30,355,509			23,847,059

Minority interest in subsidiary		1,393,046			1,331,850

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:
Preferred stock - $0.0001 par value, 5,000,000 shares authorized, none issued		-			-
Common stock - $0.0001 par value, 75,000,000 shares authorized, 7,251,083 shares issued and outstanding at October 31, 2008 and April 30, 2008		725			725
Additional paid-in capital		50,827,277			50,775,938
Retained earnings		8,909,683			7,709,562
Accumulated other comprehensive (loss) income on foreign currency translation		(379,130	)		283,007

Total shareholders' equity		59,358,555			58,769,232

Total liabilities and shareholders' equity	$	91,107,110		$	83,948,141

	Three Months Ended						Six Months Ended
	October 31,						October 31,
	2008			2007			2008			2007


REVENUE	$	28,767,681		$	28,105,044		$	57,035,212		$	49,921,050

COSTS AND EXPENSES:
Cost of revenue		21,421,304			20,646,816			41,606,178			35,834,568
Selling, general and administrative expenses		5,945,671			4,518,881			11,883,160			8,578,137
Depreciation and amortization		651,039			468,615			1,340,181			998,202

Total costs and expenses		28,018,014			25,634,312			54,829,519			45,410,907

OPERATING INCOME		749,667			2,470,732			2,205,693			4,510,143

OTHER EXPENSE (INCOME):
Interest expense		136,681			185,636			248,284			308,218
Interest income		(22,073	)		(140,663	)		(48,112	)		(355,175	)
Minority interest		19,950			57,140			61,196			60,788

INCOME BEFORE INCOME TAX PROVISION		615,109			2,368,619			1,944,325			4,496,312

Income tax provision		253,299			867,106			744,204			1,722,184

NET INCOME	$	361,810		$	1,501,513		$	1,200,121		$	2,774,128

Basic net income per common share	$	0.05		$	0.21		$	0.17		$	0.39

Diluted net income per common share	$	0.05		$	0.19		$	0.17		$	0.35

Basic weighted average number of common shares outstanding		7,251,083			7,079,977			7,251,083			7,026,818

Diluted weighted average number of common shares outstanding		7,262,419			7,958,535			7,259,353			8,013,332

														Accumulated
									Additional Paid-In Capital					Other Compre-			Total Shareholders' Equity
	Preferred Stock				Common Stock							Retained		hensive
	Shares		Amount		Shares		Amount					Earnings		Income(loss)

BALANCE, MAY 1, 2008		-	$	-		7,251,083	$	725	$	50,775,938		$	7,709,562	$	283,007		$	58,769,232

Fair value of stock options granted to employees		-		-		-		-		56,339			-		-			56,339

Equity issuance cost		-		-		-		-		(5,000	)		-		-			(5,000	)

Accumulated other comprehensive loss		-		-		-		-		-			-		(662,137	)		(662,137	)

Net income		-		-		-		-		-			1,200,121		-			1,200,121

BALANCE, OCTOBER 31, 2008		-	$	-		7,251,083	$	725	$	50,827,277		$	8,909,683	$	(379,130	)	$	59,358,555

	Six Months Ended
	October 31,
	2008			2007

OPERATING ACTIVITIES :
Net income	$	1,200,121		$	2,774,128
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		1,340,181			998,202
Fair value of stock options granted to employees		56,339			24,435
Provision for doubtful accounts		52,932			-
Amortization of debt issuance costs		5,161			-
Excess tax benefit from exercise of stock options		-			(12,000	)
Minority interest		61,196			60,788
(Gain) loss on sale of fixed assets		(3,822	)		4,875
Deferred income taxes		(87,146	)		68,000
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable		2,299,194			(2,804,552	)
Costs and estimated earnings in excess of billings on uncompleted contracts		(1,004,154	)		(862,180	)
Inventory		(475,630	)		(947,733	)
Prepaid expenses and other current assets		(454,208	)		(429,078	)
Other assets		471,681			139,883
Accounts payable and accrued expenses		1,511,588			1,619,596
Billings in excess of costs and estimated earnings on uncompleted contracts		2,488,644			(913,039	)
Deferred revenue		205,653			151,597
Income taxes payable		350,351			(53,918	)
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES		8,018,081			(180,996	)

INVESTING ACTIVITIES:
Acquisition of property and equipment, net		(714,151	)		(370,230	)
Acquisition of NECS, net of cash received		-			(3,534	)
Acquisition of SECS, net of cash received		-			57,451
Acquisition of Voacolo, net of cash received		(2,500,000	)		(66,000	)
Acquisition of Lincoln Wind, net of cash received		(420,464	)		-
Acquisition of Major, net of cash received		-			(3,091,777	)
Acquisition of Max, net of cash received		(287,181	)		(523,045	)
Acquisition of Empire, net of cash received		(7,521	)		-
Acquisition of James, net of cash received		(287,735	)		-
Acquisition of Energize, net of cash received		(24,516	)		-
NET CASH USED IN INVESTING ACTIVITIES		(4,241,568	)		(3,997,135	)

FINANCING ACTIVITIES:
Net proceeds from exercise of stock options		-			55,042
Excess tax benefit from exercise of stock options		-			12,000
Equity issuance costs		(5,000	)		(4,959	)
Borrowings/(repayments) under lines of credit, net		2,500,000			(6,540,991	)
(Repayments)/borrowings under loans payable, net		(1,217,195	)		399,797
Borrowings/(repayments) of amounts due to shareholders		827,678			(238,420	)
Payments of capital lease obligations		(25,887	)		(45,009	)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		2,079,596			(6,362,540	)

Effect of exchange rate changes on cash		(69,759	)		6,036

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		5,786,350			(10,534,635	)
CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD		7,449,530			21,558,739
CASH AND CASH EQUIVALENTS, END OF THE PERIOD	$	13,235,880		$	11,024,104

The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) for quarterly reports on Form 10-Q of Article 10 of Regulation S-X and do not include all of the information and note disclosures required by accounting principles generally accepted in the United States of America. Accordingly, the unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the fiscal year ended April 30, 2008 included in the Company’s Annual Report on Form 10-K. The accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion of the management, considered necessary for a fair presentation of condensed consolidated financial position, results of operations and cash flows for the interim periods. Operating results for the three and six month periods ended October 31, 2008 are not necessarily indicative of the results that may be expected for the fiscal year ending April 30, 2009. The amounts for the April 30, 2008 balance sheet have been extracted from the audited consolidated financial statements included in Form 10-K for the year ended April 30, 2008.

The accompanying condensed consolidated financial statements include the accounts of WPCS International Incorporated (WPCS) and its wholly and majority-owned subsidiaries, WPCS Incorporated, Invisinet, Inc. (Invisinet), Walker Comm, Inc. (Walker), Clayborn Contracting Group, Inc. (Clayborn), Heinz Corporation (Heinz), Quality Communications & Alarm Company, Inc. (Quality), New England Communications Systems, Inc. (NECS), Southeastern Communication Services, Inc. (SECS), Voacolo Electric Incorporated (Voacolo), Taian AGS Pipeline Construction Co. Ltd (TAGS), Major Electric, Inc. (Major) from August 1, 2007 (date of acquisition), Max Engineering LLC (Max) from August 2, 2007 (date of acquisition), Gomes and Gomes, Inc. dba Empire Electric (Empire) from November 1, 2007 (date of acquisition), WPCS Australia Pty Ltd from November 12, 2007 (date of formation), James Design Pty Ltd (James) from November 30, 2007 (date of acquisition), WPCS Asia Limited from January 24, 2008 (date of formation), RL & CA MacKay Pty Ltd. dba Energize Electrical (Energize) from April 4, 2008 (date of acquisition), and Lincoln Wind LLC (Lincoln Wind) from June 26, 2008 (date of acquisition), collectively the “Company”.

The Company provides design-build engineering services that focus on the implementation requirements of wireless technology. The Company serves the specialty communication systems and wireless infrastructure sectors. The Company provides services that include site design, technology integration, electrical contracting, construction, and project management for corporations, government entities and educational institutions worldwide.

In accordance with Statement of Financial Accounting Standards (SFAS No. 142), “Goodwill and Other Intangible Assets,” goodwill and indefinite-lived intangible assets are no longer amortized but are assessed for impairment on at least an annual basis. SFAS No. 142 also requires that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment.

SFAS No. 142 requires that goodwill be tested at least annually, utilizing a two-step methodology. The initial step requires the Company to determine the fair value of the business acquired (reporting unit) and compare it to the carrying value, including goodwill, of such business (reporting unit). If the fair value exceeds the carrying value, no impairment loss is recognized. However, if the carrying value of the reporting unit exceeds its fair value, the goodwill of the unit may be impaired. The amount, if any, of the impairment is then measured in the second step, based on the excess, if any, of the reporting unit’s carrying value of goodwill over its implied value.

The Company determines the fair value of the businesses acquired (reporting units) for purposes of this test primarily by using a discounted cash flow valuation technique. Significant estimates used in the valuation include estimates of future cash flows, both future short-term and long-term growth rates, and estimated cost of capital for purposes of arriving at a discount factor. The Company expects to perform its annual impairment test at April 30 absent any interim impairment indicators. Adverse changes in general economic conditions could impact the Company's valuation of its reporting units. However, the Company considered current economic conditions, and concluded that indicators did not suggest testing goodwill or intangible assets for impairment on an interim basis in advance of the tests it performs annually at the end of the fourth quarter of each year.

	Wireless		Specialty			Total
	Infrastructure		Communication

Beginning balance, May 1, 2008	$	4,583,701	$	24,403,800		$	28,987,501

Voacolo acquisition - additional earnout payment		-		2,500,000			2,500,000
Major acquisition - NTAV and purchase price adjustment		-		6,353			6,353
Max acquisition - additional earnout payment		287,181		-			287,181
Lincoln Wind acquisition		-		280,494			280,494
Empire acquisition - purchase price adjustment		-		81,366			81,366
James acquisition - purchase price adjustment		-		408,727			408,727
Energize acquisition - purchase price adjustment		-		62,460			62,460
Foreign currency translation adjustments		-		(533,034	)		(533,034	)
Ending balance, October 31, 2008	$	4,870,882	$	27,210,166		$	32,081,048

The Company generates its revenue by providing design-build engineering services for specialty communication systems and wireless infrastructure services. The Company provides services that include site design, technology integration, electrical contracting, construction, and project management. The Company’s engineering and deployment services report revenue pursuant to customer contracts that span varying periods of time. The Company reports revenue from contracts when persuasive evidence of an arrangement exists, fees are fixed or determinable, and collection is reasonably assured.

The Company records revenue and profit from long-term contracts on a percentage-of-completion basis, measured by the percentage of contract costs incurred to date to the estimated total costs for each contract. Contracts in process are valued at cost plus accrued profits less earned revenues and progress payments on uncompleted contracts. Contract costs include direct materials, direct labor, third party subcontractor services and those indirect costs related to contract performance. Contracts are generally considered substantially complete when engineering is completed and/or site construction is completed.

WPCS INTERNATIONAL INCORPORATED AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company has numerous contracts that are in various stages of completion. Such contracts require estimates to determine the appropriate cost and revenue recognition. Cost estimates are reviewed monthly on a contract-by-contract basis, and are revised periodically throughout the life of the contract such that adjustments to profit resulting from revisions are made cumulative to the date of the revision. Significant management judgments and estimates, including the estimated cost to complete projects, which determines the project’s percent complete, must be made and used in connection with the revenue recognized in the accounting period. Current estimates may be revised as additional information becomes available. If estimates of costs to complete long-term contracts indicate a loss, provision is made currently for the total loss anticipated.

Income taxes are accounted for in accordance with SFAS No. 109, "Accounting of Income Taxes." Under SFAS No. 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under SFAS No. 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The recognition of deferred tax assets is reduced by a valuation allowance if it is more likely than not that the tax benefits will not be realized. The ultimate realization of deferred tax assets depends upon the generation of future taxable income during the periods in which those temporary differences become deductible.

In June 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an interpretation of FAS No. 109 (“FIN 48”), which clarifies the accounting for uncertainty in income taxes is subject to significant and varied interpretations that have resulted in diverse and inconsistent accounting practices and measurements. Addressing such diversity, FIN 48 prescribes a consistent recognition threshold and measurement attribute, as well as clear criteria for subsequently recognizing, derecognizing and measuring changes in such tax positions for financial statement purposes. FIN 48 also requires expanded disclosure with respect to the uncertainty in income taxes. FIN 48 is effective for fiscal years beginning after December 15, 2006. The adoption of FIN 48 on May 1, 2007 had no impact on the Company’s condensed consolidated financial position, results of operations, cash flows or financial statement disclosures.

Earning per common share is computed pursuant to SFAS No. 128, "Earnings Per Share" (EPS). Basic net income per common share is computed as net income divided by the weighted average number of common shares outstanding for the period. Diluted net income per common share reflects the potential dilution that could occur from common stock issuable through stock options and warrants. The table below presents the computation of basic and diluted net income per common share for the three and six months ended October 31, 2008 and 2007, respectively:

Basic earnings per share computation	Three Months Ended				Six Months Ended
	October 31,				October 31,
Numerator:	2008		2007		2008		2007

Net income	$	361,810	$	1,501,513	$	1,200,121	$	2,774,128

Denominator:

Basic weighted average shares outstanding		7,251,083		7,079,977		7,251,083		7,026,818

Basic net income per common share	$	0.05	$	0.21	$	0.17	$	0.39



Diluted earnings per share computation	Three Months Ended				Six Months Ended
	October 31,				October 31,
Numerator:	2008		2007		2008		2007

Net income	$	361,810	$	1,501,513	$	1,200,121	$	2,774,128

Denominator:

Basic weighted average shares outstanding		7,251,083		7,079,977		7,251,083		7,026,818

Incremental shares from assumed conversion:

Conversion of stock options		11,336		200,598		8,270		221,472

Conversion of common stock warrants		-		677,960		-		765,042

Diluted weighted average shares		7,262,419		7,958,535		7,259,353		8,013,332

Diluted net income per common share	$	0.05	$	0.19	$	0.17	$	0.35

At October 31, 2008 and 2007, the Company had 691,475 and 561,468 stock options and 1,883,796 warrants outstanding, respectively, which are potentially dilutive securities. For the three months ended October 31, 2008 and 2007, 667,759 and 75,219 stock options were not included in the computation of the diluted earnings per share, respectively. For the three and six months ended October 31, 2008, 1,883,796 warrants were not included in the computation of the diluted earnings per share. For the six months ended October 31, 2008 and 2007, 642,400 and 63,434 stock options were excluded from the computation of the diluted earnings per share, respectively. These potentially dilutive securities were excluded because the stock option exercise prices exceeded the average market price of the common stock and, therefore, the effects would be antidilutive.

	Three months ended					Six months ended
	October 31,					October 31,
	2008			2007		2008			2007
Net income	$	361,810		$	1,501,513	$	1,200,121		$	2,774,128
Other comprehensive (loss) income – foreign currency translation adjustments, net		(735,869	)		46,200		(662,137	)		109,965
Comprehensive (loss) income	$	(374,059	)	$	1,547,713	$	537,984		$	2,884,093

In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenue and expenses during the reporting period. The most significant estimates relate to the calculation of percentage-of-completion on uncompleted contracts, allowance for doubtful accounts, valuation of inventory, amortization method and lives of customer lists, and estimates of the fair value of reporting units and discounted cash flows used in determining whether goodwill has been impaired. Actual results could differ from those estimates.

On September 15, 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (SFAS 157), which is effective for fiscal years beginning after November 15, 2007 and for interim periods within those years. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands the related disclosure requirements. On February 12, 2008, the FASB issued staff position No. SFAS 157-2, “effective date of FASB No. 157 Fair Value Measurements”, which delays the effective date of SFAS 157 for non-financial assets and liabilities to fiscal years beginning after November 15, 2008. The adoption of SFAS 157 had no impact on the Company’s condensed consolidated financial position, results of operations, cash flows or financial statement disclosures.

In February, 2007, the FASB issued FASB Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (SFAS 159), which permits entities to choose to measure many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The adoption of SFAS 159 had no impact on the Company’s consolidated financial position, results of operations, cash flows or financial statement disclosures.

On December 4, 2007, the FASB issued SFAS No. 141(R) “Business Combinations” (SFAS 141(R)), and SFAS No. 160 “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51” (SFAS 160). These new standards will significantly change the accounting for and reporting for business combination transactions and noncontrolling (minority) interests in consolidated financial statements. SFAS 141(R) and SFAS 160 are required to be adopted simultaneously and are effective for the first annual reporting period beginning on or after December 15, 2008. Earlier adoption is prohibited. The Company will evaluate the impact of adopting SFAS 141(R) and SFAS 160 on its condensed consolidated financial position, results of operations, cash flows or financial statement disclosures.

On March 19, 2008, the FASB Issued SFAS No. 161, “Disclosures About Derivative Instruments and Hedging Activities”(SFAS 161). This statement is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures. This statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The Company is currently evaluating the impact that SFAS 161 will have on its condensed consolidated financial position, results of operations, cash flows or financial statement disclosures.

In June 2008, the FASB ratified EITF Issue 07-5, “Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock” (EITF 07-5). The primary objective of EITF 07-5 is to provide guidance for determining whether an equity-linked financial instrument or embedded feature within a contract is indexed to an entity’s own stock, which is a key criterion of the scope exception to paragraph 11(a) of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” An equity-linked financial instrument or embedded feature within a contract that is not considered indexed to an entity’s own stock could be required to be classified as an asset or liability and marked-to-market through earnings. EITF 07-5 specifies a two-step approach in evaluating whether an equity-linked financial instrument or embedded feature within a contract is indexed to its own stock. The first step involves evaluating the instrument’s contingent exercise provisions, if any, and the second step involves evaluating the instrument’s settlement provisions. EITF 07-5 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and must be applied to all instruments outstanding as of the effective date. Accordingly, the Company will adopt EITF 07-5 on May 1, 2009, but has not yet determined the impact, if any, on its consolidated financial position, results of operations and cash flows.

In accordance with SFAS No. 141, “Business Combinations,” acquisitions are accounted for under the purchase method of accounting. Under the purchase method of accounting, assets acquired and liabilities assumed are recorded at their estimated fair values. Goodwill is recorded to the extent the purchase price consideration, including certain acquisition and closing costs, exceeds the fair value of the net identifiable assets acquired at the date of the acquisition.

On March 30, 2007, the Company acquired Voacolo. The aggregate consideration paid by the Company, including acquisition transaction costs of $31,389, was $5,063,863 of which $3,781,389 was paid in cash, and the Company issued 116,497 shares of common stock valued at $1,282,473. In June 2008, the Company settled and paid aggregate additional cash consideration of $2,500,000 to the former Voacolo shareholders for the earnout settlement for the twelve months ended March 31, 2008. Voacolo was acquired pursuant to a Stock Purchase Agreement among the Company, and the former Voacolo shareholders, dated and effective as of March 30, 2007. In connection with the acquisition, Voacolo entered into employment agreements with the former Voacolo shareholders, each for a period of two years. The acquisition of Voacolo expands the Company’s geographic presence in the Mid-Atlantic region and provides additional electrical contracting services in both high and low voltage applications, structured cabling and voice/data/video solutions, as well as the expansion of its operations into wireless video surveillance.

A valuation of certain assets was completed, including property and equipment, list of major customers and backlog, and the Company internally determined the fair value of other assets and liabilities. In determining the fair value of acquired assets, standard valuation techniques were used including the market and income approach.

Assets purchased:
Cash	$	584,094
Accounts receivable		2,095,564
Inventory		217,500
Prepaid expenses		46,858
Costs and estimated earnings in excess of billings		215,143
Fixed assets		346,569
Backlog		200,200
Customer lists		132,000
Goodwill		3,988,732
		7,826,660
Liabilities assumed:
Accounts payable		(732,252	)
Accrued expenses		(102,832	)
Payroll and other payables		(79,943	)
Billings in excess of costs and estimated earnings		(935,179	)
Deferred income tax payable		(181,000	)
Income tax payable		(28,171	)
Loan payable		(602,984	)
Notes payable		(100,436	)
		(2,762,797	)
Purchase price	$	5,063,863

On August 1, 2007, the Company acquired Major. The aggregate consideration paid by the Company, including acquisition transaction costs of $44,226, was $6,292,151 of which $3,844,135 was paid in cash and the Company issued 242,776 shares of common stock valued at $2,448,016. The Company determined not to proceed with the Internal Revenue Code Section 338(h)(10) election, which resulted in recording additional deferred tax liabilities of $304,000 related to the purchase price allocation and a corresponding increase in goodwill. In connection with the additional purchase price adjustments to settle earnout and working capital adjustments, the Company has recorded a receivable from the former Major shareholders of $371,566, resulting in a corresponding decrease in goodwill. This receivable will be repaid within the next 12 months in three equal installments. Through October 31, 2008, the Company has received payments of $121,474 related to this receivable.

Major was acquired pursuant to a Stock Purchase Agreement among the Company and the former Major shareholders, dated and effective as of August 1, 2007. In connection with the acquisition, Major entered into employment agreements with the former president and vice president, for a period of one and two years, respectively. The acquisition of Major expands the Company’s geographic presence in the Pacific Northwest region and provides additional wireless and electrical contracting services in direct digital controls, security, wireless SCADA applications and wireless infrastructure.

Assets purchased:
Accounts receivable	$	3,830,626
Inventory		162,647
Prepaid expenses		117,349
Costs and estimated earnings in excess of billings		1,445,749
Fixed assets		682,637
Other assets		8,855
Backlog		130,000
Customer lists		390,000
Goodwill		4,511,915
		11,279,778
Liabilities assumed:
Cash overdraft		(52,618	)
Accounts payable		(424,513	)
Accrued expenses		(12,788	)
Payroll and other payable		(605,456	)
Billings in excess of costs and estimated earnings		(1,059,123	)
Deferred tax liabilities		(304,000	)
Line of credit		(2,086,774	)
Loan payable		(24,638	)
Capital lease obligation		(242,297	)
Shareholder loan		(175,420	)
		(4,987,627	)
Purchase price	$	6,292,151

On August 2, 2007, the Company acquired Max. The aggregate consideration paid by the Company, including acquisition transaction costs of $30,498, was $1,117,679 of which $917,679 was paid in cash and the Company issued 17,007 shares of common stock valued at $200,000. In October 2008, the Company settled and paid additional cash consideration of $287,181 to the former Max members for the earnout settlement for the twelve months ended August 1, 2008. In addition, the Company shall pay an additional $375,000 in cash or Company common stock if Max’s earnings before interest and taxes for the twelve months ending August 1, 2009 shall equal or exceed $375,000. Max was acquired pursuant to a Membership Interest Purchase Agreement among the Company and the former Max members, dated and effective as of August 2, 2007. In connection with the acquisition, Max entered into employment agreements with the former members, each for a period of two years. The acquisition of Max expands the Company’s geographic expansion into Texas and provides additional engineering services that specialize in the design of specialty communication systems and wireless infrastructure for the telecommunications, oil, gas and wind energy markets.

A valuation of certain assets was completed, including property and equipment and list of major customers, and the Company internally determined the fair value of other assets and liabilities. In determining the fair value of acquired assets, standard valuation techniques were used including the market and income approach.

Assets purchased:
Cash	$	105,926
Accounts receivable		256,829
Costs and estimated earnings in excess of billings		4,500
Fixed assets		21,890
Other assets		1,950
Customer lists		216,000
Goodwill		591,588
		1,198,683
Liabilities assumed:
Accrued expenses		(59,186	)
Payroll and other payable		(19,318	)
Accrued tax payable		(2,500	)
		(81,004	)
Purchase price	$	1,117,679

On November 1, 2007, the Company acquired Empire. The aggregate consideration paid by the Company, including acquisition transaction costs of $47,674, was $2,518,675 in cash. Empire was acquired pursuant to a Stock Purchase Agreement among the Company and the former shareholders of Empire, dated as of November 1, 2007. In connection with the acquisition, Empire entered into employment agreements with the former shareholders for a period of two years. The acquisition of Empire expands the Company’s geographic presence in California and provides additional electrical contractor services that specialize in low voltage applications for healthcare, state government and military customers.

Assets purchased:
Cash	$	83,155
Accounts receivable		2,313,633
Inventory		124,983
Prepaid expenses		6,569
Prepaid income tax		76,426
Costs and estimated earnings in excess of billings		72,518
Fixed assets		284,451
Backlog		344,900
Customer lists		100,000
Goodwill		1,878,075
		5,284,710
Liabilities assumed:

Accounts payable		(1,113,789	)
Accrued expenses		(53,871	)
Payroll and other payable		(327,112	)
Billings in excess of costs and estimated earnings		(420,874	)
Line of credit		(400,000	)
Deferred tax liability		(235,000	)
Notes payable		(47,024	)
Shareholder loan		(168,365	)
		(2,766,035	)
Purchase price	$	2,518,675

On November 30, 2007, the Company acquired James. The aggregate consideration paid by the Company, including acquisition transaction costs of $81,153, was $1,562,879 in cash. In May 2008, the Company settled and paid aggregate additional cash consideration of $281,725 and released the escrow amount of $120,000 to the former James shareholders for final settlement of the net tangible asset adjustment. James was acquired pursuant to a Share Purchase Agreement among the Company and the former shareholders of James, dated as of November 30, 2007. In connection with the acquisition, the Company entered into an employment agreement with the former president for a period of two years. James is a design engineering services company specializing in building automation including mechanical, electrical, hydraulic, fire protection, lift, security access and wireless systems. The acquisition of James provides the Company international expansion into Australia consistent with our emphasis on Australia, China and surrounding Pacific Rim countries.

Assets purchased:
Cash	$	231,386
Accounts receivable		312,135
Prepaid expenses		6,450
Deferred tax assets		17,431
Costs and estimated earnings in excess of billings		26,272
Fixed assets		115,343
Other assets		830
Customer lists		270,748
Backlog		112,369
Goodwill		843,563
		1,936,527
Liabilities assumed:

Accounts payable		(26,288	)
Accrued expenses		(74,510	)
Payroll and other payable		(9,409	)
Loan payable		(6,099	)
Sales and use tax payable		(40,516	)
Income tax payable		(216,826	)
		(373,648	)
Purchase price	$	1,562,879

On April 4, 2008, the Company acquired Energize. The aggregate consideration paid by the Company, including acquisition transaction costs of $114,112 was $1,689,756 in cash, subject to adjustment. In July 2008, the Company settled and paid aggregate additional cash consideration of $32,522 to the former Energize shareholders for final settlement of the net tangible asset adjustment. Energize was acquired pursuant to a Share Purchase Agreement among the Company and the former shareholders of Energize, dated as of April 4, 2008. In connection with the acquisition, the Company entered into an employment agreement with the former president for a period of two years. Energize is an electrical contractor specializing in underground utilities, maintenance and low voltage applications including voice, data and video for commercial and building infrastructure companies, and is expanding its wireless deployment capabilities. The acquisition of Energize provides further international expansion into Australia.

Assets purchased:
Cash	$	21,429
Accounts receivable		189,197
Inventory		55,084
Costs and estimated earnings in excess of billings		415
Fixed assets		106,165
Deferred tax assets		2,108
Customer lists		509,740
Goodwill		1,023,660
		1,907,798
Liabilities assumed:

Accounts payable		(69,562	)
Accrued expenses		(7,444	)
Payroll and other payable		(37,175	)
Sales and use tax payable		(12,449	)
Income tax payable		(91,412	)
		(218,042	)
Purchase price	$	1,689,756

On June 26, 2008, the Company acquired all the assets of Lincoln Wind for aggregate consideration of $420,464 in cash, including acquisition transaction costs of $20,464. The assets of Lincoln Wind were acquired pursuant to an Asset Purchase Agreement among Max, the Company, Lincoln Wind and the former member. In connection with the acquisition, Max also entered into an employment agreement with the former member for two years. Lincoln Wind is an engineering company focused on the implementation of meteorological towers that measure the wind capacity of geographic areas prior to the construction of a wind farm. The acquisition of Lincoln Wind provides additional engineering services that specialize in the design of specialty communication systems for the wind energy market.

The preliminary purchase price allocation has been made resulting in goodwill and other intangible assets of approximately $280,000. Upon completion of a final purchase price allocation, there may be an increase or decrease in the amount of goodwill and a corresponding increase or decrease in other intangible assets.

The following unaudited consolidated pro forma financial information presents the combined results of operations of the Company, Major, Max, Empire, James, Energize and Lincoln Wind for the three and six months ended October 31, 2008 and 2007 as if the acquisitions had occurred at May 1, 2007, including the issuance of the Company’s common stock as consideration for the acquisition of Major. The consolidated pro forma financial information does not necessarily reflect the results of operations that would have occurred had the Company, Major, Max, Empire, James, Energize and Lincoln Wind been a single entity during these periods.

	Consolidated Pro Forma

	Three months		Six months		Six months
	ended		ended		ended
	October 31, 2007		October 31, 2008		October 31, 2007

Revenues	$	32,299,992	$	57,164,133	$	61,258,226

Net income		1,415,218		1,128,320		3,444,281

Basic weighted shares		7,249,564		7,251,083		7,248,866
Diluted weighted shares		8,128,122		7,259,353		8,235,380

Basic net income per share	$	0.20	$	0.16	$	0.48
Diluted net income per share	$	0.17	$	0.16	$	0.42

The asset, “Costs and estimated earnings in excess of billings on uncompleted contracts”, represents revenue recognized in excess of amounts billed. The liability, “Billings in excess of costs and estimated earnings on uncompleted contracts”, represents billings in excess of revenue recognized. Costs and estimated earnings on uncompleted contracts consist of the following at October 31, 2008 and April 30, 2008:

	October 31, 2008			April 30, 2008
Costs incurred on uncompleted contracts	$	72,533,571		$	66,331,553
Estimated contract profit		21,595,383			20,900,509
		94,128,954			87,232,062
Less: billings to date		95,453,863			86,947,332
Net excess of (billings)costs	$	(1,324,909	)	$	284,730

Costs and estimated earnings in excess of billings on uncompleted contracts	$	4,819,434		$	3,887,152
Billings in excess of costs and estimated earnings
on uncompleted contracts		(6,144,343	)		(3,602,422	)
Net excess of (billings)costs	$	(1,324,909	)	$	284,730

On April 10, 2007, the Company entered into a loan agreement (Loan Agreement) with Bank of America, N.A. (BOA), which provided for a revolving line of credit in an amount not to exceed $12,000,000, together with a letter of credit facility not to exceed $2,000,000. On August 7, 2008, the Loan Agreement was amended to increase the revolving line of credit in an amount not to exceed $15,000,000. The Company and its subsidiaries also entered into security agreements with BOA, pursuant to which the Company granted a security interest to BOA in all of our assets. The Loan Agreement contains customary covenants, including but not limited to (i) funded debt to tangible net worth, and (ii) minimum interest coverage ratio. As of October 31, the Company was in compliance with the Loan Agreement covenants. The loan commitment shall expire on April 10, 2010, and the Company may repay the loan at any time.

Loans under the Loan Agreement bear interest at a rate equal to BOA’s prime rate, minus one percentage point, or the Company has the option to elect to use the optional interest rate of LIBOR plus one hundred seventy-five basis points. As of October 31, 2008, interest rates ranged from 4.00% to 4.82% on outstanding borrowings of $7,626,056 under the Loan Agreement.

The Company’s long-term debt also consists of notes issued by the Company or assumed in acquisitions related to working capital funding and the purchase of property and equipment in the ordinary course of business. At October 31, 2008, loans payable and capital lease obligations totaled $521,569 with interest rates ranging from 0% to 12.67%.

In connection with the acquisition of Walker, the Company assumed a ten-year lease with a trust, of which, a certain officer of the Company is the trustee, for a building and land located in Fairfield, California, which is occupied by its Walker subsidiary. For the six months ended October 31, 2008 and 2007, the rent paid for this lease was $46,830 and $45,023, respectively.

In connection with the acquisition of Voacolo, the Company leases its Trenton, New Jersey location from Voacolo Properties LLC, of which the former shareholders of Voacolo are the members. For the six months ended October 31, 2008 and 2007, the rent paid for this lease was $30,000 and $27,000, respectively.

In September 2006, the Company adopted the 2007 Incentive Stock Plan, under which officers, directors, key employees or consultants may be granted options. Under the 2007 Incentive Stock Plan, 400,000 shares of common stock were reserved for issuance upon the exercise of stock options, stock awards or restricted stock. At October 31, 2008, options to purchase 175,000 shares were outstanding at exercise prices ranging from $2.37 to $6.33. At October 31, 2008, there were 225,000 options available for grant under the 2007 Incentive Stock Plan.

In September 2005, the Company adopted the 2006 Incentive Stock Plan, under which officers, directors, key employees or consultants may be granted options. Under the 2006 Incentive Stock Plan, 400,000 shares of common stock were reserved for issuance upon the exercise of stock options, stock awards or restricted stock. These shares were registered under Form S-8. Under the terms of the 2006 Incentive Stock Plan, stock options are granted at exercise prices equal to the fair market value of the common stock at the date of grant, and become exercisable and expire in accordance with the terms of the stock option agreement between the optionee and the Company at the date of grant. These options generally vest based on between one to three years of continuous service and have five-year contractual terms. At October 31, 2008, options to purchase 327,059 shares were outstanding at exercise prices ranging from $6.14 to $12.10. At October 31, 2008, there were 1,365 options available for grant under the 2006 Incentive Stock Plan.

In March 2003, the Company established a stock option plan pursuant to which options to acquire a maximum of 416,667 shares of the Company's common stock were reserved for grant (the "2002 Plan"). These shares were registered under Form S-8. Under the terms of the 2002 Plan, the options are exercisable at prices equal to the fair market value of the stock at the date of the grant and become exercisable in accordance with terms established at the time of the grant. These options generally vest based on between one to three years of continuous service and have five-year contractual terms. At October 31, 2008, options to purchase 189,416 shares were outstanding at exercise prices ranging from $2.37 to $12.10. At October 31, 2008, there were 84,734 shares available for grant under the 2002 Plan.

	2002 Plan
	Number of Shares			Weighted-average Exercise Price		Weighted- average Remaining Contractual Term		Aggregate Intrinsic Value





Outstanding, May 1, 2008		238,092		$	8.21

Granted		25,900		$	4.56
Exercised		-			-
Forfeited/Expired		(74,576	)	$	10.97

Outstanding, October 31, 2008		189,416		$	6.62		1.9	$	5,607

Vested and expected to vested, October 31, 2008		182,835		$	6.65		1.8	$	4,954

Exercisable, October 31, 2008		146,083		$	6.83		1.1	$	0

	2006 Plan
	Number of Shares			Weighted-average Exercise Price		Weighted-average Remaining Contractual Term		Aggregate Intrinsic Value





Outstanding, May 1, 2008		327,726		$	6.32

Granted		-			-
Exercised		-			-
Forfeited/Expired		(667	)	$	7.27

Outstanding, October 31, 2008		327,059		$	6.32		2.0	$	0

Vested and expected to vested, October 31, 2008		326,386		$	6.30		2.0	$	0

Exercisable, October 31, 2008		320,549		$	6.24		2.0	$	0

	2007 Plan
	Number of Shares		Weighted-average Exercise Price		Weighted-average Remaining Contractual Term		Aggregate Intrinsic Value





Outstanding, May 1, 2008		80,000	$	6.33

Granted		95,000	$	2.37
Exercised		-		-
Forfeited/Expired		-		-

Outstanding, October 31, 2008		175,000	$	4.18		4.7	$	59,850

Vested and expected to vested, October 31, 2008		146,402	$	4.06		4.7	$	52,883

Exercisable, October 31, 2008		-	$	0.00		0.0	$	0

In accordance with SFAS 123(R) (revised December 2004), “Share-Based Payment, an amendment of SFAS 123, Accounting for Stock-Based Compensation”, the Company recognizes stock-based employee compensation expense. The Company recorded stock-based compensation of $56,339 and $24,435 for the six months ended October 31, 2008 and 2007, respectively.

At October 31, 2008, the total compensation cost related to unvested stock options granted to employees under the Company’s stock option plans but not yet recognized was approximately $319,000 and is expected to be recognized over a weighted-average period of 2.68 years. For the three months ended October 31, 2008 and 2007, the weighted average fair value of stock options granted was $1.11 and $4.62, respectively. For the six months ended October 31, 2008 and 2007, the weighted average fair value of stock options granted was $1.11 and $5.23, respectively.

The Company has elected to adopt the shortcut method provided in Staff Position No. SFAS 123(R)-3, “Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards,” for determining the initial pool of excess tax benefits available to absorb tax deficiencies related to stock-based compensation subsequent to the adoption of SFAS 123R. The shortcut method includes simplified procedures for establishing the beginning balance of the pool of excess tax benefits (the APIC Tax Pool) and for determining the subsequent effect on the APIC Tax Pool and the Company’s consolidated statements of cash flows of the tax effects of share-based compensation awards. SFAS 123R requires that excess tax benefits related to share-based compensation be reflected as financing cash inflows.

The Company estimates the fair value of stock options granted using the Black-Scholes-Merton option-pricing model. Compensation cost is then recognized on a straight-line basis over the vesting or service period and is net of estimated forfeitures. The following assumptions were used to compute the fair value of stock option compensation expense during the three and six months ended October 31, 2008 and 2007, respectively:

	Three Months Ended						Six Months Ended
	October 31,						October 31,
	2008			2007			2008			2007

Risk-free interest rate		1.87 - 2.84	%		4.31	%		1.87 - 2.84	%		4.31 - 4.74	%
Expected volatility		50.8 - 53.3	%		57.0	%		50.8 - 53.3	%		57.0 - 58.3	%

Expected dividend yield		0.00	%		0.00	%		0.00	%		0.00	%
Expected term ( in years)		3.25 - 3.5			3.5			3.25 - 3.5			3.5

The risk-free rate is based on the rate of U.S Treasury zero-coupon issues with a remaining term equal to the expected term of the option grants. Expected volatility is based on the historical volatility of the Company’s common stock using the weekly closing price of the Company’s common stock, pursuant to SEC Staff Accounting Bulletin Nos. 107 (SAB 107). The expected dividend yield is zero based on the fact that the Company has never paid cash dividends and has no present intention to pay cash dividends. The expected term represents the period that the Company’s stock-based awards are expected to be outstanding and was calculated using the simplified method pursuant to SAB 107 and SAB 110.

In connection with a private placement of common stock on November 16, 2004, the Company issued common stock purchase warrants. Each of these warrants is exercisable for a period of five years and the exercise price of is $6.99 per share. The exercise price of the warrants is subject to adjustment for subsequent lower price issuances by the Company, as well as customary adjustment provisions for stock splits, combinations, dividends and the like. The warrants are callable by the Company, upon 30 days notice, should the common stock trade at or above $25.20 per share for 25 out of 30 consecutive trading days. A maximum of 20% of the warrants may be called in any three-month period. 1,883,796 common stock purchase warrants are outstanding at October 31, 2008 and April 30, 2008.

The Company's reportable segments are determined and reviewed by management based upon the nature of the services, the external customers and customer industries and the sales and distribution methods used to market the products. The Company has two reportable segments: wireless infrastructure services and specialty communication systems. Management evaluates performance based upon income (loss) before income taxes. Corporate includes corporate salaries and external professional fees, such as accounting, legal and investor relations costs which are not allocated to the other subsidiaries. Corporate assets primarily include cash and prepaid expenses. Segment results for the three and six months ended and as of October 31, 2008 and 2007 are as follows:

	For Three Months Ended and as of October 31, 2008								For Three Months Ended and as of October 31, 2007
	Corporate		Wireless Infrastructure		Specialty Communication		Total		Corporate		Wireless Infrastructure		Specialty Communication		Total

Revenue	$	-	$	3,255,476	$	25,512,205	$	28,767,681	$	-	$	3,090,764	$	25,014,280	$	28,105,044

Depreciation and amortization	$	8,664	$	66,015	$	576,360	$	651,039	$	8,786	$	65,903	$	393,926	$	468,615

Income (loss) before income taxes	$	(975,782

Delaware	98-0204758
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

Large accelerated filer o	Accelerated filer o
Non-accelerated filer o	Smaller reporting company x
(Do not check if a smaller reporting company)

	Estimated useful life (years)		October 31, 2008		April 30, 2008

Customer lists		5 - 9	$	3,886,113	$	4,119,269
Contract backlog		1 - 3		885,127		919,722
				4,771,240		5,038,991
Less accumulated amortization expense				2,534,666		2,109,054
			$	2,236,574	$	2,929,937

Assets purchased:

Fixed assets	$	139,970
Goodwill and other intangible assets		280,494
Purchase price	$	420,464