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 

	January 31,		April 30,
ASSETS	2009		2008
	(Unaudited)		(Note 1)
CURRENT ASSETS:

Cash and cash equivalents	$	9,665,638	$	7,449,530
Accounts receivable, net of allowance of $113,613 and $98,786 at January 31, 2009 and April 30, 2008, respectively		23,225,223		29,092,488
Costs and estimated earnings in excess of billings on uncompleted contracts		4,572,978		3,887,152
Inventory		2,757,475		2,791,782
Prepaid expenses and other current assets		1,768,849		1,002,993
Prepaid income taxes		361,103		122,342
Deferred tax assets		114,999		35,939
Total current assets		42,466,265		44,382,226

PROPERTY AND EQUIPMENT, net		6,598,938		6,828,162

OTHER INTANGIBLE ASSETS, net		2,069,547		2,929,937

GOODWILL		32,256,592		28,987,501

OTHER ASSETS		159,166		820,315

Total assets	$	83,550,508	$	83,948,141

LIABILITIES AND SHAREHOLDERS' EQUITY	January 31,			April 30,
	2009			2008
	(Unaudited)			(Note 1)
CURRENT LIABILITIES:

Current portion of loans payable	$	97,339		$	1,272,112
Borrowings under line of credit		-			750,000
Current portion of capital lease obligations		97,425			91,491
Accounts payable and accrued expenses		6,589,306			9,305,791
Billings in excess of costs and estimated earnings on uncompleted contracts		3,366,170			3,602,422
Deferred revenue		706,449			602,560
Due to shareholders		3,334,135			2,300,083
Total current liabilities		14,190,824			17,924,459

Borrowings under line of credit		7,626,056			4,376,056
Loans payable, net of current portion		86,786			156,978
Capital lease obligations, net of current portion		183,024			215,780
Deferred tax liabilities		1,253,252			1,173,786
Total liabilities		23,339,942			23,847,059

Minority interest in subsidiary		1,466,887			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, 25,000,000 shares authorized, 6,942,266 and 7,251,083 shares issued and outstanding at January 31, 2009 and April 30, 2008, respectively		694			725
Additional paid-in capital		50,133,358			50,775,938
Retained earnings		9,087,779			7,709,562
Accumulated other comprehensive (loss) income on foreign currency translation		(478,152	)		283,007

Total shareholders' equity		58,743,679			58,769,232

Total liabilities and shareholders' equity	$	83,550,508		$	83,948,141

	Three Months Ended						Nine Months Ended
	January 31,						January 31,
	2009			2008			2009			2008

REVENUE	$	25,323,422		$	24,802,079		$	82,358,634		$	74,723,129

COSTS AND EXPENSES:
Cost of revenue		18,369,219			18,010,149			59,975,397			53,844,717
Selling, general and administrative expenses		5,904,094			5,573,644			17,787,254			14,151,781
Depreciation and amortization		614,699			618,002			1,954,880			1,616,204

Total costs and expenses		24,888,012			24,201,795			79,717,531			69,612,702

OPERATING INCOME		435,410			600,284			2,641,103			5,110,427

OTHER EXPENSE (INCOME):
Interest expense		85,480			69,269			333,764			377,487
Interest income		(3,042	)		(81,082	)		(51,155	)		(436,257	)
Minority interest		73,840			(23,907	)		135,037			36,881

INCOME BEFORE INCOME TAX PROVISION		279,132			636,004			2,223,457			5,132,316

Income tax provision		101,036			252,701			845,240			1,974,885

NET INCOME	$	178,096		$	383,303		$	1,378,217		$	3,157,431

Basic net income per common share	$	0.03		$	0.05		$	0.19		$	0.45

Diluted net income per common share	$	0.03		$	0.05		$	0.19		$	0.40

Basic weighted average number of common shares outstanding		7,077,249			7,093,662			7,193,138			7,049,099

Diluted weighted average number of common shares outstanding		7,077,249			7,804,998			7,213,744			7,956,557

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

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		-		-		-			-			92,119			-		-			92,119

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

Repurchase of common stock		-		-		(308,817	)		(31	)		(729,699	)		-		-			(729,730	)

Accumulated other comprehensive loss		-		-		-			-			-			-		(761,159	)		(761,159	)

Net income		-		-		-			-			-			1,378,217		-			1,378,217

BALANCE, JANUARY 31, 2009		-	$	-		6,942,266		$	694		$	50,133,358		$	9,087,779	$	(478,152	)	$	58,743,679

	Nine Months Ended
	January 31,
	2009			2008

OPERATING ACTIVITIES :
Net income	$	1,378,217		$	3,157,431

Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		1,954,880			1,616,204
Fair value of stock options granted to employees		92,119			38,047
Provision for doubtful accounts		74,883			-
Amortization of debt issuance costs		8,714			-
Excess tax benefit from exercise of stock options		-			(16,000	)
Minority interest		135,037			36,881
Loss (gain) on sale of fixed assets		22,942			(2,335	)
Deferred income taxes		(109,387	)		135,314
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable		5,702,216			(1,559,220	)
Costs and estimated earnings in excess of billings on uncompleted contracts		(772,277	)		(148,787	)
Inventory		(41,401	)		(762,668	)
Prepaid expenses and other current assets		(400,126	)		(307,902	)
Other assets		479,408			(155,011	)
Accounts payable and accrued expenses		(2,655,174	)		(664,778	)
Billings in excess of costs and estimated earnings on uncompleted contracts		(285,676	)		(734,400	)
Deferred revenue		103,889			235,804
Income taxes payable		(175,802	)		(585,757	)
NET CASH PROVIDED BY OPERATING ACTIVITIES		5,512,462			282,823

INVESTING ACTIVITIES:
Acquisition of property and equipment, net		(918,004	)		(618,950	)
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	)		(69,601	)
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	)		(1,772,874	)
Acquisition of James, net of cash received		(287,735	)		(914,237	)
Acquisition of Energize, net of cash received		(24,516	)		-
Acquisition of BRT, net of cash received		(157,901	)		-
NET CASH USED IN INVESTING ACTIVITIES		(4,603,322	)		(6,936,567	)

FINANCING ACTIVITIES:
Net proceeds from exercise of stock options		-			60,532
Repurchase of common stock		(729,730	)		-
Excess tax benefit from exercise of stock options		-			16,000
Equity issuance costs		(5,000	)		(10,292	)
Borrowings/(repayments) under lines of credit, net		2,500,000			(5,726,991	)
(Repayments)/borrowings under loans payable, net		(1,244,965	)		94,707
Borrowings/(repayments) of amounts due to shareholders		962,965			(882,420	)
Payments of capital lease obligations		(55,112	)		(57,174	)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		1,428,158			(6,505,638	)

Effect of exchange rate changes on cash		(121,190	)		17,699

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		2,216,108			(13,141,683	)
CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD		7,449,530			21,558,739
CASH AND CASH EQUIVALENTS, END OF THE PERIOD	$	9,665,638		$	8,417,056

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 nine month periods ended January 31, 2009 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), Lincoln Wind LLC (Lincoln Wind) from June 26, 2008 (date of acquisition), and BRT Electrical Pty Ltd (BRT) from November 30, 2008 (date of acquisition), collectively the “Company”.

The Company provides design-build engineering services that focus on the implementation requirements of communications infrastructure. The Company provides its engineering capabilities including wireless communication, specialty construction and electrical power to the public services, healthcare, energy and corporate enterprise markets 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
	Infrastructure		Communication			Total

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 - contingent earnout payment		287,181		-			287,181
Empire acquisition - purchase price adjustment		-		81,366			81,366
James acquisition - purchase price adjustment		-		522,866			522,866
Energize acquisition - purchase price adjustment		-		215,382			215,382
Lincoln Wind acquisition		-		250,494			250,494
BRT acquisition		-		86,546			86,546
Foreign currency translation adjustments - Australia		-		(681,097	)		(681,097	)

Ending balance, January 31, 2009	$	4,870,882	$	27,385,710		$	32,256,592

The Company generates its revenue by providing design-build engineering services for communications infrastructure. 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.

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 SFAS 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 nine months ended January 31, 2009 and 2008, respectively:

Basic earnings per share computation	Three Months Ended				Nine Months Ended
	January 31,				January 31,
Numerator:	2009		2008		2009		2008

Net income	$	178,096	$	383,303	$	1,378,217	$	3,157,431

Denominator:

Basic weighted average shares outstanding		7,077,249		7,093,662		7,193,138		7,049,099

Basic net income per common share	$	0.03	$	0.05	$	0.19	$	0.45



Diluted earnings per share computation	Three Months Ended				Nine Months Ended
	January 31,				January 31,
Numerator:	2009		2008		2009		2008

Net income	$	178,096	$	383,303	$	1,378,217	$	3,157,431

Denominator:

Basic weighted average shares outstanding		7,077,249		7,093,662		7,193,138		7,049,099

Incremental shares from assumed conversion:

Conversion of stock options		-		168,450		20,606		205,685

Conversion of common stock warrants		-		542,886		-		701,773

Diluted weighted average shares		7,077,249		7,804,998		7,213,744		7,956,557

Diluted net income per common share	$	0.03	$	0.05	$	0.19	$	0.40

At January 31, 2009 and 2008, the Company had 646,300 and 558,735 stock options and 1,883,796 warrants outstanding, respectively, which are potentially dilutive securities. For the three months ended January 31, 2009 and 2008, 646,300 and 79,673 stock options were not included in the computation of the diluted earnings per share, respectively. For the three and nine months ended January 31, 2009, 1,883,796 warrants were not included in the computation of the diluted earnings per share. For the nine months ended January 31, 2009 and 2008, 600,899 and 68,336 stock options were excluded from the computation of the diluted earnings per share, respectively. These potentially dilutive securities were excluded because the stock warrant or option exercise prices exceeded the average market price of the common stock and, therefore, the effects would be antidilutive.

	Three months ended					Nine months ended
	January 31,					January 31,
	2009			2008		2009			2008
Net income	$	178,096		$	383,303	$	1,378,217		$	3,157,431
Other comprehensive income (loss) - foreign currency translation adjustments, net		(99,021	)		138,367		(761,159	)		248,332
Comprehensive income	$	79,075		$	521,670	$	617,058		$	3,405,763

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 condensed 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). SFAS 161 is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures. SFAS 161 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 condensed consolidated financial position, results of operations, cash flows or financial statement disclosures.

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 January 31, 2009, 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, 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		957,702
		2,050,666
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	)
Deferred tax liabilities		(114,139	)
		(487,787	)
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		1,176,582
		2,060,720
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	)
Deferred tax liabilities		(152,922	)
		(370,964	)
Purchase price	$	1,689,756

WPCS INTERNATIONAL INCORPORATED AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Lincoln Wind

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.

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

On November 30, 2008, the Company acquired all the assets of BRT for aggregate consideration of $157,901 in cash, including acquisition transaction costs of $59,712. The assets of BRT were acquired pursuant to an Asset Purchase Agreement among Energize, the Company, BRT and the former shareholder. In connection with the acquisition, Energize also entered into an employment agreement with the former shareholder for two years. BRT is an electrical contractor specializing in low voltage applications including voice, data, security and energy management for commercial and building infrastructure companies. The acquisition of BRT provides further international expansion into Australia.

Assets purchased:
Accounts receivable	$	40,754
Inventory		17,560
Costs and estimated earnings in excess of billings		5,781
Fixed assets		37,820
Goodwill and other intangible assets		86,546
		188,461
Liabilities assumed:
Accounts payable		(25,064	)
Billings in excess of costs and estimated earnings		(5,496	)
		(30,560	)
Purchase price	$	157,901

The following unaudited consolidated pro forma financial information presents the combined results of operations of the Company, Major, Max, Empire, James, Energize, Lincoln Wind and BRT for the three and nine months ended January 31, 2009 and 2008 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, Lincoln Wind and BRT been a single entity during these periods.

	Consolidated Pro Forma

	Three Months Ended				Nine Months Ended
	January 31,				January 31,
	2009		2008		2009		2008

Revenues	$	25,391,198	$	25,786,652	$	82,763,627	$	87,250,553

Net income		201,305		524,263		1,333,871		4,010,702

Basic weighted average shares		7,077,249		7,250,083		7,193,138		7,250,083
Diluted weighted average shares		7,077,249		8,128,641		7,213,744		8,236,597

Basic net income per share	$	0.03	$	0.07	$	0.19	$	0.55
Diluted net income per share	$	0.03	$	0.06	$	0.19	$	0.49

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 January 31, 2009 and April 30, 2008:

	January 31, 2009			April 30, 2008
Costs incurred on uncompleted contracts	$	75,347,353		$	66,331,553
Estimated contract profit		22,719,199			20,900,509
		98,066,552			87,232,062
Less: billings to date		96,859,744			86,947,332
Net excess of costs	$	1,206,808		$	284,730

Costs and estimated earnings in excess of billings on uncompleted contracts	$	4,572,978		$	3,887,152
Billings in excess of costs and estimated earnings
on uncompleted contracts		(3,366,170	)		(3,602,422	)
Net excess of costs	$	1,206,808		$	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. 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 January 31, 2009, the interest rate was 2.25% on outstanding borrowings of $7,626,056 under the Loan Agreement. On February 11, 2009, the Company repaid $2,000,000 under the Loan Agreement, reducing outstanding borrowings to $5,626,056.

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 January 31, 2009, loans payable, and capital lease obligations totaled $464,574 with interest rates ranging from 0% to 12.67%.

As of January 31, 2009, TAGS had outstanding loans due to a related party, Taian Gas Group (TGG), totaling $3,334,135, of which $1,461,820 matures on June 3, 2009, and bears interest at 8.217% and $1,608,002 which matures on September 9, 2009 and bears interest at 8.217%. The remaining balance of $264,313 represents working capital loans from TGG to TAGS in the normal course of business.

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 Suisin City, California, which is occupied by its Walker subsidiary. For the nine months ended January 31, 2009 and 2008, the rent paid for this lease was $70,245 and $67,756, 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 January 31, 2009, options to purchase 180,000 shares were outstanding at exercise prices ranging from $2.37 to $6.33. At January 31, 2009, there were 220,000 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 January 31, 2009, options to purchase 288,902 shares were outstanding at exercise prices ranging from $6.14 to $12.10. At January 31, 2009, there were 39,522 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 January 31, 2009, options to purchase 177,398 shares were outstanding at exercise prices ranging from $2.37 to $12.10. At January 31, 2009, there were 96,752 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		-		$	0.00
Forfeited/Expired		(86,594	)	$	10.32

Outstanding, January 31, 2009		177,398		$	6.65		1.7	$	0

Vested and expected to vested, January 31, 2009		170,833		$	6.68		1.6	$	0

Exercisable, January 31, 2009		134,232		$	6.88		0.8	$	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		-		$	0.00
Exercised		-		$	0.00
Forfeited/Expired		(38,824	)	$	6.16

Outstanding, January 31, 2009		288,902		$	6.34		1.8	$	0

Vested and expected to vested, January 31, 2009		288,232		$	6.33		1.8	$	0

Exercisable, January 31, 2009		282,442		$	6.25		1.7	$	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		105,000		$	2.40
Exercised		-		$	0.00
Forfeited/Expired		(5,000	)	$	6.33

Outstanding, January 31, 2009		180,000		$	4.04		4.4	$	0

Vested and expected to vested, January 31, 2009		151,898		$	3.92		4.5	$	0

Exercisable, January 31, 2009		-		$	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 $92,119 and $38,047 for the nine months ended January 31, 2009 and 2008, respectively.

At January 31, 2009, 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 $290,000 and is expected to be recognized over a weighted-average period of 2.45 years. For the three months ended January 31, 2009, the weighted average fair value of stock options granted was $0.95. For the nine months ended January 31, 2009 and 2008, the weighted average fair value of stock options granted was $1.10 and $5.23, respectively.

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)

INDEX

PART I.	FINANCIAL INFORMATION

	ITEM 1.	Condensed consolidated balance sheets at January 31, 2009 (unaudited) and April 30, 2008	3-4

		Condensed consolidated statements of income for the three and nine months ended January 31, 2009 and 2008 (unaudited)	5

		Condensed consolidated statement of shareholders’ equity for the nine months ended January 31, 2009 (unaudited)	6

		Condensed consolidated statements of cash flows for the nine months ended January 31, 2009 and 2008 (unaudited)	7-8

		Notes to unaudited condensed consolidated financial statements	9-25

	ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26-38

	ITEM 3.	Controls and Procedures	39

PART II.	OTHER INFORMATION

	ITEM 1	Legal proceedings	40
	ITEM 2	Unregistered sales of equity securities and use of proceeds	40
	ITEM 3	Defaults upon senior securities	40
	ITEM 4	Submission of matters to a vote of security holders	40
	ITEM 5	Other information	40
	ITEM 6	Exhibits	40

	SIGNATURES		41

	Estimated useful life (years)		January 31, 2009		April 30, 2008

Customer lists		5 - 9	$	3,888,409	$	4,119,269
Contract backlog		1 - 3		881,016		919,722
				4,769,425		5,038,991
Less accumulated amortization expense				2,699,878		2,109,054
			$	2,069,547	$	2,929,937

Assets purchased:

Fixed assets	$	139,970
Customer lists		30,000
Goodwill		250,494
Purchase price	$	420,464