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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o 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, 2009 (unaudited) and April 30, 2009	3-4

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

		Condensed consolidated statement of equity for the six months ended October 31, 2009 (unaudited)	6

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

		Notes to unaudited condensed consolidated financial statements	9-21

	ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22-35

	ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	36

	ITEM 4T.	Controls and Procedures	37

PART II. OTHER INFORMATION

	ITEM 1	Legal proceedings	38
	ITEM 1A	Risk factors	38
	ITEM 2	Unregistered sales of equity securities and use of proceeds	38
	ITEM 3	Defaults upon senior securities	38
	ITEM 4	Submission of matters to a vote of security holders	38
	ITEM 5	Other information	38
	ITEM 6	Exhibits	38

	SIGNATURES		39

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

Cash and cash equivalents	$	8,511,319	$	6,396,810
Accounts receivable, net of allowance of $105,889 and $155,458 at October 31, 2009 and April 30, 2009, respectively		24,728,415		25,662,784
Costs and estimated earnings in excess of billings on uncompleted contracts		4,034,783		5,229,043
Inventory		3,093,949		2,481,383
Prepaid expenses and other current assets		2,344,190		1,674,952
Prepaid income taxes		-		295,683
Deferred tax assets		268,922		70,413
Total current assets		42,981,578		41,811,068

PROPERTY AND EQUIPMENT, net		6,498,162		6,668,032

OTHER INTANGIBLE ASSETS, net		1,823,932		1,983,879

GOODWILL		33,094,959		32,549,186

OTHER ASSETS		132,204		132,948

Total assets	$	84,530,835	$	83,145,113

LIABILITIES AND EQUITY	October 31,		April 30,
	2009		2009
	(Unaudited)		Note 1
CURRENT LIABILITIES:

Current portion of loans payable	$	54,662	$	89,210
Borrowings under line of credit		5,626,056		5,626,056
Current portion of capital lease obligations		93,298		96,001
Accounts payable and accrued expenses		8,894,587		8,997,296
Billings in excess of costs and estimated earnings on uncompleted contracts		2,164,517		2,511,220
Deferred revenue		640,156		507,650
Due to shareholders		2,988,674		2,951,008
Income taxes payable		190,423		-
Total current liabilities		20,652,373		20,778,441

Loans payable, net of current portion		51,511		71,634
Capital lease obligations, net of current portion		106,786		151,425
Deferred tax liabilities		1,565,866		1,467,971
Total liabilities		22,376,536		22,469,471



COMMITMENTS AND CONTINGENCIES

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 shares issued and outstanding at October 31, 2009 and April 30, 2009, respectively		694		694
Additional paid-in capital		50,246,439		50,175,479
Retained earnings		10,152,893		9,381,189
Accumulated other comprehensive income (loss) on foreign currency translation		488,933		(321,798	)

Total WPCS shareholders' equity		60,888,959		59,235,564

Noncontrolling interest		1,265,340		1,440,078

Total equity		62,154,299		60,675,642

Total liabilities and equity	$	84,530,835	$	83,145,113

	Three Months Ended						Six Months Ended
	October 31,						October 31,
	2009			2008			2009			2008


REVENUE	$	24,301,560		$	28,767,681		$	49,585,343		$	57,035,212

COSTS AND EXPENSES:
Cost of revenue		16,752,484			21,421,304			34,910,296			41,606,178
Selling, general and administrative expenses		6,286,661			5,945,671			12,140,145			11,883,160
Depreciation and amortization		658,199			651,039			1,308,143			1,340,181

Total costs and expenses		23,697,344			28,018,014			48,358,584			54,829,519

OPERATING INCOME		604,216			749,667			1,226,759			2,205,693

OTHER EXPENSE (INCOME):
Interest expense		78,277			136,681			140,637			248,284
Interest income		(1,612	)		(22,073	)		(3,531	)		(48,112	)

INCOME BEFORE INCOME TAX PROVISION		527,551			635,059			1,089,653			2,005,521

Income tax provision		254,605			253,299			492,687			744,204

NET INCOME		272,946			381,760			596,966			1,261,317

Less: Net (loss) income attributable to noncontrolling interest		(63,841	)		19,950			(174,738	)		61,196

NET INCOME ATTRIBUTABLE TO WPCS	$	336,787		$	361,810		$	771,704		$	1,200,121

Basic net income per common share attributable to WPCS	$	0.05		$	0.05		$	0.11		$	0.17

Diluted net income per common share attributable to WPCS	$	0.05		$	0.05		$	0.11		$	0.17

Basic weighted average number of common shares outstanding		6,942,266			7,251,083			6,942,266			7,251,083

Diluted weighted average number of common shares outstanding		6,976,256			7,262,419			6,968,524			7,259,353

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

BALANCE, MAY 1, 2009		-	$	-		6,942,266	$	694	$	50,175,479	$	9,381,189	$	(321,798	)	$	1,440,078		$	60,675,642

Fair value of stock options granted to employees		-		-		-		-		70,960		-		-			-			70,960

Accumulated other comprehensive income		-		-		-		-		-		-		810,731			-			810,731

Net loss attributable to noncontrolling interest		-		-		-		-		-		-		-			(174,738	)		(174,738	)

Net income attributable to WPCS		-		-		-		-		-		771,704		-			-			771,704

BALANCE, OCTOBER 31, 2009		-	$	-		6,942,266	$	694	$	50,246,439	$	10,152,893	$	488,933		$	1,265,340		$	62,154,299

	Six Months Ended
	October 31,
	2009			2008

OPERATING ACTIVITIES :
Net income	$	596,966		$	1,261,317
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		1,308,143			1,340,181
Fair value of stock options granted to employees		70,960			56,339
Provision for doubtful accounts		46,826			52,932
Amortization of debt issuance costs		21,326			5,161
Loss (gain) on sale of fixed assets		12,117			(3,822	)
Deferred income taxes		(110,186	)		(87,146	)
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable		1,088,550			2,299,194
Costs and estimated earnings in excess of billings on uncompleted contracts		1,230,573			(1,004,154	)
Inventory		(602,546	)		(475,630	)
Prepaid expenses and other current assets		(803,592	)		(454,208	)
Other assets		6,080			471,681
Accounts payable and accrued expenses		(118,385	)		1,511,588
Billings in excess of costs and estimated earnings on uncompleted contracts		(354,528	)		2,488,644
Deferred revenue		132,507			205,653
Income taxes payable		490,496			350,351
NET CASH PROVIDED BY OPERATING ACTIVITIES		3,015,307			8,018,081

INVESTING ACTIVITIES:
Acquisition of property and equipment, net		(804,384	)		(714,151	)
Acquisition of Trenton Operations, net of cash received		-			(2,500,000	)
Acquisition of Seattle Operations, net of cash received		119,092			-
Acquisition of Max Engineering and Lincoln Wind, net of cash received		-			(707,645	)
Acquisition of Sacramento Operations, net of cash received		-			(7,521	)
Acquisition of Brisbane Operations, net of cash received		-			(287,735	)
Acquisition of Brendale Operations, net of cash received		(1,750	)		(24,516	)
Acquisition of Portland Operations, net of cash received		(104,154	)		-
NET CASH USED IN INVESTING ACTIVITIES		(791,196	)		(4,241,568	)

FINANCING ACTIVITIES:
Equity issuance costs		-			(5,000	)
Borrowings under lines of credit		-			2,500,000
Repayments under loans payable, net		(54,671	)		(1,217,195	)
Borrowings of amounts due to shareholders		-			827,678
Repayments of capital lease obligations		(47,342	)		(25,887	)
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES		(102,013	)		2,079,596

Effect of exchange rate changes on cash		(7,589	)		(69,759	)

NET INCREASE IN CASH AND CASH EQUIVALENTS		2,114,509			5,786,350
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		6,396,810			7,449,530
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	8,511,319		$	13,235,880

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, 2009 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, 2009 are not necessarily indicative of the results that may be expected for the fiscal year ending April 30, 2010. The amounts for the April 30, 2009 balance sheet have been extracted from the audited consolidated financial statements included in Form 10-K for the year ended April 30, 2009.

The accompanying condensed consolidated financial statements include the accounts of WPCS International Incorporated (WPCS) and its wholly and majority-owned subsidiaries, WPCS International – Suisun City, Inc. (Suisun City Operations), WPCS International - St. Louis, Inc. (St. Louis Operations), WPCS International – Lakewood, Inc. (Lakewood Operations), WPCS International – Hartford, Inc. (Hartford Operations), WPCS International – Sarasota, Inc. (Sarasota Operations), WPCS International – Trenton, Inc. (Trenton Operations), Taian AGS Pipeline Construction Co. Ltd. (Beijing Operations), WPCS International – Seattle, Inc. (Seattle Operations), WPCS International – Sacramento, Inc. (Sacramento Operations), WPCS International – Brisbane, Pty Ltd. (Brisbane Operations), WPCS International – Brendale, Pty Ltd. (Brendale Operations), and WPCS International – Portland, Inc. (Portland Operations), WPCS Incorporated, Invisinet Inc., WPCS Australia Pty Ltd., and WPCS Asia Limited, collectively “we”, “us” or 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 June 2009, the Financial Accounting Standards Board (FASB) issued guidance that establishes the Accounting Standards Codification (ASC) Topic No. 105, “Codification” (ASC 105), which confirmed that the FASB Accounting Standards Codification will become the single official source of authoritative U.S. Generally Accepted Accounting Principles (GAAP) (other than guidance issued by the SEC), superseding existing FASB, American Institute of Certified Public Accountants, Emerging Issues Task Force ( "EITF" ) and related literature, and only one level of authoritative U.S. GAAP will exist. All other literature will be considered non-authoritative. The Codification does not change U.S. GAAP; instead, it introduces a new structure that is organized in an easily accessible, user-friendly online research system. The Codification becomes effective for interim and annual periods ending on or after September 15, 2009. The Company has applied the new Codification references in our financial statements.

In accordance with FASB ASC Topic No. 350, “Intangibles - Goodwill and Other” (ASC 350), goodwill and indefinite-lived intangible assets are no longer amortized but are assessed for impairment on at least an annual basis. ASC 350 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.

GAAP 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.

Effective May 1, 2009, in connection with the change in the structure of the Company’s internal organization, the Company reclassed certain operations from the specialty construction segment to the electrical power segment. The reorganized composition of these two segments was completed in conjunction with the Company’s branding strategy and to better represent the Company’s design-build engineering capabilities. In addition, through this reorganization the Company consolidated certain operations to reduce administrative overhead expenses and improve operating efficiencies. Changes in goodwill consist of the following during the six months ended October 31, 2009:

	Wireless		Specialty			Electrical
	Communication		Construction			Power		Total

Beginning balance, May 1, 2009	$	10,921,998	$	5,956,201		$	15,670,987	$	32,549,186

Reclass: segment reorganization		-		(1,824,249	)		1,824,249		-
Brendale Operations acquisition		-		-			1,750		1,750
Portland Operations acquisition		-		-			92,154		92,154
Foreign currency translation adjustments		-		192,582			259,287		451,869

Ending balance, October 31, 2009	$	10,921,998	$	4,324,534		$	17,848,427	$	33,094,959

	Estimated useful life		October 31,			April 30,
	(years)		2009			2009

Customer list		3-9	$	3,983,493		$	3,969,240
Less accumulated amortization expense				(2,173,353	)		(2,084,302	)
			$	1,810,140		$	1,884,938

Contract backlog		1-3	$	915,598		$	893,009
Less accumulated amortization expense				(901,806	)		(794,068	)
			$	13,792		$	98,941

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

The length of the Company’s contracts varies. Assets and liabilities related to long-term contracts are included in current assets and current liabilities in the accompanying balance sheets as they will be liquidated in the normal course of contract completion, although this may require more than one year.

Income taxes are accounted for in accordance with FASB ASC Topic No. 740, "Income Taxes” (ASC 740). Under ASC 740, 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 ASC 740, 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.

ASC 740 also 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, ASC 740 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. ASC 740 also requires expanded disclosure with respect to the uncertainty in income taxes. The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in selling, general and administrative expenses. For the six months ended October 31, 2009, and 2008, the Company recognized no interest or penalties, respectively.

Earning per common share is computed pursuant to FASB ASC Topic No. 260, "Earnings Per Share". 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, 2009 and 2008, respectively:

Basic earnings per share computation	Three Months Ended				Six Months Ended
	October 31,				October 31,
	2009		2008		2009		2008
Numerator:

Net income attributable to WPCS	$	336,787	$	361,810	$	771,704	$	1,200,121

Denominator:

Basic weighted average shares outstanding		6,942,266		7,251,083		6,942,266		7,251,083

Basic net income per common share attributable to WPCS	$	0.05	$	0.05	$	0.11	$	0.17


Diluted earnings per share computation
	Three Months Ended				Six Months Ended
	October 31,				October 31,
		2009		2008		2009		2008
Numerator:

Net income attributable to WPCS	$	336,787	$	361,810	$	771,704	$	1,200,121

Denominator:

Basic weighted average shares outstanding		6,942,266		7,251,083		6,942,266		7,251,083

Incremental shares from assumed conversion:


Conversion of stock options		33,990		11,336		26,258		8,270

Conversion of common stock warrants		-		-		-		-

Diluted weighted average shares		6,976,256		7,262,419		6,968,524		7,259,353

Diluted net income per common share attributable to WPCS	$	0.05	$	0.05	$	0.11	$	0.17

At October 31, 2009 and 2008, the Company had 627,858 and 691,475 stock options, respectively, and 1,883,796 warrants outstanding in both years, respectively, which are potentially dilutive securities. For the three months ended October 31, 2009 and 2008, 510,436 and 667,759 stock options, respectively, were not included in the computation of diluted earnings per share. For the six months ended October 31, 2009 and 2008, 513,958 and 642,400 stock options, respectively, were not included in the computation of diluted earnings per share. For the three and six months ended October 31, 2009 and 2008, 1,883,796 warrants were not included in the computation of diluted earnings per share. These potentially dilutive securities were excluded because the stock warrant exercise prices exceeded the average market price of the common stock and, therefore, the effects would be option antidilutive.

	Three Months Ended					Six Months Ended
	October 31,					October 31,
	2009		2008			2009		2008
Net income attributable to WPCS	$	336,787	$	361,810		$	771,704	$	1,200,121
Other comprehensive income - foreign currency translation adjustments, net		361,513		(735,868	)		810,731		(662,137	)
Comprehensive income (loss) attributable to WPCS	$	698,300	$	(374,058	)	$	1,582,435	$	537,984

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 May 1, 2009, the Company adopted Statement of Financial Accounting Standard (SFAS) No. 141(R) (SFAS 141(R)) “Business Combinations”, which is codified in FASB ASC Topic No. 805, “Business Combinations”, (ASC 805). This statement significantly changes the accounting for and reporting for business combination transactions in consolidated financial statements. The adoption of this pronouncement had no impact on the Company’s consolidated financial position, results of operations, cash flows or financial statement disclosures, and its effects on future periods will depend on the nature and significance of business combinations subject to this statement.

On May 1, 2009, the Company adopted SFAS No. 160 “Noncontrolling Interests in Consolidated Financial Statements, an amendment to ARB No.51” (SFAS 160), which is codified in FASB ASC Topic No. 810 “Consolidation” (ASC 810). This statement significantly changes the accounting for noncontrolling (minority) interests in consolidated financial statements. The adoption of this pronouncement had no impact on the Company’s consolidated financial position, results of operations or cash flows. However, the Company reclassified minority interest as noncontrolling interest and is reported as a component of equity separate from WPCS shareholders’ equity in the condensed consolidated balance sheets, and net (loss) income from noncontrolling interest is presented separately on the face of the condensed consolidated statements of income to conform to this standard.

On May 1, 2009, the Company adopted SFAS No. 161, “Disclosures About Derivative Instruments and Hedging Activities” (SFAS 161), which is codified in FASB ASC Topic No. 815 “Derivatives and Hedging” (ASC 815). This statement is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures. The adoption of this pronouncement had no impact on the Company’s consolidated financial position, results of operations, cash flows or financial statement disclosures.

On May 1, 2009, the Company adopted EITF Issue No. 07-5, “Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock” (EITF 07-5), which is codified primarily in FASB ASC Subtopic No. 815-40 “Contracts in Entity’s Own Equity” (ASC 815-40). The primary objective of this statement 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 ASC 815, “Derivatives and Hedging.” 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. This statement 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. The adoption of this pronouncement had no impact on the Company’s consolidated financial position, results of operations, cash flows or financial statement disclosures.

On May 1, 2009, the Company adopted SFAS 165, “Subsequent Events”, which is codified in FASB ASC Topic No. 855, "Subsequent Events" (ASC 855). This statement established principles and requirements for subsequent events. It also details the period after the balance sheet date during which the Company should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which the Company should recognize events or transactions occurring after the balance sheet date in its financial statements and the required disclosures for such events. The adoption of this pronouncement did not have a material impact on the Company’s consolidated financial position, results of operations, cash flows or financial statement disclosures.

In June 2009, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 112 (SAB 112). SAB 112 revises or rescinds portions of the interpretative guidance included in the codification of SABs in order to make the interpretive guidance consistent with current U.S. GAAP. The Company does not expect the adoption of this pronouncement to have a material impact on its consolidated financial statements.

In accordance with ASC 805, “Business Combinations,” acquisitions consummated prior to the adoption of ASC 805 on May 1, 2009 have been accounted for under the purchase method of accounting. Under the purchase method of accounting, assets acquired and liabilities assumed were recorded at their estimated fair values. Goodwill was recorded to the extent the purchase price consideration, including certain acquisition and closing costs, exceeded the fair value of the net identifiable assets acquired at the date of the acquisition.

On August 2, 2007, the Company acquired Max Engineering LLC. 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. The aggregate purchase price includes additional cash consideration of $287,181 paid to the former members regarding the earnout settlement for the twelve months ended August 1, 2008. No earnout settlement is payable for the twelve months ended August 1, 2009. Max Engineering LLC was acquired pursuant to a Membership Interest Purchase Agreement among the Company and the former members, dated and effective as of August 2, 2007. The acquisition of Max Engineering LLC expands the Company’s geographic expansion into Texas and provides additional engineering services that specialize in the design of communications infrastructure for the telecommunications, oil, gas and wind energy markets.

On June 26, 2008, the Company acquired all the assets of Lincoln Wind LLC for aggregate consideration of $422,359 in cash, including acquisition transaction costs of $22,359. The assets of Lincoln Wind LLC were acquired pursuant to an Asset Purchase Agreement among the Company, Lincoln Wind LLC and the former member. Lincoln Wind LLC 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 LLC provides additional engineering services that specialize in the design of communication systems for the wind energy market.

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.

	Max Engineering LLC			Lincoln Wind LLC		Total
Assets purchased:
Cash	$	105,926		$	-	$	105,926
Accounts receivable		256,829			-		256,829
Costs and estimate earnings in excess of billings		4,500			-		4,500
Fixed assets		21,890			139,970		161,860
Other assets		1,950			-		1,950
Customer lists		216,000			30,000		246,000
Goodwill		591,588			252,389		843,977
		1,198,683			422,359		1,621,042
Liabilities assumed:
Accrued expenses		(59,186	)		-		(59,186	)
Payroll and other payable		(19,318	)		-		(19,318	)
Accrued tax payable		(2,500	)		-		(2,500	)
		(81,004	)		-		(81,004	)
Purchase price	$	1,117,679		$	422,359	$	1,540,038

On April 4, 2008, the Company acquired Energize Electrical. The aggregate consideration paid by the Company, including acquisition transaction costs of $114,112, was $1,689,756 in cash. Energize Electrical was acquired pursuant to a Share Purchase Agreement among the Company and the former shareholders dated as of April 4, 2008. Energize Electrical 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.

On November 30, 2008, the Company acquired all the assets of BRT Electrical Pty Ltd (BRT) for aggregate consideration of $172,403 in cash, including acquisition transaction costs of $61,462. The assets of BRT were acquired pursuant to an Asset Purchase Agreement among Energize Electrical, the Company, BRT and the former shareholder. 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 the Brendale Operations provides further international expansion into Australia. 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.

	Energize Electrical			BRT		Total
Assets purchased:
Cash	$	21,429		$	-	$	21,429
Accounts receivable		189,197			-		189,197
Inventory		55,084			4,328		59,412
Costs and estimated earnings in excess of billings		415			7,775		8,190
Fixed assets		106,165			37,820		143,985
Deferred tax assets		2,108			-		2,108
Customer lists		509,740			-		509,740
Goodwill		1,176,582			122,480		1,299,062
		2,060,720			172,403		2,233,123
Liabilities assumed:
Accounts payable		(69,562	)		-		(69,562	)
Accrued expenses		(7,444	)		-		(7,444	)
Payroll and other payable		(37,175	)		-		(37,175	)
Sales and use tax payable		(12,449	)		-		(12,449	)
Income tax payable		(91,412	)		-		(91,412	)
Deferred tax liabilities		(152,922	)		-		(152,922	)
		(370,964	)		-		(370,964	)
Purchase price	$	1,689,756		$	172,403	$	1,862,159

On March 9, 2009, the Company acquired Midway Electric Company (Portland Operations). The aggregate consideration paid by the Company, including acquisition transaction costs of $31,674, was $530,770 in cash. The Portland Operations was acquired pursuant to a Stock Purchase Agreement among the Company and the former shareholders, dated as of March 9, 2009. The acquisition of the Portland Operations expands our geographic presence in the Pacific Northwest and provides additional electrical contractor services in both high and low voltage applications for corporate enterprise, healthcare, state and local government and educational institutions.


Assets purchased:
Cash	$	93,247
Accounts receivable		86,555
Inventory		64,165
Prepaid expenses		13,469
Costs and estimated earnings in excess of billings		10,182
Fixed assets		205,615
Customer lists		12,000
Goodwill		110,042
		595,275
Liabilities assumed:
Accounts payable		(30,842	)
Accrued expenses		(2,189	)
Payroll and other payable		(23,292	)
Billings in excess of costs and estimated earnings		(3,249	)
Capital lease obligation		(4,933	)
		(64,505	)
Purchase price	$	530,770

The following unaudited consolidated pro forma financial information presents the combined results of operations of the Company, Lincoln Wind, BRT and the Portland Operations for the three and six months ended October 31, 2008 as if the acquisitions had occurred at May 1, 2008. The consolidated pro forma financial information does not necessarily reflect the results of operations that would have occurred had the Company, Lincoln Wind, BRT and the Portland Operations been a single entity during these periods.

	Consolidated Pro Forma

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

Revenue	$	29,237,350	$	58,189,560

Net income attributable to WPCS	$	377,410	$	1,109,648

Basic weighted average shares		7,251,083		7,251,083
Diluted weighted average shares		7,262,419		7,259,353

Basic net income per share attributable to WPCS	$	0.05	$	0.15
Diluted net income per share attributable to WPCS	$	0.05	$	0.15

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. Although management believes it has established adequate procedures for estimating costs to complete on open contracts, additional costs could occur on contracts prior to completion. Costs and estimated earnings on uncompleted contracts consist of the following at October 31, 2009 and April 30, 2009:

	October 31, 2009			April 30, 2009
Costs incurred on uncompleted contracts	$	68,354,964		$	66,056,622
Estimated contract profit		22,550,910			21,903,172
		90,905,874			87,959,794
Less: billings to date		89,035,608			85,241,971
Net excess of costs	$	1,870,266		$	2,717,823

Costs and estimated earnings in excess of billings on uncompleted contracts	$	4,034,783		$	5,229,043
Billings in excess of costs and estimated earnings
on uncompleted contracts		(2,164,517	)		(2,511,220	)
Net excess of costs	$	1,870,266		$	2,717,823

On April 10, 2007, the Company entered into a loan agreement with Bank of America, N.A. (BOA) as amended. The loan agreement (Loan Agreement) provides for a revolving line of credit in an amount not to exceed $15,000,000, together with a letter of credit facility not to exceed $2,000,000. 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 its 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, 2009, the Company is 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, 2009, the interest rate was 2.25% on outstanding borrowings of $5,626,056 under the Loan Agreement.

As of October 31, 2009, the Beijing Operations had outstanding loans due to a related party, Taian Gas Group (TGG), totaling $2,988,674, of which $2,636,388 matures on December 31, 2009, and bears interest at 6.83%. The remaining balance of $352,286 represents working capital loans from TGG to the Beijing Operations in the normal course of business.

In connection with the acquisition of the Suisun City Operations, 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 Suisun City, California which is occupied by its Suisun City Operations. For the six months ended October 31, 2009 and 2008, the rent paid for this lease was $46,830 in both years.

In connection with the acquisition of the Sarasota Operations, the Company leases its Sarasota, Florida location from a trust, of which one of the former shareholders of the Sarasota Operations is the trustee. For the six months ended October 31, 2009 and 2008, the rent paid for this lease was $27,653 and $26,847, respectively.

In connection with the acquisition of the Trenton Operations, the Company leases its Trenton, New Jersey location from Voacolo Properties LLC, of which the former shareholders of Voacolo Electric Incorporated are the members. For the six months ended October 31, 2009 and 2008, the rent paid for this lease was $33,000 and $30,000, respectively.

In connection with the acquisition of the Beijing Operations in fiscal 2007, the Company’s joint venture partner provided the office building for Beijing Operations rent free during fiscal year 2009. The Company expects to enter into a lease with the joint venture partner in fiscal 2010.

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. These shares were registered under Form S-8. At October 31, 2009, options to purchase 255,000 shares were outstanding at exercise prices ranging from $2.37 to $6.33. At October 31, 2009, there were 145,000 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, 2009, options to purchase 288,102 shares were outstanding at exercise prices ranging from $6.14 to $12.10. At October 31, 2009, there were 40,322 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, 2009, options to purchase 84,756 shares were outstanding at exercise prices ranging from $2.37 to $12.10. At October 31, 2009, there were 189,394 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, 2009		161,350		$	6.28

Granted		8,000		$	3.24
Exercised		-		$	0.00
Forfeited/Expired		(84,594	)	$	6.62

Outstanding, October 31, 2009		84,756		$	5.66		1.2	$	5,785

Vested and expected to vest, October 31, 2009		80,936		$	5.69		2.2	$	5,611

Exercisable, October 31, 2009		54,277		$	5.96		1.4	$	2,893

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





Outstanding, May 1, 2009		288,602		$	6.34

Granted		-		$	0.00
Exercised		-		$	0.00
Forfeited/Expired		(500	)	$	7.04

Outstanding, October 31, 2009		288,102		$	6.34		1.0	$	0

Vested and expected to vest, October 31, 2009		287,952		$	6.33		1.0	$	0

Exercisable, October 31, 2009		285,602		$	6.29		1.0	$	0

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





Outstanding, May 1, 2009		180,000	$	4.04

Granted		75,000	$	3.14
Exercised		-	$	0.00
Forfeited/Expired		-	$	0.00

Outstanding, October 31, 2009		255,000	$	3.77		4.1	$	64,750

Vested and expected to vest, October 31, 2009		229,314	$	3.72		4.1	$	62,718

Exercisable, October 31, 2009		66,250	$	3.49		3.8	$	30,875

The Company has elected to adopt the shortcut method provided in Staff Position Updates, “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 ASC 718. 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. ASC 718 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. There were 83,000 stock options granted during the six months ended October 31, 2009. There were 120,900 stock options granted during the six months ended October 31, 2008. The following assumptions were used to compute the fair value of stock option compensation expense during the three and six months ended October 31, 2009 and 2008, respectively:

	Three Months Ended						Six Months Ended
	October 31,						October 31,
	2009			2008			2009			2008

Risk-free interest rate		1.47 - 1.61	%		1.87 - 2.84	%		1.47 - 1.61	%		1.87 - 2.84	%
Expected volatility		59.9	%		50.8 - 53.3	%		59.9	%		50.8 - 53.3	%
Expected dividend yield		0.00	%		0.00	%		0.00	%		0.00	%
Expected term ( in years)		3.5			3.25-3.5			3.5			3.25-3.5

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 No. 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 SEC Staff Accounting Bulletin Nos. 107 and 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 was exercisable for a period of five years at an exercise price of $6.99 per share. The exercise price of the warrants was subject to customary adjustment provisions for stock splits, combinations, dividends and the like. In April 2009, the Company and its warrant holders amended the warrant agreement to eliminate any adjustment provisions for lower price issuances. 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, 2009 and April 30, 2009. These common stock warrants expired unexercised on November 16, 2009.

On November 24, 2008, the Company adopted a stock repurchase program of up to 2,000,000 shares of the Company’s common stock which expired on December 1, 2009. Since November 24, 2008, a total of 308,817 shares were purchased and retired by the Company at a total cost of $729,730 including transaction costs, or an average cost per common share of $2.36.

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. In order to better serve its diversified customer base, the Company launched a key initiative in fiscal 2009 to brand each of its subsidiaries with the “WPCS” name. As part of this branding strategy and to better represent the Company’s design-build engineering capabilities, the Company reorganized its reportable segments to correspond with its primary service lines: wireless communications, specialty construction and electrical power. 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, 2009 and 2008 are as follows:

	For the Three Months Ended October 31, 2009												For the Three Months Ended October 31, 2008
	Corporate			Wireless Communications		Specialty Construction			Electrical Power		Total		Corporate			Wireless Communications		Specialty Construction		Electrical Power		Total

Revenue	$	-		$	7,550,753	$	1,765,705		$	14,985,102	$	24,301,560	$	-		$	9,066,766	$	3,169,857	$	16,531,058	$	28,767,681

Depreciation and amortization	$	17,494		$	188,386	$	194,886		$	257,433	$	658,199	$	8,664		$	177,006	$	223,383	$	241,986	$	651,039

Income (loss) before income taxes	$	(1,261,806	)	$	252,318	$	(292,098	)	$	1,829,137	$	527,551	$	(975,785	)	$	598,688	$	143,148	$	869,008	$	635,059


	As of and for the Six Months Ended October 31, 2009												As of and for the Six Months Ended October 31, 2008
	Corporate			Wireless Communications

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)