UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549






FORM
10-K





ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934





For
the Fiscal Year Ended April 30, 2008






Commission
File Number 000-262771





WPCS
INTERNATIONAL INCORPORATED


(Exact
name of registrant as specified in its charter)





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




One
      East Uwchlan Avenue, Suite 301
              Exton,
      Pennsylvania
            19341
            (610)
      903-0400(Address
      of principal executive office)
            (Postal
      Code)
            (Issuer's
      telephone number)





Securities
registered pursuant to Section 12(b) of the Act:
  Title
      of each class
                Common
      Stock, $0.0001 par value
              Name of each
      exchange on which registered
                The NASDAQ Stock
      Market LLC
                (NASDAQ Global
      Market)


Securities
registered pursuant to Section 12(g) of the Act:  None





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined by
Rule 405 of the Securities Act. Yes  o   No 
x





Indicate
by checkmark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Act. Yes  o   No 
x





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. Yesx    Noo





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405 of this chapter) is not contained herein, and will not
be contained, to the best of the registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.  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.





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





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).Yes  o  No  
x





The
aggregate market value of the voting common equity held by non-affiliates as of
October 31, 2007, based on the closing sales price of the Common Stock as quoted
on the Nasdaq Global Market was $59,522,365.76. For purposes of this
computation, all officers, directors, and 5 percent beneficial owners of the
registrant are deemed to be affiliates.  Such determination should not be
deemed an admission that such directors, officers, or 5 percent beneficial
owners are, in fact, affiliates of the registrant.





As of July 17, 2008, there were
7,251,083 shares of registrant’s common stock outstanding.








1








TABLE
OF CONTENTS





PAGEPART
      IItem
      1.
            Business
            3Item 1A.
            RiskFactors
            8Item1B.
            UnresolvedStaff Comments
            13Item
      2.
            Properties
            13Item
      3.
            Legal
      Proceedings
            14Item
      4.
            Submission of Matters to a Vote of
      Security Holders
            14PART
      IIItem
      5.
            Market for
      Registrant’s Common Equity, Related Stockholder Matters and
      Issuer Purchases ofEquity
      Securities
            15Item6.
            SelectedFinancial Data
            15Item
      7.
            Management’s Discussion
      and Analysis of Financial Condition and Results of
      Operations
            16Item
      7A.
            Quantitative and Qualitative
      Disclosures about Market Risk
            25Item
      8.
            Financial
      Statements and Supplementary Data
            F-1 - F-32Item
      9.
            Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosures
            26Item
      9A(T).
            Controls
      and Procedures
            26Item
      9B.
            Other
      Information
            26PART
      IIIItem
      10.
            Directors,Executive
      Officersand Corporate
      Governance
            27Item
      11.
            Executive
      Compensation
            30Item
      12.
            Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
            36Item
      13.
            Certain
      Relationships and Related Transactions, and DirectorIndependence
            37Item
      14.
            Principal AccountantFees
      and
    Services
            38PART
      IVItem
      15.
            ExhibitsandFinancial Statement Schedules
            39Signatures
            45








2




PART
I





ITEM 1. -  DESCRIPTION OF
BUSINESS





This
Annual Report on Form 10-K includes the accounts of WPCS International
Incorporated (WPCS) and its wholly and majority-owned subsidiaries, WPCS
Incorporated, Invisinet Inc. (Invisinet), Walker Comm Inc. (Walker Comm),
Clayborn Contracting Group, Inc. (Clayborn), Heinz Corporation (Heinz), Quality
Communications & Alarm Company, Inc. (Quality), New England Communications
Systems, Inc. (NECS) from June 1, 2006 (date of acquisition), Southeastern
Communication Services, Inc.  (SECS) from July 19, 2006 (date of
acquisition), Voacolo Electric Incorporated (Voacolo) from March 30, 2007 (date
of acquisition), Taian AGS Pipeline Construction Co. Ltd (TAGS) from April 5,
2007 (date of acquisition), 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) and RL & CA MacKay Pty Ltd. dba
Energize Electrical (Energize) from April 4, 2008 (date of acquisition),
collectively “we”, us” or the "Company".





This
Annual Report on Form 10-K (including the section regarding Management's
Discussion and Analysis of Financial Condition and Results of Operations)
contains forward-looking statements regarding our business, financial condition,
results of operations and prospects. Words such as "expects," "anticipates,"
"intends," "plans," "believes," "seeks," "estimates" and similar expressions or
variations of such words are intended to identify forward-looking statements,
but are not deemed to represent an all-inclusive means of identifying
forward-looking statements as denoted in this Annual Report on Form
10-K.  Additionally, statements concerning future matters are
forward-looking statements.





Although
forward-looking statements in this Annual Report on Form 10-K reflect the good
faith judgment of our Management, such statements can only be based on facts and
factors currently known by us. Consequently, forward-looking statements are
inherently subject to risks and uncertainties and actual results and outcomes
may differ materially from the results and outcomes discussed in or anticipated
by the forward-looking statements. Factors that could cause or contribute to
such differences in results and outcomes include, without limitation, those
specifically addressed under the heading "Risks Related to Our Business" below,
as well as those discussed elsewhere in this Annual Report on Form 10-K. Readers
are urged not to place undue reliance on these forward-looking statements, which
speak only as of the date of this Annual Report on Form 10-K. We file reports
with the Securities and Exchange Commission ("SEC"). We make available on our
website under "Investor Relations/SEC Filings," free of charge, our annual
reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K and amendments to those reports as soon as reasonably practicable after we
electronically file such materials with or furnish them to the SEC. Our website
address is www.wpcs.com. You can also read and copy any materials we file with
the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington, DC
20549.  You can obtain additional information about the operation of
the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the
SEC maintains an Internet site (www.sec.gov) that contains reports, proxy and
information statements, and other information regarding issuers that file
electronically with the SEC, including us.





We
undertake no obligation to revise or update any forward-looking statements in
order to reflect any event or circumstance that may arise after the date of this
Annual Report on Form 10-K. Readers are urged to carefully review and consider
the various disclosures made throughout the entirety of this annual Report,
which attempt to advise interested parties of the risks and factors that may
affect our business, financial condition, results of operations and
prospects.





Overview





The increasing demand for wireless
services has become the driving force behind the recent growth in the global
communications industry. Wireless technology has advanced substantially to the
point where wireless networks have proven to be an effective alternative to land
line networks, a key factor in its broad acceptance. The advantages of wireless
over land line communication are apparent in the aspects of mobility, cost, and
deployment. The use of dedicated wireless networks for specified applications
has improved productivity for individuals and organizations alike. We provide
design-build engineering services that focus on the implementation requirements
of wireless technology.  We serve the specialty communication systems
and wireless infrastructure sectors. Our range of services includes site design,
technology integration, electrical contracting, construction and project
management for corporations, government entities and educational institutions
worldwide. Because we are technology independent, we can integrate multiple
products and services across a variety of communication requirements. This
ability gives our customers the flexibility to obtain the most appropriate
solution for their communication needs on a cost effective
basis.




With
fifteen offices across the United States, one office in China and two offices in
Australia, we provide our services to our customers on a global
basis.   Our rapid revenue growth since we commenced operations
in November 2001 is attributable to a combination of acquisitions and organic
growth. For the fiscal year ended April 30, 2008, we generated revenues of
approximately $101 million, an increase of 44.9% from the fiscal year ended
April 30, 2007. Our backlog at April 30, 2008 was approximately $59.8
million.






3





Advantages
of Wireless Technology





Various
improvements in wireless technologies have resulted in an environment where
wireless solutions provide a number of key advantages over traditional land line
solutions, including:





•
            Mobility.Mobile
      communications and computing are among the driving forces behind the
      demand for wireless connectivity. The increased functionality and
      declining cost of mobile wireless devices has fueled further growth.
      Mobile connectivity has led to greater productivity as organizations
      transmit data and gather information from remote staff and locations where
      land line connectivity is unavailable. Such mobile connectivity has
      created significant cost savings in data collection, increased
      responsiveness, enabled greater access to enterprise resources and
      improved controls.




•
            Cost.Wireless networks
      cost less than comparable land line networks both to deploy and to
      operate. Wireless deployment is less expensive because the installation of
      a land line network is more labor-intensive, requires more time and may
      involve substantial right-of-way expenditures.  We expect the
      main cost component of wireless networks and equipment  to continue
      to decline as technology advances and production volumes increase.
      Operating costs of wireless networks are also lower because land lines
      require extensive troubleshooting to execute repairs. In addition,
      wireless networks bypass local service providers, eliminating recurring
      monthly charges.




•
            Deployment.Because
      enterprise wireless networks do not require negotiating rights of way,
      substantial infrastructure engineering, time-consuming third party
      coordination efforts or additional FCC licensing, they can be deployed
      quickly and less expensively. Rapid deployment allows organizations to
      install networks more closely in line with immediate needs rather than
      having to commit to time-consuming engineering projects in anticipation of
      future growth.




Industry
Trends




The
demand for wireless networks can be tied to the following key
trends:




•
            Increased
      security of wireless data
transmission;




•
            Introduction
      of new technologies;




•
            Increasing
      accessibility and affordability of wireless mobile devices;
      and




•
            Increased
      capacity of wireless networks, making them a legitimate substitute for
      land line communications.




The
advantages gained through wireless communications have expanded the scope of
possible applications, creating demand for specialty communication
systems.




Business
Strategy




Our goal
is to become a recognized leader in the design and deployment of wireless
networks for specialty communication systems and wireless infrastructure. We
have designed and deployed many systems incorporating innovative uses of
wireless technology in various vertical markets. Our strategy focuses on both
organic growth and the pursuit of acquisitions that add to our engineering
capacity and geographic coverage. Specifically, we will endeavor
to:




•
            Provide additional services
      for our customers.Each acquisition we make expands our customer
      base. We seek to expand these new customer relationships by making them
      aware of the diverse products and services we offer. We believe that
      providing these customers the full range of our services will lead to new
      projects or revenue opportunities and increased
    profitability.




•
            Maintain and expand our focus
      in vertical markets.We have deployed successful, innovative
      wireless solutions for multiple customers in a number of vertical markets,
      such as public safety, healthcare, gaming and energy. We will continue to
      seek additional customers in these targeted vertical markets who can
      benefit from our expertise and look for new ways in which we can deploy
      wireless networks to enhance productivity within these markets. We also
      look to expand our vertical market coverage and include these new markets
      as appropriate.







4






•
            Strengthen our relationships
      with technology providers.We will continue to strengthen the
      relationships we have with technology providers. These companies rely on
      us to deploy their technology products within their customer base. We have
      worked with these providers in testing new equipment they develop and our
      personnel maintain certifications on our technology providers’ products.
      We also look for innovative products that can be of benefit to our
      customers, and endeavor to establish similar relationships with new
      technology providers as part of our commitment to offering the most
      advanced solutions.




•
            Seek strategic
      acquisitions.  We will continue to look for additional
      acquisitions of compatible businesses that can be assimilated into our
      organization, expand our geographic coverage and add accretive earnings to
      our business. Our preferred acquisition candidates will have experience
      with specialty communication systems.  We are also focused on
      expanding in the international sector with an emphasis in China, Australia
      and surrounding Pacific Rim
countries.




Services





We
operate in two segments, specialty communication systems and wireless
infrastructure services. Specialty communication systems are wireless networks
designed to improve productivity for a specified application by communicating
data, voice or video information in situations where land line networks are
non-existent, more difficult to deploy or too expensive. Wireless infrastructure
services include the engineering, installation, integration and maintenance of
wireless carrier equipment. For the fiscal year ended April 30, 2008, specialty
communication systems represented approximately 88% of our total revenue, and
wireless infrastructure services represented approximately 12% of our total
revenue. For the fiscal year ended April 30, 2007, specialty communication
systems represented approximately 81% of our total revenue, and wireless
infrastructure services represented approximately 19% of our total
revenue.




Specialty
Communication Systems




The types of specialty communication
systems that we implement are used for mobile computing and general wireless
connectivity purposes. We design and deploy networks that allow entities to
reduce their dependence on high cost and inflexible leased land lines. We have
the engineering expertise to utilize any facet of wireless technology or a
combination of various wireless technologies to engineer a cost effective
network for a customer’s wireless communication requirement. In addition, the
design and deployment of a specialty communication system is a comprehensive
effort that requires an in-depth knowledge of radio frequency engineering so
that the wireless network is free from interference with other signals and
amplified sufficiently to carry data, voice or video with speed and
accuracy.  In specialty communications, we focus on four primary
vertical markets to provide our services.  These vertical sectors
include public safety, healthcare, gaming and energy.




•
            Public
      safety.  We provide communication systems for public
      services ( which includes police, fire and emergency systems), asset
      tracking, transportation and security, where the conversion of older
      analog systems to advanced digital systems is the driving
      force.




•
            Healthcare. We provide
      communication systems for data management, asset tracking and security for
      use in new hospital construction and renovation
  projects.




•
            Gaming.  We
      provide communication systems for asset tracking and security for use in
      new casino construction and renovation of existing
    properties.




•
            Energy. We provide
      communication systems for utility, oil, gas, and alternative energy
      companies such as solar and wind energy
  companies.






5





We are
technology and vendor independent. As wireless networks evolve, customers are
increasingly showing a tendency to select independent service providers,
allowing our independence to become an important differentiator. We believe that
the strength of our experience in the design and deployment of these specialty
communication systems gives us a competitive advantage and has supported our
rapid growth, both organically and through acquisitions.




Wireless
Infrastructure Services




We
provide wireless infrastructure services to major wireless carriers, which are
services that include the engineering, installation, integration and maintenance
of wireless carrier equipment. Wireless carriers are focused on building and
expanding their networks, increasing capacity, upgrading their networks with new
technologies and maintaining their existing infrastructure. Our engineers
install, test and commission base station equipment at the carrier cell site,
including installations of new equipment, technology upgrades, equipment
modifications and reconfigurations. These services may also include tower
construction.




Project
Characteristics




Our
contracts are primarily service-based projects providing installation and
engineering services, which include providing labor, materials and equipment for
a complete installation. The projects are generally staffed with a project
manager who manages multiple projects and a field supervisor who is responsible
for an individual project. Depending on contract scope, project staff size could
range from two to four engineers to as high as 25 to 30 engineers. A project may
also include subcontracted services along with our direct labor.




The
project manager coordinates the daily activities of direct labor and
subcontractors and works closely with our field supervisors. Project managers
are responsible for job costing, change order tracking, billing, and customer
relations. Executive management monitors the performance of all projects
regularly through work-in-progress reporting or percentage-of-completion, and
reviews this information with each project manager.




Our
projects are primarily executed on a contract basis. These contracts can be
awarded through a competitive bidding process, an informal bidding process, or a
simple quote request. Upon award of a contract, there can often be a delay of
several months before work begins. The active work time on our projects can
range in duration from a few days up to as long as two years. Once services
under the contract commence, our average project length is approximately two
months.




Customers




We serve
a variety of corporate, government and education customers in various market
segments. In our specialty communication systems segment, we believe our design
and deployment of innovative wireless networks specific to the needs of
customers in certain vertical markets has brought us recognition. In our
wireless infrastructure segment, our customers are major wireless
carriers.




For the
fiscal year ended April 30, 2008, there were no customers who accounted for more
than 10% of our revenue. For the fiscal year ended April 30, 2007, we had
revenue from two customers, Genentech and Sprint Nextel, of approximately $12.7
million and $8.2 million or 18.1% and 11.7%, respectively.




Sales
and Marketing




We have
dedicated sales and marketing resources that develop opportunities within our
existing customer base, and identify new customers through our vertical market
focus and our relationships with technology providers. In addition, our project
managers devote a portion of their time to sales and marketing. When an
opportunity is identified, we assess the opportunity to determine our level of
interest in participation. After qualifying an opportunity, our sales and
marketing resources work with the internal project management teams to prepare a
cost estimate and contract proposal for a particular project. We keep track of
bids submitted and bids that are awarded. Once a bid is awarded to us, it is
assigned to a project management team and included in our backlog.








6






Backlog




As of
April 30, 2008, we had a backlog of unfilled orders of approximately $59.8
million compared to approximately $34.9 million at April 30, 2007. We define
backlog as the value of work-in-hand to be provided for customers as of a
specific date where the following conditions are met (with the exception of
engineering change orders): (i) the price of the work to be done is fixed; (ii)
the scope of the work to be done is fixed, both in definition and amount; and
(iii) there is a written contract, purchase order, agreement or other
documentary evidence which represents a firm commitment by the customer to pay
us for the work to be performed. These backlog amounts are based on contract
values and purchase orders and may not result in actual receipt of revenue in
the originally anticipated period or at all. We have experienced variances in
the realization of our backlog because of project delays or cancellations
resulting from external market factors and economic factors beyond our control
and we may experience such delays or cancellations in the future. Backlog does
not include new firm commitments that may be awarded to us by our customers from
time to time in future periods. These new project awards could be started and
completed in this same future period. Accordingly, our backlog does not
necessarily represent the total revenue that could be earned by us in future
periods.




Competition




We face
competition from numerous service organizations, ranging from small independent
regional firms to larger firms servicing national markets. We also face
competition from existing or prospective customers that employ in-house
personnel to perform some of the same types of services that we provide.
Historically, there have been relatively few significant barriers to entry into
the markets in which we operate, and, as a result, any organization that has
adequate financial resources and access to technical expertise may become a
competitor. At the present time, we believe that there are no dominant
competitors in the specialty communication systems or wireless infrastructure
segment but we would classify Quanta Services, Inc. (NYSE:PWR) and Dycom
Industries, Inc. (NYSE:DY) as specialty communication systems competitors and
LCC International Incorporated (NASDAQ-LCCI) as a wireless infrastructure
services competitor.




The
principal competitive advantage in these markets is the ability to deliver
results on time and within budget. Other factors of importance include
reputation, accountability, staffing capability, project management expertise,
industry experience and competitive pricing. In addition, expertise in new and
evolving technologies has become increasingly important. We believe that the
ability to design, deploy and maintain all facets of wireless technology for
various vertical sectors gives us a competitive advantage. We maintain a trained
and certified staff of engineers that have developed proven methodologies for
the design and deployment of wireless networks, and can provide these services
on an international basis. In addition, we offer both a union and non-union
workforce that allow us to bid on either labor requirement, creating yet another
competitive advantage.




However,
our ability to compete effectively also depends on a number of additional
factors that are beyond our control. These factors include competitive pricing
for similar services, the ability and willingness of the competition to finance
projects on favorable terms, the ability of customers to perform the services
internally and the responsiveness of our competitors to customer
needs.




Employees




As of
April 30, 2008, we employed 540 full time employees, of whom 380 are project
engineers, 40 are project managers, 113 are in administration and sales and 7
are executives.  A majority of the project engineers are represented
by the International Brotherhood of Electrical Workers. We also have non-union
employees. We believe our relations with all of our employees are good. We have
241 union employees whom are covered by contracts that expire at various times
as follows:





Subsidiary
            
            # of Employees
            
            Contract Termination
DateEmpire
            
            
            61
            
            December
      31, 2008Walker
            
            
            8
            
            December
      31, 2008Heinz
            
            
            1
            
            November
      30, 2009Walker
            
            
            62
            
            January
      1, 2010Voacolo
            
            
            22
            
            May
      1, 2010Major
            
            
            80
            
            May
      31, 2010Heinz
            
            
            6
            
            October
      31, 2010Heinz
            
            
            1
            
            May
      2, 2012Total
      Union Employees
            
            
            241









7




ITEM 1A - RISK FACTORS




Our
success is dependent on growth in the deployment of wireless networks, and to
the extent that such growth slows down, our revenues may decrease and our
ability to continue operating profitably may be harmed.




Customers
are constantly re-evaluating their network deployment plans in response to
trends in the capital markets, changing perceptions regarding industry growth,
the adoption of new wireless technologies, increasing pricing competition and
general economic conditions in the United States and internationally. If the
rate of network deployment growth slows and customers reduce their capital
investments in wireless technology or fail to expand their networks, our
revenues and profits could be reduced.




If
we fail to accurately estimate costs associated with our fixed-price contracts
using percentage-of-completion, our actual results may vary from our
assumptions, which may reduce our profitability or impair our financial
performance.




A
substantial portion of our revenue is derived from fixed price contracts. Under
these contracts, we set the price of our services on an aggregate basis and
assume the risk that the costs associated with our performance may be greater
than we anticipated. We recognize revenue and profit on these contracts as the
work on these projects progresses on a percentage-of-completion basis. Under the
percentage-of-completion method, contracts in process are valued at cost plus
accrued profits less earned revenues and progress payments on uncompleted
contracts.




The
percentage-of-completion method therefore relies on estimates of total expected
contract costs. These costs may be affected by a variety of factors, such as
lower than anticipated productivity, conditions at work sites differing
materially from what was anticipated at the time we bid on the contract and
higher costs of materials and labor. Contract revenue and total cost estimates
are reviewed and revised monthly as the work progresses, such that adjustments
to profit resulting from revisions are made cumulative to the date of the
revision. Adjustments are reflected in contract revenue for the fiscal period
affected by these revised estimates. If estimates of costs to complete long-term
contracts indicate a loss, we immediately recognize the full amount of the
estimated loss. Such adjustments and accrued losses could result in reduced
profitability and liquidity.




Failure
to properly manage projects may result in unanticipated costs or
claims.




Our
wireless network engagements may involve large scale, highly complex projects.
The quality of our performance on such projects depends in large part upon our
ability to manage the relationship with our customers, and to effectively manage
the project and deploy appropriate resources, including third-party contractors
and our own personnel, in a timely manner. Any defects or errors or failure to
meet customers’ expectations could result in claims for substantial damages
against us. Our contracts generally limit our liability for damages that arise
from negligent acts, errors, mistakes or omissions in rendering services to our
customers. However, we cannot be sure that these contractual provisions will
protect us from liability for damages in the event we are sued. In addition, in
certain instances, we guarantee customers that we will complete a project by a
scheduled date or that the network will achieve certain performance standards.
If the project or network experiences a performance problem, we may not be able
to recover the additional costs we would incur, which could exceed revenues
realized from a project.




The
industry in which we operate has relatively low barriers to entry and increased
competition could result in margin erosion, which would make profitability even
more difficult to sustain.




Other
than the technical skills required in our business, the barriers to entry in our
business are relatively low. We do not have any intellectual property rights to
protect our business methods and business start-up costs do not pose a
significant barrier to entry. The success of our business is dependent on our
employees, customer relations and the successful performance of our services. If
we face increased competition as a result of new entrants in our markets, we
could experience reduced operating margins and loss of market share and brand
recognition.






8






Our
business depends upon our ability to keep pace with the latest technological
changes, and our failure to do so could make us less competitive in our
industry.




The
market for our services is characterized by rapid change and technological
improvements. Failure to respond in a timely and cost-effective way to these
technological developments may result in serious harm to our business and
operating results. We have derived, and we expect to continue to derive, a
substantial portion of our revenues from deploying wireless networks that are
based upon today’s leading technologies and that are capable of adapting to
future technologies. As a result, our success will depend, in part, on our
ability to develop and market service offerings that respond in a timely manner
to the technological advances of our customers, evolving industry standards and
changing preferences.




Our
failure to attract and retain engineering personnel or maintain appropriate
staffing levels could adversely affect our business.




Our
success depends upon our attracting and retaining skilled engineering personnel.
Competition for such skilled personnel in our industry is high and at times can
be extremely intense, especially for engineers and project managers, and we
cannot be certain that we will be able to hire sufficiently qualified personnel
in adequate numbers to meet the demand for our services. We also believe that
our success depends to a significant extent on the ability of our key personnel
to operate effectively, both individually and as a group. Additionally, we
cannot be certain that we will be able to hire the requisite number of
experienced and skilled personnel when necessary in order to service a major
contract, particularly if the market for related personnel is competitive.
Conversely, if we maintain or increase our staffing levels in anticipation of
one or more projects and the projects are delayed, reduced or terminated, we may
underutilize the additional personnel, which could reduce our operating margins,
reduce our earnings and possibly harm our results of operations. If we are
unable to obtain major contracts or effectively complete such contracts due to
staffing deficiencies, our revenues may decline and we may experience a drop in
net income.




If
we are unable to identify and complete future acquisitions, we may be unable to
continue our growth.




Since
November 1, 2001, we have acquired fourteen companies and we intend to further
expand our operations through targeted strategic acquisitions. However, we may
not be able to identify suitable acquisition opportunities. Even if we identify
favorable acquisition targets, there is no guarantee that we can acquire them on
reasonable terms or at all. If we are unable to complete attractive
acquisitions, the growth that we have experienced over the last five fiscal
years may decline.




Future
acquired companies could be difficult to assimilate, disrupt our business,
diminish stockholder value and adversely affect our operating
results.




Completing
acquisitions may require significant management time and financial resources
because we may need to assimilate widely dispersed operations with distinct
corporate cultures. Our failure to manage future acquisitions successfully could
seriously harm our operating results. Also, acquisitions could cause our
quarterly operating results to vary significantly. Furthermore, our stockholders
would be diluted if we financed the acquisitions by issuing equity securities.
In addition, acquisitions expose us to risks such as undisclosed liabilities,
increased indebtedness associated with an acquisition and the potential for cash
flow shortages that may occur if anticipated financial performance is not
realized or is delayed from such acquired companies.




We
derive a significant portion of our revenues from a limited number of customers,
the loss of which would significantly reduce our revenues.




We have
derived, and believe that we will continue to derive, a significant portion of
our revenues from a limited number of customers. To the extent that any
significant customer uses less of our services or terminates its relationship
with us, our revenues could decline significantly. As a result, the loss of any
significant customer could seriously harm our business. For the year ended April
30, 2008, we had no customers who accounted for more than 10% of our revenue.
Although for the fiscal year ended April 30, 2007, we had two separate customers
which accounted for 18.1% and 11.7% of our revenues.  Other than under
existing contractual obligations, none of our customers is obligated to purchase
additional services from us. As a result, the volume of work that we perform for
a specific customer is likely to vary from period to period, and a significant
customer in one period may not use our services in a subsequent
period.






9






Amounts
included in our backlog may not result in actual revenue or translate into
profits.




As of
April 30, 2008, we had a backlog of unfilled orders of approximately $59.8
million. This backlog amount is based on contract values and purchase orders and
may not result in actual receipt of revenue in the originally anticipated period
or at all. In addition, contracts included in our backlog may not be profitable.
We have experienced variances in the realization of our backlog because of
project delays or cancellations resulting from external market factors and
economic factors beyond our control and we may experience delays or
cancellations in the future. If our backlog fails to materialize, we could
experience a reduction in revenue, profitability and liquidity.




Our
business could be affected by adverse weather conditions, resulting in variable
quarterly results.




Adverse
weather conditions, particularly during the winter season, could affect our
ability to perform outdoor services in certain regions of the United States. As
a result, we might experience reduced revenue in the third and fourth quarters
of our fiscal year. Natural catastrophes such as the recent hurricanes in the
United States could also have a negative impact on the economy overall and on
our ability to perform outdoor services in affected regions or utilize equipment
and crews stationed in those regions, which in turn could significantly impact
the results of any one or more of our reporting periods.




If
we are unable to retain the services of Messrs. Hidalgo, Schubiger, Heinz,
Walker, Madenford or James, operations could be disrupted.




Our
success depends to a significant extent upon the continued services of Mr.
Andrew Hidalgo, our Chief Executive Officer and Messrs. Richard Schubiger, James
Heinz, Donald Walker, Charles Madenford and Steven James, our Executive Vice
Presidents. Mr. Hidalgo has overseen our company since inception and provides
leadership for our growth and operations strategy. Messrs. Schubiger, Heinz,
Walker, Madenford and James oversee the day-to-day operations of our operating
subsidiaries. Loss of the services of Messrs. Hidalgo, Schubiger, Heinz, Walker,
Madenford or James could disrupt our operations and harm our growth, revenues,
and prospective business. We do not maintain key-man insurance on the lives of
Messrs. Hidalgo, Schubiger, Heinz, Walker, Madenford or James.




Employee
strikes and other labor-related disruptions may adversely affect our
operations.




Our
business is labor intensive, with certain projects requiring large numbers of
engineers. Over 44% of our workforce is unionized. Strikes or labor disputes
with our unionized employees may adversely affect our ability to conduct our
business. If we are unable to reach agreement with any of our unionized work
groups on future negotiations regarding the terms of their collective bargaining
agreements, or if additional segments of our workforce become unionized, we may
be subject to work interruptions or stoppages. Any of these events could be
disruptive to our operations and could result in negative publicity, loss of
contracts and a decrease in revenues.




We
may incur goodwill impairment charges in our reporting entities which could harm
our profitability.




In
accordance with Statement of Financial Accounting Standards, or SFAS, No. 142,
“Goodwill and Other Intangible Assets,” we periodically review the carrying
values of our goodwill to determine whether such carrying values exceed the fair
market value. Except for TAGS, each of our acquired companies, of which each is
a reporting unit, is subject to an annual review for goodwill impairment. If
impairment testing indicates that the carrying value of a reporting unit exceeds
its fair value, the goodwill of the reporting unit is deemed impaired.
Accordingly, an impairment charge would be recognized for that reporting unit in
the period identified, which could reduce our profitability.








10




Our
quarterly results fluctuate and may cause our stock price to
decline.




Our
quarterly operating results have fluctuated in the past and will likely
fluctuate in the future. As a result, we believe that period to period
comparisons of our results of operations are not a good indication of our future
performance. A number of factors, many of which are beyond our control, are
likely to cause these fluctuations. Some of these factors include:




•
            the
      timing and size of network deployments and technology upgrades by our
      customers;




•
            fluctuations
      in demand for outsourced network
services;




•
            the
      ability of certain customers to sustain capital resources to pay their
      trade accounts receivable balances and required changes to our allowance
      for doubtful accounts based on periodic assessments of the collectibility
      of our accounts receivable
balances;




•
            reductions
      in the prices of services offered by our
  competitors;




•
            our
      success in bidding on and winning new business;
  and




•
            our
      sales, marketing and administrative cost
  structure.




Because
our operating results may vary significantly from quarter to quarter, our
operating results may not meet the expectations of securities analysts and
investors, and our common stock could decline significantly which may expose us
to risks of securities litigation, impair our ability to attract and retain
qualified individuals using equity incentives and make it more difficult to
complete acquisitions using equity as consideration.




Our
stock price may be volatile, which may result in lawsuits against us and our
officers and directors.




The stock
market in general, and the stock prices of technology and telecommunications
companies in particular, have experienced volatility that has often been
unrelated to or disproportionate to the operating performance of those
companies. The market price of our common stock has fluctuated in the past and
is likely to fluctuate in the future. Between April 30, 2007 and April 30, 2008,
our common stock has traded as low as $5.15 and as high as $14.25 per share,
based upon information provided by the NASDAQ Global Market. Factors which could
have a significant impact on the market price of our common stock include, but
are not limited to, the following:




•
            quarterly
      variations in operating results;




•
            announcements
      of new services by us or our
competitors;




•
            the
      gain or loss of significant
customers;




•
            changes
      in analysts’ earnings estimates;




•
            rumors
      or dissemination of false
information;




•
            pricing
      pressures;




•
            short
      selling of our common stock;




•
            impact
      of litigation;




•
            general
      conditions in the market;




•
            changing
      the exchange or quotation system on which we list our common stock for
      trading;




•
            political
      and/or military events associated with current worldwide conflicts;
      and




•
            events
      affecting other companies that investors deem comparable to
      us.








11








Companies
that have experienced volatility in the market price of their stock have
frequently been the object of securities class action litigation. Class action
and derivative lawsuits could result in substantial costs to us and a diversion
of our management’s attention and resources, which could materially harm our
financial condition and results of operations.




Future
changes in financial accounting standards may adversely affect our reported
results of operations.




A change
in accounting standards could have a significant effect on our reported results
and may even affect our reporting of transactions completed before the change is
effective. New pronouncements and varying interpretations of pronouncements have
occurred and may occur in the future. Changes to existing rules or the
questioning of current practices may adversely affect our reported financial
results or the way we conduct our business.




Compliance
with changing regulation of corporate governance and public disclosure may
result in additional expenses.




Changing
laws, regulations and standards relating to corporate governance and public
disclosure, including the Sarbanes-Oxley Act of 2002, newly enacted SEC
regulations and NASDAQ Stock Market rules, have created additional burdens for
companies such as ours. We are committed to maintaining high standards of
corporate governance and public disclosure. As a result, we intend to invest
appropriate resources to comply with evolving standards. This investment will
result in increased general and administrative costs and a diversion of
management time and attention from revenue-generating activities to compliance
activities.




We
can issue shares of preferred stock without shareholder approval, which could
adversely affect the rights of common shareholders.




Our
certificate of incorporation permits us to establish the rights, privileges,
preferences and restrictions, including voting rights, of future series of our
preferred stock and to issue such stock without approval from our stockholders.
The rights of holders of our common stock may suffer as a result of the rights
granted to holders of preferred stock that we may issue in the future. In
addition, we could issue preferred stock to prevent a change in control of our
company, depriving common shareholders of an opportunity to sell their stock at
a price in excess of the prevailing market price.




There
may be an adverse effect on the market price of our shares as a result of shares
being available for sale in the future.





As of
April 30, 2008, holders of our outstanding options and warrants have the right
to acquire 2,529,614 shares of common stock issuable upon the exercise of stock
options and warrants, at exercise prices ranging from $4.80 to $14.40 per share,
with a weighted average exercise price of $7.00. The sale or availability for
sale in the market of the shares underlying these options and warrants could
depress our stock price. We have registered substantially all of the underlying
shares described above for resale. Holders of registered underlying shares may
resell the shares immediately upon issuance upon exercise of an option or
warrant.





If our
stockholders sell substantial amounts of our shares of common stock, including
shares issued upon the exercise of outstanding options and warrants, the market
price of our common stock may decline. These sales also might make it more
difficult for us to sell equity or equity-related securities in the future at a
time and price that we deem appropriate.




We
are subject to the risks associated with doing business in the People’s Republic
of China (PRC).




We
conduct certain business in China through our TAGS joint venture, which is
organized under the laws of the PRC. Our China operations are directly related
to and dependent on the social, economic and political conditions in this
country, many of which we have no control over, and are influenced by many
factors, including:





•
            changes
      in the region’s economic, social and political conditions or government
      policies;





•
            changes
      in trade laws, tariffs and other trade restrictions or
      licenses;





•
            changes
      in foreign exchange regulation in China may limit our ability to freely
      convert currency to make dividends or other payments in U.S.
      dollars;





•
            fluctuation
      in the value of the RMB (Chinese Yuan) could adversely affect the value of
      our investment in China;





•
            limitations
      on the repatriation of earnings or assets, including
  cash;








12







•
            adverse
      changes in tax laws and
regulations;





•
            difficulties
      in managing or overseeing our China operations, including the need to
      implement appropriate systems, policies, benefits and compliance programs;
      and





•
            different
      liability standards and less developed legal systems that may be less
      predictable than those in the United
States.





The
occurrence or consequences of any of these conditions may restrict our ability
to operate and/or decrease the profitability of our operations in
China.




ITEM 1B – UNRESOLVED STAFF
COMMENTS





None.




ITEM 2 – PROPERTIES




Our
principal executive office is located in approximately 2,550 square feet of
office space in Exton, Pennsylvania. We operate our business under office leases
in the following locations:




MinimumLease
            
            AnnualLocation
            
            Subsidiary
            
            Expiration
      Date
            
            RentExton,
      Pennsylvania
            
            WPCS
      Corporate headquarters
            
            February
      1, 2011
            
            $
            52,594Auburn,
      California (1)
            
            Clayborn
            
            Month-to-month
            
            $
            68,306West
      Sacramento, California
            
            Empire
            
            July
      31, 2010
            
            $
            74,847St.
      Louis, Missouri
            
            Heinz
            
            August
      31, 2010
            
            $
            61,405Exton,
      Pennsylvania
            
            Heinz
            
            July
      31, 2009
            
            $
            9,072Brisbane,
      Australia
            
            James
            
            July
      31, 2012
            
            $
            75,240Woodinville,
      Washington
            
            Major
            
            May
      31, 2010
            
            $
            9,470Houston,
      Texas
            
            Max
            
            August
      31, 2009
            
            $
            20,432Windsor,
      Connecticut
            
            NECS
            
            April
      30, 2014
            
            $
            85,484Chicopee,
      Massachusetts
            
            NECS
            
            August
      31, 2008
            
            $
            4,000Lakewood,
      New Jersey
            
            Quality
            
            August
      31, 2010
            
            $
            125,661Sarasota,
      Florida
            
            SECS
            
            July
      31, 2011
            
            $
            52,897Trenton,
      New Jersey (2)
            
            Voacolo
            
            April
      1, 2009
            
            $
            60,000Fairfield,
      California (3)
            
            Walker
      Comm
            
            February
      28, 2011
            
            $
            94,128Rocklin,
      California
            
            Walker
      Comm
            
            January
      31, 2010
            
            $
            29,940San
      Leandro, California
            
            Walker
      Comm
            
            July
      31, 2011
            
            $
            13,824




(1)
            The
      lease for our Auburn, California location is month to month; therefore the
      minimum annual rental price assumes we rent the property for the entire
      year.






13






(2)
            We
      lease our Trenton, New Jersey location from Voacolo Properties LLC, of
      which the former shareholders of Voacolo Electric, Inc., are the
      members.




(3)
            We
      lease our Fairfield, California location from a trust, of which Gary
      Walker, one of our Directors, is the
trustee.




We
believe that our existing facilities are suitable and adequate to meet our
current business requirements.





ITEM 3 - LEGAL PROCEEDINGS





We are
currently not a party to any material legal proceedings or claims.





ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS





None.








14




PART
II





ITEM 5 - MARKET FOR REGISTRANT’S COMMON EQUITY,
RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES




PRICE
RANGE OF COMMON STOCK




Our
common stock is currently traded on the NASDAQ Global Market under the symbol
“WPCS.” Prior to December 21, 2006, our common stock traded on the NASDAQ
Capital Market.




For the
period from May 1, 2006 to date, the following table sets forth the high and low
sale prices of our common stock as reported by the NASDAQ Capital Market and
NASDAQ Global Market.




Period
            
            High
            
            
            LowFiscal
      Year Ended April 30, 2008:First
      Quarter
            
            $
            14.25
            
            
            $
            11.14Second
      Quarter
            
            
            12.37
            
            
            
            9.51Third
      Quarter
            
            
            11.67
            
            
            
            8.05Fourth
      Quarter
            
            
            8.96
            
            
            
            5.15Fiscal
      Year Ending April 30, 2007:First
      Quarter
            
            $
            9.80
            
            
            $
            6.53Second
      Quarter
            
            
            10.75
            
            
            
            6.60Third
      Quarter
            
            
            10.58
            
            
            
            8.64Fourth
      Quarter
            
            
            13.74
            
            
            
            9.30





On July
25, 2008, the closing sale price of our common stock, as reported by the NASDAQ
Global Market, was $5.56 per share. On July 17, 2008, there were 72 holders of
record of our common stock.





DIVIDEND
POLICY





We have
never paid any cash dividends on our capital stock and do not anticipate paying
any cash dividends on our common stock in the foreseeable
future.   We intend to retain future earnings to fund ongoing
operations and future capital requirements of our business. Any future
determination to pay cash dividends will be at the discretion of the Board and
will be dependent upon our financial condition, results of operations, capital
requirements and such other factors as the Board deems relevant.




ITEM 6 – SELECTED FINANCIAL
DATA





Not
required under Regulation S-K for “smaller reporting companies.”











15








ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS





This
Management's Discussion and Analysis of Financial Condition and Results of
Operations includes a number of forward-looking statements that reflect
Management's current views with respect to future events and financial
performance. You can identify these statements by forward-looking words such as
“may,” “will,” “expect,” “anticipate,” “believe,” “estimate” and “continue,” or
similar words.  Those statements include statements regarding the
intent, belief or current expectations of us and members of its management team
as well as the assumptions on which such statements are based. Prospective
investors are cautioned that any such forward-looking statements are not
guarantees of future performance and involve risk and uncertainties, and that
actual results may differ materially from those contemplated by such
forward-looking statements.





Readers
are urged to carefully review and consider the various disclosures made by us in
this report and in our other reports filed with the Securities and Exchange
Commission.  Important  factors  currently  known  to
Management  could  cause  actual  results  to
differ  materially  from  those in
forward-looking  statements.  We undertake no obligation to
update or revise forward-looking statements to reflect changed assumptions, the
occurrence of unanticipated events or changes in the future operating results
over time. We believe that its assumptions are based upon reasonable data
derived from and known about our business and operations and the business and
operations of the Company.  No assurances are made that actual results
of operations or the results of our future activities will not differ materially
from its assumptions.  Factors that could cause differences include,
but are not limited to, expected market demand for the Company’s services,
fluctuations in pricing for materials, and competition.





Overview





The
increasing demand for wireless services has become the driving force behind the
recent growth in the global communications industry. Wireless technology has
advanced substantially to the point where wireless networks have proven to be an
effective alternative to land line networks, a key factor in its broad
acceptance. The advantages of wireless over land line communication are apparent
in the aspects of mobility, cost, and deployment. The use of dedicated wireless
networks for specified applications has improved productivity for individuals
and organizations alike. We provide design-build engineering services that focus
on the implementation requirements of wireless technology.  We serve
the specialty communication systems and wireless infrastructure sectors. Our
range of services includes site design, technology integration, electrical
contracting, construction and project management for corporations, government
entities and educational institutions worldwide. Because we are technology
independent, we can integrate multiple products and services across a variety of
communication requirements. This ability gives our customers the flexibility to
obtain the most appropriate solution for their communication needs on a cost
effective basis.





Specialty
Communication Systems





We provide specialty communication
systems which are wireless networks designed to improve productivity for a
specified application by communicating data, voice or video information in
situations where land line networks are non-existent, more difficult to deploy
or too expensive. The types of specialty communication systems that we implement
are used for mobile communication and general wireless connectivity purposes. We
design and deploy networks that allow entities to reduce their dependence on
high cost and inflexible leased land lines. We have the engineering expertise to
utilize any facet of wireless technology or a combination of various wireless
technologies to engineer a cost effective network for a customer’s wireless
communication requirement. In addition, the design and deployment of a specialty
communication system is a comprehensive effort that requires an in-depth
knowledge of radio frequency engineering so that the wireless network is free
from interference with other signals and amplified sufficiently to carry data,
voice or video with speed and accuracy.  In specialty communications,
we focus on four primary vertical markets to provide our
services.  These vertical sectors include public safety, healthcare,
gaming and energy.   For the years ended April 30, 2008 and 2007,
specialty communication systems represented approximately 88% and 81% of our
total revenue, respectively.




Wireless
Infrastructure Services





We
provide wireless infrastructure services to major wireless carriers, which are
services that include the engineering, installation, integration and maintenance
of wireless carrier equipment. Wireless carriers continue to be focused on
building and expanding their networks, increasing capacity, upgrading their
networks with new technologies and maintaining their existing infrastructure.
Our engineers install and test base station equipment at the carrier cell site,
including installation of new equipment, technology upgrades, equipment
modifications and reconfigurations. These services may also include tower
construction. For the
years ended April 30, 2008 and 2007, wireless infrastructure services
represented approximately 12% and 19% of our total revenue,
respectively.






16




Significant
Events, Trends and Financial Highlights





Management
currently considers the following events, trends and uncertainties to be
important in understanding our results of operations and financial
condition:





·
            For
      the year ended April 30, 2008, the specialty communication systems segment
      represented approximately 88% of total revenue, and the wireless
      infrastructure services segment represented approximately 12% of total
      revenue.  This revenue mix remains consistent with our
      historical performance and focus, in which over 80% of our total revenue
      has been derived from specialty communication
  systems.





·
            As
      we continue to search for acquisitions, our primary goal is to identify
      companies which are performing well financially and are compatible with
      the services that we perform in the specialty communication systems
      segment. This trend could lead to a further shift in our revenue
      composition towards the specialty communication systems segment. We
      believe that the strength of our experience in the design and
      deployment of specialty communication systems gives us a competitive
      advantage.





·
            With
      regard to our acquisition strategy, we are also focused on expanding in
      the international sector with an emphasis on China, Australia and
      surrounding Pacific Rim countries.  This trend could lead to a
      change of revenue composition in which a greater percentage of our revenue
      could be generated from international sales in the future, compared to the
      current level of approximately 3%.





·
            We
      also seek to achieve organic growth in our existing business by maximizing
      the value of our existing customer base, maintaining and expanding our
      focus in vertical markets and developing our relationships with technology
      providers.





·
            We
      believe that the wireless market continues to display strong growth and
      the demand for our engineering services remains favorable domestically and
      in China and Australia, particularly in public safety and
      healthcare.  We believe that the advancement of wireless
      technology will create additional opportunities for us to design and
      deploy wireless solutions. Also, we continue to identify new vertical
      sectors for wireless technology.





·
            We
      believe that our two most important economic indicators for measuring our
      future revenue producing capability are our backlog and bid
      list.  At April 30, 2008, our backlog of unfilled orders was
      approximately $60 million and our bid list, which represents project bids
      under proposal for new and existing customers, was approximately $145
      million, which indicates  demand for our services remains
      high.·
            In
      general, we plan for our consolidated cost of revenue to fall in the range
      of 70 to 72% of revenue.  For the year ended April 30, 2008,
      consolidated cost of revenue was 72% compared to 68% for the same period
      in the prior year.  We have experienced modest gross margin
      pressure compared to the same period in the prior year due to: (1) the
      subprime credit issues and the lack of residential housing projects, where
      in certain markets there are a growing number of general contractors
      competing for  certain projects and bidding down prices. While
      we are primarily focused on the high-end wireless design and deployment
      market, we have a modest exposure to competition for lower-end contracting
      work; and (2) delays or postponements of certain projects with wireless
      carriers, principally Sprint Nextel, resulting in
      contractors  bidding down prices on remaining
      work.  Management is addressing these issues through continued
      focus and diversification to specialty communications systems
      projects.·
            We
      continue to maintain a healthy balance sheet with approximately $26
      million in working capital and credit facility borrowings of approximately
      $4.4 million.  We expect to use our working capital and
      availability under the credit facility to fund our continued
      growth.




Results
of Operations for the Fiscal Year Ended April 30, 2008 Compared to Fiscal Year
Ended April 30, 2007




The accompanying 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)
from June 1, 2006 (date of acquisition), Southeastern Communication Services,
Inc. (SECS) from July 19, 2006 ( date of acquisition), Voacolo Electric
Incorporated (Voacolo) from March 30, 2007 ( date of acquisition), Taian AGS
Pipeline Construction Co. Ltd (TAGS) from April 5, 2007 ( date of acquisition),
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)  and RL & CA MacKay Pty Ltd. dba Energize Electrical
(Energize) from April 4, 2008 (date of acquisition), collectively the
"Company".








17




Consolidated
results for the years ended April 30, 2008 and 2007 were as
follows:





Year
      EndedApril
      30,2008
            
            2007REVENUE
            $101,431,128
            100.0%
            
            $70,000,070
            100.0%COSTS
      AND EXPENSES:Cost
      of revenue
            73,084,310
            72.0%
            
            47,781,351
            68.3%Selling,
      general and administrative expenses
            19,302,773
            19.0%
            
            13,244,909
            18.9%Depreciation
      and amortization
            2,398,603
            2.4%
            
            1,239,486
            1.8%Total
      costs and expenses
            94,785,686
            93.4%
            
            62,265,746
            89.0%OPERATING
      INCOME
            6,645,442
            6.6%
            
            7,734,324
            11.0%OTHER
      EXPENSE (INCOME):Interest
      expense
            522,984
            0.5%
            
            496,330
            0.7%Interest
      income
            (511,122)
            (0.5%)
            
            (525,524)
            (0.8%)Minority
      interest
            (22,115)
            0.0%
            
            23,099
            0.0%INCOME
      BEFORE INCOME TAX PROVISION
            6,655,695
            6.6%
            
            7,740,419
            11.1%Income
      tax provision
            2,577,348
            2.5%
            
            3,146,818
            4.5%NET
      INCOME
            $4,078,347
            4.1%
            
            $4,593,601
            6.6%




Revenue





Revenue
for the year ended April 30, 2008 was approximately $101,431,000, as compared to
$70,000,000 for the year ended April 30, 2007.  The increase in
revenue for the year was primarily attributable to the acquisitions of NECS,
SECS, Voacolo, TAGS, Major, Max, Empire, James, and
Energize.  Including the pro forma revenue effect of these
acquisitions as if they had occurred on May 1, 2006, the pro forma consolidated
organic revenue growth rate was approximately 3% in fiscal
2008.   For the year ended April 30, 2008, there were no
customers which comprised more than 10% of total revenue.  For the
year ended April 30, 2007, we had two separate customers which comprised 18.1%
and 11.7% of total revenue.





Total
revenue from the specialty communication segment for the years ended April 30,
2008 and 2007 was approximately $89,612,000 or 88.3% and $56,750,000 or 81.1% of
total revenue, respectively.  The increase in revenue was primarily
attributable to the acquisitions of NECS, Voacolo, TAGS, Major, Empire, James
and Energize. Including the pro forma revenue effect of these acquisitions as if
they had occurred on May 1, 2006, the pro forma organic revenue growth rate for
specialty communication was approximately 9% in fiscal 2008.





Wireless
infrastructure segment revenue for the years ended April 30, 2008 and 2007 was
approximately $11,819,000 or 11.7% and $13,250,000 or 18.9% of total revenue,
respectively.  The decrease in revenue was due primarily to delays or
postponement of certain projects with wireless carriers, principally Sprint
Nextel, offset by increases in revenue from the acquisitions of SECS and Max.
Including the pro forma revenue effect of these acquisitions as if they had
occurred on May 1, 2006, the pro forma organic revenue decline in wireless
infrastructure was approximately 28% in fiscal 2008.







18





Cost
of Revenue





Cost of
revenue consists of direct costs on contracts, materials, direct labor, third
party subcontractor services, union benefits and other overhead
costs.  Our cost of revenue was approximately $73,084,000 or 72.0% of
revenue for the year ended April 30, 2008, compared to $47,781,000 or 68.3% for
the prior year.  The dollar increase in our total cost of revenue is
due to the corresponding increase in revenue during the year ended April 30,
2008 as a result of the acquisition of NECS, SECS, Voacolo, TAGS, Major, Max,
Empire, James, and Energize.  The increase in cost of revenue as a
percentage of revenue is due primarily to the revenue blend attributable to our
existing subsidiaries and recent acquisitions.





The
specialty communication segment cost of revenue and cost of revenue as a
percentage of revenue for the years ended April 30, 2008 and 2007 was
approximately $64,462,000 and 71.9% and $38,145,000 and 67.2%,
respectively.  As discussed above, the dollar increase in our total
cost of revenue is due to the corresponding increase in revenue during the year
ended April 30, 2008, primarily attributable to the acquisitions completed
within the last year. The increase as a percentage of revenue is due primarily
to the revenue blend attributable to Walker, Clayborn, Quality, NECS and the
recent acquisitions of Voacolo, TAGS, Major, Empire, James and
Energize.  Secondarily, we have experienced modest gross margin
pressure in certain markets from more general contractors competing for certain
projects and bidding down prices on the lower-end contracting work.





Wireless
infrastructure segment cost of revenue and cost of revenue as a percentage of
revenue for the years ended April 30, 2008 and 2007 was approximately $8,622,000
and 72.9% and $9,636,000 and 72.7%, respectively.   The dollar
decrease in our cost of revenue is due to the corresponding decrease in revenue
during the year ended April 30, 2008.  The slight increase as a
percentage of revenue during the year ended April 30, 2008 was due primarily to
the completion of a specific project at greater than normal gross margin during
the first quarter of fiscal 2008, and secondarily from the revenue blend from
Heinz and SECS and the acquisition of Max.  These decreases were
offset by modest gross margin pressure as the wireless carriers, primarily
Sprint Nextel, delay or postpone projects, which results in contractors bidding
down prices on remaining work.





Selling,
General and Administrative Expenses





For the
year ended April 30, 2008, total selling, general and administrative expenses
were approximately $19,303,000, or 19.0% of total revenue compared to
$13,245,000, or 18.9% of revenue for the prior year. The dollar increase in the
selling, general and administrative expenses is due primarily to the
acquisitions of NECS, SECS, Voacolo, TAGS, Major, Max, Empire, James and
Energize. Included in selling, general and administrative expenses for the year
ended April 30, 2008 are $11,210,000 for salaries, commissions, payroll taxes
and other employee benefits. The $3,523,000 increase in salaries and payroll
taxes compared to the prior year is due primarily to the increase in headcount
as a result of the acquisitions of Voacolo, Major, Max, Empire, James and
Energize. Professional fees were $991,000, which include accounting, legal and
investor relation fees. Insurance costs were $2,163,000 and rent for office
facilities was $786,000.  Automobile and other travel expenses were
$1,820,000 and telecommunication expenses were $513,000. Other selling, general
and administrative expenses totaled $1,820,000.  For the year ended
April 30, 2008, total selling, general and administrative expenses for the
specialty communication and wireless infrastructure segments were $14,110,000
and $2,851,000, respectively, with the balance
of  $2,342,000  pertaining to corporate
expenses.





For the
year ended April 30, 2007, total selling, general and administrative expenses
were approximately $13,245,000, or 18.9% of total revenue. Included in selling,
general and administrative expenses for the year ended April 30, 2007 are
$7,687,000 for salaries, commissions, payroll taxes and other employee benefits.
Professional fees were $653,000, which include accounting, legal and investor
relation fees. Insurance costs were $1,872,000 and rent for office facilities
was $559,000.  Automobile and other travel expenses were $959,000 and
telecommunication expenses were $311,000. Other selling, general and
administrative expenses totaled $1,204,000.  For the year ended April
30, 2007, total selling, general and administrative expenses for the specialty
communication and wireless infrastructure segments were $9,247,000 and
$2,400,000, respectively, with the balance of $1,598,000 pertaining to corporate
expenses.




Depreciation
and Amortization





For the
years ended April 30, 2008 and 2007, depreciation was approximately $1,539,000
and $776,000, respectively.  The increase in depreciation is due to
the purchase of property and equipment and the acquisition of fixed assets from
acquiring NECS, SECS, Voacolo, TAGS, Major, Max, Empire, James and Energize. The
amortization of customer lists and backlog for the year ended April 30, 2008 was
$859,000 as compared to $463,000 for the same period of the prior
year.  The increase in amortization was due to the acquisition of
customer lists from NECS, SECS, Voacolo, Major, Max, Empire, James and Energize
and backlog from SECS, Voacolo, Major, Empire and James. All customer lists are
amortized over a period of five to nine years from the date of their
acquisitions. Backlog is amortized over a period of one to three years from the
date of acquisition based on the expected completion period of the related
contracts.








19


Interest
Expense and Interest Income





For the
years ended April 30, 2008 and 2007, interest expense was approximately $523,000
and $496,000, respectively. The slight increase in interest expense is due
principally from increased borrowings on lines of credit.





For
the years ended April 30, 2008 and 2007, interest income was approximately
$511,000 and $526,000, respectively. The slight decrease in interest earned is
due primarily to the decrease in cash and cash equivalents balance during fiscal
2008 and secondarily from lower interest rates.





Net
Income





The net
income was approximately $4,078,000 for the year ended April 30, 2008. Net
income was net of Federal and state income tax expense of approximately
$2,577,000. The decrease in the effective tax rate is primarily the result of
the mix of pre-tax income generated by the various operating
subsidiaries.





The net
income was approximately $4,594,000 for the year ended April 30, 2007. Net
income was net of Federal and state income tax expense of approximately
$3,147,000.





Liquidity
and Capital Resources





At April
30, 2008, we had working capital of approximately $26,458,000, which consisted
of current assets of approximately $44,382,000 and current liabilities of
$17,924,000.





Operating
activities utilized approximately $1,245,000 in cash for the year ended April
30, 2008. The sources of cash from operating activities total approximately
$6,765,000, comprised of $4,078,000 net income, $2,419,000 in net non-cash
charges, a $170,000 decrease in costs and estimated earnings in excess of
billings on uncompleted contracts, and a $98,000 increase in deferred revenue.
The uses of cash from operating activities total approximately $8,010,000,
comprised of a $5,379,000 increase in accounts receivable, a $397,000 increase
in inventory, a $115,000 increase in prepaid expenses and other current assets,
a $536,000 increase in other assets, a $328,000 decrease in billings in excess
of costs and estimated earnings on uncompleted contracts , an $803,000 decrease
in income taxes payable and a $452,000 decrease in accounts payable and accrued
expenses. Net earnings adjusted for non-cash items provided cash of $6,497,000
versus $5,888,000 in fiscal 2007, offset by an increase in cash used for working
capital.  Working capital used cash of approximately $7,742,000 in
2008 versus providing cash of $281,000 in 2007.  Working capital
components used cash in fiscal 2008 reflecting higher levels of accounts
receivable and inventory in connection with overall sales growth.




Our
investing activities utilized approximately $10,478,000 in cash during the year
ended April 30, 2008, which consisted of $716,000 paid for property and
equipment, and $9,762,000 paid for the acquisitions of NECS, SECS, Voacolo,
Major, Max, Empire, James, and Energize, net of cash acquired of $389,000.
Fiscal 2008 acquisitions were funded primarily from the $9.3 million of cash
received in the third quarter of 2007 from the issuance of our common
stock.




Our
financing activities utilized cash of approximately $2,431,000 during the year
ended April 30, 2008.  Financing activities
included  net  line of credit repayments of $1,815,000,
repayment of loan payables and capital lease obligations of approximately
$1,029,000 and equity issuance costs of $14,000, offset by net proceeds from the
exercise of stock options of $61,000, and a $16,000 tax benefit from the
exercise of stock options, and $350,000 in net  borrowings from
shareholders. Financing activities used cash of $2.4 million in 2008 versus
providing cash of $11.7 million in fiscal 2007.   2007 financing
activities included net proceeds of $9,338,000 received from the issuance of
common stock, which were raised to fund 2008acquisitions described
above.




Our
capital requirements depend on numerous factors, including the market for our
services, the resources we devote to developing, marketing, selling and
supporting our business, the timing and extent of establishing additional
markets and other factors.




On April
10, 2007, we entered into a loan agreement with Bank of America, N.A. (BOA). The
loan agreement (Loan Agreement) provides 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. We also entered into security agreements with BOA,
pursuant to which we 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 we may prepay 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 we have the option to elect to use the optional interest
rate of LIBOR plus one hundred seventy-five basis points.  As of April
30, 2008, interest rates ranged from 4.00% to 4.82% on outstanding borrowings of
approximately $4,376,000 under the Loan Agreement with BOA.






20




At April
30, 2008, we had cash and cash equivalents of approximately $7,450,000 and
working capital of approximately $26,458,000. With internally available funds
and funds available from the Loan Agreement, we believe that we have sufficient
capital to meet our short term needs. Our future operating results may be
affected by a number of factors including our success in bidding on future
contracts and our continued ability to manage controllable costs effectively. To
the extent we grow by future acquisitions that involve consideration other than
stock, our cash requirements may increase.





On March
30, 2007, we acquired Voacolo.  Through April 30, 2008, the aggregate
consideration paid by us, including acquisition transaction costs of $31,389,
was $2,563,863 of which $1,281,389 was paid in cash, and we issued 116,497
shares of common stock valued at $1,282,473.  In June 2008, we 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. The acquisition of Voacolo expands our 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
our operations into wireless video surveillance.





On April
5, 2007, we acquired a 60% Equity Interest and a 60% Profit Interest (together
the Interest) in TAGS, a joint venture enterprise in the City of Taian, Shandong
province, the People's Republic of China, from American Gas Services, Inc. and
American Gas Services, Inc. Consultants, respectively. The aggregate
consideration paid by us , including acquisition transaction costs of $185,409,
was $1,785,409 of which $985,409 was paid in cash, and we issued 68,085 shares
of common stock valued at approximately $800,000.   Founded in
1997, TAGS is a communications infrastructure engineering company serving the
China market. TAGS is certified by the People's Republic of China as both a
Construction Enterprise of Reform Development company and a Technically Advanced
Construction Enterprise company for the Province of Shandong. TAGS is also
licensed in 17 other provinces and has completed projects for a diverse customer
base of businesses and government institutions in over 30 cities in
China.  The acquisition of TAGS provides us international expansion
into China consistent with our emphasis on China and surrounding Pacific Rim
countries.





On August
1, 2007, we acquired Major. The aggregate consideration paid by us, including
acquisition transaction costs of $44,226, was $6,663,717, of which $4,215,701
was paid in cash and we issued 242,776 shares of common stock valued at
$2,448,016.  The acquisition ofMajor expands our
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.





On August 2, 2007, we acquired Max. The
aggregate consideration paid by us,, including acquisition transaction costs of
$30,498, was $830,498, of which $630,498 was paid in cash and we issued 17,007
shares of common stock valued at $200,000. In addition, we shall pay an
additional: (i) $350,000 in cash or our common stock if Max’s earnings before
interest and taxes for the twelve months ending August 1, 2008 shall equal or
exceed $275,000; and (ii) $375,000 in cash or our common stock if Max’s earnings
before interest and taxes for the twelve months ending August 1, 2009 shall
equal or exceed $375,000.   The acquisition of Max expands our 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.





On
November 1, 2007, we acquired Empire. The aggregate consideration paid by us,
including acquisition transaction costs of $40,154, was $2,511,154 in cash. The
acquisition of Empire expands our geographic presence in California and provides
additional electrical contractor services that specialize in low voltage
applications for healthcare, state government and military customers.





On
November 30, 2007, we acquired James.   Through April 30, 2008,
the aggregate consideration paid by us, including acquisition transaction costs
of $74,151, was $1,145,151 in cash.  In May 2008, we settled
and  paid aggregate additional cash consideration of $281,725 to the
former James shareholders for final settlement of the net tangible asset
adjustment.   James is a design engineering services company
specializing in building automation including mechanical, electrical, hydraulic,
fire protection, lift, security access and wireless systems.  The
acquisition of James provides us international expansion into Australia
consistent with our emphasis on Australia, China and surrounding Pacific Rim
countries.





On April
4, 2008, we acquired Energize. The aggregate consideration paid by us, including
acquisition transaction costs of $84,175, was $1,627,297 in cash, subject to
adjustment.  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.






21




On June
26, 2008, we acquired all the assets of Lincoln Wind LLC (Lincoln Wind) for
aggregate consideration of $400,000 in cash.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.




Backlog




As of
April 30, 2008, we had a backlog of unfilled orders of approximately $59.8
million compared to approximately $34.9 million at April 30, 2007. We define
backlog as the value of work-in-hand to be provided for customers as of a
specific date where the following conditions are met (with the exception of
engineering change orders): (i) the price of the work to be done is fixed; (ii)
the scope of the work to be done is fixed, both in definition and amount; and
(iii) there is a written contract, purchase order, agreement or other
documentary evidence which represents a firm commitment by the customer to pay
us for the work to be performed. These backlog amounts are based on contract
values and purchase orders and may not result in actual receipt of revenue in
the originally anticipated period or at all. We have experienced variances in
the realization of our backlog because of project delays or cancellations
resulting from external market factors and economic factors beyond our control
and we may experience such delays or cancellations in the future. Backlog does
not include new firm commitments which may be awarded to us by our customers
from time to time in future periods. These new project awards could be started
and completed in this same future period. Accordingly, our backlog does not
necessarily represent the total revenue that could be earned by us in future
periods.




Off-Balance
Sheet Arrangements





We have
no off-balance sheet arrangements.





Critical
Accounting Policies





Financial
Reporting Release No. 60, published by the SEC, recommends that all companies
include a discussion of critical accounting policies used in the preparation of
their financial statements. While all these significant accounting policies
impact our financial condition and results of operations, we view certain of
these policies as critical. Policies determined to be critical are those
policies that have the most significant impact on our consolidated financial
statements and require management to use a greater degree of judgment and
estimates. Actual results may differ from those estimates.





We
believe that given current facts and circumstances, it is unlikely that applying
any other reasonable judgments or estimate methodologies would cause a material
effect on our consolidated results of operations, financial position or
liquidity for the periods presented in this report.





The
accounting policies identified as critical are as follows:





Use of
Estimates





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 revenue recognition based on
the estimation of percentage of completion on uncompleted contracts, valuation
of inventory, allowance for doubtful accounts, amortization methods and
estimated 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.




Accounts
Receivable





Accounts
receivable are due within contractual payment terms and are stated at amounts
due from customers net of an allowance for doubtful accounts. Credit is extended
based on evaluation of a customer's financial condition. Accounts outstanding
longer than the contractual payment terms are considered past due. The Company
determines its allowance by considering a number of factors, including the
length of time trade accounts receivable are past due, the Company's previous
loss history, the customer's current ability to pay its obligation to the
Company, and the condition of the general economy and the industry as a whole.
The Company writes off accounts receivable when they become uncollectible
against the allowance for doubtful accounts, and payment subsequently received
on such receivables are credited to the allowance for doubtful
accounts.






22




Goodwill and Other
Long-lived Assets





We assess
the impairment of long-lived assets whenever events or changes in circumstances
indicate that their carrying value may not be recoverable from the estimated
future cash flows expected to result from their use and eventual disposition.
Our long-lived assets subject to this evaluation include property and equipment
and amortizable intangible assets. We assess the impairment of goodwill annually
as of April 30 and whenever events or changes in circumstances indicate that it
is more likely than not that an impairment loss has been incurred. Intangible
assets other than goodwill are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying value may not be fully
recoverable. We are required to make judgments and assumptions in identifying
those events or changes in circumstances that may trigger impairment. Some of
the factors we consider include a significant decrease in the market value of an
asset, significant changes in the extent or manner for which the asset is being
used or in its physical condition, a significant change, delay or departure in
our business strategy related to the asset, significant negative changes in the
business climate, industry or economic condition, or current period operating
losses, or negative cash flow combined  with a history of similar
losses or a forecast that indicates continuing losses associated with the use of
an asset.





Our
annual review for goodwill impairment for the fiscal years 2008 and 2007 found
that no impairment existed. Our impairment review is based on comparing the fair
value to the carrying value of the reporting units with goodwill. The fair value
of a reporting unit is measured at the business unit level using a discounted
cash flow approach that incorporates our estimates of future revenues and costs
for those business units.Reporting
units with goodwill include Heinz/Invisinet, SECS and Max within our wireless
infrastructure segment and Walker, Clayborn, Quality, NECS, Voacolo, Major,
Empire, James and Energize within our specialty communications
segment.  Our estimates are consistent with the plans and estimates
that we are using to manage the underlying businesses. If we fail to deliver
products and services for these business units, or market conditions for these
businesses fail to improve, our revenue and cost forecasts may not be achieved
and we may incur charges for goodwill impairment, which could be significant and
could have a material adverse effect on our net equity and results of
operations.





Deferred Income
Taxes





We
determine deferred tax liabilities and assets at the end of each period based on
the future tax consequences that can be attributed to net operating loss
carryovers and differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases, using the tax
rate expected to be in effect when the taxes are actually paid or recovered. 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.





We
consider past performance, expected future taxable income and prudent and
feasible tax planning strategies in assessing the amount of the valuation
allowance. Our forecast of expected future taxable income is based over such
future periods that we believe can be reasonably estimated. Changes in market
conditions that differ materially from our current expectations and changes in
future tax laws in the U.S. may cause us to change our judgments of future
taxable income. These changes, if any, may require us to adjust our existing tax
valuation allowance higher or lower than the amount we have
recorded.





Revenue
Recognition





We
generate our revenue by providing design-build engineering services for
specialty communication systems and wireless infrastructure services. We provide
services that include site design, technology integration, electrical
contracting, construction and project management. Our engineering services
report revenue pursuant to customer contracts that span varying periods of time.
We report revenue from contracts when persuasive evidence of an arrangement
exists, fees are fixed or determinable, and collection is reasonably
assured.





We record
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 contracts.  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.





We have
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.






23





We also recognize certain revenue
from short-term contracts when equipment is delivered or the services have been
provided to the customer.  For maintenance contracts, revenue is
recognized ratably over the service period.




Recently
Issued Accounting Pronouncements




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





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. We are currently evaluating the potential impact, if any, of the
adoption of SFAS 157 on our consolidated financial position, results of
operations and cash flows or financial statement disclosures.





In
September 2006, the SEC issued SAB No. 108 “Considering the Effects of Prior
Year Misstatements When Quantifying Misstatements in Current Year Financial
Statements” (SAB 108), which is effective for fiscal years beginning after
November 15, 2006 provides interpretive guidance on how registrants should
quantify financial statement misstatements. Under SAB 108 registrants are
required to consider both a “rollover” method, which focuses primarily on the
income statement impact of misstatements, and the “iron curtain” method, which
focuses primarily on the balance sheet impact of misstatements. The effects of
prior year uncorrected errors include the potential accumulation of improper
amounts that may result in a material misstatement on the balance sheet or
the reversal of prior period errors in the current period that result in a
material misstatement of the current period income statement amounts.
Adjustments to current or prior period financial statements would be required in
the event that after application of various approaches for assessing materiality
of a misstatement in current period financial statements and consideration of
all relevant quantitative factors, a misstatement is determined to be material.
The application of the provisions of SAB 108 did not have a material effect on
our 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. We are currently evaluating the potential impact, if any, of the adoption
of  SFAS 159 on our 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. We will evaluate
the impact of adopting SFAS 141(R) and SFAS 160 on our consolidated financial
position, results of operations, cash flows or financial statement
disclosures.





No other
recently issued accounting pronouncement issued or effective after the end of
the fiscal year is expected to have a material impact on our consolidated
financial statements.








24





ITEM 7A – QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK





Not
required under Regulation S-K for “smaller reporting companies.”






























25




ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA














WPCS
INTERNATIONAL INCORPORATED AND SUBSIDIARIES




INDEX
TO FINANCIAL STATEMENTS





PageReport
      of Independent Registered Public Accounting Firm
            
            F-2Consolidated
      Balance Sheets as of April 30, 2008 and 2007
            
            F-3
      – F-4Consolidated
      Statements of Income for the years endedApril
      30, 2008 and 2007
            
            F-5Consolidated
      Statements of Shareholders' Equity for the years ended April 30, 2008 and
      2007
            
            F-6
      – F-7Consolidated
      Statements of Cash Flows for the years endedApril
      30, 2008 and 2007
            
            F-8
      – F-10Notes
      to Consolidated Financial Statements
            
            F-11
      – F-32






F-1







WPCS
INTERNATIONAL INCORPORATED AND SUBSIDIARIES


REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM












The Board
of Directors and Shareholders


WPCS
International Incorporated and Subsidiaries





We have
audited the accompanying consolidated balance sheets of WPCS International
Incorporated and Subsidiaries as of April 30, 2008 and 2007, and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the two years in the period ended April 30, 2008. Our audits also
included the consolidated financial statement schedule for the years ended April
30, 2008 and 2007 listed in the Index at Item 15 (Schedule II).  These
consolidated financial statements and schedule are the responsibility of the
Company's management.  Our responsibility is to express an opinion on
these consolidated financial statements and schedule based on our
audits.





We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. Our audits included
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.





In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of WPCS International
Incorporated and Subsidiaries as of April 30, 2008 and 2007, and their
consolidated results of operations and cash flows for each of the two years in
the period ended April 30, 2008, in conformity with accounting principles
generally accepted in the United States of America.  Also, in our
opinion, the related consolidated financial statement schedule for the years
ended April 30, 2008 and 2007, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.





As discussed in Note 2 to
the consolidated financial statements, WPCS International Incorporated and
Subsidiaries adopted Statement of Financial Accounting Standard No.
123(R) ''Share-Based Payment'' effective May 1, 2006.








/ s
/ J.H. COHN LLP


July 28,
2008

















F-2







WPCS
INTERNATIONAL INCORPORATED AND SUBSIDIARIES


CONSOLIDATED
BALANCE SHEETS














April
      30,
            
            
            April
      30,ASSETS
            
            2008
            
            
            2007(Note
      1)CURRENT
      ASSETS:Cash
      and cash equivalents
            
            $
            7,449,530
            
            
            $
            21,558,739Accounts
      receivable, net of allowance of $98,786 at April 30, 2008 and April 30,
      2007
            
            
            29,092,488
            
            
            
            16,560,636Costs
      and estimated earnings in excess of billings on uncompleted
      contracts
            
            
            3,887,152
            
            
            
            2,499,940Inventory
            
            
            2,791,782
            
            
            
            2,260,082Prepaid
      expenses and other current assets
            
            
            1,002,993
            
            
            
            732,043Prepaid
      income tax
            
            
            122,342
            
            
            
            -Deferred
      tax assets
            
            
            35,939
            
            
            
            27,000Total
      current assets
            
            
            44,382,226
            
            
            
            43,638,440PROPERTY
      AND EQUIPMENT, net
            
            
            6,828,162
            
            
            
            5,488,920OTHER
      INTANGIBLE ASSETS, net
            
            
            2,929,937
            
            
            
            1,683,349GOODWILL
            
            
            28,987,501
            
            
            
            20,469,608OTHER
      ASSETS
            
            
            820,315
            
            
            
            273,353Total
      assets
            
            $
            83,948,141
            
            
            $
            71,553,670













The
accompanying notes are an integral part of these consolidated financial
statements.








F-3




WPCS
INTERNATIONAL INCORPORATED AND SUBSIDIARIES


CONSOLIDATED
BALANCE SHEETS (continued)







LIABILITIES
      AND SHAREHOLDERS' EQUITY
            
            April
      30,
            
            
            April
      30,2008
            
            
            2007(Note
      1)CURRENT
      LIABILITIES:Current
      portion of loans payable
            
            $
            1,272,112
            
            
            $
            1,881,682Borrowings
      under line of credit
            
            
            750,000
            
            
            
            -Current
      portion of capital lease obligations
            
            
            91,491
            
            
            
            -Accounts
      payable and accrued expenses
            
            
            9,305,791
            
            
            
            6,802,110Billings
      in excess of costs and estimated earnings on uncompleted
      contracts
            
            
            3,602,422
            
            
            
            2,272,688Deferred
      revenue
            
            
            602,560
            
            
            
            504,458Due
      to shareholders
            
            
            2,300,083
            
            
            
            1,424,190Income
      taxes payable
            
            
            -
            
            
            
            433,361Total
      current liabilities
            
            
            17,924,459
            
            
            
            13,318,489Borrowings
      under line of credit
            
            
            4,376,056
            
            
            
            4,454,217Loans
      payable, net of current portion
            
            
            156,978
            
            
            
            284,016Capital
      lease obligations, net of current portion
            
            
            215,780
            
            
            
            -Deferred
      tax liabilities
            
            
            1,173,786
            
            
            
            611,000Total
      liabilities
            
            
            23,847,059
            
            
            
            18,667,722Minority
      interest in subsidiary
            
            
            1,331,850
            
            
            
            1,353,965COMMITMENTS
      AND CONTINGENCIESSHAREHOLDERS'
      EQUITY:Preferred
      stock - $0.0001 par value, 5,000,000 shares authorized, none
      issued
            
            
            -
            
            
            
            -Common
      stock - $0.0001 par value, 75,000,000 shares authorized, 7,251,083 and
      6,971,698 shares issued and outstanding at April 30, 2008 and April 30,
      2007, respectively
            
            
            725
            
            
            
            697Additional
      paid-in capital
            
            
            50,775,938
            
            
            
            47,901,159Retained
      earnings
            
            
            7,709,562
            
            
            
            3,631,215Accumulated
      other comprehensive income (loss) on foreign currency
      translation
            
            
            283,007
            
            
            
            (1,088
            )Total
      shareholders' equity
            
            
            58,769,232
            
            
            
            51,531,983Total
      liabilities and shareholders' equity
            
            $
            83,948,141
            
            
            $
            71,553,670







The
accompanying notes are an integral part of these consolidated financial
statements.




F-4




WPCS
INTERNATIONAL INCORPORATED AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF INCOME





Year
      EndedApril
      30,2008
            
            
            2007REVENUE
            
            $
            101,431,128
            
            
            $
            70,000,070COSTS
      AND EXPENSES:Cost
      of revenue
            
            
            73,084,310
            
            
            
            47,781,351Selling,
      general and administrative expenses
            
            
            19,302,773
            
            
            
            13,244,909Depreciation
      and amortization
            
            
            2,398,603
            
            
            
            1,239,486Total
      costs and expenses
            
            
            94,785,686
            
            
            
            62,265,746OPERATING
      INCOME
            
            
            6,645,442
            
            
            
            7,734,324OTHER
      EXPENSE (INCOME):Interest
      expense
            
            
            522,984
            
            
            
            496,330Interest
      income
            
            
            (511,122
            )
            
            
            (525,524
            )Minority
      interest
            
            
            (22,115
            )
            
            
            23,099INCOME
      BEFORE INCOME TAX PROVISION
            
            
            6,655,695
            
            
            
            7,740,419Income
      tax provision
            
            
            2,577,348
            
            
            
            3,146,818NET
      INCOME
            
            $
            4,078,347
            
            
            $
            4,593,601Basic
      net income per common share
            
            $
            0.58
            
            
            $
            0.80Diluted
      net income per common share
            
            $
            0.52
            
            
            $
            0.72Basic
      weighted average number of common shares outstanding
            
            
            7,090,789
            
            
            
            5,772,423Diluted
      weighted average number of common shares outstanding
            
            
            7,840,852
            
            
            
            6,409,333








The
accompanying notes are an integral part of these consolidated financial
statements.








F-5






WPCS
INTERNATIONAL INCORPORATED AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY








AccumulatedAdditional
      Paid-In Capital
            
            
            
            
            
            Other
      Compre-
            
            
            Total
      Shareholders' EquityPreferred
      Stock
            
            
            Common
      Stock
            
            
            Retained
            
            
            hensiveShares
            
            
            Amount
            
            
            Shares
            
            
            Amount
            
            
            Earnings
            
            
            LossBALANCE,
      MAY 1, 2006
            
            
            -
            
            
            $
            -
            
            
            
            5,264,284
            
            
            $
            526
            
            
            $
            33,525,130
            
            
            $
            (962,386
            )
            
            
            -
            
            
            $
            32,563,270Net
      issuance of common stock, acquisition ofSoutheastern
      Communication Service, Inc.
            
            
            -
            
            
            
            -
            
            
            
            200,288
            
            
            
            20
            
            
            
            1,349,631
            
            
            
            -
            
            
            
            -
            
            
            
            1,349,651Net
      issuance of common stock, acquisition ofVoacolo
      Electric, Inc
            
            
            -
            
            
            
            -
            
            
            
            113,534
            
            
            
            11
            
            
            
            1,249,869
            
            
            
            -
            
            
            
            -
            
            
            
            1,249,880Net
      issuance of common stock, acquisition ofTAGS
            
            
            -
            
            
            
            -
            
            
            
            61,277
            
            
            
            6
            
            
            
            719,864
            
            
            
            -
            
            
            
            -
            
            
            
            719,870Net
      issuance of common stock
            
            
            -
            
            
            
            -
            
            
            
            1,109,023
            
            
            
            111
            
            
            
            9,337,780
            
            
            
            -
            
            
            
            -
            
            
            
            9,337,891Net
      proceeds from exercise of warrants
            
            
            -
            
            
            
            -
            
            
            
            30,281
            
            
            
            3
            
            
            
            197,873
            
            
            
            -
            
            
            
            -
            
            
            
            197,876Fair
      value of stock options granted to employees
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            37,526
            
            
            
            -
            
            
            
            -
            
            
            
            37,526Net
      proceeds from exercise of stock options
            
            
            -
            
            
            
            -
            
            
            
            193,011
            
            
            
            20
            
            
            
            1,225,486
            
            
            
            -
            
            
            
            -
            
            
            
            1,225,506Excess
      tax benefit from exercise of stock options
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            258,000
            
            
            
            -
            
            
            
            -
            
            
            
            258,000Accumulated
      other comprehensive loss
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (1,088
            )
            
            
            (1,088
            )Net
      income
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            $
            4,593,601
            
            
            
            -
            
            
            
            4,593,601BALANCE,
      April 30, 2007
            
            
            -
            
            
            $
            -
            
            
            
            6,971,698
            
            
            $
            697
            
            
            $
            47,901,159
            
            
            $
            3,631,215
            
            
            $
            (1,088
            )
            
            $
            51,531,983





The
accompanying notes are an integral part of these consolidated financial
statements.




F-6




WPCS
INTERNATIONAL INCORPORATED AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY – CONTINUED





AccumulatedAdditional
      Paid-In Capital
            
            
            
            
            
            Other
      Compre-
            
            
            Total
      Shareholders' EquityPreferred
      Stock
            
            
            Common
      Stock
            
            
            Retained
            
            
            hensiveShares
            
            
            Amount
            
            
            Shares
            
            
            Amount
            
            
            Earnings
            
            
            Income
      (Loss)BALANCE,
      May 1, 2007
            
            
            -
            
            
            $
            -
            
            
            
            6,971,698
            
            
            $
            697
            
            
            $
            47,901,159
            
            
            $
            3,631,215
            
            
            $
            (1,088
            )
            
            $
            51,531,983Net
      issuance of common stock, acquisitionsof
      TAGS, Voacolo, Major and Max
            
            
            -
            
            
            
            -
            
            
            
            269,554
            
            
            
            27
            
            
            
            2,760,462
            
            
            
            -
            
            
            
            -
            
            
            
            2,760,489Fair
      value of stock options granted to employees
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            51,717
            
            
            
            -
            
            
            
            -
            
            
            
            51,717Proceeds
      from exercise of stock options
            
            
            -
            
            
            
            -
            
            
            
            9,831
            
            
            
            1
            
            
            
            60,531
            
            
            
            -
            
            
            
            -
            
            
            
            60,532Equity
      issuance cost
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (13,931
            )
            
            
            -
            
            
            
            -
            
            
            
            (13,931
            )Excess
      tax benefit from exercise of stock options
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            16,000
            
            
            
            -
            
            
            
            -
            
            
            
            16,000Accumulated
      other comprehensive income
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            284,095
            
            
            
            284,095Net
      income
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            $
            4,078,347
            
            
            
            -
            
            
            
            4,078,347BALANCE,
      APRIL 30, 2008
            
            
            -
            
            
            $
            -
            
            
            
            7,251,083
            
            
            $
            725
            
            
            $
            50,775,938
            
            
            $
            7,709,562
            
            
            $
            283,007
            
            
            $
            58,769,232













The accompanying notes are an
integral part of these consolidated financial statements.






F-7






WPCS
INTERNATIONAL INCORPORATED AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS








Year
      EndedApril
      30,2008
            
            
            2007(Note
      1)OPERATING
      ACTIVITIES :Net
      income
            
            $
            4,078,347
            
            
            $
            4,593,601Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
      and amortization
            
            
            2,398,603
            
            
            
            1,239,486Fair
      value of stock options granted to employees
            
            
            51,717
            
            
            
            37,526Recovery
      of doubtful accounts
            
            
            -
            
            
            
            (6,000
            )Amortization
      of debt issuance costs
            
            
            -
            
            
            
            111,091Excess
      tax benefit from exercise of stock options
            
            
            (16,000
            )
            
            
            (258,000
            )Minority
      interest
            
            
            (22,115
            )
            
            
            23,099Gain
      on sale of fixed assets
            
            
            (4,668
            )
            
            
            (13,675
            )Deferred
      income taxes
            
            
            11,668
            
            
            
            161,000Changes
      in operating assets and liabilities, net of effects of
      acquisitions:Accounts
      receivable
            
            
            (5,378,553
            )
            
            
            2,320,439Costs
      and estimated earnings in excess of billings on uncompleted
      contracts
            
            
            170,020
            
            
            
            (421,204
            )Inventory
            
            
            (397,020
            )
            
            
            229,358Prepaid
      expenses and other current assets
            
            
            (115,019
            )
            
            
            89,273Other
      assets
            
            
            (536,157
            )
            
            
            (180,187
            )Accounts
      payable and accrued expenses
            
            
            (452,234
            )
            
            
            (2,345,468
            )Billings
      in excess of costs and estimated earnings on uncompleted
      contracts
            
            
            (328,318
            )
            
            
            329,544Deferred
      revenue
            
            
            97,934
            
            
            
            222,092Income
      taxes payable
            
            
            (803,479
            )
            
            
            37,244NET
      CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES
            
            
            (1,245,274
            )
            
            
            6,169,219










The
accompanying notes are an integral part of these consolidated financial
statements.











F-8




WPCS
INTERNATIONAL INCORPORATED AND SUBSIDIARIES


CONSOLIDATING
STATEMENTS OF CASH FLOWS – CONTINUED





Year
      EndedApril
      30,2008
            
            
            2007(Note
      1)INVESTING
      ACTIVITIES:Acquisition
      of property and equipment, net
            
            
            (715,849
            )
            
            
            (673,237
            )Acquisition
      of NECS, net of cash received
            
            
            (3,534
            )
            
            
            (4,607,268
            )Acquisition
      of SECS, net of cash received
            
            
            60,892
            
            
            
            (1,882,321
            )Acquisition
      of Voacolo, net of cash received
            
            
            (69,601
            )
            
            
            (627,694
            )Acquisition
      of TAGS, net of cash received
            
            
            -
            
            
            
            (841,252
            )Acquisition
      of Major, net of cash received
            
            
            (4,268,320
            )
            
            
            -Acquisition
      of Max, net of cash received
            
            
            (524,572
            )
            
            
            -Acquisition
      of Empire, net of cash received
            
            
            (2,427,999
            )
            
            
            -Acquisition
      of James, net of cash received
            
            
            (922,763
            )
            
            
            -Acquisition
      of Energize, net of cash received
            
            
            (1,605,868
            )
            
            
            -NET
      CASH USED IN INVESTING ACTIVITIES
            
            
            (10,477,614
            )
            
            
            (8,631,772
            )FINANCING
      ACTIVITIES:Net
      proceeds from exercise of warrants
            
            
            -
            
            
            
            197,876Net
      proceeds from issuance of common stock
            
            
            -
            
            
            
            9,337,891Net
      proceeds from exercise of stock options
            
            
            60,532
            
            
            
            1,225,506Excess
      tax benefit from exercise of stock options
            
            
            16,000
            
            
            
            258,000Equity
      issuance costs
            
            
            (13,931
            )
            
            
            (50,613
            )Debt
      issuance costs
            
            
            -
            
            
            
            (10,000
            )(Repayments)/borrowings
      under lines of credit, net
            
            
            (1,814,935
            )
            
            
            1,454,217Repayments
      under loans payable, net
            
            
            (921,779
            )
            
            
            (456,405
            )Borrowings/(repayments)
      of amounts due to shareholders
            
            
            350,259
            
            
            
            (189,000
            )Payments
      of capital lease obligations
            
            
            (107,558
            )
            
            
            (24,738
            )NET
      CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES
            
            
            (2,431,412
            )
            
            
            11,742,734Effect
      of exchange rate changes on cash
            
            
            45,091
            
            
            
            (1,088
            )NET
      (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
            
            
            (14,109,209
            )
            
            
            9,279,093CASH
      AND CASH EQUIVALENTS, BEGINNING OF YEAR
            
            
            21,558,739
            
            
            
            12,279,646CASH
      AND CASH EQUIVALENTS, END OF THE YEAR
            
            $
            7,449,530
            
            
            $
            21,558,739







The
accompanying notes are an integral part of these consolidated financial
statements.







F-9


WPCS
INTERNATIONAL INCORPORATED AND SUBSIDIARIES


CONSOLIDATING
STATEMENTS OF CASH FLOWS – CONTINUED





April
      30, 2008
            
            
            April
      30, 2007SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATION:Cash
      paid during the year for:Interest
            
            
            522,984
            
            
            $
            433,742Income
      taxes
            
            
            2,049,667
            
            
            $
            2,897,944SCHEDULE
      OF NON-CASH INVESTING AND FINANCING ACTIVITIES:Issuance
      of common stock for net non-cash assets received in
      acquisitions
            
            $
            2,760,489
            
            
            $
            3,370,011Issuance
      of notes for property and equipment
            
            $
            172,532
            
            
            $
            74,382







The
accompanying notes are an integral part of these consolidated financial
statements








F-10


WPCS
INTERNATIONAL INCORPORATED AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





NOTE
1 - BASIS OF PRESENTATION





The
accompanying 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) from June 1, 2006 (date of acquisition),
Southeastern Communication Services, Inc. (SECS) from July 19, 2006 ( date of
acquisition), Voacolo Electric Incorporated (Voacolo) from March 30, 2007 ( date
of acquisition), Taian AGS Pipeline Construction Co. Ltd (TAGS) from April 5,
2007 ( date of acquisition), 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)  and RL & CA MacKay Pty Ltd. dba Energize Electrical
(Energize) from April 4, 2008 (date of acquisition), collectively the
“Company”.  Certain reclassifications have been made to prior period
consolidated financial statements to conform to the current
presentation.





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





NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





A summary
of significant accounting policies consistently applied in the preparation of
the accompanying consolidated financial statements follows:





Principles
of Consolidation





All
significant intercompany transactions and balances have been eliminated in these
consolidated financial statements.





Cash
and Cash Equivalents





Cash and
cash equivalents include all cash and highly-liquid investments with an original
maturity at time of purchase of three months or less.





Concentrations
of Credit Risk





Financial
instruments that potentially subject the Company to concentrations of credit
risk consist primarily of cash and cash equivalents and accounts
receivable.  The Company reduces credit risk by placing its temporary
cash and investments with major financial institutions with high credit
ratings.  At times, such amounts may exceed Federally insured
limits.  The Company reduces credit risk related to accounts
receivable by routinely assessing the financial strength of its customers and
maintaining an appropriate allowance for doubtful accounts based on its history
of write-offs, current economic conditions and an evaluation of the credit risk
related to specific customers.





Accounts
Receivable





Accounts
receivable are due within contractual payment terms and are stated at amounts
due from customers net of an allowance for doubtful accounts. Credit is extended
based on evaluation of a customer's financial condition. Accounts outstanding
longer than the contractual payment terms are considered past due. The Company
determines its allowance by considering a number of factors, including the
length of time trade accounts receivable are past due, the Company's previous
loss history, the customer's current ability to pay its obligation to the
Company, and the condition of the general economy and the industry as a whole.
The Company writes off accounts receivable when they become uncollectible, and
payments subsequently received on such receivables are credited to the allowance
for doubtful accounts. Included in the accounts receivable is retainage
receivable of $2,626,788 and $750,249 at April 30, 2008 and 2007, respectively,
which is expected to be collected within one year.





Inventory




Inventory
consists of materials, parts and supplies principally valued at the lower of
cost using the first-in-first-out (FIFO) method, or market.








F-11




WPCS
INTERNATIONAL INCORPORATED AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


Property
and Equipment





Property
and equipment are stated at cost. Depreciation and amortization are provided
for, using straight-line methods, in amounts sufficient to charge the cost of
depreciable assets to operations over their estimated service lives. Repairs and
maintenance costs are charged to operations as incurred.





Goodwill
and Other Intangible Assets





In
accordance with Statement of Financial 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
fair value of the Company’s reporting units derived using discounted cash flow
models exceeded the carrying values of the reporting units at April 30, 2008 and
2007. Accordingly, step two was unnecessary and no impairment charge was
recognized in the consolidated statements of income for the years ended April
30, 2008 and 2007. On an ongoing basis, the Company expects to perform its
annual impairment test at April 30 absent any interim impairment
indicators.





Goodwill
through the years ended April 30, 2008 and 2007 consisted of the
following:





Wireless
              Infrastructure
            
            
            Specialty
              Communication
            
            
            TotalBeginning
      balance, May 1, 2006
            
            $
            2,482,084
            
            
            $
            11,757,834
            
            
            $
            14,239,918Additional
      transaction costs for prior acquisitions
            
            
            13,780
            
            
            
            -
            
            
            
            13,780NECS
      acquisition
            
            
            -
            
            
            
            3,380,112
            
            
            
            3,380,112SECS
      acquisition
            
            
            1,823,205
            
            
            
            -
            
            
            
            1,823,205Voacolo
      acquisition
            
            
            -
            
            
            
            1,012,593
            
            
            
            1,012,593Ending
      balance, April 30, 2007
            
            
            4,319,069
            
            
            $
            16,150,539
            
            
            
            20,469,608Voacolo
      acquisition - purchase price adjustment
            
            
            -
            
            
            
            476,139
            
            
            
            476,139NECS
      acquisition - purchase price adjustment
            
            
            -
            
            
            
            35,595
            
            
            
            35,595SECS
      acquisition - purchase price adjustment
            
            
            (39,775
            )
            
            
            -
            
            
            
            (39,775
            )Major
      acquisition
            
            
            -
            
            
            
            4,505,562
            
            
            
            4,505,562Max
      acquisition
            
            
            304,407
            
            
            
            -
            
            
            
            304,407Empire
      acquisition
            
            
            -
            
            
            
            1,796,709
            
            
            
            1,796,709James
      acquisition
            
            
            -
            
            
            
            434,835
            
            
            
            434,835Energize
      acquisition
            
            
            -
            
            
            
            961,201
            
            
            
            961,201Foreign
      currency translation adjustments - Australia
            
            
            -
            
            
            
            43,220
            
            
            
            43,220Ending
      balance, April 30, 2008
            
            $
            4,583,701
            
            
            $
            24,403,800
            
            
            $
            28,987,501






F-12






WPCS
INTERNATIONAL INCORPORATED AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


At April
30, 2008 and 2007, the total amount of goodwill expected to be deducted for tax
purposes is $15,427,560 and $10,926,178 , respectively,  related to
the Quality, NECS, SECS, and Major acquisitions.





Other
intangible assets consist of the following at April 30:





Estimated
      useful life (years)
            
            
            2008
            
            
            2007Customer
      lists
            
            
            5-9
            
            
            $
            4,119,269
            
            
            $
            2,607,000Contract
      backlog
            
            
            1-3
            
            
            
            919,722
            
            
            
            325,2005,038,991
            
            
            
            2,932,200Less
      accumulated amortization expense
            
            
            
            
            
            
            2,109,054
            
            
            
            1,248,851$
            2,929,937
            
            
            $
            1,683,349





Amortization
expense for other intangible assets for the years ended April 30, 2008 and 2007
was approximately $859,000 and $463,000, respectively.





At April
30, 2008, the weighted average amortization period for customer lists, backlog,
and total other intangible assets was 6.9, 1.6, and 5.9 years, respectively. At
April 30, 2007, the weighted average amortization period for customer lists,
backlog, and total other intangible assets was 6.2, 1.7 and 5.7 years,
respectively.





There are
no expected residual values related to these intangible assets. Estimate future
amortization expense by fiscal year is as follows:





Year
      ending April 30,2009
            
            $
            811,7452010
            
            
            527,4452011
            
            
            388,2242012
            
            
            331,8362013
            
            
            337,618Thereafter
            
            
            533,069Total
      Intangible Assets
            
            $
            2,929,937





Revenue
Recognition





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





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





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.






F-13




WPCS
INTERNATIONAL INCORPORATED AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


The
Company also recognizes certain revenue from short-term contracts when equipment
is delivered or the services have been provided to the customer.  For
maintenance contracts, revenue is recognized ratably over the service
period.





Other
Concentrations





For the
year ended April 30, 2008, the Company did not have any customers whose revenue
was more than 10% of revenue. For the year ended April 30, 2007, the Company had
two separate customers totaling approximately $12.7 million and $8.2 million,
which comprised 18.1% and 11.7% of total revenue.  Management believes
there is no significant business vulnerability regarding the concentration of
revenue due to the Company’s strong relationship with these customers and their
financial strength.





The
Company has 241 union employees. A contract with 61 union employees at
Empire expires on December 31, 2008. Two contracts with 70 union employees at
Walker expire from December 31, 2008 to November 30, 2009. Three contracts with
eight union employees at Heinz expire from May 1, 2009 to May 2,
2012.  A contract with 22 union employees at Voacolo expires on
January 1, 2010. A contract with 80 union employees at Major expires on May 31,
2010. At April 30, 2008, approximately 45% of the Company’s labor force is
subject to collective bargaining agreements, of which 29% will expire within one
year.





Income
Taxes





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





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





Earnings
Per Common Share





Earnings
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 years ended April 30, 2008 and 2007, respectively:








F-14








WPCS
INTERNATIONAL INCORPORATED AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




Basic
      earnings per share computationNumerator:
            
            2008
            
            
            2007Net
      Income
            
            $
            4,078,347
            
            
            $
            4,593,601Denominator:Basic
      weighted average shares outstanding
            
            
            7,090,789
            
            
            
            5,772,423Basic
      net income per common share
            
            $
            0.58
            
            
            $
            0.80Diluted
      earnings per share computationNumerator:
            
            2008
            
            
            2007Net
      Income
            
            $
            4,078,347
            
            
            $
            4,593,601Denominator:Basic
      weighted average shares outstanding
            
            
            7,090,789
            
            
            
            5,772,423Incremental
      shares from assumed conversion:Conversion
      of stock options
            
            
            173,887
            
            
            
            153,937Conversion
      of common stock warrants
            
            
            576,176
            
            
            
            482,973Diluted
      weighted average shares
            
            
            7,840,852
            
            
            
            6,409,333Diluted
      net income per common share
            
            $
            0.52
            
            
            $
            0.72





At April
30, 2008, the Company had 645,818 stock options and 1,883,796 warrants
outstanding which are potentially dilutive securities. For the year ended April
30, 2008, 176,385 options were not included in the computation of fully diluted
earnings per common share.  At April 30, 2007, the Company had 560,834
stock options and 1,883,796 warrants outstanding which are potentially dilutive
securities. For the year ended April 30, 2007, 91,791 options were not included
in the computation of fully diluted earnings per common share.  These
potentially dilutive securities were excluded  because the stock
option exercise price exceeded the average market price of the common stock, and
therefore the effects would be antidilutive.





Stock-Based
Compensation Plans





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 $51,717 and $37,526 for the years ended April 30,
2008 and 2007, respectively.





At April
30, 2008, the total compensation cost related to unvested stock options granted
to employees under the Company’s stock option plans but not yet recognized was
approximately $258,000 and is expected to be recognized over a weighted-average
period of 3.28 years. For the years ended April 30, 2008 and 2007, the weighted
average fair value of stock options granted was $3.03 and $3.86,
respectively.






F-15




WPCS
INTERNATIONAL INCORPORATED AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





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





The
Company estimates the fair value of stock options granted using the
Black-Scholes-Merton option-pricing model. Compensation cost is then recognized
on a straight-line basis over the vesting or service period and is net of
estimated forfeitures.  The following assumptions were used to compute
the fair value of stock options granted during the years ended April 30, 2008
and 2007, respectively:





2008
            
            
            2007Risk-free
      interest rate
            
            1.65%
      to 4.74%
            
            
            4.73%
      to 4.96%Expected
      volatility
            
            53.8%
      to 58.3%
            
            
            61.0%
      to 62.4%Expected
      dividend yield
            
            
            0.00%
            
            
            
            0.00%Expected
      term ( in years)
            
            3.5
      to 3.75
            
            
            
            3.5





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





Other
Comprehensive Income





Other
comprehensive income consists of the following at April 30:




2008
              
              
              2007Net
      income
              
              $
              4,078,347
              
              
              $
              4,593,601Other
      comprehensive income (loss) – foreign currency translation adjustments,
      net
              
              
              284,095
              
              
              
              (1,088
              )Comprehensive
      income
              
              $
              4,362,442
              
              
              $
              4,592,513




Use
of Estimates





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.











F-16






WPCS
INTERNATIONAL INCORPORATED AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





Recently
Issued Accounting Pronouncements




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 Company is currently evaluating the potential impact, if any, of
the adoption of SFAS 157 on its consolidated financial position, results of
operations and cash flows or financial statement disclosures.





In
September 2006, the SEC issued SAB No. 108 Considering the Effects of Prior Year
Misstatements When Quantifying Misstatements in Current Year Financial
Statements(“SAB 108”), which is
effective for fiscal years beginning after November 15, 2006 provides
interpretive guidance on how registrants should quantify financial statement
misstatements. Under SAB 108 registrants are required to consider both a
“rollover” method, which focuses primarily on the income statement impact of
misstatements, and the “iron curtain” method, which focuses primarily on the
balance sheet impact of misstatements. The effects of prior year uncorrected
errors include the potential accumulation of improper amounts that may result in
a material misstatement on the balance sheet or the reversal of prior period
errors in the current period that result in a material misstatement of the
current period income statement amounts. Adjustments to current or prior period
financial statements would be required in the event that after application of
various approaches for assessing materiality of a misstatement in current period
financial statements and consideration of all relevant quantitative factors, a
misstatement is determined to be material. The application of the provisions of
SAB 108 did not have a material effect on the Company’s 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 Company is
currently evaluating the potential impact, if any , of the adoption of
 SFAS 159 on its 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 consolidated
financial position, results of operations, cash flows or financial statement
disclosures.




No other
recently issued accounting pronouncement issued or effective after the end of
the fiscal year is expected to have a material impact on the Company’s
consolidated financial statements.




NOTE
3 - ACQUISITIONS





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.





Voacolo





On March
30, 2007, the Company acquired Voacolo. The aggregate consideration paid by the
Company, including acquisition transaction costs of $31,389, was $2,563,863 of
which $1,281,389 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.






F-17




WPCS
INTERNATIONAL INCORPORATED AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




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.





The
purchase price allocation has been determined as follows:


Assets
      purchased:Cash
            
            $
            584,094Accounts
      receivable
            
            
            2,095,564Inventory
            
            
            217,500Prepaid
      expenses
            
            
            46,858Costs
      in excess of billings
            
            
            215,143Fixed
      assets
            
            
            346,569Backlog
            
            
            200,200Customer
      lists
            
            
            132,000Goodwill
            
            
            1,488,7325,326,660Liabilities
      assumed:Accounts
      payable
            
            
            (732,252
            )Accrued
      expenses
            
            
            (102,832
            )Payroll
      and other payables
            
            
            (79,943
            )Billings
      in excess of costs
            
            
            (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
            
            $
            2,563,863





TAGS





On April
5, 2007, the Company acquired a 60% Equity Interest and a 60% Profit Interest
(together the Interest) in TAGS, a joint venture enterprise in the City of
Taian, Shandong province, the People's Republic of China, from American Gas
Services, Inc. (AGS) and American Gas Services, Inc. Consultants (AGS
Consultants), respectively. The aggregate consideration paid by the Company,
including acquisition transaction costs of $185,409, was $1,785,409 of which
$985,409 was paid in cash, and the Company issued 68,085 shares of common stock
valued at approximately $800,000.





Founded
in 1997, TAGS is a communications infrastructure engineering company serving the
China market. TAGS is certified by the People's Republic of China as both a
Construction Enterprise of Reform Development company and a Technically Advanced
Construction Enterprise company for the Province of Shandong. TAGS is also
licensed in 17 other provinces and has completed projects for a diverse customer
base of businesses and government institutions in over 30 cities in
China.  The acquisition of TAGS provides the Company international
expansion into China consistent with its emphasis on China and surrounding
Pacific Rim countries.





A
valuation of certain assets was completed, including property and equipment 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.






F-18





WPCS
INTERNATIONAL INCORPORATED AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS






The
purchase price allocation has been determined as follows:


Assets
      purchased:Cash
            
            $
            141,564Accounts
      receivable
            
            
            1,727,953Inventory
            
            
            341,812Other
      current assets
            
            
            399,664Fixed
      assets
            
            
            3,694,9486,305,941Liabilities
      assumed:Accounts
      payable
            
            
            (72,710
            )Accrued
      expenses and other payable
            
            
            (714,126
            )Payroll
      and other payables
            
            
            (171,463
            )Dividends
      payable
            
            
            (252,724
            )Income
      tax payable
            
            
            (235,279
            )Notes
      payable
            
            
            (1,681,846
            )Deferred
      revenue
            
            
            (61,519
            )Minority
      interest
            
            
            (1,330,865
            )(4,520,532
            )Purchase
      price
            
            $
            1,785,409





Major





On August
1, 2007, the Company acquired Major. The aggregate consideration paid by the
Company, including acquisition transaction costs of $44,226, was $6,663,717, of
which $4,215,701 was paid in cash and the Company issued 242,776 shares of
common stock valued at $2,448,016. In
addition, the Company shall pay additional consideration to the former Major
shareholders regarding reimbursement of income taxes related to the Internal
Revenue Code Section 338(h)(10) election.  The Company expects to
settle this contingent consideration within the one-year timeframe permitted
under SFAS 141 and will adjust goodwill for any additional consideration
required to be paid pursuant to this provision of the purchase agreement.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 ofMajor 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.





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.





The
purchase price allocation has been determined as follows:


Assets
      purchased:Accounts
      receivable
            
            $
            3,830,626Inventory
            
            
            162,647Prepaid
      expenses
            
            
            117,349Costs
      in excess of billings
            
            
            1,445,749Fixed
      assets
            
            
            682,637Other
      assets
            
            
            8,855Backlog
            
            
            130,000Customer
      lists
            
            
            390,000Goodwill
            
            
            4,505,56211,273,425






F-19






WPCS
INTERNATIONAL INCORPORATED AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS






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
            
            
            (985,204
            )Line
      of credit
            
            
            (2,086,774
            )Loan
      payable
            
            
            (24,638
            )Capital
      lease obligation
            
            
            (242,297
            )Shareholder
      loan
            
            
            (175,420
            )(4,609,708
            )Purchase
      price
            
            $
            6,663,717





Max





On August 2, 2007, the Company acquired
Max. The aggregate consideration paid by the Company, including acquisition
transaction costs of $30,498, was $830,498, of which $630,498 was paid in cash
and the Company issued 17,007 shares of common stock valued at $200,000. In
addition, the Company shall pay an additional: (i) $350,000 in cash or Company
common stock if Max’s earnings before interest and taxes for the twelve months
ending August 1, 2008 shall equal or exceed $275,000; and (ii) $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.





The
purchase price allocation has been determined as follows:





Assets
      purchased:Cash
            
            $
            105,926Accounts
      receivable
            
            
            256,829Costs
      in excess of billings
            
            
            4,500Fixed
      assets
            
            
            21,890Other
      assets
            
            
            1,950Customer
      lists
            
            
            216,000Goodwill
            
            
            304,407911,502Liabilities
      assumed:Accrued
      expenses
            
            
            (59,186
            )Payroll
      and other payable
            
            
            (19,318
            )Accrued
      tax payable
            
            
            (2,500
            )(81,004
            )Purchase
      price
            
            $
            830,498









F-20






WPCS
INTERNATIONAL INCORPORATED AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





Empire





On
November 1, 2007, the Company acquired Empire. The aggregate consideration paid
by the Company, including acquisition transaction costs of $40,154, was
$2,511,154 in cash, subject to adjustment. 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.





Based on
the preliminary information currently available, the preliminary allocation has
been made resulting in goodwill and other intangible assets of approximately
$2,242,000. Upon completion of a final purchase price allocation, there may be
an increase or decrease in the amount assigned to goodwill and a corresponding
increase or decrease in tangible or other intangible assets.




The
purchase price allocation has been determined as follows:





Assets
      purchased:Cash
            
            $
            83,155Accounts
      receivable
            
            
            2,321,784Inventory
            
            
            197,961Prepaid
      expenses
            
            
            6,569Prepaid
      income tax
            
            
            69,142Costs
      in excess of billings
            
            
            72,518Fixed
      assets
            
            
            284,451Backlog
            
            
            344,900Customer
      lists
            
            
            100,000Goodwill
            
            
            1,796,7095,277,189Liabilities
      assumed:Accounts
      payable
            
            
            (1,113,789
            )Accrued
      expenses
            
            
            (53,871
            )Payroll
      and other payable
            
            
            (327,112
            )Billings
      in excess of costs
            
            
            (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
            
            $
            2,511,154





James





On
November 30, 2007, the Company acquired James. Through April 30, 2008, the
aggregate consideration paid by the Company, including acquisition transaction
costs of $74,151, was $1,154,151 in cash.  In May 2008, the Company
settled and paid aggregate additional cash consideration of $281,725 to the
former James shareholders for final settlement of the net tangible asset
adjustment.   James was acquired pursuant to a Share Purchase
Agreement among the Company and the former shareholders of James, dated as of
November 30, 2007. In connection with the acquisition, the Company entered into
an employment agreement with the former president for a period of two years.
James is a design engineering services company specializing in building
automation including mechanical, electrical, hydraulic, fire protection, lift,
security access and wireless systems. The acquisition of James provides the
Company international expansion into Australia consistent with our emphasis on
Australia, China and surrounding Pacific Rim countries.






F-21




WPCS
INTERNATIONAL INCORPORATED AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS







Based on
the preliminary information currently available, the preliminary allocation has
been made resulting in goodwill and other intangible assets of approximately
$818,000. Upon completion of a final purchase price allocation, there may be an
increase or decrease in the amount assigned to goodwill and a corresponding
increase or decrease in tangible or other intangible assets.





The
purchase price allocation has been determined as follows:





Assets
      purchased:Cash
            
            $
            231,386Accounts
      receivable
            
            
            312,135Prepaid
      expenses
            
            
            6,450Deferred
      tax assets, net
            
            
            17,431Costs
      in excess of billings
            
            
            26,272Fixed
      assets
            
            
            115,343Other
      assets
            
            
            830Customer
      lists
            
            
            270,748Backlog
            
            
            112,369Goodwill
            
            
            434,8351,527,799Liabilities
      assumed:Accounts
      payable
            
            
            (26,288
            )Accrued
      expenses
            
            
            (74,510
            )Payroll
      and other payable
            
            
            (9,409
            )Loan
      payable
            
            
            (6,099
            )Sales
      and use tax payable
            
            
            (40,516
            )Income
      tax payable
            
            
            (216,826
            )(373,648
            )Purchase
      price
            
            $
            1,154,151




Energize





On April
4, 2008, the Company acquired Energize. The aggregate consideration paid by the
Company, including acquisition transaction costs of $84,175, was $1,627,297 in
cash, subject to 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.





Based on
the preliminary information currently available, the preliminary allocation has
been made resulting in goodwill and other intangible assets of approximately
$1,471,000. Upon completion of a final purchase price allocation, there may be
an increase or decrease in the amount assigned to goodwill and a corresponding
increase or decrease in tangible or other intangible assets.






F-22




WPCS
INTERNATIONAL INCORPORATED AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





The
preliminary purchase price allocation has been determined as
follows:





Assets
      purchased:Cash
            
            $
            21,429Accounts
      receivable
            
            
            189,197Inventory
            
            
            55,084Costs
      in excess of billings
            
            
            415Fixed
      assets
            
            
            106,165Deferred
      tax assets, net
            
            
            2,108Customer
      lists
            
            
            509,740Goodwill
            
            
            961,2011,845,339Liabilities
      assumed:Accounts
      payable
            
            
            (69,562
            )Accrued
      expenses
            
            
            (7,444
            )Payroll
      and other payable
            
            
            (37,175
            )Sales
      and use tax payable
            
            
            (12,449
            )Income
      tax payable
            
            
            (91,412
            )(218,042
            )Purchase
      price
            
            $
            1,627,297





Pro
forma Information





The
following unaudited pro forma financial information presents the combined
results of operations of the Company, NECS, SECS, Voacolo, TAGS, Major, Max,
Empire, James and Energize for the years ended April 30, 2008 and 2007 as if the
acquisitions had occurred at May 1, 2006, including the issuance of the
Company’s common stock as consideration for the acquisitions of SECS, Voacolo,
TAGS and Major. The pro forma financial information does not necessarily reflect
the results of operations that would have occurred had the Company, NECS, SECS,
Voacolo, TAGS, Major, Max, Empire, James and Energize been a single entity
during these periods.




Consolidated
      Pro Forma2008
            
            
            2007Revenue
            
            $
            113,258,244
            
            
            $
            109,469,778Net
      income
            
            
            5,088,484
            
            
            
            7,531,363Basic
      weighted common shares
            
            
            7,248,390
            
            
            
            6,232,650Diluted
      weighted  common shares
            
            
            7,998,453
            
            
            
            6,869,636Basic
      net income per common share
            
            $
            0.70
            
            
            $
            1.21Diluted
      net income per common share
            
            $
            0.64
            
            
            $
            1.10





NOTE
4 - COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS





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 April
30:








F-23




WPCS
INTERNATIONAL INCORPORATED AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





2008
            
            
            2007Costs
      incurred on uncompleted contracts
            
            $
            66,331,553
            
            
            $
            39,431,006Estimated
      contract profit
            
            
            20,900,509
            
            
            
            12,513,27787,232,062
            
            
            
            51,944,283Less:
      billings to date
            
            
            86,947,332
            
            
            
            51,717,031Net
      excess of costs
            
            $
            284,730
            
            
            $
            227,252Costs
      and estimated earnings in excess of billings
            
            $
            3,887,152
            
            
            $
            2,499,940Billings
      in excess of costs and estimated earningson
      uncompleted contracts
            
            
            (3,602,422
            )
            
            
            (2,272,688
            )Net
      excess of costs
            
            $
            284,730
            
            
            $
            227,252




NOTE
5 - PROPERTY AND EQUIPMENT





Property
and equipment consist of the following at April 30:





Estimated
      useful life (years)
            
            
            2008
            
            
            2007Furniture
      and fixtures
            
            
            5-7
            
            
            $
            249,426
            
            
            $
            222,963Computers
      and software
            
            
            2-3
            
            
            
            938,370
            
            
            
            722,072Office
      equipment
            
            
            5-7
            
            
            
            157,092
            
            
            
            92,337Vehicles
            
            
            5-7
            
            
            
            3,335,752
            
            
            
            1,903,142Machinery
      and equipment
            
            
            5
            
            
            
            5,212,807
            
            
            
            4,231,918Leasehold
      improvements
            
            
            2-3
            
            
            
            354,626
            
            
            
            436,47710,248,073
            
            
            
            7,608,909Less
      accumulated depreciation and amortization expense
            
            
            
            
            
            
            3,419,911
            
            
            
            2,119,989$
            6,828,162
            
            
            $
            5,488,920





Depreciation
expense for property and equipment for the years ended April 30, 2008 and 2007
was approximately $1,539,000 and $776,000, respectively.




NOTE
6 – LONG-TERM DEBT





Lines
of Credit





On April
10, 2007, the Company entered into a loan agreement with Bank of America, N.A.
(BOA). The loan agreement (Loan Agreement) provides 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. 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 April 30, 2008, interest rates ranged from 4.00% to
4.82% on outstanding borrowings of approximately $4,376,000 under the Loan
Agreement.





In
connection with the acquisition of Empire, the Company assumed a revolving line
of credit facility with a commercial bank with a balance of $400,000 at the
closing date.  As of April 30, 2008, the outstanding balance was
$750,000 and bore interest at 9.25%. The outstanding
balance  of  $750,000 was repaid by the Company in July
2008.








F-24




WPCS
INTERNATIONAL INCORPORATED AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


Loans
Payable





The
Company’s long-term debt also consists of notes issued to 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 April 30, 2008, loans
payable and capital lease obligations totaled $1,736,361 with interest rates
ranging from 0% to 12.67%.




Due
to Shareholders




As of
April 30, 2008 and 2007, TAGS had outstanding loans due to a related party,
Taian Gas Group, totaling $1,941,718 and $717,190, respectively, of which
$1,431,230 matures on June 5, 2008, and bears interest at 7.524%.




As of
April 30, 2008, Empire had outstanding loans due to the former Empire
shareholder totaling $358,365, which bore interest at a rate of
5%.   The loans were repaid in May 2008.




The
aggregate maturities of long-term debt, including loans payable, capital lease
obligations, due to shareholders and lines of credit are as
follows:





Year
      ending April 30,Loans
      Payable
            
            
            Capital
      Leases
            
            
            Due
      to Shareholders
            
            
            Lines
      of Credit2009
            
            $
            1,272,112
            
            
            $
            91,491
            
            
            $
            2,300,083
            
            
            $
            750,0002010
            
            
            85,354
            
            
            
            89,240
            
            
            
            -
            
            
            
            4,376,0562011
            
            
            42,127
            
            
            
            70,324
            
            
            
            -
            
            
            
            -2012
            
            
            19,977
            
            
            
            44,235
            
            
            
            -
            
            
            
            -2013
            
            
            9,520
            
            
            
            11,981
            
            
            
            -
            
            
            
            -Total
      long-term debt
            
            $
            1,429,090
            
            
            $
            307,271
            
            
            $
            2,300,083
            
            
            $
            5,126,056





NOTE
7 - RELATED PARTY TRANSACTIONS





In
connection with the acquisition of Walker, the Company assumed a ten-year lease
with a trust, of which, a certain officer of the Company is the trustee, for a
building and land located in Fairfield, California, which is occupied by its
Walker subsidiary.  For the years ended April 30, 2008 and 2007, the
rent paid for this lease was $90,943 and $88,000, respectively.





In
connection with the acquisition of Clayborn, the Company was obligated to pay an
additional $1,100,000 in quarterly distributions to the former Clayborn
shareholders by December 31, 2007. For the year ended April 30, 2008, payments
of $707,000 were made to the former Clayborn shareholders. $189,000 was paid in
fiscal 2007, and the remaining $204,000 was paid in fiscal 2006.




In
connection with the acquisition of SECS in fiscal 2007, the Company leases its
Sarasota, Florida location from a trust, of which one of the former shareholders
of SECS is the trustee. For the years ended April 30, 2008 and 2007, the rent
paid for this lease was $52,516 and $40,315, respectively.




In
connection with the acquisition of Voacolo in fiscal 2007, the Company leases
its Trenton, New Jersey location from Voacolo Properties LLC, of which the
former shareholders of Voacolo, are the members. For the years ended April 30,
2008 and 2007, the rent paid for this lease was $54,500 and $4,500,
respectively.




In
connection with the acquisition of TAGS in fiscal 2007, the Company’s joint
venture partner provided the office building for TAGS rent free during fiscal
year 2008.  The Company expects to enter into a lease with the joint
venture partner in fiscal 2009.




F-25




WPCS
INTERNATIONAL INCORPORATED AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





NOTE
8 - RETIREMENT PLANS





The
Company and its subsidiaries participate in employee savings plans under Section
401(k) of the Internal Revenue Code pursuant to which eligible employees may
elect to defer a portion of their annual salary by contributing to the plan.
There were approximately $15,000 and $241,000 in contributions made for the
years ended April 30, 2008 and 2007, respectively.





The
Company also contributes to multi-employer pension plans which provide benefits
to union employees covered by a collective bargaining
agreement.   The Company incurred total costs under such
agreements of approximately $1,798,000 and $1,729,000 for the years ended April
30, 2008 and 2007, respectively.





Governmental
regulations impose certain requirements relative to the multi-employer plans. In
the event of plan termination or employer withdrawal, an employer may be liable
for a portion of the plan’s unfunded vested benefits. The Company has not
received information from the plan’s administrators to determine its share of
unfunded vested benefits. The Company does not anticipate withdrawal from the
plans, nor is the Company aware of any expected plan terminations.




NOTE
9 - INCOME TAXES





The
provision for income taxes for the years ended at April 30, 2008 and 2007 is
summarized as follows:





2008
            
            
            2007CurrentFederal
            
            $
            1,846,000
            
            
            $
            2,201,000State
            
            
            649,717
            
            
            
            784,818Foreign
            
            
            98,207
            
            
            
            -DeferredFederal
            
            
            126,832
            
            
            
            147,000State
            
            
            (101,000
            )
            
            
            14,000Foreign
            
            
            (42,408
            )
            
            
            -Totals
            
            $
            2,577,348
            
            
            $
            3,146,818





The
actual provision for income taxes reflected in the consolidated statements of
income for the years ended April 30, 2008 and 2007 differs from the provision
(benefit) computed at the Federal statutory tax rates. The principal differences
between the statutory income tax and the actual provision for income taxes are
summarized as follows:





2008
            
            
            2007Expected
      tax provision at statutory rate (34%)
            
            $
            2,262,936
            
            
            $
            2,631,742State
      and local taxes, net of federal tax benefit
            
            
            428,813
            
            
            
            527,675Foreign
      income taxes
            
            
            55,799
            
            
            
            30,117Section
      199 permanent difference
            
            
            (85,000
            )
            
            
            (51,000
            )Other
            
            
            (85,200
            )
            
            
            8,284Totals
            
            $
            2,577,348
            
            
            $
            3,146,818





The tax
effects of temporary differences which give rise to deferred tax assets and
liabilities are summarized as follows:





2008
            
            
            2007Deferred
      tax assets:Allowance
      for doubtful accounts
            
            $
            27,000
            
            
            $
            27,000Net
      operating loss carryforward
            
            
            122,000
            
            
            
            16,000Federal
      benefit of deferred state tax liabilities
            
            
            15,000
            
            
            
            11,000Foreign
      deferred tax benefits
            
            
            84,731
            
            
            
            -Deferred
      tax assets-current
            
            
            248,731
            
            
            
            54,000Customer
      lists
            
            
            143,000
            
            
            
            111,000Net
      operating loss carryforward
            
            
            126,000
            
            
            
            154,000Valuation
      allowance
            
            
            (126,000
            )
            
            
            (154,000
            )Federal
      benefit of deferred state tax liabilities
            
            
            77,000
            
            
            
            -Deferred
      tax assets-long term
            
            
            220,000
            
            
            
            111,000






F-26




WPCS
INTERNATIONAL INCORPORATED AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




Deferred
      tax liabilities:Inventory
            
            
            (14,000
            )
            
            
            (14,000
            )Federal
      benefit of deferred state tax liabilities
            
            
            (53,000
            )
            
            
            (13,000
            )Foreign
      currency translation
            
            
            (145,792
            )
            
            
            -Deferred
      tax liabilities-current
            
            
            (212,792
            )
            
            
            (27,000
            )Fixed
      assets
            
            
            (210,000
            )
            
            
            (107,000
            )Backlog
            
            
            (139,000
            )
            
            
            -Customer
      lists
            
            
            (110,000
            )
            
            
            (90,000
            )Goodwill
            
            
            (912,000
            )
            
            
            (525,000
            )Foreign
      deferred tax liabilities
            
            
            (22,786
            )
            
            
            -Deferred
      tax liabilities-long term
            
            
            (1,393,786
            )
            
            
            (722,000
            )Net
      deferred tax liabilities
            
            $
            (1,137,847
            )
            
            $
            (584,000
            )








At April
30, 2008, the Company has net operating loss carryforwards for state tax
purposes approximating $3.0 million expiring through 2023.  Due to the
uncertainty of recognizing a tax benefit on these losses in certain states, the
Company has provided a valuation allowance of approximately $1.4
million against the deferred tax asset related to these loss
carryforwards.




Undistributed
earnings of the Company’s foreign subsidiaries were $41,000 and $0 for the years
ended April 30, 2008 and 2007, respectively. These earnings, which reflect full
provision for foreign income taxes, are considered to be indefinitely reinvested
in foreign operations or will be reinvested substantially free of additional
tax. Accordingly, no provision for Federal income taxes has been provided
thereon. Upon repatriation of these earnings, in the form of dividends or
otherwise, the Company will be subject to both Federal income taxes (subject to
an adjustment for foreign tax credits) and withholding taxes payable to the
various foreign countries. Determination of the amount of the unrecognized
deferred income tax liability versus current income tax payable is not
practicable due to the complexities associated with its hypothetical
calculation. However, unrecognized foreign tax credit carryforwards would become
available to reduce some portion of the Federal liability.
 
 Deferred
taxes have not been provided on the excess book basis in the shares of the
Company’s foreign subsidiaries because these basis differences are not expected
to reverse in the foreseeable future. These basis differences could reverse
through a sale of the subsidiaries, the receipt of dividends from the
subsidiaries, as well as various other events. It is not practical to calculate
the residual income taxes that would result if these basis differences reversed
due to the complexities of the income tax law and the hypothetical nature of
these calculations.


NOTE
10 - STOCK OPTION PLANS





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 April 30, 2008, options to
purchase 80,000 shares were outstanding at an exercise price of $6.33. At April
30, 2008, there were 320,000 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 April
30, 2008, options to purchase 327,726 shares were outstanding at exercise prices
ranging from $6.14 to $12.10. At April 30, 2008, there were 698 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 April 30,
2008, options to purchase 238,092 shares were outstanding at exercise prices
ranging from $4.80 to $14.40. At April 30, 2008, there were 36,058 shares
available for grant under the 2002 Plan.




F-27






WPCS
INTERNATIONAL INCORPORATED AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





The
following is a summary of information with respect to stock options granted
under the 2002 Plan, 2006 Incentive Stock Plan and 2007 Incentive Stock Plan at
April 30, 2008 and April 30, 2007:





Options
      Outstanding at April 30, 2008
            
            
            Options
      Exercisable at April 30, 2008Exercise
      prices
            
            
            Shares
      under option
            
            
            Weighted-average
      remaining life in years
            
            
            Weighted-average
      Exercise Price
            
            
            Shares
      under option
            
            
            Weighted-average
      Exercise Price$
            4.80
      - 5.52
            
            
            
            37,217
            
            
            
            1.72
            
            
            $
            5.12
            
            
            
            37,217
            
            
            $
            5.12$
            6.10
      - 9.00
            
            
            
            533,345
            
            
            
            2.62
            
            
            $
            6.45
            
            
            
            432,220
            
            
            $
            6.44$
            10.92
      - 14.40
            
            
            
            75,256
            
            
            
            1.09
            
            
            $
            11.98
            
            
            
            60,456
            
            
            $
            12.11Total
            
            
            
            645,818
            
            
            
            2.39
            
            
            $
            7.02
            
            
            
            529,893
            
            
            $
            7.00







Options
      Outstanding at April 30, 2007
            
            
            Options
      Exercisable at April 30, 2007Exercise
      prices
            
            
            Shares
      under option
            
            
            Weighted-average
      remaining life in years
            
            
            Weighted-average
      Exercise Price
            
            
            Shares
      under option
            
            
            Weighted-average
      Exercise Price$
            4.80
      - 5.52
            
            
            
            40,593
            
            
            
            2.73
            
            
            $
            5.11
            
            
            
            39,009
            
            
            $
            5.10$
            6.10
      - 9.00
            
            
            
            451,000
            
            
            
            3.17
            
            
            $
            6.48
            
            
            
            429,700
            
            
            $
            6.42$
            10.92
      - 14.40
            
            
            
            62,823
            
            
            
            1.35
            
            
            $
            12.13
            
            
            
            62,823
            
            
            $
            12.13$
            16.20
      - 19.92
            
            
            
            6,418
            
            
            
            0.74
            
            
            $
            17.41
            
            
            
            6,418
            
            
            $
            17.41Total
            
            
            
            560,834
            
            
            
            2.91
            
            
            $
            7.14
            
            
            
            537,950
            
            
            $
            7.13




The
following table summarizes stock option activity for the year ended April 30,
2008, during which there were 9,831 options exercised under the Company’s stock
option plans:





2002
      PlanNumber
      of Shares
            
            
            Weighted-average
      Exercise Price
            
            
            Weighted-
      average Remaining Contractual Term
            
            
            Aggregate Intrinsic ValueOutstanding,
      May 1, 2007
            
            
            233,575
            
            
            $
            8.43Granted
            
            
            19,700
            
            
            $
            8.49Exercised
            
            
            (4,498
            )
            
            $
            5.76Forfeited/Expired
            
            
            (10,685
            )
            
            $
            14.64Outstanding,
      April 30, 2008
            
            
            238,092
            
            
            $
            8.21
            
            
            
            1.4
            
            
            $
            44,726Vested
      and expected to vested, April 30, 2008
            
            
            234,213
            
            
            $
            8.21
            
            
            
            1.3
            
            
            $
            44,726Exercisable,
      April 30, 2008
            
            
            215,660
            
            
            $
            8.20
            
            
            
            1.1
            
            
            $
            44,726






F-28




WPCS
INTERNATIONAL INCORPORATED AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





2006
      Incentive Stock PlanNumber
      of Shares
            
            
            Weighted-average
      Exercise Price
            
            
            Weighted-average
      Remaining Contractual Term
            
            
            Aggregate
      Intrinsic ValueOutstanding,
      May 1, 2007
            
            
            327,259
            
            
            $
            6.22Granted
            
            
            7,000
            
            
            $
            11.28Exercised
            
            
            (5,333
            )
            
            $
            6.65Forfeited/Expired
            
            
            (1,200
            )
            
            $
            7.23Outstanding,
      April 30, 2008
            
            
            327,726
            
            
            $
            6.32
            
            
            
            2.5
            
            
            $
            52,574Vested
      and expected to vested, April 30, 2008
            
            
            326,032
            
            
            $
            6.29
            
            
            
            2.5
            
            
            $
            52,574Exercisable,
      April 30, 2008
            
            
            314,233
            
            
            $
            6.17
            
            
            
            2.5
            
            
            $
            52,574




2007
      Incentive Stock PlanNumber
      of Shares
            
            
            Weighted-average
      Exercise Price
            
            
            Weighted-average
      Remaining Contractual Term
            
            
            Aggregate
      Intrinsic ValueOutstanding,
      May 1, 2007
            
            
            -
            
            
            $
            0.00Granted
            
            
            80,000
            
            
            $
            6.33Exercised
            
            
            -
            
            
            $
            0.00Forfeited/Expired
            
            
            -
            
            
            $
            0.00Outstanding,
      April 30, 2008
            
            
            80,000
            
            
            $
            6.33
            
            
            
            4.8
            
            
            $
            0Vested
      and expected to vested, April 30, 2008
            
            
            62,460
            
            
            $
            6.33
            
            
            
            4.8
            
            
            $
            0Exercisable,
      April 30, 2008
            
            
            -
            
            
            $
            0.00
            
            
            
            0.0
            
            
            $
            0





NOTE
11 - SHAREHOLDERS' EQUITY





Common
Stock Issuance





On
January 30, 2007, the Company sold an aggregate of 1,109,023 shares of the
Company’s common stock (Common Stock) to twelve investors for aggregate proceeds
of $10,092,109.  The Company paid the placement agents of the offering
a cash fee of 7% of the proceeds of the offering.  The Company has
received net proceeds of $9,337,891 from the offering.




The Common Stock was issued in a
private placement transaction pursuant to Section 4(2) under the Securities Act
of 1933. Pursuant to the terms of sale, the Company agreed to cause a resale
registration statement covering the Common Stock to be filed no later than 30
days after the closing and declared effective no later than 120 days after the
closing.If the Company failed to comply with
the registration statement filing or effective date requirements, it would have
been required to pay the investors a fee equal to 2% of the aggregate amount
invested by the purchasers per each 30 day period of delay, not to exceed
10%.  The Company accounts for such penalties as contingent
liabilities, applying the accounting guidance of  SFAS No. 5,
“Accounting for Contingencies” (“SFAS 5”). This accounting is consistent with
views established by the Emerging Issues Task Force in its consensus set forth
in EITF 05-04 and FASB Staff Positions FSP EITF 00-19-2 “Accounting for
Registration Payment Arrangements”, which was issued December 21, 2006.
Accordingly, the Company recognizes damages when it becomes probable that they
will be incurred and amounts are reasonably estimable.  The Company
filed a resale registration statement on February 9, 2007 covering the Common
Stock, which was declared effective by the SEC on March 2, 2007, which was
within the agreed upon timeframe under the terms of sale.




F-29




WPCS
INTERNATIONAL INCORPORATED AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS






Common
Stock Purchase Warrants




The
Company sold an aggregate of 2,083,887 shares of common stock and 2,083,887
common stock purchase warrants on November 16, 2004, as discussed
above.  Each of these warrants is exercisable for a period of five
years and was original issued at an exercise price of $8.40 per
share.   The exercise price of the warrants is subject to
adjustment for subsequent lower price issuances by the Company, as well as
customary adjustment provisions for stock splits, combinations, dividends and
the like. As a result of the issuance of common stock at $6.99 per share to the
selling shareholders of SECS, discussed above, the exercise price of 1,592,781
common stock purchase warrants were adjusted to $6.99 per share, and 320,741
additional warrants were issued under the “make-whole” provisions of the warrant
agreement.  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.




The
following table summarizes the activity of the common stock purchase warrants
for the years ended April 30, 2008 and 2007:





Number
      of Shares
            
            
            Weighted
      Average Exercise PriceOutstanding,
      May 1, 2006
            
            
            2,017,454
            
            
            
            8.62Granted
            
            
            320,741
            
            
            
            6.99Exercised
            
            
            (30,281
            )
            
            
            6.99Expired
            
            
            (424,118
            )
            
            
            10.57Outstanding,
      April 30, 2007 and 2008
            
            
            1,883,796
            
            
            $
            6.99








NOTE
12 - SEGMENT REPORTING





The
Company's reportable segments are determined and reviewed by management based
upon the nature of the services, the external customers and customer industries
and the sales and distribution methods used to market the
products.   The Company has two reportable segments: wireless
infrastructure services and specialty communication
systems.  Management evaluates performance based upon (loss) income
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
years ended April 30, 2008 and 2007 are as follows:




As
      of and for year ended April 30, 2008Corporate
            
            
            Wireless
    Infrastructure
            
            
            Specialty Communication
            
            
            TotalRevenue
            
            $
            -
            
            
            $
            11,819,386
            
            
            $
            89,611,742
            
            
            $
            101,431,128Depreciation
      and amortization
            
            $
            36,186
            
            
            $
            254,896
            
            
            $
            2,107,521
            
            
            $
            2,398,603Income
      (loss) before income taxes
            
            $
            (2,345,430
            )
            
            $
            131,241
            
            
            $
            8,869,884
            
            
            $
            6,655,695Goodwill
            
            $
            -
            
            
            $
            4,583,701
            
            
            $
            24,403,800
            
            
            $
            28,987,501Total
      assets
            
            $
            5,457,038
            
            
            $
            9,098,515
            
            
            $
            69,392,588
            
            
            $
            83,948,141






F-30





WPCS
INTERNATIONAL INCORPORATED AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





As
      of and for year ended April 30, 2007Corporate
            
            
            Wireless
    Infrastructure
            
            
            Specialty
    Communication
            
            
            TotalRevenue
            
            $
            -
            
            
            $
            13,250,499
            
            
            $
            56,749,571
            
            
            $
            70,000,070Depreciation
      and amortization
            
            $
            57,368
            
            
            $
            259,097
            
            
            $
            923,021
            
            
            $
            1,239,486Income
      (loss) before income taxes
            
            $
            (1,851,995
            )
            
            $
            976,769
            
            
            $
            8,615,645
            
            
            $
            7,740,419Goodwill
            
            $
            -
            
            
            $
            4,319,069
            
            
            $
            16,150,539
            
            
            $
            20,469,608Total
      assets
            
            $
            10,281,087
            
            
            $
            10,878,557
            
            
            $
            50,394,026
            
            
            $
            71,553,670




As of and
for years ended April 30, 2008 and 2007, the specialty communication systems
segment includes approximately $1,740,000 and $300,000 in revenue and $1,748,000
and $1,737,000 of net assets held in China related to the Company’s 60% interest
in TAGS, respectively.  As of and for the year ended April 30, 2008,
the specialty communication systems segment includes approximately $813,000 in
revenue and $2,824,000 of net assets held in Australia related to the Company’s
100% ownership in James and Energize.





NOTE
13 - COMMITMENTS AND CONTINGENCIES





Employment
Agreements





The
Company has entered into employment contracts ranging from one to three years
with certain of its employees.  The aggregate base salary commitments
under these contracts at April 30, 2008 are approximately
$6,100,000.





Litigation





From time
to time, the Company may become involved in various lawsuits and legal
proceedings which arise in the ordinary course of business. However, litigation
is subject to inherent uncertainties, and an adverse result in these or other
matters may arise from time to time that may harm the Company's business. The
Company is currently not aware of any such legal proceedings or claims that the
Company believes will have, individually or in the aggregate, a material adverse
affect on our business, consolidated financial condition or operating
results.





Lease
Commitments





The
Company leases its office facilities pursuant to noncancelable operating leases
expiring through April 2014. The Company also has noncancelable vehicle
leases.  The minimum rental commitments under these noncancelable
leases at April 30, 2008 are summarized as follows:





Year
      ending April 30,2009
            
            $
            1,139,7422010
            
            
            815,1942011
            
            
            544,3472012
            
            
            180,0532013
            
            
            105,585Thereafter
            
            
            100,715Total
      minimum lease payments
            
            $
            2,885,636




Rent
expense for all operating leases was approximately $786,000 and $559,000 in 2008
and 2007, respectively.







F-31




WPCS
INTERNATIONAL INCORPORATED AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





NOTE
14 – SUBSEQUENT EVENTS





On June
26, 2008, the Company acquired all of the assets of Lincoln Wind LLC (Lincoln
Wind) for aggregate consideration of $400,000 in cash.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 the Company additional engineering services
that specialize in the design of specialty communication systems for the wind
energy market.






F-32






ITEM 9 - CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.





None





ITEM 9A(T) – CONTROLS AND
PROCEDURES





Evaluation of
disclosure controls and procedures.We maintain "disclosure
controls and procedures," as such term is defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act"), that
are designed to ensure that information required to be disclosed by us in
reports that we file or submit under the Exchange Act is recorded, processed,
summarized, and reported within the time periods specified in Securities and
Exchange Commission rules and forms, and that such information is accumulated
and communicated to our management, including our Chief Executive Officer and
Chief Financial Officer, as appropriate, to allow timely decisions regarding
required disclosure. In designing and evaluating our disclosure controls and
procedures, management recognized that disclosure controls and procedures, no
matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the disclosure controls and
procedures are met. Additionally, in designing disclosure controls and
procedures, our management necessarily was required to apply its judgment in
evaluating the cost-benefit relationship of possible disclosure controls and
procedures. The design of any disclosure controls and procedures also is based
in part upon certain assumptions about the likelihood of future events, and
there can be no assurance that any design will succeed in achieving its stated
goals under all potential future conditions.





As of
April 30, 2008, we carried out an evaluation, under the supervision and with the
participation of our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures. Based on this evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures were
effective in ensuring that information required to be disclosed by us in our
periodic reports is recorded, processed, summarized and reported, within the
time periods specified for each report and that such information is accumulated
and communicated to our management, including our principal executive and
principal financial officers, or persons performing similar functions, as
appropriate to allow timely decisions regarding required
disclosure.




Management’s
Annual Report on Internal Control Over Financial
Reporting.Management is responsible for establishing
and maintaining an adequate system of internal control over financial reporting,
as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange
Act.  Internal control over financial reporting is a process designed
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements in accordance with
GAAP.




Our
internal control over financial reporting includes those policies and procedures
that:





•           pertain
to the maintenance of records that in reasonable detail accurately and fairly
reflect our transactions and dispositions of our assets;





•           provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with GAAP, and that receipts
and expenditures are being made only in accordance with authorizations of our
management and directors; and





•           provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of our assets that could have a material effect
on the financial statements.




Management
has conducted, with the participation of our Chief Executive Officer and our
Chief Financial Officer, an assessment, including testing of the effectiveness
of our internal control over financial reporting as of April 30,
2008.  Management’s assessment of internal control over financial
reporting was based on the framework in Internal Control over Financial
Reporting – Guidance for Smaller Public Companiesissued by the
Committee of Sponsoring Organizations of the Treadway Commission. Based on this
evaluation, Management concluded that our system of internal control over
financial reporting was effective as of April 30, 2008.





The
effectiveness of our internal control over financial reporting as of April 30,
2008 has not been audited by J.H. Cohn, LLP, an independent registered public
accounting firm. Management’s report was not subject to attestation by the
Company’s registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit the Company to provide only
management’s report in this annual report.





Changes in
Internal Control Over Financial Reporting.There were no changes in
our internal control over financial reporting identified in connection with the
evaluation required by paragraph (d) of Rule 13a-15 or Rule 15d-15 that
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.




ITEM 9B – OTHER INFORMATION




None




26







PART
III





ITEM 10 – DIRECTORS, EXECUTIVE OFFICERS AND
CORPORATE GOVERNANCE





Our
directors and executive officers and their ages as of the date hereof are as
follows:





NAME
            
            AGE
            
            OFFICES
      HELDAndrew
      Hidalgo
            
            52
            
            Chairman,
      Chief Executive Officer and DirectorJoseph
      Heater
            
            44
            
            Chief
      Financial OfficerDonald
      Walker
            
            45
            
            Executive
      Vice PresidentJames
      Heinz
            
            48
            
            Executive
      Vice PresidentRichard
      Schubiger
            
            43
            
            Executive
      Vice PresidentCharles
      Madenford
            
            45
            
            Executive
      Vice PresidentSteven
      James
            
            61
            
            Executive
      Vice PresidentNorm
      Dumbroff
            
            47
            
            DirectorNeil
      Hebenton
            
            52
            
            DirectorGary
      Walker
            
            53
            
            President
      of Walker Comm, Inc. and DirectorWilliam
      Whitehead
            
            52
            
            Director





Set forth
below is a biographical description of each executive officer and
director.





Andrew
Hidalgo, Chairman, Chief Executive Officer and Director





Mr.
Hidalgo has been our Chairman of the Board and Chief Executive Officer since our
inception in November 2001 and served in the same capacity with the predecessor
company WPCS Holdings, Inc. since September 2000. He is responsible for our
operations and direction. Prior to that, Mr. Hidalgo held various positions in
operations, sales and marketing with Applied Digital Solutions, the 3M Company,
Schlumberger and General Electric. He attended Fairfield University in
Fairfield, Connecticut.




Joseph
Heater, Chief Financial Officer





Mr.
Heater has been Chief Financial Officer since July 2003. From November 2001 to
June 2003, Mr. Heater was the Controller for Locus Pharmaceuticals, Inc., a
development stage pharmaceutical company. Prior to that, from April 1999 to
September 2001, Mr. Heater was Director of Finance and Corporate Controller for
esavio Corporation, an information technology consulting company providing
application development, network design, integration, and managed services.
Prior to that, from March 1995 to November 1998, Mr. Heater was Director of
Financial Planning and Assistant Corporate Controller for Airgas, Inc. Mr.
Heater holds a B.S. from the University of Nebraska and a M.B.A. from Villanova
University.





Donald
Walker, Executive Vice President





Mr.
Walker has been Executive Vice President since December 2002. Mr. Walker was the
founder of Walker Comm, Inc. and its Chief Executive Officer from November 1996
until its acquisition by WPCS in December 2002. He has over twenty-one years of
project management experience and is a Registered Communications Distribution
Designer (RCDD). In addition, Mr. Walker is a committee member with the National
Electrical Contractors Association (NECA). Mr. Walker began his project engineer
career at General Dynamics where he developed his engineering skills while
managing large projects and coordinating technical staff.





James
Heinz, Executive Vice President





Mr. Heinz
has been Executive Vice President since April 2004. Mr. Heinz was the founder of
Heinz Corporation and its President since January 1994 until its acquisition by
WPCS in April 2004. Mr. Heinz has over twenty years of project engineering
experience in civil and commercial engineering projects with over ten years
specifically dedicated to wireless infrastructure services. Mr. Heinz is the
Chairman of the Construction Advisory Board for Southern Illinois University and
a general advisory member of the School of Engineering. He holds a B.S. degree
in construction management from Southern Illinois University.





27







Richard
Schubiger, Executive Vice President





Mr.
Schubiger has been Executive Vice President since November 2004. Mr. Schubiger
was a co-founder of Quality Communications and its President since December 1995
until its acquisition by WPCS in November 2004. Mr. Schubiger has over twenty
years of experience in the wireless communications industry and has been
involved with all facets including sales, service, design and project
management. Prior to establishing Quality Communications, Mr. Schubiger worked
for Motorola, Inc., designing and supporting major wireless systems for
commercial and government users. Mr. Schubiger had a distinguished career in the
United States Marine Corps where he served as a wireless engineering specialist
involved with deployments throughout North America, Asia and
Europe.





Charles
Madenford, Executive Vice
President





Mr.
Madenford has been Executive Vice President since April 2007.  He is
also currently president of the Clayborn subsidiary, a position he has held
since September 2005.  From May 2003 to August 2005, Mr. Madenford was
a Vice President for Clayborn.  Prior to that, from September 2002 to
May 2003, he served as Project Manager for W.E. Lyons Construction Company, a
general contractor.  Prior to that, from August 1995 to August 2002,
Mr. Madenford served as a vice president for N.V. Heathorn, a West Coast
mechanical and architectural firm.   Mr. Madenford has over
twenty-one years of project engineering experience in mechanical and
construction engineering.   He holds a B.S. degree in civil
engineering with a minor in industrial engineering from the University of
Dayton.





Steven
James, Executive Vice
President





Mr. James
has been Executive Vice President since December 2007.  Mr. James was
the founder of James Design Pty Ltd and its President since June 1998 until its
acquisition by WPCS in December 2007.  Mr. James has over thirty years
of consulting and contracting experience in the areas of design and project
management for mechanical ventilation and air conditioning
systems.  Prior to establishing James Design, Mr. James was Mechanical
Director for Hyder Consulting from February 1995 to May 1998.  Prior
to that, from June 1985 to January 1995, Mr. James was a partner with George
Floth Pty Ltd Consulting Engineers.  Mr. James holds a certificate in
aeronautical engineering from the Auckland Technical Institute of New
Zealand.





Norm
Dumbroff, Director





Mr.
Dumbroff became a Director of WPCS in November 2002. Since April 1990, he has
been the Chief Executive Officer of Wav Incorporated, a distributor of wireless
products in North America. Prior to Wav Incorporated, Mr. Dumbroff was an
engineer for Hughes Aircraft. He holds a B.S. degree in Computer Science from
Albright College.





Neil
Hebenton, Director





Mr.
Hebenton became a director of WPCS in October 2002. Since February 2002, he has
been Senior Director, Business Development, for Perceptive Informatics, Inc. (a
subsidiary of PAREXEL International Corp.), a company offering clinical trial
data management software applications to pharmaceutical and biotechnology
companies. From January 1998 to January 2002, he was the Managing Director for
the U.K. based FW Pharma Systems, a multi-million dollar application software
company serving the pharmaceutical and biotechnology sectors. Prior to that, Mr.
Hebenton has held a variety of operational, scientific and marketing positions
in Europe with Bull Information Systems (BULP-Paris, Frankfurt, Zurich) and
Phillips Information Systems. He received his B.S. in Mathematics from the
University of Edinburgh, Scotland.





Gary
Walker, President of Walker Comm, Inc. and Director





Mr.
Walker became a director of WPCS in December 2002. He is currently the president
of the Walker Comm subsidiary, a position he has held since November 1996. Prior
to his involvement at Walker Comm, Mr. Walker had a distinguished career with
the U.S. Navy and also held an elected political position in Fairfield,
California. He holds a B.A. in Business Management from St. Mary’s College in
Moraga, California.




28




William
Whitehead, Director





Mr.
Whitehead became a director of WPCS in October 2002. Since October 1998, he has
been the Chief Financial Officer for Neutronics Incorporated, a multi-million
dollar process and safety systems manufacturer. Mr. Whitehead has held a variety
of financial management positions with Deloitte & Touche and was Division
Controller for Graphic Packaging Corporation from April 1990 to March 1998.
After attending West Point, Mr. Whitehead received a B.S. in Accounting from the
Wharton School at the University of Pennsylvania and received his M.B.A. from
the Kellogg Graduate School at Northwestern University.





The
following is a summary of the committees on which our directors
serve.





Audit
Committee




Our Audit
Committee currently consists of William Whitehead, Norm Dumbroff and Neil
Hebenton, with Mr. Whitehead elected as Chairman of the Committee. Our Board of
Directors has determined that each of Messrs. Whitehead, Dumbroff and Hebenton
are “independent” as that term is defined under applicable SEC rules and under
the current listing standards of the NASDAQ Stock Market. Mr. Whitehead is our
audit committee financial expert.





Our Audit
Committee’s responsibilities include: (i) reviewing the independence,
qualifications, services, fees, and performance of the independent auditors,
(ii) appointing, replacing and discharging the independent auditor, (iii)
pre-approving the professional services provided by the independent auditor,
(iv) reviewing the scope of the annual audit and reports and recommendations
submitted by the independent auditor, and (v) reviewing our financial reporting
and accounting policies, including any significant changes, with management and
the independent auditor. Our Audit Committee also prepares the Audit Committee
report that is required pursuant to the rules of the SEC.





Executive
Committee





Our
Executive Committee currently consists of Norm Dumbroff, Neil Hebenton and
William Whitehead, with Mr. Dumbroff elected as Chairman of the Committee. Our
Board of Directors has determined that all of the members are “independent”
under the current listing standards of the NASDAQ Stock Market. Our Board of
Directors has adopted a written charter setting forth the authority and
responsibilities of the Executive Committee.




Our
Executive Committee has responsibility for assisting the Board of Directors in,
among other things, evaluating and making recommendations regarding the
compensation of our executive officers and directors, assuring that the
executive officers are compensated effectively in a manner consistent with our
stated compensation strategy, producing an annual report on executive
compensation in accordance with the rules and regulations promulgated by the
SEC, periodically evaluating the terms and administration of our incentive plans
and benefit programs and monitoring of compliance with the legal prohibition on
loans to our directors and executive officers.





Nominating
Committee





Our
Nominating Committee currently consists of Neil Hebenton, Norm Dumbroff and
William Whitehead, with Mr. Hebenton elected as Chairman of the Committee. The
Board of Directors has determined that all of the members are “independent”
under the current listing standards of the NASDAQ Stock Market.





Our
Nominating Committee has responsibility for assisting the Board in, among other
things, effecting the organization, membership and function of the Board and its
committees. The Nominating Committee shall identify and evaluate the
qualifications of all candidates for nomination for election as
directors.




Section
16(a) Beneficial Ownership Reporting Compliance




Section 16(a)
of the Securities Exchange Act of 1934, as amended, requires our directors,
executive officers and holders of more than 10% of our common stock to file with
the SEC reports regarding their ownership and changes in ownership of our
securities. We believe that, during fiscal 2008, our directors, executive
officers and 10% stockholders complied with all Section 16(a) filing
requirements.





Code
of Ethics





WPCS
adopted a Code of Ethics for its officers, directors and employees. A copy of
the Code of Ethics is incorporated by reference as an exhibit.








29




ITEM 11 - EXECUTIVE COMPENSATION





Under
the rules of the SEC, this Compensation Discussion and Analysis Report is not
deemed to be incorporated by reference by any general statement incorporating
this Annual Report by reference into any filings with the SEC.





The
Executive Committee has reviewed and discussed the following
Compensation Discussion and Analysis with management. Based on this review
and these discussions, the Executive Committee recommended to the Board of
Directors that the following Compensation Discussion and Analysis be
included in this Annual Report on Form 10-K.





Submitted
by the Executive Committee


Norm
Dumbroff, Chairman


Neil
Hebenton


William
Whitehead





COMPENSATION
DISCUSSION AND ANALYSIS (CD&A)




The
following discussion and analysis of compensation arrangements of our named
executive officers for the fiscal year ended April 30, 2008 should be read
together with the compensation tables and related disclosures set forth
below.




Compensation
Philosophy and Objectives





We
believe our success depends on the continued contributions of our named
executive officers. Our named executive officers are primarily responsible for
our growth and operations strategy, and the management of the day-to-day
operations of our subsidiaries.   Therefore, it is important to
our success that we retain the services of these individuals to ensure our
future success and prevent them from competing with us should their employment
with us terminate.





Our
overall compensation philosophy is to provide an executive compensation package
that enables us to attract, retain and motivate executive officers to achieve
our short-term and long-term business goals. We strive to apply a uniform
philosophy regarding compensation of all employees, including members of senior
management. This philosophy is based upon the premise that the achievements of
the company result from the combined and coordinated efforts of all employees
working toward common goals and objectives in a competitive, evolving market
place. The goals of our compensation program are to align remuneration with
business objectives and performance and to enable us to retain and competitively
reward executive officers and employees who contribute to our long-term
success.  In making executive compensation and other employment
compensation decisions, the Executive Committee considers achievement of certain
criteria, some of which relate to our performance and others of which relate to
the performance of the individual employee. Awards to executive officers are
based on achievement of company and individual performance
criteria.





The
Executive Committee will evaluate our compensation policies on an ongoing basis
to determine whether they enable us to attract, retain and motivate key
personnel. To meet these objectives, the Executive Committee may from time to
time increase salaries, award additional stock options or provide other short
and long-term incentive compensation to executive officers and other
employees.





Compensation
Program & Forms of Compensation





We
provide our executive officers with a compensation package consisting of base
salary and participation in benefit plans generally available to other
employees. In setting total compensation, the Executive Committee considers
individual and company performance, as well as market information regarding
compensation paid by other companies in our industry.





In order
to achieve the above goals, our total compensation packages include base salary,
annual bonus, as well as long-term compensation in the form of stock
options.





Base
Salary. Salaries for our executive officers are initially set based on
negotiation with individual executive officers at the time of recruitment and
with reference to salaries for comparable positions in the industry for
individuals of similar education and background to the executive officers being
recruited. We also consider the individual’s experience, and expected
contributions to our company. Base salary is continuously evaluated by
competitive pay and individual job performance. Base salaries for executives are
reviewed annually or more frequently should there be significant changes in
responsibilities. In each case, we take into account the results achieved by the
executive, his or her future potential, scope of responsibilities and
experience, and competitive salary practices.






30





Bonuses. A
component of each executive officer’s potential annual compensation may take the
form of a performance-based bonus. Contractually, our Executive Vice Presidents
are entitled to receive an annual bonus equal to 3% of the annual profit before
interest and taxes of the designated subsidiaries assigned to him. Our CEO and
CFO are entitled to an annual bonus, to be determined at the discretion of the
Executive Committee, based on our financial performance and the achievement of
the officer’s individual performance objectives.





Long-Term
Incentives.Longer-term
incentives are provided through stock options, which reward executives and other
employees through the growth in value of our stock. The Executive Committee
believes that employee equity ownership provides a major incentive for employees
to build stockholder value and serves to align the interests of employees with
those of our stockholders. Grants of stock options to executive officers are
based upon each officer’s relative position, responsibilities and contributions,
with primary weight given to the executive officers’ relative rank and
responsibilities. Initial stock option grants designed to recruit an executive
officer may be based on negotiations with the officer and with reference to
historical option grants to existing officers. Stock options are generally
granted at an exercise price equal to the market price of our common stock on
the date of grant and will provide value to the executive officers only when the
price of our common stock increases over the exercise
price.  Although the expenses of stock options affect our financial statements
negatively, we continue to believe that this is a strong element of compensation
that focuses the employees on financial and operational performance to create
value for the long-term.





With
regard to our option grant practice, the Executive Committee has the
responsibility of approving all stock option grants to
employees.  Stock option grants for plan participants are generally
determined within ranges established for each job level. These ranges are
established based on our desired pay positioning relative to the competitive
market. Specific recruitment needs are taken into account for establishing the
levels of initial option grants. Annual option grants take into consideration a
number of factors, including performance of the individual, job level, prior
grants and competitive external levels. The goals of option grant guidelines are
to ensure future grants remain competitive from a grant value perspective and to
ensure option usage consistent with option pool
forecasts.   Based on the definition of fair market value in our
stock option plan, options are granted at 100% of the closing sales price of our
stock on the last market trading date prior to the grant date.  We do
not time the granting of our options with any favorable or unfavorable news
released by us. Proximity of any awards to an earnings announcement or other
market events is coincidental.





Executive
Equity Ownership





We
encourage our executives to hold an equity interest in our company. However, we
do not have specific share retention and ownership guidelines for our
executives.





Performance-Based
Compensation and Financial Restatement





We have
not considered or implemented a policy regarding retroactive adjustments to any
cash or equity-based incentive compensation paid to our executives and other
employees where such payments were predicated upon the achievement of certain
financial results that were subsequently the subject of a financial
restatement.





Tax
and Accounting Considerations





Compliance with
Internal Revenue Code Section 162(m). Section 162(m) of the Internal
Revenue Code of 1986, as amended, restricts deductibility of executive
compensation paid to our Chief Executive Officer and each of the five other most
highly compensated executive officers holding office at the end of any year to
the extent such compensation exceeds $1,000,000 for any of such officers in any
year and does not qualify for an exception under Section 162(m) or related
regulations. The Executive Committee’s policy is to qualify its executive
compensation for deductibility under applicable tax laws to the extent
practicable. Income related to stock options granted under our 2002 Stock Option
Plan, the 2006 Incentive Stock Plan, and the 2007 Incentive Stock Plan,
generally qualify for an exemption from these restrictions imposed by
Section 162(m). In the future, the Executive Committee will continue to
evaluate the advisability of qualifying its executive compensation for full
deductibility.





Accounting for
Stock-Based Compensation. Effective May 1, 2006, we adopted the fair
value recognition provisions of FASB Statement 123(R) for stock-based
compensation.








31





Employment
Contracts and Termination of Employment and Change-In-Control
Arrangements





Contract
with Andrew Hidalgo





On
February 1, 2005, we entered into a three-year employment contract with Andrew
Hidalgo, our Chairman and Chief Executive Officer. Upon each one year
anniversary of the agreement, the agreement will automatically renew for another
three years from the anniversary date. The base salary under the agreement was
$250,000 per annum through April 30, 2008.  Effective June 1, 2008,
the base salary under the agreement was amended to $325,000 per annum. In
addition, Mr. Hidalgo is entitled to participate in any and all benefit plans,
from time to time, in effect for our employees, along with vacation, sick and
holiday pay in accordance with our policies established and in effect from time
to time.




Contract
with Joseph Heater





On June
1, 2005, we entered into a three-year employment contract with Joseph Heater,
our Chief Financial Officer. Upon each one year anniversary of the agreement,
the agreement will automatically renew for another three years from the
anniversary date. The base salary under the agreement is $195,000 per annum
through April 30, 2008. Effective June 1, 2008, the base salary under the
agreement was amended to $250,000.  In addition, Mr. Heater is
entitled to participate in any and all benefit plans, from time to time, in
effect for our employees, along with vacation, sick and holiday pay in
accordance with our policies established and in effect from time to
time.




Contract
with Donald Walker





On
February 1, 2007, we entered into a three-year employment contract with Mr.
Walker with a base salary of $160,000 per annum. Upon each one year anniversary
of the agreement, the agreement will automatically renew for another three years
from the anniversary date. In addition, Mr. Walker is entitled to participate in
any and all benefit plans, from time to time, in effect for our employees, along
with vacation, sick and holiday pay in accordance with our policies established
and in effect from time to time. Mr. Walker is also entitled to the full-time
use of an automobile owned or leased by us, for which we reimburse Mr. Walker
for all maintenance and gasoline expenses associated with the use of the
automobile. Mr. Walker is also entitled to receive an annual bonus of 3.0% of
operating income before the deduction of interest and income taxes of designated
subsidiaries assigned by us.




Contract
with Gary Walker




On
February 1, 2007, we entered into a three-year employment contract with Mr.
Walker with a base salary of $150,000 per annum. Upon each one year anniversary
of the agreement, the agreement will automatically renew for another three years
from the anniversary date. In addition, Mr. Walker is entitled to participate in
any and all benefit plans, from time to time, in effect for our employees, along
with vacation, sick and holiday pay in accordance with our policies established
and in effect from time to time. Mr. Walker is also entitled to the full-time
use of an automobile owned or leased by us, for which we reimburse Mr. Walker
for all maintenance and gasoline expenses associated with the use of the
automobile. Mr. Walker is also entitled to receive an annual bonus of 3.0% of
the operating income of Walker Comm, prior to the deduction of interest and
income taxes.




Contract
with James Heinz




On April
1, 2007, we entered into a three-year employment contract with Mr. Heinz with a
base salary of $160,000 per annum.  Upon each one year anniversary of
the agreement, the agreement will automatically renew for another three years
from the anniversary date.  In addition, Mr. Heinz is entitled to
participate in any and all benefit plans, from time to time, in effect for our
employees, along with vacation, sick and holiday pay in accordance with our
policies established and in effect from time to time. Mr. Heinz is also entitled
to the full-time use of an automobile owned or leased by us, for which we
reimburse Mr. Heinz for all maintenance and gasoline expenses associated with
the use of the automobile. Mr. Heinz is also entitled to receive an annual bonus
of 3.0% of operating income, before the deduction of interest and income taxes
of designated subsidiaries assigned by us.




Contract
with Richard Schubiger




On June
1, 2008, we entered into a three-year employment contract with Mr. Schubiger
with a base salary of $225,000 per annum.  Upon each one year
anniversary of the agreement, the agreement will automatically renew for another
three years from the anniversary date.  In addition, Mr. Schubiger is
entitled to participate in any and all benefit plans, from time to time, in
effect for our employees, along with vacation, sick and holiday pay in
accordance with our policies established and in effect from time to time., Mr.
Schubiger is entitled to receive an annual bonus of 3.0% of operating
income before the deduction of interest and income taxes of designated
subsidiaries assigned by us.






32






Contract
with Charles Madenford




Effective
April 1, 2007, we entered into an employment contract with Mr. Madenford with a
base salary of $150,000 per annum.  Upon each one year anniversary of
the agreement, the agreement will automatically renew for another three years
from the anniversary date.  In addition, Mr. Madenford is entitled to
participate in any and all benefit plans, from time to time, in effect for our
employees, along with vacation, sick and holiday pay in accordance with our
policies established and in effect from time to time. Mr. Madenford is also
entitled to the full-time use of an automobile owned or leased by us, for which
we reimburse Mr. Madenford for all maintenance and gasoline expenses associated
with the use of the automobile. Mr. Madenford is also entitled to receive an
annual bonus of 3.0% of operating income, before the deduction of interest and
income taxes of designated subsidiaries assigned by us.




Contract
with Steven James




Effective
December 1, 2007, we entered into an employment contract with Mr. James with a
base salary of $130,000 per annum.  Upon each one year anniversary of
the agreement, the agreement will automatically renew for another two years from
the anniversary date.  In addition, Mr. James is entitled to
participate in any and all benefit plans, from time to time, in effect for our
employees, along with vacation, sick and holiday pay in accordance with our
policies established and in effect from time to time. Mr. James is also entitled
to an auto allowance of $1,000 Australian dollars per month. Mr. James is also
entitled to receive an annual bonus of 3.0% of operating income, before the
deduction of interest and income taxes of designated subsidiaries assigned by
us.




For each
of the named executive officers listed above, in the event of a change in
control, whereby the executive officer is terminated without cause, or resigns
for certain “good reasons” we are required to pay the named executive officer a
severance payment.  The severance payment is the salary and benefits
amount owed under the respective employment agreement from the date of
termination through the remaining term of the employment agreement.




The
following table sets forth in summary form the compensation received during the
fiscal years ended April 30, 2008 and 2007 by the Company's Chief Executive
Officer and each of the Company’s five other most highly compensated executive
officers based on salary and bonus earned during the 2008 and 2007 fiscal
years.







33










Summary Compensation
Table





The
following table provides certain summary information concerning compensation
awarded to, earned by or paid to our Chief Executive Officer, Chief Financial
Officer and four other highest paid executive officers whose total annual salary
and bonus exceeded $100,000 (collectively, the “named executive officers”) for
fiscal years 2008 and 2007.




Name
      and Principal Position
            Year
            
            Salary
      ($)
            
            
            Bonus
      ($)
            
            
            Option
      Awards ($) (7)
            
            
            All
      Other Compensation ($)
            
            
            
            
            
            Total ($)Andrew
      Hidalgo
            2008
            
            
            250,000
            
            
            
            70,000
            
            
            
            1,087
            
            
            
            9,466
            
            
            
            (8
            )
            
            
            330,553Chairman,
      Chief Executive Officer
            2007
            
            
            168,000
            
            
            
            60,000
            
            
            
            -
            
            
            
            10,800
            
            
            
            (8
            )
            
            
            238,800and
      Director (1)Joseph
      Heater
            2008
            
            
            195,000
            
            
            
            50,000
            
            
            
            652
            
            
            
            -
            
            
            
            
            
            
            
            245,652Chief
      Financial Officer (2)
            2007
            
            
            140,000
            
            
            
            40,000
            
            
            
            -
            
            
            
            -
            
            
            
            
            
            
            
            180,000Donald
      Walker
            2008
            
            
            160,000
            
            
            
            64,671
            
            
            
            217
            
            
            
            -
            
            
            
            
            
            
            
            224,888Executive
      Vice President (3)
            2007
            
            
            145,000
            
            
            
            141,524
            
            
            
            -
            
            
            
            13,200
            
            
            
            (9
            )
            
            
            299,724Gary
      Walker
            2008
            
            
            150,000
            
            
            
            68,067
            
            
            
            217
            
            
            
            -
            
            
            
            
            
            
            
            218,284President-
      Walker and Director (4)
            2007
            
            
            142,500
            
            
            
            141,524
            
            
            
            -
            
            
            
            12,190
            
            
            
            (9
            )
            
            
            296,214Richard
      Schubiger
            2008
            
            
            195,000
            
            
            
            120,428
            
            
            
            217
            
            
            
            -
            
            
            
            
            
            
            
            315,645Executive
      Vice President (5)
            2007
            
            
            140,000
            
            
            
            107,829
            
            
            
            -
            
            
            
            -
            
            
            
            
            
            
            
            247,829James
      Heinz
            2008
            
            
            160,000
            
            
            
            50,623
            
            
            
            217
            
            
            
            -
            
            
            
            
            
            
            
            210,840Executive
      Vice President (6)
            2007
            
            
            141,667
            
            
            
            33,577
            
            
            
            -
            
            
            
            -
            
            
            
            
            
            
            
            175,244







(1)
            Mr.
      Hidalgo has served as Chairman, Chief Executive Officer and Director since
      May 24, 2002.(2)
            Mr.
      Heater has served as Chief Financial Officer since July 15,
      2003.(3)
            Mr.
      Walker has served as Executive Vice President since December 30,
      2002.(4)
            Mr.
      Walker has served as President of Walker Comm and as a Director since
      December 30, 2002.(5)
            Mr.
      Schubiger has served as Executive Vice President since November 24,
      2004.(6)
            Mr.
      Heinz has served as Executive Vice President since April 2,
  2004.(7)
            Represents
      the dollar amount of compensation expense recognized in fiscal 2008 for
      financial reporting purposes related to stock option awards granted in
      fiscal 2008under
      SFAS 123R, as discussed in Note 2, "Summary of Significant
      Accounting Policies” of the Notes to Consolidated Financial Statements
      included elsewhere in this Annual Report on Form 10-K.(8)
            Represents
      lease payments for use of company-leased vehicle.(9)
            Represents
      401(k) matching contributions.




GRANTS
OF PLAN-BASED AWARDS




The following table sets forth
information regarding the number of stock options granted to named executive
officers during fiscal 2008.




Name
            
            Grant
      Date
            
            All
      Other Option Awards: Number of Securities Underlying Options
      (#)
            
            Exercise
      or Base Price of Option Awards ($/Sh)
            
            Grant
      Date Fair Value of Stock and Option Awards ($)Andrew
      Hidalgo
            
            3/4/08
            
            25,000
            
            6.33
            
            66,820Joseph
      Heater
            
            3/4/08
            
            15,000
            
            6.33
            
            40,092James
      Heinz
            
            3/4/08
            
            5,000
            
            6.33
            
            13,364Richard
      Schubiger
            
            3/4/08
            
            5,000
            
            6.33
            
            13,364Donald
      Walker
            
            3/4/08
            
            5,000
            
            6.33
            
            13,364Gary
      Walker
            
            3/4/08
            
            5,000
            
            6.33
            
            13,364




34




OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END




The
following table sets forth information for the named executive officers
regarding the number of shares subject to both exercisable and unexercisable
stock options, as well as the exercise prices and expiration dates thereof, as
of April 30, 2008.





Name
            
            Number
      of Securities underlying Unexercised Options (#)
    Exercisable
            
            
            Number
      of Securities underlying Unexercised Options (#)
    Unexercisable
            
            
            Option
      Exercise Price ($/Sh)
            
            Option
      Expiration DateAndrew
      Hidalgo
            
            
            73,046
            
            
            
            -
            
            
            $
            6.60
            
            10/6/2009126,690
            
            
            
            -
            
            
            $
            6.14
            
            10/13/2010-
            
            
            
            25,000
            
            
            $
            6.33
            
            3/14/2013Joseph
      Heater
            
            
            20,834
            
            
            
            -
            
            
            $
            9.00
            
            6/12/200812,500
            
            
            
            -
            
            
            $
            12.84
            
            8/6/20087,500
            
            
            
            -
            
            
            $
            6.60
            
            10/6/200963,345
            
            
            
            -
            
            
            $
            6.14
            
            10/13/2010-
            
            
            
            15,000
            
            
            $
            6.33
            
            3/14/2013James
      Heinz
            
            
            10,000
            
            
            
            -
            
            
            $
            5.25
            
            2/1/201038,007
            
            
            
            -
            
            
            $
            6.14
            
            10/13/2010-
            
            
            
            5,000
            
            
            $
            6.33
            
            3/14/2013Richard
      Schubiger
            
            
            10,000
            
            
            
            -
            
            
            $
            5.25
            
            2/1/201038,007
            
            
            
            -
            
            
            $
            6.14
            
            10/13/2010-
            
            
            
            5,000
            
            
            $
            6.33
            
            3/14/2013Donald
      Walker
            
            
            -
            
            
            
            5,000
            
            
            $
            6.33
            
            3/14/2013Gary
      Walker
            
            
            -
            
            
            
            5,000
            
            
            $
            6.33
            
            3/14/2013





Director
Compensation




The
following table sets forth summary information concerning the total compensation
paid to our non-employee directors in 2008 for services to our
company.





Name
            
            Fees
      Earned or Paid in Cash
            
            
            Option
      Awards ($)(*)
            
            
            Total
      ($)Norm
      Dumbroff (1)
            
            
            5,000
            
            
            
            4,088
            
            
            
            9,088Neil
      Hebenton  (2)
            
            
            5,000
            
            
            
            4,088
            
            
            
            9,088William
      Whitehead  (3)
            
            
            7,500
            
            
            
            4,088
            
            
            
            11,588Total:
            
            
            17,500
            
            
            
            12,264
            
            
            
            29,764





*
            Amounts
      represent the amount of compensation expense recognized in fiscal 2008 for
      awards granted in fiscal 2008 and 2007  under SFAS 123R, as
      discussed in Note 2, "Summary of Significant Accounting Policies” of
      the Notes to Consolidated Financial Statements included elsewhere in this
      Annual Report on Form 10-K.




(1)
            28,988
      options were outstanding as of April 30, 2008, of which 22,946 were
      exercisable as of April 30, 2008.(2)
            16,904
      options were outstanding as of April 30, 2008, of which 10,862 were
      exercisable as of April 30, 2008.(3)
            28,988
      options were outstanding as of April 30, 2008, of which 22,946 were
      exercisable as of April 30, 2008.






35


ITEM
12- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ANDRELATED
STOCKHOLDER MATTERS





The
following table sets forth certain information regarding beneficial ownership of
our common stock as of July 17, 2008:




•
            by
      each person who is known by us to beneficially own more than 5% of our
      common stock;




•
            by
      each of our officers and directors;
and




•
            by
      all of our officers and directors as a
group.




Name And Address Of Beneficial
      Owner (1)
              
              Number of  Shares Owned
      (2)
              
              
              
              
              
              Percentage
                of Class
    (3)Andrew
      Hidalgo
              
              
              428,953
              
              
              
              (4
              )
              
              
              5.74
              %Joseph
      Heater
              
              
              98,345
              
              
              
              (4
              )
              
              
              1.34
              %Donald
      Walker
              
              
              5,000
              
              
              
              
              
              
              
              -James
      Heinz
              
              
              112,531
              
              
              
              (4
              )
              
              
              1.54
              %Richard
      Schubiger
              
              
              53,007
              
              
              
              (4
              )
              
              
              *Charles
      Madenford
              
              
              9,084
              
              
              
              (4
              )
              
              
              *Steven
      James
              
              
              -
              
              
              
              
              
              
              
              *Norm
      Dumbroff
              
              
              99,822
              
              
              
              (4
              )
              
              
              1.37
              %Neil
      Hebenton
              
              
              16,904
              
              
              
              (4
              )
              
              
              *Gary
      Walker
              
              
              72,564
              
              
              
              
              
              
              
              *William
      Whitehead
              
              
              37,188
              
              
              
              (4
              )
              
              
              *All
      Officers and Directors as a Group (10 persons)
              
              
              933,398
              
              
              
              (4
              )
              
              
              11.39
              %Special
      Situations Private Equity Fund, L.P.
              
              
              1,148,652
              
              
              
              (5
              )
              
              
              14.5
              %153
      E. 53rd Street, 55th FloorNew
      York, NY 10022Special
      Situations Fund III QP, L.P.
              
              
              1,546,610
              
              
              
              (5
              )
              
              
              19.20
              %527
      Madison Avenue, Suite 2600New
      York, NY 10022SF
      Capital Partners Ltd..
              
              
              500,360
              
              
              
              (6
              )
              
              
              6.67
              %3600
      South Lake DrSt.
      Francis, WI 53235


______________________


*
            Less
      than 1%.




(1)
            The
      address for each of our officers and directors is One East Uwchlan Avenue,
      Exton, PA 19341.




(2)
            Beneficial
      ownership is determined in accordance with the rules of the Securities and
      Exchange Commission and generally includes voting or investment power with
      respect to securities. Shares of common stock subject to options or
      warrants currently exercisable or convertible, or exercisable or
      convertible within 60 days of July 17, 2008 are deemed outstanding for
      computing the percentage of the person holding such option or warrant but
      are not deemed outstanding for computing the percentage of any other
      person.




(3)
            Percentage
      based on 7,251,083 shares of common stock
  outstanding.




(4)
            Includes
      the following number of shares of common stock which may be acquired by
      certain officers and directors through the exercise of stock options which
      were exercisable as of July 17, 2008 or become exercisable within 60 days
      of that date: Andrew Hidalgo, 199,736 shares; Joseph Heater, 83,345
      shares; James Heinz, 48,007 shares; Richard Schubiger, 48,007 shares;
      Charles Madenford, 4,084 shares; Norm Dumbroff, 22,946 shares; Neil
      Hebenton, 11,904 shares; William Whitehead, 22,946 shares; and all
      officers and directors as a group, 440,975
  shares.




(5)
            Includes
      the following number of shares of common stock which may be acquired
      through the exercise of common stock purchase warrants which were
      exercisable as of July 17, 2008 or become exercisable within 60 days of
      that date: Special Situations Private Equity Fund, L.P., 626,017 shares,
      and Special Situations Fund III QP, L.P., 805,791 shares, based on the
      information in the most recent Schedule 13D filed on January 10,
      2008.(6)
            Includes
      the following number of shares of common stock which may be acquired
      through the exercise of common stock purchase warrants which were
      exercisable as of July 17, 2008 or become exercisable within 60 days of
      that date: 250,360 shares.


36




EQUITY
COMPENSATION PLAN INFORMATION





The
following table sets forth information about the shares of our common stock that
may be issued upon the exercise of options granted to employees under the 2002
Stock Option Plan, which were approved by the Board of Directors, and the 2006
and 2007 Incentive Stock Plans approved by the Board of Directors and
shareholders, as well as certain shares that may be issued upon the exercise of
options under the 2002 Stock Option Plan, that were issued to consultants, which
were not approved by the Board of Directors.





Plan
      Category
            
            (a)
              Number
      of securities to be issued upon exercise of outstanding
      options
            
            
            (b)
              Weighted-average
      exercise price of outstanding options
            
            
            (c)
              Number
      of securities remaining available for future issuance under equity
      compensation plans excluding securities reflected in column (a)
      (1)Equity
      compensation plan approved by board of directors (1)
            
            
            238,092
            
            
            $
            8.21
            
            
            
            36,058Equity
      compensation plan approved by security holders (2)
            
            
            327,726
            
            
            $
            6.32
            
            
            
            698Equity
      compensation plan  approved by security holders
    (3)
            
            
            80,000
            
            
            $
            6.33
            
            
            
            320,000Total
            
            
            645,818
            
            
            $
            7.02
            
            
            
            356,756





(1)
            We
      established a nonqualified stock option plan pursuant to which options to
      acquire a maximum of 416,667 shares of our common stock were reserved for
      grant (the “2002 Plan”).  As of April 30, 2008, included above
      in the 2002 Plan are 208,925 shares issuable upon exercise of options
      granted to employees and directors, and 29,167 options granted to outside
      consultants for services rendered to our
  company.





(2)
            We
      established the 2006 Incentive Stock Plan, under which 400,000 shares of
      common stock were reserved for issuance upon the exercise of stock
      options, stock awards or restricted stock.  As of April 30,
      2008, 327,726 shares were issuable upon exercise of options granted to
      employees and directors.(3)
            We
      established the 2007 Incentive Stock Plan, under which 400,000 shares of
      common stock were reserved for issuance upon the exercise of stock
      options, stock awards or restricted stock.  As of April 30,
      2008, 80,000 shares were issuable upon exercise of options granted to
      employees and directors.




ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS, AND DIRECTOR INDEPENDENCE





At the
time of the following transactions, there were no affiliations between us and
the other parties.  As a result of these transactions, the other
parties became affiliates.  The obligations resulting from these
transactions were ongoing after the close, resulting in payoffs to the other
parties who became affiliates.





In
connection with the acquisition of Walker Comm, we assumed a lease with a living
trust established by Gary Walker, one of our Directors, who is the trustee and
whose heirs are the beneficiaries of the trust. The lease is for a building and
land located in Fairfield, California, which is occupied by our Walker Comm
subsidiary. The lease calls for monthly rental payments of $7,805, with annual
increases, calculated using the San Francisco-Oakland-San Jose Consolidated
Metropolitan Statistical Area Consumer Price Index. For each of the fiscal years
ended April 30, 2008 and 2007, the rent paid for this lease was $90,943 and
$88,000, respectively.  We believe the terms of this lease are no less
favorable than those which could have been obtained between unrelated parties
for similar transactions acting at arm’s length.




On August
22, 2003, we acquired all of the outstanding shares of Clayborn, our wholly
owned subsidiary, in exchange for an aggregate $900,000 cash consideration and
68,871 newly issued shares of our common stock. The Clayborn stockholders
consisted of David Gove, the former President of Clayborn, and his spouse. An
additional $1,100,000 is due by September 30, 2007, payable in quarterly
distributions, by payment to the Clayborn stockholders of 50% of the quarterly
post tax profits, as defined, of Clayborn and a final payment of any remaining
balance on that date. Through April 30, 2008, payments of $1,100,000 have been
made to the former Clayborn stockholders.




37






On July
19, 2006, we acquired SECS and we lease our Sarasota, Florida location from a
trust, of which one of the former shareholders of SECS, is the trustee. For the
years ended April 30, 2008 and 2007, the rent paid for this lease was $52,516
and $40,315, respectively.   We believe the terms of this lease
are no less favorable than those which could have been obtained between
unrelated parties for similar transactions acting at arm’s length.




On March
30, 2007, we lease our Trenton, New Jersey location from Voacolo Properties LLC,
of which the former shareholders of Voacolo, are the members. For the years
ended April 30, 2008 and 2007, the rent paid for this lease was $54,500 and
$4,500, respectively.   We believe the terms of this lease are no
less favorable than those which could have been obtained between unrelated
parties for similar transactions acting at arm’s length.




In
connection with the acquisition of TAGS in fiscal 2007, our joint venture
partner provided the office building for TAGS rent free during fiscal year
2008.  We expect to enter into a lease with the joint venture partner
in fiscal 2009.




As of
April 30, 2008 and 2007, TAGS had outstanding loans due to a related party,
Taian Gas Group, totaling $1,941,718 and  $717,190, respectively, of
which $1,431,230 matures on  June 5, 2008, and  bears
interest at 7.524%.





As of
April 30, 2008, Empire has outstanding loans due to the former shareholder
totaling $358,365, which bore interest at a rate of 5%.  The loans
were repaid in May 2008.





ITEM 14 – PRINCIPAL ACCOUNTANT FEES AND
SERVICES




Audit
Fees. The aggregate fees billed by our independent auditors, for professional
services rendered for the audit of our annual financial statements for the years
ended April 30, 2008 and 2007, and for the reviews of the financial statements
included in our Quarterly Reports on Form 10-Q during the fiscal years were
$320,975 and $278,471, respectively.





Audit
Related Fees. We incurred fees to our independent auditors of $6,000 and
$14,400, respectively, for audit related fees during the fiscal years ended
April 30, 2008 and 2007.  These fees were related to the review of our
registration statements prior to filing with the SEC.





Tax and
Other Fees. We did not incur fees to our independent auditors for tax compliance
services during the fiscal years ended April 30, 2008 and 2007.





Consistent
with SEC policies and guidelines regarding audit independence, the Audit
Committee is responsible for the pre-approval of all audit and permissible
non-audit services provided by our principal accountants on a case-by-case
basis. Our Audit Committee has established a policy regarding approval of all
audit and permissible non-audit services provided by our principal accountants.
Our Audit Committee pre-approves these services by category and service. Our
Audit Committee has pre-approved all of the services provided by our principal
accountants.








38





PART
IV





ITEM 15 - EXHIBITS AND FINANCIAL STATEMENT
SCHEDULES





Exhibits:





3.1
            Certificate
      of Incorporation, as amended, incorporated by reference to Exhibit 3.1 of
      WPCS International Incorporated’s registration statement on Form SB-2,
      filed April 7, 2006.





3.2
            Amended
      and Restated Bylaws, incorporated by reference to Exhibit 3.2 of WPCS
      International Incorporated’s registration statement on Form SB-2, filed
      April 7, 2006.





4.1
            Certificate
      of Designation of Series A Convertible Preferred Stock, incorporated by
      reference to Exhibit 4.1 of wowtown.com, Inc.’s Form SB-2, filed June 8,
      2000.





4.2
            Certificate
      of Designation of Series B Convertible Preferred Stock, incorporated by
      reference to Exhibit 4.2 of WPCS International Incorporated’s Annual
      Report on Form 10-KSB, filed July 29,
2002.





4.3
            Certificate
      of Designation of Series C Convertible Preferred Stock, incorporated by
      reference to Exhibit 4.3 of WPCS International Incorporated’s Annual
      Report on Form 10-KSB, filed August 14,
2003.





10.1
            Employment
      Agreement by and between WPCS International Incorporated and Andrew
      Hidalgo, dated as of February 1, 2004, incorporated by reference to
      Exhibit 10.1 of WPCS International Incorporated’s registration statement
      on Form SB-2/A, filed April 30,
2004.





10.2
            Employment
      Agreement by and among WPCS International Incorporated, Walker Comm, Inc,
      and Donald Walker, incorporated by reference to Exhibit 10.3 of WPCS
      International Incorporated’s Annual Report on Form 10-KSB, filed August
      14, 2003.





10.3
            Employment
      Agreement by and among WPCS International Incorporated, Walker Comm, Inc,
      and Gary Walker, incorporated by reference to Exhibit 10.4 of WPCS
      International Incorporated’s Annual Report on Form 10-KSB, filed August
      14, 2003.





10.4
            Employment
      Agreement by and between WPCS International Incorporated and Joseph
      Heater, dated as of June 1, 2005, incorporated by reference to Exhibit
      10.4 of WPCS International Incorporated’s Annual Report on Form 10-KSB,
      filed July 29, 2005.





10.5
            Employment
      Agreement by and between Heinz Corporation and James Heinz, dated as of
      April 1, 2004, incorporated by reference to Exhibit 10.12 of WPCS
      International Incorporated’s registration statement on Form SB-2/A, filed
      April 30, 2004.





10.6
            Purchase
      Agreement, dated as of April 11, 2006, incorporated by reference to
      Exhibit 10.1 of WPCS International Incorporated’s current report on Form
      8-K, filed April 12, 2006.





10.7
            Waiver,
      dated as of April 11, 2006, incorporated by reference to Exhibit 10.2 of
      WPCS International Incorporated’s current report on Form 8-K, filed April
      12, 2006.





10.8
            Stock
      Purchase Agreement, dated as of June 7, 2006, by and among WPCS
      International Incorporated, New England Communications Systems, Inc.,
      Myron Polulak, Carolyn Windesheim and Gary Tallmon, incorporated by
      reference to Exhibit 10.1 of WPCS International Incorporated’s current
      report on Form 8-K, filed June 9,
2006.





10.9
            Employment
      Agreement, dated as of June 7, 2006, between New England Communications
      Systems, Inc. and Myron Polulak, incorporated by reference to Exhibit 10.2
      of WPCS International Incorporated’s current report on Form 8-K, filed
      June 9, 2006.








39






10.10
            Employment
      Agreement, dated as of June 7, 2006, between New England Communications
      Systems, Inc. and Carolyn Windesheim, incorporated by reference to Exhibit
      10.3 of WPCS International Incorporated’s current report on Form 8-K,
      filed June 9, 2006.





10.11
            Stock
      Purchase Agreement, dated as of July 19, 2006, by and among WPCS
      International Incorporated, Southeastern Communication Service, Inc.,
      Daniel G. Lester, Christopher P. Lester, Thomas A. Lester, Michael D.
      Lester, Karl F. Eickmeyer and Anthony Ankersmit, incorporated by reference
      to Exhibit 10.1 of WPCS International Incorporated’s current report on
      Form 8-K, filed July 20, 2006.





10.12
            Registration
      Rights Agreement, dated as of July 19, 2006, by and among WPCS
      International Incorporated, Southeastern Communication Service, Inc.,
      Daniel G. Lester, Christopher P. Lester, Thomas A. Lester, Michael D.
      Lester, Karl F. Eickmeyer and Anthony Ankersmit, incorporated by reference
      to Exhibit 10.2 of WPCS International Incorporated’s current report on
      Form 8-K, filed July 20, 2006.





10.13
            Form
      of Securities Purchase Agreement, dated as of January 30, 2007,
      incorporated by reference to Exhibit 10.1 of WPCS International
      Incorporated’s current report on Form 8-K, filed February 1,
      2007.





10.14
            Form
      of Registration Rights Agreement, dated as of January 30, 2007,
      incorporated by reference to Exhibit 10.2 of WPCS International
      Incorporated’s current report on Form 8-K, filed February 1,
      2007





10.15
            Stock
      Purchase Agreement, dated as of March 30, 2007, by and among WPCS
      International Incorporated, Voacolo Electric Incorporated, Jeffrey
      Voacolo, David Voacolo, Joseph Voacolo and Tracy Hossler, incorporated by
      reference to Exhibit 10.1 of WPCS International Incorporated’s current
      report on Form 8-K, filed April 2,
2007.





10.16
            Registration
      Rights Agreement, dated as of March 30, 2007, by and among WPCS
      International Incorporated, Voacolo Electric Incorporated, Jeffrey
      Voacolo, David Voacolo, Joseph Voacolo and Tracy Hossler, incorporated by
      reference to Exhibit 10.2 of WPCS International Incorporated’s current
      report on Form 8-K, filed April 2,
2007.





10.17
            Employment
      Agreement, dated as of March 30, 2007, between Voacolo Electric
      Incorporated and Jeffrey Voacolo, incorporated by reference to Exhibit
      10.4 of WPCS International Incorporated’s current report on Form 8-K,
      filed April 2, 2007.





10.18
            Employment
      Agreement, dated as of March 30, 2007, between Voacolo Electric
      Incorporated and David Voacolo, incorporated by reference to Exhibit 10.5
      of WPCS International Incorporated’s current report on Form 8-K, filed
      April 2, 2007.





10.19
            Employment
      Agreement, dated as of March 30, 2007, between Voacolo Electric
      Incorporated and Joseph Voacolo, incorporated by reference to Exhibit 10.6
      of WPCS International Incorporated’s current report on Form 8-K, filed
      April 2, 2007.





10.20
            Interest
      Purchase Agreement, dated as of April 5, 2007, by and among WPCS
      International Incorporated, American Gas Services, Inc. and American Gas
      Services, Inc. Consultants, incorporated by reference to Exhibit 10.1 of
      WPCS International Incorporated’s current report on Form 8-K, filed April
      9, 2007.





10.21
            Loan
      Agreement, dated April 10, 1007, by and among WPCS International
      Incorporated, Bank of America, N.A. Clayborn Contracting Group, Inc.,
      Heinz Corporation, New England Communications Systems, Inc., Quality
      Communications & Alarm Company., Inc., Southeastern Communication
      Service, Inc., and Walker Comm, incorporated by reference to Exhibit 10.1
      of WPCS International Incorporated’s amended current report on Form 8-K/A,
      filed April 17, 2007.





10.22
            Security
      Agreement, dated April 10, 1007, by and among WPCS International
      Incorporated, Bank of America, N.A. Clayborn Contracting Group, Inc.,
      Heinz Corporation, New England Communications Systems, Inc., Quality
      Communications & Alarm Company., Inc., Southeastern Communication
      Service, Inc., and Walker Comm, Inc., incorporated by reference to Exhibit
      10.2 of WPCS International Incorporated’s amended current report on Form
      8-K/A, filed April 17, 2007.





10.23
            Employment
      Agreement, effective as of April 1, 2007, between WPCS International
      Incorporated and Charles Madenford, incorporated by reference to Exhibit
      10.36 of WPCS International Incorporated’s annual report on Form 10-K,
      filed July 30, 2007.






40




10.24
            Stock Purchase Agreement, dated
      as of August 1, 2007, by and among WPCS International Incorporated, Major
      Electric, Inc., Frank Mauger, James Jordan and Todd Kahl, incorporated by
      reference to Exhibit 10.1 of WPCS International Incorporated’s current
      report on Form 8-K, filed August 7,
2007.





10.25
            Registration Rights Agreement,
      dated as of August 1, 2007, by and among WPCS International Incorporated,
      Major Electric, Inc., Frank Mauger, James Jordan and Todd Kahl,
      incorporated by reference to Exhibit 10.2 of WPCS International
      Incorporated’s current report on Form 8-K, filed August 7,
      2007.





10.26
            Escrow Agreement, dated as of
      August 1, 2007, by and among WPCS International Incorporated, Major
      Electric, Inc., Frank Mauger, James Jordan, Todd Kahl and Sichenzia Ross
      Friedman Ference LLP, incorporated by reference to Exhibit 10.3 of WPCS
      International Incorporated’s current report on Form 8-K, filed August 7,
      2007.





10.27
            Employment Agreement, dated as of
      August 1, 2007, between Major Electric, Inc. and Frank Mauger,
      incorporated by reference to Exhibit 10.4 of WPCS International
      Incorporated’s current report on Form 8-K, filed August 7,
      2007.





10.28
            Employment Agreement, dated as of
      August 1, 2007, between Major Electric, Inc. and James Jordan,
      incorporated by reference to Exhibit 10.5 of WPCS International
      Incorporated’s current report on Form 8-K, filed August 7,
      2007.





10.29
            Membership Interest Purchase
      Agreement, dated as of August 2, 2007, by and among WPCS International
      Incorporated, Max Engineering LLC, Hak-Fong Ma and Robert Winterhalter,
      incorporated by reference to Exhibit 10.6 of WPCS International
      Incorporated’s current report on Form 8-K, filed August 7,
      2007.





10.30
            Registration Rights Agreement,
      dated as of August 2, 2007, by and among WPCS International Incorporated,
      Max Engineering LLC, Hak-Fong Ma and Robert Winterhalter, incorporated by
      reference to Exhibit 10.7 of WPCS International Incorporated’s current
      report on Form 8-K, filed August 7,
2007.





10.31
            Escrow Agreement, dated as of
      August 2, 2007, by and among WPCS International Incorporated, Max
      Engineering LLC, Hak-Fong Ma, Robert Winterhalter and Sichenzia Ross
      Friedman Ference LLP, incorporated by reference to Exhibit 10.8 of WPCS
      International Incorporated’s current report on Form 8-K, filed August 7,
      2007.





10.32
            Employment Agreement, dated as of
      August 2, 2007, between Max Engineering LLC and Hak-Fong Ma, incorporated
      by reference to Exhibit 10.9 of WPCS International Incorporated’s current
      report on Form 8-K, filed August 7,
2007.





10.33
            Employment Agreement, dated as of
      August 2, 2007, between Max Engineering LLC and Robert Winterhalter,
      incorporated by reference to Exhibit 10.10 of WPCS International
      Incorporated’s current report on Form 8-K, filed August 7,
      2007.





10.34
            Stock Purchase Agreement, dated
      as of November 1, 2007, by and among WPCS International Incorporated,
      Gomes and Gomes, Inc. dba Empire Electric, Harold L. Gomes and Judy L.
      Gomes, incorporated by reference to Exhibit 10.1 of WPCS International
      Incorporated’s current report on Form 8-K, filed November 2,
      2007.





10.35
            Escrow Agreement, dated as of
      November 1, 2007, by and among WPCS International Incorporated, Gomes and
      Gomes, Inc. dba Empire Electric, Harold L. Gomes, Judy L. Gomes and
      Sichenzia Ross Friedman Ference LLP, incorporated by reference to Exhibit
      10.2 of WPCS International Incorporated’s current report on Form 8-K,
      filed November 2, 2007.





10.36
            Employment Agreement, dated as of
      November 1, 2007, between Gomes and Gomes, Inc. dba Empire Electric and
      Harold L. Gomes, incorporated by reference to Exhibit 10.3 of WPCS
      International Incorporated’s current report on Form 8-K, filed November 2,
      2007.





10.37
            Employment Agreement, dated as of
      November 1, 2007, between Gomes and Gomes, Inc. dba Empire Electric and
      Judy L. Gomes, incorporated by reference to Exhibit 10.4 of WPCS
      International Incorporated’s current report on Form 8-K, filed November 2,
      2007.





10.38
            Form of Share Purchase Agreement,
      dated as of November 30, 2007, by and among WPCS Australia Pty Ltd., James
      Design Pty Ltd., Steven Peter James, Annette Beryl James, Adrian Kent
      Ferris, Lionel John Ferris, Margo Donoghue, David Arthur Hunter and Leonne
      Rosslyn Whibley, incorporated by reference to Exhibit 10.1 of WPCS
      International Incorporated’s current report on Form 8-K, filed December 5,
      2007.






41





10.39
            Form of Escrow Agreement, dated
      as of November 30, 2007, by and among WPCS Australia Pty Ltd., James
      Design Pty Ltd., Steven Peter James, Annette Beryl James, Adrian Kent
      Ferris, Lionel John Ferris, Margo Donoghue, David Arthur Hunter, Leonne
      Rosslyn Whibley and Gilshenan & Luton Legal Group, incorporated by
      reference to Exhibit 10.2 of WPCS International Incorporated’s current
      report on Form 8-K, filed December 5,
  2007.





10.40
            Form of Employment Agreement,
      dated as of November 30, 2007, by and between WPCS Australia Pty Ltd and
      Steven Peter James, incorporated by reference to Exhibit 10.3 of WPCS
      International Incorporated’s current report on Form 8-K, filed December 5,
      2007.





10.41
            Asset
      Purchase Agreement, dated as of June 26, 2008 by and among Max Engineering
      LLC, Lincoln Wind LLC and Matthew Cumberworth, incorporated by reference
      to Exhibit 10.1 of WPCS International Incorporated’s current report on
      Form 8-K, filed July 1, 2008.





10.42
            Assignment and Lease Assumption
      Agreement, dated as of June 26, 2008 by between among Max Engineering LLC,
      Lincoln Wind LLC, incorporated by reference to Exhibit 10.2 of WPCS
      International Incorporated’s current report on Form 8-K, filed July 1,
      2008.





10.43
            Employment
      Agreement, dated as of June 26, 2008 by and between Max Engineering LLC
      and Matthew Cumberworth, incorporated by reference to Exhibit 10.3 of WPCS
      International Incorporated’s current report on Form 8-K, filed July 1,
      2008.





10.44
            Escrow
      Agreement, dated as of June 26, 2008 by between among Max Engineering LLC,
      Lincoln Wind LLC, incorporated by reference to Exhibit 10.4 of WPCS
      International Incorporated’s current report on Form 8-K, filed July 1,
      2008.





10.45
            Escrow
      Agreement, dated as of June 26, 2008 by between among Max Engineering LLC,
      Lincoln Wind LLC, incorporated by reference to Exhibit 10.5 of WPCS
      International Incorporated’s current report on Form 8-K, filed July 1,
      2008.





10.46
            2002
      Employee Stock Option Plan, incorporated by reference to Exhibit 4.4 of
      WPCS International Incorporated’s Annual Report on Form 10-KSB, filed
      August 14, 2003.





10.47
            2006
      Incentive Stock Plan, incorporated by reference to Exhibit 4.2 of WPCS
      International Incorporated’s registration statement on Form S-8, filed
      September 21, 2005.





10.48
            2007
      Incentive Stock Plan, incorporated by reference to Exhibit A of WPCS
      International Incorporated’s definitive proxy statement on Schedule 14A,
      filed August 18, 2006.





10.49
            Amendment to Employment Agreement, dated as of June 1,
      2008, by and between WPCS International Incorporated and Andrew Hidalgo,
      filed herewith.





10.50
            Amendment to Employment Agreement, dated as of June 1,
      2008, by and between WPCS International Incorporated and Joseph Heater,
      filed herewith.





10.51
            Agreement, dated as of June 1, 2008, by and between WPCS
      International Incorporated and Richard Schubiger, filed
      herewith.





14
            Code
      of Ethics and Business Conduct, incorporated by reference to Exhibit 14 of
      WPCS International Incorporated’s annual report on Form 10-KSB, filed
      August 14, 2003.





21.1
            Subsidiaries
      of the registrant, filed herewith.





23.1
            Consent
      of J.H. Cohn LLP, Independent Registered Public Accounting
      Firm.






42




31.1
            Certification of Chief Executive Officer pursuant to Rule
      13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange
      Act of 1934, as amended





31.2
            Certification of Chief Financial Officer pursuant to Rule
      13a-14 and Rule 15d 14(a), promulgated under the Securities and Exchange
      Act of 1934, as amended





32.1
            Certification pursuant to 18 U.S.C. Section 1350, as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief
      Executive Officer)





32.2
            Certification pursuant to 18 U.S.C. Section 1350, as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief
      Financial Officer)































43






SCHEDULE
II


VALUATION
AND QUALIFYING ACCOUNTS


Forthe
years ended April 30, 2008 and 2007




(A)
      Description

                Allowance

                  for
      Doubtful Accounts
            
            (B)
      Balanceat Beginning of
      Period
            
            
            (C)
      AdditionsCharged to Costs and
      Expenses
            
            
            (D)
      Deductions
            
            
            
            
            
            (E)
      Balanceat end of
      PeriodApril
      30, 2006
            
            $
            75,786
            
            
            
            35,877
            
            
            $
            (6877
            )
            
            
            (1
            )
            
            $
            104,786April
      30, 2007
            
            
            104,786
            
            
            
            -
            
            
            
            (6,000
            )
            
            
            (1
            )
            
            
            98,786April
      30, 2008
            
            $
            98,786
            
            
            
            -
            
            
            
            -
            
            
            
            
            
            
            $
            98,786




(1).
Write-off of uncollectible accounts.






44








SIGNATURES





In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.





WPCS INTERNATIONAL
INCORPORATED





Date:  July
      29, 2008
            By:/s/ ANDREW HIDALGOAndrew
      HidalgoChief
      Executive Officer (Principal Executive Officer)Date:  July
      29, 2008
            By:/s/ JOSEPH HEATERJoseph
      HeaterChief
      Financial Officer (Principal Accounting Officer)





Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.





Name
            
            Position
            
            Date/s/ ANDREW HIDALGO
              
              Andrew
      Hidalgo
            
            Chairman
      of the Board
            
            July
      29, 2008/s/ NORM DUMBROFF
              
              Norm
      Dumbroff
            
            Director
            
            July
      29, 2008/s/ NEIL HEBENTON
              
              Neil
      Hebenton
            
            Director
            
            July
      29, 2008/s/ GARY WALKER
              
              Gary
      Walker
            
            Director
            
            July
      29, 2008/s/ WILLIAM WHITEHEAD
              
              William
      Whitehead
            
            Director
            
            July
      29, 2008









45