**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**





**FORM
      10-K**





(Mark
      One)


**[X]
      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE**


**ACT
      OF 1934**





**For
      the Fiscal Year Ended April 30, 2007**





**[
      ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
      SECURITIES**


**EXCHANGE
      ACT OF 1934**





**For
      the transition period from _________ to __________**





**Commission
      file number: 0-26277**





**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**


**** (Address
      of principal executive offices)





**(610)
      903-0400**


(Registrant's
      telephone number, including area code)





Securities
      registered pursuant to Section 12(b) of the Act:




Title
                of each class
            Name
                of each exchange on which
                registeredCommon
                Stock, $0.0001 par value
            The
                NASDAQ Stock Market LLC
              (NASDAQ
                Global Market)





Securities
      registered pursuant to Section 12(g) of the Act:





Title
      of
      class: 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. Yes x No o





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, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange
      Act.





Large
      accelerated filer o Accelerated filer o Non-accelerated filer x





Indicate
      by check mark whether the registrant is a shell company (as defined by Rule
      12b-2 of the Act.)  Yes o No x  The
        aggregate market value of the voting common equity held by non-affiliates
        as of
        October 31, 2006, based on the closing sales price of the Common Stock as
        quoted
        on the Nasdaq Capital Market was $35,455,837.90. 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 26, 2007, there were 6,979,256 shares of issuer’s common stock outstanding.





**TABLE
      OF CONTENTS**





**PAGE****PART
                I**Item
                1.
            
            Business
            
            4Item
                1A.
            
            Risk
                Factors
            
            9Item
                2.
            
            Properties
            
            14Item
                3.
            
            Legal
                Proceedings
            
            14Item
                4.
            
            Submission
                of Matters to a Vote of Security Holders
            
            14**PART
                II**Item
                5.
            
            Market
                for Registrant’s Common Equity, Related Stockholder Matters and Issuer
                Purchases ofEquity Securities
            
            15Item
                6.
            
            Selected
                Financial Data
            
            17Item
                7.
            
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            
            18Item
                7A.
            
            Quantitative
                and Qualitative Disclosures about Market Risk
            
            29Item
                8.
            
            Financial
                Statements and Supplementary Data
            
            F-1-F-31Item
                9.
            
            Changes
                in and Disagreements with Accountants on Accounting and Financial
                Disclosures
            
            30Item
                9A.
            
            Controls
                and Procedures
            
            30Item
                9B.
            
            Other
                Information
            
            30**PART
                III**Item
                10.
            
            Directors,
                Executive Officers and Corporate Governance
            
            31Item
                11.
            
            Executive
                Compensation
            
            34Item
                12.
            
            Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters
            
            39Item
                13.
            
            Certain
                Relationships and Related Transactions, and Director
                Independence
            
            41Item
                14.
            
            Principal
                Accountant Fees and Services
            
            41**PART
                IV**Item
                15.
            
            Exhibits
                and Financial Statement Schedules
            
            42Signatures
            
            47





3


**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 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), and its 60% interest in Taian AGS Pipeline Construction Co.
      Ltd (TAGS) from April 5, 2007 ( 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, capacity, 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 for specialty communication systems, which are dedicated wireless
      networks for specified applications and for wireless infrastructure, which
      encompasses cellular networks for wireless carriers. Our range of services
      includes site design, spectrum analysis, product integration, structured
      cabling, electrical work, trenching, construction, testing, project management
      and maintenance. Because we are technology and vendor 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. Our customers include corporations, government entities and educational
      institutions .





With
      twelve offices across the United States and one office in China, we provide
      our
      services to our customers nationwide and internationally. 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, 2007, we generated revenues of approximately $70 million, an increase of
      34.2% from the fiscal year ended April 30, 2006. Our backlog at April 30, 2007
      was approximately $34.9 million.





4


**Industry
      Background**





Worldwide
      use of wireless communications has grown rapidly. According to a
      Telecommunications Industry Association report, in 2006, the domestic corporate,
      government and education sectors spent an estimated $8.8 billion on the
      deployment of wireless networks and expenditures are growing at 25% per year.
      In
      2006, the international corporate, government and education sectors spent an
      estimated $28.1 billion on the deployment of wireless networks and expenditures
      are growing at 33% per year. According to a report issued by The Cellular
      Telecommunications & Internet Association (CTIA), wireless carriers spent
      $33 billion on capital investments and expenditures are growing at 14% per
      year.
      The growing numbers of wireless users has fueled the growth of the wireless
      services industry.





*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.





•
            *Capacity.*Current
                technology allows wireless transmission with capacity, quality and
                reliability superior to land line and comparable to fiber. For example,
                current radio technology is capable of two-way data transfer at rates
                up
                to 1 gigabits per second, allowing wireless networks to transmit
                content
                as quickly as over fiber in most
                instances.





•
            *Cost.*Wireless
                networks cost less than comparable landline networks both to deploy
                and to
                operate. Wireless deployment is less expensive because the installation
                of
                a landline 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, equipment, to continue to decline
                as
                technology advances and production volumes increase. Operating costs
                of
                wireless networks are also lower because landlines 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:


5





•
            *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, security and gaming. 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.





•
            *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. Since April 30, 2007, we have signed letters
                of
                intent to acquire Major Electric, Inc. and Max Engineering LLC. We
                expect
                these acquisitions to close by August 1, 2007, subject to completion
                of
                due diligence and the execution of definitive agreements.





**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, 2007, specialty
      communication systems represented approximately 81% of our total revenue, and
      wireless infrastructure services represented approximately 19% of our total
      revenue. For the fiscal year ended April 30, 2006, specialty communication
      systems represented approximately 82% of our total revenue, and wireless
      infrastructure services represented approximately 18% 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. In mobile computing,
      the
      most popular use is the transfer of data, voice or video from a server to a
      mobile device, which can be achieved through the following
      applications:





•
            Asset
                tracking, which is a wireless network that monitors the location
                of mobile
                assets such as vehicles or stationary assets such as
                equipment;





•
            Telematics,
                which are instructions sent through a wireless network that controls
                a
                device such as a slot machine or traffic signal;
                and





•
            Telemetry,
                which is the acquisition of data from a measuring device, such as
                devices
                used at a water treatment plant to maintain the integrity of drinking
                water.





In
      general wireless connectivity, we design and deploy networks that allow entities
      to reduce their dependence on high cost 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.





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. As open
      standards continue to supplant vendor proprietary protocols and products in
      the
      marketplace, we believe our independent position will allow us to capture an
      increasing share of the specialty communication systems market. 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.


6





*Wireless
      Infrastructure Services*





We
      provide wireless infrastructure services to major wireless carriers. 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. The range of infrastructure
      services includes the following:





•
            Installation,
                testing and commissioning of base station equipment, which is the
                installation of radio frequency equipment inside the shelter at a
                cell
                site, and testing to ensure that the equipment is operating prior
                to cell
                site activation;





•
            Equipment
                modification and reconfiguration, which involves replacing old equipment
                with new equipment, re-routing cables, and re-locating equipment
                at the
                cell site;





•
            Network
                modifications, which refers to work done on existing cell sites to
                increase capacity or change the direction of sectors or
                antennas;





•
            Sectorization,
                which is the installation of antennas to existing cell towers to
                increase
                the capacity of the cell site; and





•
            Maintenance,
                which includes antenna maintenance to replace damaged antennas, installing
                tower lighting control panels or sensors, or repairing damaged
                shelters.





*Project
      Characteristics*





Our
      contracts are 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 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 years ended April 30, 2007 and 2006, we had revenue from a customer,
      Genentech, of approximately $12.7 million or 18.1% and $7.6 million or 14.5%,
      respectively. In addition, for the fiscal years ended April 30, 2007 and 2006,
      we had revenue from a customer, Sprint Nextel, of approximately $8.2 million
      or
      11.7% and $10.8 million or 20.8%, 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.


7







**Backlog**





As
      of
      April 30, 2007, we had a backlog of unfilled orders of approximately $34.9
      million compared to approximately $15.9 million at April 30, 2006. 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 Tetra Tech Incorporated (NASDAQ-TTEK) and Black
      Box Corporation (NASDAQ-BBOX) 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 allows 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, 2007, we employed 361 full time employees, of whom 239 are project
      engineers, 27 are project managers, 89 are in administration and sales and
      six
      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
      approximately 106 union employees. A contract with 15 union employees expired
      on
      May 31, 2007. A new contract with this union has been negotiated and is in
      the
      process of completion. A contract with six union employees expires on September
      30, 2007. A contract with 85 union employees expires on November 30, 2008.


8





**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.


**We
      have a limited history of profitability which may not
      continue.**





While
      we
      had net income of approximately $4.6 million for the fiscal year ended April
      30,
      2007, we incurred a net loss of approximately $1.6 million for the fiscal year
      ended April 30, 2006. There can be no assurance that we will sustain
      profitability or generate positive cash flow from operating activities in the
      future. If we cannot achieve operating profitability or positive cash flow
      from
      operating activities, we may not be able to meet our working capital
      requirements. If we are unable to meet our working capital requirements, we
      may
      need to reduce or cease all or part of our operations.





**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.





**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.





9


**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 nine 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 fiscal year
      ended April 30, 2007, we had two separate customers which accounted for 18.1%
      and 11.7% of our revenues. For the fiscal year ended April 30, 2006, we had
      two
      separate customers which accounted for 20.8% and 14.5% 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.





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





As
      of
      April 30, 2007, we had a backlog of unfilled orders of approximately $34.9
      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.


10


**If
      we are unable to retain the services of Messrs. Hidalgo, Schubiger, Heinz,
      Walker, or Madenford 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, and Charles Madenford, 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 and Madenford
      run the day-to-day operations of Quality, Heinz, Walker Comm, and Clayborn
      respectively. Loss of the services of Messrs. Hidalgo, Schubiger, Heinz, Walker
      or Madenford 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 or Madenford.





**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 29% 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. Eight of our acquired companies, Clayborn, Heinz, Invisinet,
      Quality, Walker Comm, NECS, SECS and Voacolo, each of which is a reporting
      unit,
      are subject to 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.





**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, 2006 and April 30,
      2007,
      our common stock has traded as low as $6.53 and as high as $13.74 per share,
      based upon information provided by NASDAQ
      Capital Market and 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:


11





•
            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.





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. For example, in December 2004, the Financial Accounting Standards
      Board issued SFAS No. 123(R), “Share-Based Payment,” a revision of SFAS No. 123,
“Accounting for Stock-Based Compensation,” which requires companies to expense
      all employee stock options and other share-based payments over the service
      period. Implementation of this standard as required during the first fiscal
      quarter of our fiscal year 2007 may impair our ability to use equity
      compensation to attract and retain skilled personnel. It is likely that we
      will
      have to recognize additional compensation expense in the periods after adoption
      of this standard.





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.


12




**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
      July 15, 2007, holders of our outstanding options and warrants have the right
      to
      acquire 2,454,216 shares of common stock issuable upon the exercise of stock
      options and warrants, at exercise prices ranging from $4.80 to $19.92 per share,
      with a weighted average exercise price of $7.02. 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;





·
            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 our operations in
      China.





13


**ITEM
      2 - PROPERTIES**





**Properties**





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


**Minimum****Lease**
              **Annual****Location**
              **Subsidiary**
              **Expiration
                  Date**
              **Rent**Exton,
                  Pennsylvania
              WPCS
                  Corporate headquarters
              February
                  1, 2008
              $51,000Auburn,
                  California (1)
              Clayborn
              Month-to-month
              $64,440St.
                  Louis, Missouri
              Heinz
              August
                  31, 2010
              $56,142Exton,
                  Pennsylvania
              Heinz
              July
                  31, 2008
              $8,640Windsor,
                  Connecticut
              NECS
              April
                  30, 2014
              $80,821Chicopee,
                  Massachusetts
              NECS
              August
                  31, 2007
              $3,000Lakewood,
                  New Jersey
              Quality
              August
                  31, 2007
              $118,370Sarasota,
                  Florida (2)
              SECS
              July
                  31, 2011
              $51,360Trenton,
                  New Jersey (3)
              Voacolo
              April
                  1, 2008
              $54,000Fairfield,
                  California (4)
              Walker
                  Comm
              February
                  28, 2011
              $96,950Rocklin,
                  California
              Walker
                  Comm
              January
                  31, 2008
              $27,300San
                  Leandro, California
              Walker
                  Comm
              July
                  31, 2008
              $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.


(2) We
      lease
      our Sarasota, Florida location from a trust, of which one of the former
      shareholders of Southeastern Communications Services, Inc., is the
      trustee.


(3)
      We
      lease our Trenton, New Jersey location from Voacolo Properties LLC, of which
      the
      former shareholders of Voacolo Electric, Inc., are the members.


(4)
      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, 2005 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**
            
            **Low****Fiscal
                Year Ended April 30, 2007:**First
                Quarter
            
            $
            9.80
            
            $
            6.53Second
                Quarter
            
            
            10.75
            
            
            6.60Third
                Quarter
            
            
            10.58
            
            
            8.64Fourth
                Quarter
            
            
            13.74
            
            
            9.30**Fiscal
                Year Ending April 30, 2006:**First
                Quarter
            
            $
            9.18
            
            $
            4.32Second
                Quarter
            
            
            9.03
            
            
            5.58Third
                Quarter
            
            
            12.78
            
            
            6.12Fourth
                Quarter
            
            
            12.45
            
            
            7.20





On
      July
      26, 2007, the closing sale price of our common stock, as reported by the NASDAQ
      Global Market, was $13.23 per share. On July 26, 2007, there were 76 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.




15




**STOCK
      PRICE PERFORMANCE GRAPH**





Prior
      to
      May 24, 2002, we were not publicly traded and there was no public market for
      our
      securities. On May 24, 2002, we completed a reverse merger and began trading
      on
      the Over the Counter Bulletin Board. Our shares did not begin actively trading
      until May 29, 2002. The graph below compares the cumulative total return of
      our
      common shares with that of the NASDAQ Composite Index and the NASDAQ
      Telecommunications Index from May 29, 2002 (the date our shares first began
      actively trading) through April 30, 2007. The graph assumes that you invested
      $100 at the close of market on May 29, 2002 in our common shares and $100
      invested at that same time in each of the indexes. The comparisons in this
      graph
      are provided in accordance with SEC disclosure requirements and are not intended
      to forecast or be indicative of the future performance of our common
      shares.
















Reverse
              Merger
            4/30/03
            4/30/04
            4/30/05
            4/30/06
            4/30/07WPCS
                International
            $
                100.00
            $
                46.00
            $
                45.60
            $
                16.50
            $
                28.10
            $
                44.83NASDAQ
                Composite Index
            $
                100.00
            $
                86.74
            $
                113.74
            $
                113.83
            $
                137.57
            $
                149.57NASDAQ
                Telecommunications Index
            $
                100.00
            $
                91.94
            $
                124.49
            $
                124.29
            $
                157.46
            $
                175.28









16








**ITEM
      6 - SELECTED FINANCIAL DATA**





The
      following selected consolidated financial data should be read in conjunction
      with our consolidated financial statements and related notes and “Management’s
      Discussion and Analysis of Financial Condition and Results of Operations”
included elsewhere in this Annual Report. The statements of operations data
      for
      the fiscal years ended April 30, 2007, 2006 and 2005 and the balance sheet
      data
      at April 30, 2007 and 2006 are derived from our audited financial statements
      which are included elsewhere in this Annual Report. The statement of operations
      data for the years ended April 30, 2004 and 2003 and the balance sheet data
      at
      April 30, 2005, 2004 and 2003 are derived from our audited financial statements
      which are not included in this Annual Report. The historical results are not
      necessarily indicative of results to be expected for future periods.





**2007**
              
              **2006**
              
              **2005**
              
              **2004**
              
              **2003**REVENUE
              
              $
              70,000,070
              
              $
              52,144,575
              
              $
              40,148,233
              
              $
              22,076,246
              
              $
              5,422,858COSTS
                  AND EXPENSES:Cost
                  of revenue
              
              
              47,781,351
              
              
              38,010,945
              
              
              32,445,470
              
              
              17,286,099
              
              
              3,768,495Selling,
                  general and administrative expenses
              
              
              13,244,909
              
              
              9,191,392
              
              
              7,032,504
              
              
              4,441,776
              
              
              1,892,609Depreciation
                  and amortization
              
              
              1,239,486
              
              
              837,789
              
              
              682,397
              
              
              382,510
              
              
              116,501Total
                  costs and expenses
              
              
              62,265,746
              
              
              48,040,126
              
              
              40,160,371
              
              
              22,110,385
              
              
              5,777,605OPERATING
                  INCOME (LOSS)
              
              
              7,734,324
              
              
              4,104,449
              
              
              (12,138
              )
              
              (34,139
              )
              
              (354,747
              )OTHER
                  EXPENSE (INCOME):Interest
                  expense
              
              
              496,330
              
              
              256,022
              
              
              31,865
              
              
              14,048
              
              
              6,997Interest
                  income
              
              
              (525,524
              )
              
              (121,720
              )
              
              (10,817
              )
              
              -
              
              
              -Minority
                  interest
              
              
              23,099
              
              
              -
              
              
              -
              
              
              -
              
              
              -Loss
                  (gain) on change in fair value of warrants
              
              
              -
              
              
              4,078,494
              
              
              (1,414,263
              )
              
              -
              
              
              -INCOME
                  (LOSS) BEFORE INCOME TAX PROVISION
              
              
              7,740,419
              
              
              (108,347
              )
              
              1,381,077
              
              
              (48,187
              )
              
              (361,744
              )Income
                  tax provision
              
              
              3,146,818
              
              
              1,515,773
              
              
              52,096
              
              
              76,000
              
              
              19,550NET
                  INCOME (LOSS)
              
              $
              4,593,601
              
              
              ($1,624,120
              )
              $
              1,328,981
              
              
              ($124,187
              )
              
              ($381,294
              )Basic
                  net income (loss) per common share
              
              $
              0.80
              
              
              ($0.40
              )
              $
              0.50
              
              
              ($0.01
              )
              
              ($0.05
              )Diluted
                  net income (loss) per common share
              
              $
              0.72
              
              
              ($0.40
              )
              $
              0.49
              
              
              ($0.01
              )
              
              ($0.05
              )




**BALANCE
                  SHEET DATA:**CASH
                  AND CASH EQUIVALENTS
              
              $
              21,558,739
              
              $
              12,279,646
              
              $
              989,252
              
              $
              1,984,636
              
              $
              167,547TOTAL
                  ASSETS
              
              
              71,691,670
              
              
              44,122,318
              
              
              30,176,711
              
              
              20,882,097
              
              
              9,821,226LONG-TERM
                  DEBT
              
              
              7,337,105
              
              
              3,487,757
              
              
              831,156
              
              
              815,418
              
              
              -WORKING
                  CAPITAL ( Current Assets less
              
              
              30,319,951
              
              
              20,175,844
              
              
              5,095,320
              
              
              2,396,169
              
              
              1,435,134Current
                  Liabilities)SHAREHOLDERS'
                  EQUITY
              
              $
              51,531,983
              
              $
              32,563,270
              
              
              12,628,407
              
              $
              11,287,755
              
              $
              7,460,887


17





**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.*





**Business
      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, capacity, 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 for specialty communication systems, which are dedicated wireless
      networks for specified applications and for wireless infrastructure, which
      encompasses cellular networks for wireless carriers. Our range of services
      includes site design, spectrum analysis, product integration, structured
      cabling, electrical work, trenching, construction, testing, project management
      and maintenance. Because we are technology and vendor 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. Our customers include corporations, government entities and educational
      institutions .





We
      operate in two segments that we define as specialty communication systems and
      wireless infrastructure services.





**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. In mobile communication, the most popular applications
      include asset tracking, telematics and telemetry.





In
      general wireless connectivity, we design and deploy networks that allow entities
      to reduce their dependence on high cost 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.
      For the year ended April 30, 2007, specialty communication systems represented
      approximately 81% of our total revenue.





**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, test and commission 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.


18




Major
      wireless carriers have come to depend on our experience in providing engineering
      and support services that keep their networks technologically advanced and
      consistently operational. We have extensive experience in the installation,
      testing and commissioning of base station equipment. We provide complete
      services including testing, equipment modification, reconfiguration, structured
      cabling and relocating equipment at the cell site. In addition, WPCS also
      performs network modifications, antenna sectorization, electrical work and
      maintenance. For the year ended April 30, 2007, wireless infrastructure services
      represented approximately 19% of our total revenue.





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, 2007, the specialty communication systems
                segment
                represented approximately 81% of total revenue, and the wireless
                infrastructure services segment represented approximately 19% of
                total
                revenue, which remains consistent with our historical services revenue
                mix.





·
            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.





·
            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 emergence of new and improved technologies such
                as WiMAX
                will create additional opportunities for us to design and deploy
                solutions
                through the use of the latest technologies and assisting existing
                customers in enhancing the efficiency of their existing wireless
                networks
                using new technologies.





·
            We
                believe that the wireless carriers will continue to make expenditures
                to
                build and upgrade their networks, increase existing capacity, upgrade
                their networks with new technologies and maintain their existing
                infrastructure. In response to this trend, we will continue to provide
                network deployment services that address wireless carrier
                needs.





·
            In
                connection with the sale of our common stock and warrants to certain
                investors during the third quarter ended January 31, 2005, we granted
                certain registration rights that provided for liquidated damages
                in the
                event of failure to timely perform under the agreements. During the
                third
                quarter of fiscal 2006, we became aware that the SEC had recently
                announced its preferred interpretation of the accounting for common
                stock
                and warrants with registration rights under Emerging Issues Task
                Force
                (EITF) 00-19, “Accounting for Derivative Financial Instruments Indexed To,
                and Potentially Settled in the Company’s Own Stock,” and EITF 05-04, “The
                Effect of a Liquidated Damages Clause on a Freestanding Financial
                Instrument Subject to EITF 00-19.” Although the EITF was still reviewing
                the guidance in EITF 05-04, the SEC concluded that under EITF 00-19,
                the
                common stock and warrants subject to registration rights where significant
                liquidated damages could be required to be paid to the holder of
                the
                instrument in the event the issuer fails to maintain the effectiveness
                of
                a registration statement for a preset time period does not meet the
                tests
                required for shareholders’ equity classification and accordingly, must be
                reflected as temporary equity in the balance sheet until the conditions
                are eliminated. Additionally, the fair value of warrants should be
                recorded as a liability, with an offsetting reduction to shareholders’
                equity, adjusted to market value at the end of each period. In analyzing
                instruments under EITF 00-19, the SEC concluded that the likelihood
                or
                probability related to the failure to maintain an effective registration
                statement was not a factor at that time. During fiscal 2006, the
                warrant
                liability increased by $4,078,494, due to the increase in the market
                value
                of our common stock, resulting in a net non-cash loss on fair value
                of
                warrants for the fiscal year ended April 30, 2006. The non-cash loss
                on
                warrants had no effect on our cash flows or liquidity. On April 11,
                2006,
                we entered into a waiver agreement with the institutional investors
                related to this private placement. Under the waiver, the parties
                agreed to
                modify the registration rights agreement associated with the common
                stock
                and warrants issued in November 2004 affected by EITF 00-19, thereby
                eliminating the penalty provisions that could have resulted from
                not
                maintaining an effective registration statement related to these
                common
                shares and shares underlying the warrants, and eliminating any similar
                non-cash charges in subsequent fiscal
                years.





19


**Results
      of Operations for the Fiscal Year ended April 30, 2007 Compared to Fiscal Year
      Ended April 30, 2006**





The
      accompanying consolidated financial statements include the accounts of WPCS
      International Incorporated (WPCS) and its wholly 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), and its 60% interest in Taian AGS Pipeline Construction Co.
      Ltd (TAGS) from April 5, 2007 ( date of acquisition), collectively the
      "Company". Consolidated results for the year ended April 30, 2007 and 2006
      are
      as follows.





**Year
                Ended****April
                30,****2007**
            
            **2006**REVENUE
            
            $
            70,000,070
            
            
            100.0
            %
            $
            52,144,575
            
            
            100.0
            %COSTS
                AND EXPENSES:Cost
                of revenue
            
            
            47,781,351
            
            
            68.3
            %
            
            38,010,945
            
            
            72.9
            %Selling,
                general and administrative expenses
            
            
            13,244,909
            
            
            18.9
            %
            
            9,191,392
            
            
            17.6
            %Depreciation
                and amortization
            
            
            1,239,486
            
            
            1.8
            %
            
            837,789
            
            
            1.6
            %Total
                costs and expenses
            
            
            62,265,746
            
            
            89.0
            %
            
            48,040,126
            
            
            92.1
            %OPERATING
                INCOME
            
            
            7,734,324
            
            
            11.0
            %
            
            4,104,449
            
            
            7.9
            %OTHER
                EXPENSE (INCOME):Interest
                expense
            
            
            496,330
            
            
            0.7
            %
            
            256,022
            
            
            0.5
            %Interest
                income
            
            
            (525,524
            )
            
            (0.8
            %)
            
            (121,720
            )
            
            (0.2
            %)Minority
                interest
            
            
            23,099
            
            
            0.0
            %
            
            -
            
            
            0.0
            %Loss
                on change in fair value of warrants
            
            
            -
            
            
            0.0
            %
            
            4,078,494
            
            
            7.8
            %INCOME
                (LOSS) BEFORE INCOME TAX PROVISION
            
            
            7,740,419
            
            
            11.1
            %
            
            (108,347
            )
            
            (0.2
            %)Income
                tax provision
            
            
            3,146,818
            
            
            4.5
            %
            
            1,515,773
            
            
            2.9
            %NET
                INCOME (LOSS)
            
            $
            4,593,601
            
            
            6.6
            %
            
            ($1,624,120
            )
            
            (3.1
            %)





***Revenue***





Revenue
      for the year ended April 30, 2007 was approximately $70,000,000, as compared
      to
      $52,145,000 for the year ended April 30, 2006. The increase in revenue for
      the
      year was primarily attributable to the acquisition of NECS on June 1, 2006,
      SECS
      on July 19, 2006, Voacolo on March 30, 2007, TAGS on April 5, 2007 and from
      organic growth. For the year ended April 30, 2007, we had two separate customers
      which comprised 18.1% and 11.7% of total revenue. For the year ended April
      30,
      2006, we had two separate customers which comprised 20.8% and 14.5% of total
      revenue.





Total
      revenue from the specialty communication segment for the years ended April
      30,
      2007 and 2006 was approximately $56,750,000 or 81.1% and $42,844,000 or 82.2%
      of
      total revenue, respectively. The increase in revenue was attributable to organic
      growth and the acquisition of NECS, Voacolo and TAGS. Wireless infrastructure
      segment revenue for the years ended April 30, 2007 and 2006 was approximately
      $13,250,000 or 18.9% and $9,300,000 or 17.8% of total revenue, respectively.
      The
      increase in revenue was attributable to the acquisition of
      SECS.





20


***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 $47,781,000 or 68.3% of revenue for the year ended
      April 30, 2007, compared to $38,011,000 or 72.9% 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, 2007 as a result of the acquisition
      of
      NECS, SECS, Voacolo, TAGS and from organic growth. The decrease in cost of
      revenue as a percentage of revenue is due primarily to the revenue mix
      attributable to revenue from Walker, Clayborn, Heinz, Quality and the
      acquisitions of NECS, SECS, Voacolo and TAGS.





The
      specialty communication segment cost of revenue and cost of revenue as a
      percentage of revenue for the years ended April 30, 2007 and 2006 was
      approximately $38,144,000 and 67.2% and $31,194,000 and 72.8%, 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, 2006 as a
      result of the acquisitions of NECS, Voacolo and TAGS and from organic growth.
      The decrease in cost of revenue as a percentage of revenue is due primarily
      to
      the revenue mix attributable to revenue from Walker, Clayborn, Quality and
      the
      acquisitions of NECS, Voacolo and TAGS.




Wireless
      infrastructure segment cost of revenue and cost of revenue as a percentage
      of
      revenue for the years ended April 30, 2007 and 2006 was approximately $9,637,000
      and 72.7% and $6,817,000 and 73.3%, respectively. The dollar increase in our
      total cost of revenue is due to the corresponding increase in revenue during
      the
      year ended April 30, 2007 as a result of the acquisition of SECS. The decrease
      in cost of revenue as a percentage of revenue is due to the revenue mix
      attributable to Heinz and SECS.





***Selling,
      General and Administrative 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 compared to
      $9,191,000, or 17.6% of revenue for the prior year. 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. The increase
      in salaries and payroll taxes compared to the prior year is due to the increase
      in headcount as a result of the acquisition of NECS, SECS, Voacolo and TAGS.
      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.





For
      the
      year ended April 30, 2006, total selling, general and administrative expenses
      were approximately $9,191,000, or 17.6% of total revenue. Included in selling,
      general and administrative expenses for the year ended April 30, 2006 are
      $5,251,000 for salaries, commissions, payroll taxes and other employee benefits.
      The increase in salaries and payroll taxes compared to the prior year is due
      to
      the increase in headcount as a result of the acquisition of Quality.
      Professional fees were $514,000, which include accounting, legal and investor
      relation fees. Insurance costs were $1,411,000 and rent for office facilities
      was $396,000. Automobile and other travel expenses were $713,000 and
      telecommunication expenses were $231,000. Other selling, general and
      administrative expenses totaled $675,000. For the year ended April 30, 2006,
      total selling, general and administrative expenses for the specialty
      communication and wireless infrastructure segments were $6,725,000 and
      $1,139,000, respectively.





***Depreciation
      and Amortization***





For
      the
      years ended April 30, 2007 and 2006, depreciation was approximately $776,000
      and
      $544,000, 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 and TAGS. The amortization of customer lists and backlog for
      the
      year ended April 30, 2007 was $463,000 as compared to $294,000 for the same
      period of the prior year. The increase in amortization was due to the
      acquisition of customer lists from NECS, SECS and Voacolo and backlog from
      SECS
      and Voacolo. All customer lists are amortized over a period of five to eight
      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.





***Interest
      Expense and Interest Income***





For
      the
      years ended April 30, 2007 and 2006, interest expense was approximately $496,000
      and $256,000, respectively. The increase in interest expense is due principally
      from increased borrowings on the revolving line of credit and the amortization
      of debt issuance costs under the credit agreement entered into on June 3,
      2005.


21


For
      the
      years ended April 30, 2007 and 2006, interest income was approximately $526,000
      and $122,000, respectively. The increase in interest earned is due principally
      to the increase in our cash and cash equivalent balance in fiscal 2007 from
      cash
      provided by operations and the proceeds received from the issuance of
      common stock.





***Net
      Income (Loss)***





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. The variation in effective tax rates between periods was primarily
      due to the nondeductible loss on fair value of warrants in fiscal 2006.





The
      net
      loss was approximately $1,624,000 for the year ended April 30, 2006. Net loss
      is
      net of federal and state income tax expense of approximately $1,516,000. The
      variation in effective tax rates between periods is primarily due to the Quality
      acquisition and the loss on fair value of warrants described above.





**Results
      of Operations for the Fiscal Year ended April 30, 2006 Compared to Fiscal Year
      Ended April 30, 2005**





Consolidated
      results for the year ended April 30, 2006 and 2005 are as follows. Certain
      reclassifications have been made to prior year financial statements to conform
      to the current presentation.





**Year
                Ended****April
                30,****2006**
            
            **2005**REVENUE
            
            $
            52,144,575
            
            
            100.0
            %
            $
            40,148,233
            
            
            100.0
            %COSTS
                AND EXPENSES:Cost
                of revenue
            
            
            38,010,945
            
            
            72.9
            %
            
            32,445,470
            
            
            80.8
            %Selling,
                general and administrative expenses
            
            
            9,191,392
            
            
            17.6
            %
            
            7,032,504
            
            
            17.5
            %Depreciation
                and amortization
            
            
            837,789
            
            
            1.6
            %
            
            682,397
            
            
            1.7
            %Total
                costs and expenses
            
            
            48,040,126
            
            
            92.1
            %
            
            40,160,371
            
            
            100.0
            %OPERATING
                INCOME (LOSS)
            
            
            4,104,449
            
            
            7.9
            %
            
            (12,138
            )
            
            0.0
            %OTHER
                EXPENSE (INCOME):Interest
                expense
            
            
            256,022
            
            
            0.5
            %
            
            31,865
            
            
            0.1
            %Interest
                income
            
            
            (121,720
            )
            
            (0.2
            %)
            
            (10,817
            )
            
            0.0
            %Loss
                (gain) on change in fair value of warrants
            
            
            4,078,494
            
            
            7.8
            %
            
            (1,414,263
            )
            
            (3.5
            %)INCOME
                (LOSS) BEFORE INCOME TAX PROVISION
            
            
            (108,347
            )
            
            (0.2
            %)
            
            1,381,077
            
            
            3.4
            %Income
                tax provision
            
            
            1,515,773
            
            
            2.9
            %
            
            52,096
            
            
            0.1
            %NET
                INCOME (LOSS)
            
            
            ($1,624,120
            )
            
            (3.1
            %)
            $
            1,328,981
            
            
            3.3
            %





***Revenue***





Revenue
      for the year ended April 30, 2006 was approximately $52,145,000, as compared
      to
      $40,148,000 for the year ended April 30, 2005. The increase in revenue for
      the
      year was primarily attributable to the acquisition of Quality on November 24,
      2004 and from organic growth. For the year ended April 30, 2006, we had two
      separate customers which comprised 20.8% and 14.5% of total revenue. For the
      year ended April 30, 2005, we had one customer which comprised 15.5% of total
      revenue.





Total
      revenue from the specialty communication segment for the years ended April
      30,
      2006 and 2005 was approximately $42,844,000 or 82.2% and $31,497,000 or 78.5%
      of
      total revenue, respectively. Wireless infrastructure segment revenue for the
      years ended April 30, 2006 and 2005 was approximately $9,300,000 or 17.8% and
      $8,651,000 or 21.5% of total revenue, respectively.


22





***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 $38,011,000 or 72.9% of revenue for the year ended
      April 30, 2006, compared to $32,445,000 or 80.8% 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, 2006 as a result of the acquisition
      of
      Quality and from organic growth. The decrease in cost of revenue as a percentage
      of revenue is due primarily to the revenue mix attributable to revenue from
      Walker, Clayborn and Heinz and the acquisition Quality.





The
      specialty communication segment cost of revenue and cost of revenue as a
      percentage of revenue for the years ended April 30, 2006 and 2005 was
      approximately $31,194,000 and 72.8% and $25,919,000 and 82.3%, 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, 2006 as a
      result of the acquisition of Quality. The decrease in cost of revenue as a
      percentage of revenue is due to the revenue mix attributable to revenue from
      Walker and Clayborn and the Quality acquisition.




Wireless
      infrastructure segment cost of revenue and cost of revenue as a percentage
      of
      revenue for the years ended April 30, 2006 and 2005 was approximately $6,817,000
      and 73.3% and $6,526,000 and 75.4%, respectively. The dollar increase in our
      total cost of revenue is due to the corresponding increase in revenue during
      the
      year ended April 30, 2006 as a result of organic growth in revenue from Heinz.
      The decrease in cost of revenue as a percentage of revenue is due to the revenue
      mix attributable to Heinz.





***Selling,
      General and Administrative Expenses***





For
      the
      year ended April 30, 2006, total selling, general and administrative expenses
      were $9,191,000, or 17.6% of total revenue compared to $7,033,000 or 17.5%
      of
      revenue for the prior year. Included in selling, general and administrative
      expenses for the year ended April 30, 2006 are $5,062,000 for salaries,
      commissions, and payroll taxes. The increase in salaries and payroll taxes
      compared to the prior year is due to the increase in headcount as a result
      of
      the acquisition of Quality. Professional fees were $514,000, which include
      accounting, legal and investor relation fees. Insurance costs were $1,411,000
      and rent for office facilities was $396,000. Automobile and other travel
      expenses were $713,000 and telecommunication expenses were $231,000. Other
      selling, general and administrative expenses totaled $864,000. For the year
      ended April 30, 2006, total selling, general and administrative expenses for
      the
      specialty communication and wireless infrastructure segments were $6,725,000
      and
      $1,139,000, respectively.





For
      the
      year ended April 30, 2005, selling, general and administrative expenses were
      $7,033,000 or 17.5% of revenue. Included in the selling, general and
      administrative expenses was $3,656,000 for salaries, commissions and payroll
      taxes, $537,000 in professional fees and insurance costs of $1,164,000. Rent
      for
      our office facilities amounted to $358,000. Automobile and other travel expenses
      were $422,000 and telecommunication expenses were $196,000. Other selling,
      general and administrative expenses totaled $700,000. For the year ended April
      30, 2005, total selling, general and administrative expenses for the specialty
      communication and wireless infrastructure segments were $4,658,000 and
      $1,180,000, respectively.





***Depreciation
      and Amortization***





For
      the
      years ended April 30, 2006 and 2005, depreciation was approximately $544,000
      and
      $372,000, respectively. The increase in depreciation is due to the purchase
      of
      property and equipment and the acquisition of fixed assets from acquiring
      Quality. The amortization of customer lists for the year ended April 30, 2006
      was $294,000 as compared to $310,000 for the same period of the prior year.
      The
      decrease in amortization is due to the amortization of backlog for Heinz in
      the
      prior year, partially offset by an increase in amortization from the acquisition
      of Quality customer lists. All customer lists are amortized over a period of
      five to six years from the date of their acquisition. Backlog is amortized
      over
      a period of one year from the date of acquisition.





***Interest
      Expense and Interest Income***





For
      the
      years ended April 30, 2006 and 2005, interest expense was approximately $256,000
      and $32,000, respectively. The increase in interest expense is due principally
      from borrowings on the revolving line of credit and the amortization of debt
      issuance costs under the credit agreement entered into on June 3,
      2005.





For
      the
      years ended April 30, 2006 and 2005, interest income was approximately $122,000
      and $11,000, respectively. The increase in interest earned is due principally
      to
      the increase in our cash and cash equivalent balance in fiscal 2006 from the
      proceeds received from the exercise of warrants and issuance of common stock.





23


***Loss
      (Gain) on Fair Value of Warrants***




Loss
      on
      fair value of warrants for the year ended April 30, 2006 was approximately
      $4,078,000. The loss in fiscal 2006 was due principally to the increase in
      the
      market value of our common stock in fiscal 2006. The loss represents the
      unrealized non-cash change in the fair value of certain warrants for the year,
      using the Black-Scholes option pricing model. For the year ended April 30,
      2005,
      the gain on fair value of warrants was approximately $1,414,000, due principally
      to the decrease in the market value of our common stock. The non-cash loss
      or
      gain on fair value of warrants has no impact on our cash flows or liquidity.





***Net
      Income (Loss)***





As
      a
      result of the above, the net loss was approximately $1,624,000 for the year
      ended April 30, 2006. Net loss is net of federal and state income tax expense
      of
      approximately $1,516,000. The variation in effective tax rates between periods
      is primarily due to the Quality acquisition and change in fair value of warrants
      described above.





We
      recognized net income of approximately $1,329,000 for the year ended April
      30,
      2005. Income tax of approximately $52,000 was expensed for federal and state
      income taxes.





***Liquidity
      and Capital Resources***





At
      April
      30, 2007, we had working capital of approximately $30,320,000, which consisted
      of current assets of approximately $43,665,000 and current liabilities of
      $13,345,000.





Operating
      activities provided approximately $6,169,000 in cash for the year ended April
      30, 2007. The sources of cash from operating activities total approximately
      $9,115,000, comprised of $4,594,000 net income, $1,294,000 in net non-cash
      charges, a $2,320,000 decrease in accounts receivable, $319,000 decrease in
      inventory and prepaid expenses, a $329,000 increase in billings in excess of
      costs and estimated earnings on uncompleted contracts payable, $222,000 increase
      in deferred revenue and a $37,000 increase in income taxes payable. The uses
      of
      cash from operating activities total approximately $2,946,000, comprised of
      a
      $421,000 increase in costs and estimated earnings in excess of billings on
      uncompleted contracts, a $180,000 increase in other assets, and a $2,345,000
      decrease in accounts payable and accrued expenses.





Our
      investing activities utilized approximately $8,632,000 in cash during the year
      ended April 30, 2007, which consisted of $673,000 paid for property and
      equipment, and $7,959,000 paid for the acquisitions of NECS, SECS, Voacolo,
      and
      TAGS, net of cash acquired of $1,055,000.





Our
      financing activities provided cash of approximately $11,743,000 during the
      year
      ended April 30, 2007. Financing activities include the net proceeds from the
      exercise of warrants of $198,000, net proceeds from the issuance of common
      stock
      of $9,338,000, net proceeds from the exercise of stock options of $1,226,000,
      borrowings under lines of credit of $1,454,000 and a $258,000 tax benefit from
      the exercise of stock options, offset by equity issuance costs of
      $51,000, debt issuance costs of $10,000, net repayments of equipment loans
      and capital lease obligations of approximately $481,000, and $189,000 to pay
      amounts due to shareholders.





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 (the 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 and our subsidiaries 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 basic points (5.32% LIBOR rate plus one and three quarters percent
      as of April 30, 2007). We used the initial funds provided by the loan, in the
      gross amount of $4,454,217 to repay the existing credit agreement with Bank
      Leumi USA, which credit agreement was terminated in connection with the Loan
      Agreement.





At
      April
      30, 2007, we had cash and cash equivalents of approximately $21,559,000 and
      working capital of approximately $30,320,000. With the funds available from
      the
      recently obtained revolving credit line and internally available funds, we
      believe that we have sufficient capital to meet our needs through April 30,
      2008. 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.




24


Effective
      June 1, 2006, we acquired NECS, a Connecticut corporation. The aggregate
      consideration paid the NECS selling shareholders, including acquisition
      transaction costs of $69,775, was $4,737,017, of which $4,333,987 was paid
      at
      closing. Additional purchase price adjustments of $189,077 were paid in October
      2006 to settle working capital adjustments. In March 2007, aggregate additional
      consideration of $144,178 was paid to the NECS selling shareholders based on
      the
      earn out settlement for the calendar year ending December 31, 2006. In
      connection with the acquisition, NECS entered into employment agreements with
      two of the shareholders, each for a period of two years and a consulting
      agreement with one of the shareholders for a period of seven years. A formal
      purchase price allocation has been completed and the amounts assignable to
      tangible assets, other intangible assets and goodwill have been
      determined.




The
      acquisition of NECS provides us with additional project engineering expertise
      for specialty communication systems, broadens our customer base especially
      in
      the public safety and gaming markets, including the Massachusetts State Police,
      University of Connecticut and Foxwoods Resort Casino, and expands our geographic
      presence in New England.





Effective
      July 19, 2006, we acquired SECS of Sarasota, Florida. The aggregate
      consideration we paid to the SECS selling shareholders, including acquisition
      transaction costs of $21,833, was $3,482,346, of which $1,620,000 was paid
      at
      closing, and we issued 200,288 shares of common stock valued at approximately
      $1,400,000. Additional purchase price adjustments of $440,513 were paid in
      November 2006, to settle working capital adjustments. We filed a registration
      statement with the SEC on August 14, 2006 to register the shares of common
      stock
      issued to the former SECS shareholders, which was declared effective by the
      SEC
      on August 24, 2006. In connection with the acquisition, SECS entered into
      employment agreements and a consulting agreement with certain officers or former
      officers of SECS. A formal purchase price allocation has been completed and
      the
      amounts assignable to tangible assets, other intangible assets and goodwill
      have
      been determined.





The
      acquisition of SECS provides us with additional project engineering expertise
      for wireless infrastructure services, broadens our customer base of corporate,
      government and educational clients, including the National Oceanic and
      Atmospheric Administration (NOAA), Verizon, BellSouth, Comcast, Time Warner,
      University of Florida and Puerto Rico Telephone, and expands our geographic
      presence in the Southeastern United States.





Effective
      March 30, 2007, we acquired Voacolo. The aggregate consideration we paid to
      the
      Voacolo selling shareholders, including acquisition transaction costs of
      $24,288, was $2,461,788 of which $1,187,500 was paid at closing, and we issued
      113,534 shares of common stock valued at approximately $1,250,000. The purchase
      price is subject to adjustment for any excess or shortfall between the net
      tangible asset value of Voacolo as of the closing date and $1,200,000. In
      addition, we agreed to pay an additional $2,500,000 in cash or Company common
      stock if Voacolo’s earnings before interest and taxes for the period ending
      twelve months from March 30, 2007 shall equal or exceed $1,100,000. In
      connection with the acquisition, Voacolo entered into employment agreements
      with
      the former Voacolo shareholders, each for a period of  two
      years.





Voacolo
      is an electrical contractor in the Mid-Atlantic area that specializes in both
      high and low voltage applications structured cabling and voice/data/video
      solutions, as well as beginning to expand its operations particularly in
      wireless video surveillance. The company is headquartered in Trenton, New Jersey
      and has completed many major projects for commercial and government
      entities.





Effective
      April 5, 2007, we acquired a 60% working interest (the Equity Interest) and
      a
      60% profit interest (the Profit Interest and together with the Equity Interest,
      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
      purchase price for the Interest was $800,000 in cash and 61,277 shares of common
      stock of the Company having a value of $720,000. The purchase price is subject
      to adjustment in an amount equal to 60% of any shortfall between the net
      tangible asset value of TAGS as of the closing date and $3,300,000.





Founded
      in 1997 and headquartered in the Province of Shandong, 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, which are two of the highest certifications
      achievable for engineering and construction based businesses in China. 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.





We
      recently announced the signing of letters of intent to acquire two companies.
      These transactions are expected to close by August 1, 2007, subject to
      completion of due diligence and the execution of definitive
      agreements.





We
      intend
      to acquire 100% of Major Electric, Inc (Major) for $4 million in cash and stock
      at closing with additional purchase price to be paid upon the achievement of
      a
      certain earnings target for the twelve months ending December 31, 2007. Founded
      in 1994, Major is headquartered in the Seattle area and is a wireless and
      electric contractor specializing in direct digital controls,
      security, wireless supervisory control and data acquisition (SCADA) applications
      and wireless infrastructure services. Major has completed major projects for
      many commercial entities.


25





We
      intend
      to acquire 100% of Max Engineering LLC (Max) for $800,000 in cash and stock
      at
      closing with additional purchase price to be paid upon the achievement of a
      specific two-year earnings goal. Founded in 2000, Max is an engineering firm
      headquartered in Houston, Texas, specializing in the design of specialty
      communication systems and wireless infrastructure for telecommunications, oil,
      gas and wind energy.





***Backlog***





As
      of
      April 30, 2007, we had a backlog of unfilled orders of approximately $34.9
      million compared to approximately $15.9 million at April 30, 2006. 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, estimated life 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,
      and
      payment subsequently received on such receivables are credited to the allowance
      for doubtful accounts.


26





***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 2007 and 2006 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 Invisinet and
      Heinz within our wireless infrastructure segment and Walker, Clayborn and
      Quality 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 and
      credit 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 engineering and deployment services for
      wireless infrastructure services and specialty communication systems. We provide
      a range of services including site
      design, spectrum analysis, product integration, structured cabling, electrical
      work, trenching, construction, testing, project management and
      maintenance .
      Our
      engineering and deployment 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.


27





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***





SFAS
      123(R) (revised December 2004), *Share-Based
      Payment* ,
      an
      amendment of SFAS 123, *Accounting
      for Stock-Based Compensation,* established
      accounting and disclosure requirements using a fair-value-based method of
      accounting for stock-based employee compensation plans. As a result of the
      amendments to SFAS 123, we are required to expense the fair value of employee
      stock options effective May 1, 2006. The revised standard requires us to expense
      the fair value of employee stock options and other share-based payments over
      the
      service period.





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.
      We have not yet determined the impact of FIN 48 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. 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. We are currently evaluating the
      potential impact, if any, of the adoption of SAB 108 on our consolidated
      financial position, results of operations and 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 have not
      yet
      determined the impact SFAS 159 may have on our results of operations or
      financial position.





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.




***Contractual
      Obligations and Commitments***





The
      following is a summary of our significant contractual cash obligations for
      the
      periods indicated that existed as of April 30, 2007, and is based on information
      appearing in the notes to consolidated financial statements included elsewhere
      in this filing.




**Less
                  than**
              
              
              **1-2**
              
              
              **3-5**
              
              
              **More
                  than****Total**
              
              
              **1
                  Year**
              
              
              **Years**
              
              
              **Years**
              
              
              **5
                  Years**Borrowings
                  under line of credit
              
              $
              4,454,217
              
              $
              -
              
              $
              -
              
              $
              4,454,217
              
              $
              -Loans
                  payable
              
              
              2,882,888
              
              
              2,598,872
              
              
              227,381
              
              
              47,115
              
              
              9,520Operating
                  leases
              
              
              2,242,566
              
              
              759,245
              
              
              837,736
              
              
              544,870
              
              
              100,715Employment
                  agreements
              
              
              5,494,583
              
              
              2,612,800
              
              
              2,881,783
              
              
              -
              
              
              -Total
                  obligations
              
              $
              15,074,254
              
              $
              5,970,917
              
              $
              3,946,900
              
              $
              5,046,202
              
              $
              110,235


28





**ITEM
      7A - QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK**





***Interest
      Rate Risk***





Interest
      rate risk represents the potential loss from adverse changes in market interest
      rates. We
      are
      subject to interest rate risk with respect to amounts borrowed under our credit
      facility because such amounts bear interest at a variable rate. The interest
      rate is equal to the BOA’s prime rate minus one percent, or LIBOR plus one and
      three-quarters (1.75%) percent, as we may request (5.32% LIBOR rate plus one
      and
      three-quarters percent as of April 30, 2007). At April 30, 2007, we had
      approximately $4,454,000 of indebtedness outstanding under our revolving credit
      facility. A 1.0% increase in interest rates on un-hedged variable rate
      borrowings of $4.4 million at April 30, 2007 would result in additional interest
      expense of approximately $44,000 for twelve months ended April 30,
      2007.





29


**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, 2007 and 2006
            
            
            F-3
                - F-4Consolidated
                Statements of Operations for the years endedApril
                30, 2007, 2006 and 2005
            
            
            F-5Consolidated
                Statements of Shareholders' Equity for the years ended April 30,
                2007,
                2006 and 2005
            
            
            F-6
                - F-8Consolidated
                Statements of Cash Flows for the years endedApril
                30, 2007, 2006 and 2005
            
            
            F-9
                - F-11Notes
                to Consolidated Financial Statements
            
            
            F-12
                - F-31














F-1


**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, 2007 and 2006, and the
      related consolidated statements of operations, shareholders' equity and cash
      flows for each of the three years in the period ended April 30, 2007. Our audits
      also included the consolidated financial statement schedule for the years ended
      April 30, 2007, 2006 and 2005 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 audit 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, 2007 and 2006, and their
      consolidated results of operations and cash flows for each of the three years
      in
      the period ended April 30, 2007, 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,
      2007, 2006 and 2005, 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 1 to the consolidated financial statements, WPCS International
      Incorporated and Subsidiaries adopted Statement of Financial Accounts
      Standards No. 123(R), “Share-Based Payment” effective May 1, 2006.














/
      s /
      J.H. COHN LLP





J.H.
      COHN LLP


Roseland
      , New Jersey  July
      24,
      2007








F-2


**WPCS
      INTERNATIONAL INCORPORATED AND SUBSIDIARIES**


**CONSOLIDATED
      BALANCE SHEETS**








**April
                30,**
            
            **April
                30,****ASSETS**
            
            **2007**
            
            **2006**CURRENT
                ASSETS:Cash
                and cash equivalents
            
            $
            21,558,739
            
            $
            12,279,646Accounts
                receivable, net of allowance of $98,786 and $104,786 at April 30,
                2007 and
                2006, respectively
            
            
            16,560,636
            
            
            12,141,789Costs
                and estimated earnings in excess of billings on uncompleted
                contracts
            
            
            2,499,940
            
            
            1,441,977Inventory
            
            
            2,260,082
            
            
            1,204,540Prepaid
                expenses and other current assets
            
            
            732,043
            
            
            286,625Deferred
                tax assets
            
            
            54,000
            
            
            78,000Total
                current assets
            
            
            43,665,440
            
            
            27,432,577PROPERTY
                AND EQUIPMENT, net
            
            
            5,488,920
            
            
            1,352,216OTHER
                INTANGIBLE ASSETS, net
            
            
            1,683,349
            
            
            864,388GOODWILL
            
            
            20,469,608
            
            
            14,239,918DEBT
                ISSUANCE COSTS, net
            
            
            10,000
            
            
            111,091DEFERRED
                TAX ASSETS
            
            
            111,000
            
            
            51,000OTHER
                ASSETS
            
            
            263,353
            
            
            71,128Total
                assets
            
            $
            71,691,670
            
            $
            44,122,318




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


F-3


**WPCS
        INTERNATIONAL INCORPORATED AND SUBSIDIARIES**




**CONSOLIDATED
      BALANCE SHEETS (continued)**







**April
                30,**
            
            **April
                30,****LIABILITIES
                AND SHAREHOLDERS' EQUITY**
            
            **2007**
            
            **2006**CURRENT
                LIABILITIES:Current
                portion of loans payable
            
            $
            2,598,872
            
            $
            231,065Accounts
                payable and accrued expenses
            
            
            6,802,110
            
            
            4,989,861Billings
                in excess of costs and estimated earnings on uncompleted
                contracts
            
            
            2,272,688
            
            
            1,085,312Deferred
                revenue
            
            
            504,458
            
            
            128,052Due
                to shareholders
            
            
            707,000
            
            
            381,377Income
                taxes payable
            
            
            433,361
            
            
            420,066Deferred
                tax liabilities
            
            
            27,000
            
            
            21,000Total
                current liabilities
            
            
            13,345,489
            
            
            7,256,733Borrowings
                under line of credit
            
            
            4,454,217
            
            
            3,000,000Loans
                payable, net of current portion
            
            
            284,016
            
            
            256,692Due
                to shareholders, net of current portion
            
            
            -
            
            
            514,623Deferred
                tax liabilities
            
            
            722,000
            
            
            531,000Total
                liabilities
            
            
            18,805,722
            
            
            11,559,048Minority
                interest in subsidiary
            
            
            1,353,965
            
            
            -COMMITMENTS
                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, 6,971,698
                and
                5,264,284 shares issued and outstanding at April 30, 2007 and 2006,
                respectively
            
            
            696
            
            
            526Additional
                paid-in capital
            
            
            47,901,160
            
            
            33,525,130Retained
                earnings (accumulated deficit)
            
            
            3,631,215
            
            
            (962,386
            )Accumulated
                other comprehensive loss on translation of currency
                exchange
            
            
            (1,088
            )
            
            -Total
                shareholders' equity
            
            
            51,531,983
            
            
            32,563,270Total
                liabilities and shareholders' equity
            
            $
            71,691,670
            
            $
            44,122,318




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


F-4




**WPCS
      INTERNATIONAL INCORPORATED AND SUBSIDIARIES**




**CONSOLIDATED
      STATEMENTS OF OPERATIONS**







**Year
                Ended****April
                30,****2007**
            
            **2006**
            
            **2005**REVENUE
            
            $
            70,000,070
            
            $
            52,144,575
            
            $
            40,148,233COSTS
                AND EXPENSES:Cost
                of revenue
            
            
            47,781,351
            
            
            38,010,945
            
            
            32,445,470Selling,
                general and administrative expenses
            
            
            13,244,909
            
            
            9,191,392
            
            
            7,032,504Depreciation
                and amortization
            
            
            1,239,486
            
            
            837,789
            
            
            682,397Total
                costs and expenses
            
            
            62,265,746
            
            
            48,040,126
            
            
            40,160,371OPERATING
                INCOME (LOSS)
            
            
            7,734,324
            
            
            4,104,449
            
            
            (12,138
            )OTHER
                EXPENSE (INCOME):Interest
                expense
            
            
            496,330
            
            
            256,022
            
            
            31,865Interest
                income
            
            
            (525,524
            )
            
            (121,720
            )
            
            (10,817
            )Minority
                interest
            
            
            23,099
            
            
            -
            
            
            -Loss
                (gain) on change in fair value of warrants
            
            
            -
            
            
            4,078,494
            
            
            (1,414,263
            )INCOME
                (LOSS) BEFORE INCOME TAX PROVISION
            
            
            7,740,419
            
            
            (108,347
            )
            
            1,381,077Income
                tax provision
            
            
            3,146,818
            
            
            1,515,773
            
            
            52,096NET
                INCOME (LOSS)
            
            $
            4,593,601
            
            
            ($1,624,120
            )
            $
            1,328,981Basic
                net income (loss) per common share
            
            $
            0.80
            
            
            ($0.40
            )
            $
            0.50Diluted
                net income (loss) per common share
            
            $
            0.72
            
            
            ($0.40
            )
            $
            0.49Basic
                weighted average number of common shares outstanding
            
            
            5,772,423
            
            
            4,057,940
            
            
            2,679,529Diluted
                weighted average number of common shares outstanding
            
            
            6,409,333
            
            
            4,057,940
            
            
            2,729,866








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





F-5


**WPCS
      INTERNATIONAL INCORPORATED AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF SHAREHOLDERS’ EQUITY**






**Retained****Additional**
              
              
              **Unearned**
              
              
              **Earnings**
              
              
              **Total****Preferred
                  Stock**
              
              
              **Common
                  Stock**
              
              
              **Paid-In**
              
              
              **Consulting**
              
              
              **(Accumulated**
              
              
              **Shareholders'****Shares**
              
              
              **Amount**
              
              
              **Shares**
              
              
              **Amount**
              
              
              **Capital**
              
              
              **Services**
              
              
              **Deficit)**
              
              
              **Equity**BALANCE,
                  MAY 1, 2004
              
              
              -
              
              $
              -
              
              
              1,737,498
              
              $
              174
              
              $
              11,993,387
              
              $
              (38,559
              )
              
              ($667,247
              )
              $
              11,287,755Common
                  stock issuance costs
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (26,888
              )
              
              -
              
              
              -
              
              
              (26,888
              )Amortization
                  of unearned consulting services
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              38,559
              
              
              -
              
              
              38,559Net
                  income
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              1,328,981
              
              
              1,328,981BALANCE,
                  APRIL 30, 2005
              
              
              -
              
              
              -
              
              
              1,737,498
              
              
              174
              
              
              11,966,499
              
              
              -
              
              
              661,734
              
              
              12,628,407





*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** **




**Additional**
              
              
              
              
              
              **Total****Preferred
                  Stock**
              
              
              **Common
                  Stock**
              
              
              **Paid-In**
              
              
              **(Accumulated**
              
              
              **Shareholders'****Shares**
              
              
              **Amount**
              
              
              **Shares**
              
              
              **Amount**
              
              
              **Capital**
              
              
              **Deficit)**
              
              
              **Equity**Reclassification
                  of proceeds from sales of common stockwith
                  registration rights to additional paid-in capital
              
              
              -
              
              
              -
              
              
              2,083,887
              
              
              208
              
              
              5,731,908
              
              
              -
              
              
              5,732,116Net
                  proceeds from exercise of warrants
              
              
              -
              
              
              -
              
              
              554,717
              
              
              55
              
              
              4,167,092
              
              
              -
              
              
              4,167,147Reclassification
                  of fair value of warrant liability to additionalpaid-in
                  capital from exercise of warrants
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              2,849,302
              
              
              -
              
              
              2,849,302Reclassification
                  of fair value of warrant liability to additionalpaid-in
                  capital from the termination of liquidateddamages
                  provision under registration rights agreement
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              3,223,760
              
              
              -
              
              
              3,223,760Net
                  proceeds from issuance of common stock
              
              
              -
              
              
              -
              
              
              876,931
              
              
              88
              
              
              5,528,078
              
              
              -
              
              
              5,528,166Net
                  proceeds from exercise of stock options
              
              
              -
              
              
              -
              
              
              11,251
              
              
              1
              
              
              58,491
              
              
              -
              
              
              58,492Net
                  loss
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (1,624,120
              )
              
              (1,624,120
              )BALANCE,
                  APRIL 30, 2006
              
              
              -
              
              
              -
              
              
              5,264,284
              
              
              526
              
              
              33,525,130
              
              
              (962,386
              )
              
              32,563,270





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


F-7


**WPCS
        INTERNATIONAL INCORPORATED AND SUBSIDIARIES**




**CONSOLIDATED
      STATEMENTS OF SHAREHOLDERS’ EQUITY - CONTINUED**






**Accumulated****Other****Additional**
              
              
              
              
              
              **Compre-**
              
              
              **Total****Preferred
                  Stock**
              
              
              **Common
                  Stock**
              
              
              **Paid-In**
              
              
              **Retained**
              
              
              **hensive**
              
              
              **Shareholders'****Shares**
              
              
              **Amount**
              
              
              **Shares**
              
              
              **Amount**
              
              
              **Capital**
              
              
              **Earnings**
              
              
              **Loss**
              
              
              **Equity**Net
                  issuance of common stock, acquisition ofSoutheastern
                  Communication Service, Inc.
              
              
              -
              
              
              -
              
              
              200,288
              
              
              20
              
              
              1,349,631
              
              
              -
              
              
              -
              
              
              1,349,651Net
                  issuance of common stock, acquisition ofVoacolo
                  Eletric 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
              
              
              19
              
              
              1,225,487
              
              
              -
              
              
              -
              
              
              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
              
              $
              696
              
              $
              47,901,160
              
              $
              3,631,215
              
              
              ($1,088
              )
              $
              51,531,983







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





F-8




**WPCS
      INTERNATIONAL INCORPORATED AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**














**Year
                Ended****April
                30,****2007**
            
            **2006**
            
            **2005**OPERATING
                ACTIVITIES:Net
                income (loss)
            
            $
            4,593,601
            
            $
            (1,624,120
            )
            $
            1,328,981Adjustments
                to reconcile net income (loss) to net cash provided by (used in)
                operating
                activities:Depreciation
                and amortization
            
            
            1,239,486
            
            
            837,789
            
            
            682,397Fair
                value of stock options granted to employees
            
            
            37,526
            
            
            -
            
            
            -Change
                in fair value of warrant liability
            
            
            -
            
            
            4,078,494
            
            
            (1,414,263
            )(Recovery
                of) provision for doubtful accounts
            
            
            (6,000
            )
            
            29,000
            
            
            14,007Amortization
                of debt issuance costs
            
            
            111,091
            
            
            47,696
            
            
            -Amortization
                of unearned consulting services
            
            
            -
            
            
            -
            
            
            38,559Fair
                value of stock options granted
            
            
            -
            
            
            -Excess
                tax benefit from exercise of stock options
            
            
            (258,000
            )
            
            -
            
            
            -Minority
                interest
            
            
            23,099
            
            
            -
            
            
            -Gain
                on sale of fixed assets
            
            
            (13,675
            )
            
            -
            
            
            -Deferred
                income taxes
            
            
            161,000
            
            
            (43,000
            )
            
            (134,000
            )Changes
                in operating assets and liabilities, net of effects of
                acquisitions:Accounts
                receivable
            
            
            2,320,439
            
            
            (2,265,623
            )
            
            (1,898,625
            )Costs
                and estimated earnings in excess of billings on uncompleted
                contracts
            
            
            (421,204
            )
            
            (533,022
            )
            
            1,214,076Inventory
            
            
            229,358
            
            
            (318,916
            )
            
            (536,772
            )Prepaid
                expenses and other current assets
            
            
            89,273
            
            
            249,706
            
            
            (14,306
            )Other
                assets
            
            
            (180,187
            )
            
            37,001
            
            
            (148,596
            )Accounts
                payable and accrued expenses
            
            
            (2,345,468
            )
            
            (376,943
            )
            
            (337,355
            )Billings
                in excess of costs and estimated earnings on uncompleted
                contracts
            
            
            329,544
            
            
            8,873
            
            
            (1,146,930
            )Deferred
                revenue
            
            
            222,092
            
            
            -
            
            
            -Income
                taxes payable
            
            
            37,244
            
            
            381,758
            
            
            (328,751
            )NET
                CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
            
            
            6,169,219
            
            
            508,693
            
            
            (2,681,578
            )





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


F-9




**WPCS
        INTERNATIONAL INCORPORATED AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS - CONTINUED**






INVESTING
                  ACTIVITIES:Acquisition
                  of property and equipment, net
              
              
              (673,237
              )
              
              (234,792
              )
              
              (215,844
              )Acquisition
                  of Quality, net of cash received
              
              
              -
              
              
              -
              
              
              (6,708,904
              )Acquisition
                  of Heinz, net of cash received
              
              
              -
              
              
              -
              
              
              (82,283
              )Acquisition
                  transaction costs
              
              
              -
              
              
              (4,304
              )
              
              (17,553
              )Acquisition
                  of NECS, net of cash received
              
              
              (4,607,268
              )
              
              -
              
              
              -Acquisition
                  of SECS, net of cash received
              
              
              (1,882,321
              )
              
              -
              
              
              -Acquisition
                  of Voacolo, net of cash received
              
              
              (627,694
              )
              
              -
              
              
              -Acquisition
                  of TAGS, net of cash received
              
              
              (841,252
              )
              
              -
              
              
              -NET
                  CASH USED IN INVESTING ACTIVITIES
              
              
              (8,631,772
              )
              
              (239,096
              )
              
              (7,024,584
              )FINANCING
                  ACTIVITIES:Net
                  proceeds from exercise of warrants
              
              
              197,876
              
              
              4,167,147
              
              
              -Net
                  proceeds from issuance of common stock
              
              
              9,337,891
              
              
              5,528,166
              
              
              -Net
                  proceeds from exercise of stock options
              
              
              1,225,506
              
              
              58,492
              
              
              -Net
                  proceeds from issuance of common stock with continuing registration
                  rights
              
              
              -
              
              
              -
              
              
              9,140,949Excess
                  tax benefit from exercise of stock options
              
              
              258,000
              
              
              -
              
              
              -Equity
                  issuance costs
              
              
              (50,613
              )
              
              -
              
              
              (26,888
              )Debt
                  issuance costs
              
              
              (10,000
              )
              
              (158,787
              )
              
              -Borrowings
                  (repayments) under lines of credit, net
              
              
              1,454,217
              
              
              2,617,719
              
              
              (303,848
              )Repayments
                  of loans payable
              
              
              (456,405
              )
              
              (227,952
              )
              
              (96,901
              )Payments
                  of amounts due to shareholders
              
              
              (189,000
              )
              
              (961,915
              )
              
              -Payments
                  of capital lease obligations
              
              
              (24,738
              )
              
              (2,073
              )
              
              (2,534
              )NET
                  CASH PROVIDED BY FINANCING ACTIVITIES
              
              
              11,742,734
              
              
              11,020,797
              
              
              8,710,778Effect
                  of exchange rate changes on cash
              
              
              (1,088
              )
              
              -
              
              
              -NET
                  INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
              
              
              9,279,093
              
              
              11,290,394
              
              
              (995,384
              )CASH
                  AND CASH EQUIVALENTS, BEGINNING OF YEAR
              
              
              12,279,646
              
              
              989,252
              
              
              1,984,636CASH
                  AND CASH EQUIVALENTS, END OF YEAR
              
              $
              21,558,739
              
              $
              12,279,646
              
              $
              989,252





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


F-10
  **WPCS
        INTERNATIONAL INCORPORATED AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS - CONTINUED**





**Year
                Ended****April
                30,****2007**
            
            **2006**
            
            **2005**SUPPLEMENTAL
                DISCLOSURE OF CASH FLOW INFORMATION:Cash
                paid during the period for:Interest
            
            
            
            
            $
            433,742
            
            $
            189,435
            
            $
            32,196Income
                taxes
            
            
            
            
            $
            2,897,944
            
            $
            1,187,556
            
            $
            434,289SCHEDULE
                OF NON CASH INVESTING AND FINANCING ACTIVITIES:Issuance
                of common stock for net non-cash assets received in acquisition
            
            
            
            
            $
            3,370,011
            
            $
            -
            
            $
            -Unpaid
                purchase price adjustments related to acquisition
            
            
            
            
            $
            -
            
            $
            -
            
            $
            742,295Reversal
                of accruals established in purchase accounting
            
            
            
            
            $
            -
            
            $
            2,150
            
            $
            40,022Issuance
                of notes for property and equipment
            
            
            
            
            $
            74,382
            
            $
            266,834
            
            $
            192,210Reclassification
                of proceeds from sales of common stock with registration
                rights,to
                additional paid-in capital
            
            
            
            
            $
            -
            
            $
            5,732,116
            
            $
            -Reclassification
                of fair value of warrant liability to additional paid-in capitalfrom
                the exercise of warrants
            
            
            
            
            $
            -
            
            $
            2,849,302
            
            $
            -Reclassification
                of fair value of warrant liability to additional paid-in capital
                from
                thetermination
                of liquidated damages provision under registration rights
                agreement
            
            
            
            
            $
            -
            
            $
            3,223,760
            
            $
            -





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


F-11
 **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 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), and its 60% interest in Taian AGS Pipeline Construction
      Co., Ltd. (TAGS) from April 5, 2007 ( date of acquisition), collectively the
      "Company".





The
      Company provides design-build engineering services for specialty communication
      systems, which are dedicated wireless networks for specified applications,
      and
      for wireless infrastructure, which encompasses commercial cellular systems
      for
      wireless carriers .
      The
      Company provides a range of services including site
      design, spectrum analysis, engineering, trenching, electrical work, structured
      cabling, product integration, testing and project management.





Effective
      January 10, 2005, a majority of the Company’s shareholders approved a
      one-for-twelve reverse stock split of the Company’s common stock, decreasing the
      number of issued and outstanding shares of common stock from 20,849,976 shares
      to 1,737,498 shares. The par value of the common stock was not affected by
      the
      reverse stock split and remains at $0.0001 per share. Consequently, the reverse
      stock split has been reflected retroactively in the accompanying financial
      statements and notes for all periods presented and all applicable references
      as
      to the number of common shares and per share information, stock options,
      warrants and market prices have been restated to reflect this reverse stock
      split. In addition, shareholders’ equity has been restated for all periods
      presented for the aggregate par value of the number of common shares that were
      reclassified to additional paid-in capital as a result of the reverse stock
      split.





Effective
      June 1, 2006, the Company acquired all of the issued and outstanding common
      stock of NECS. The aggregate consideration paid by the Company to the NECS
      selling shareholders, including acquisition transaction costs of $69,775, was
      $4,737,017, of which $4,333,987 was paid at closing. Additional purchase price
      adjustments of $189,077 were paid in October 2006 to settle working capital
      adjustments. In March 2007, aggregate additional consideration of $144,178
      was
      paid to the NECS selling shareholders based on the earn out settlement for
      the
      calendar year ending December 31, 2006. In connection with the acquisition,
      NECS
      entered into employment agreements with two of the shareholders, each for a
      period of two years and a consulting agreement with one of the shareholders
      for
      a period of seven years.





Effective
      July 19, 2006, the Company acquired all of the issued and outstanding common
      stock of SECS. The aggregate consideration paid by the Company to the SECS
      selling shareholders, including acquisition transaction costs of $21,833, was
      $3,482,346, of which $1,620,000 was paid at closing, and the Company issued
      200,288 shares of common stock valued at approximately $1,400,000. Additional
      purchase price adjustments of $440,513 were paid in November 2006, to settle
      working capital adjustments. The Company filed a registration statement with
      the
      SEC on August 14, 2006 to register the shares of common stock issued to the
      former SECS shareholders, which was declared effective by the SEC on August
      24,
      2006. In connection with the acquisition, SECS entered into employment
      agreements and a consulting agreement with certain officers or former officers
      of SECS.





Effective
      March 30, 2007, the Company acquired Voacolo. The aggregate consideration paid
      by the Company to the Voacolo selling shareholders, including acquisition
      transaction costs of $24,288, was $2,461,788 of which $1,187,500 was paid at
      closing, and the Company issued 113,534 shares of common stock valued at
      approximately $1,250,000. The purchase price is subject to adjustment for any
      excess or shortfall between the net tangible asset value of Voacolo as of the
      closing date and $1,200,000. In addition, the Company shall pay an additional
      $2,500,000 in cash or Company common stock if Voacolo’s earnings before interest
      and taxes for the period ending twelve months from March 30, 2007 shall equal
      or
      exceed $1,100,000. Voacolo was acquired pursuant to a Stock Purchase Agreement
      among WPCS International Incorporated, 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.





Effective
      April 5, 2007, the Company acquired a 60% working interest (the Equity Interest)
      and a 60% profit interest (the Profit Interest and together with the Equity
      Interest, the Interest) in TAGS from American Gas Services, Inc. (AGS) and
      American Gas Services, Inc. Consultants (AGS Consultants), respectively The
      aggregate consideration paid by the Company to AGS and AGS Consultants,
      including acquisition transaction costs of $182,815, was $1,702,816 of which
      $800,000 was paid at closing, and the Company issued 61,277 shares of common
      stock valued at approximately $720,000. The purchase price is subject to
      adjustment in an amount equal to 60% of any shortfall between the net tangible
      asset value of TAGS as of the closing date and $3,300,000. The Interest was
      acquired pursuant to a Interest Purchase Agreement among WPCS International
      Incorporated, AGS and AGS Consultants, dated and effective as of April 5,
      2007.


F-12
 **WPCS
          INTERNATIONAL INCORPORATED AND SUBSIDIARIES**
  NOTES
          TO CONSOLIDATED FINANCIAL
          STATEMENTS





**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 $750,249 and $895,368 at April 30, 2007 and 2006, 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.





***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.


F-13
 **WPCS
          INTERNATIONAL INCORPORATED AND SUBSIDIARIES**
  NOTES
          TO CONSOLIDATED FINANCIAL
          STATEMENTS





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, 2007
      and
      2006. Accordingly, step two was unnecessary and no impairment charge was
      recognized in the consolidated statement of operations for the years ended
      April
      30, 2007, 2006 and 2005. 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, 2007 and 2006 consisted of the
      following:




Beginning
                balance, May 1, 2005
            
            $
            13,961,642Additional
                transaction costs for prior acquisitions
            
            
            2,675Clayborn
                acquisition purchase price adjustment
            
            
            48,803Quality
                acquisition purchase price adjustment
            
            
            226,798Ending
                balance, April 30, 2006
            
            
            14,239,918Additional
                transaction costs for prior acquisitions
            
            
            13,781NECS
                acquisition
            
            
            3,380,111SECS
                acquisition
            
            
            1,823,205Voacolo
                acqusition
            
            
            1,012,593Ending
                balance, April 30, 2007
            
            $
            20,469,608





Other
      intangible assets consist of the following at April 30:





**Estimated
                useful life (years)**
            
            **2007**
            
            **2006**Customer
                lists
            
            
            5
                - 8
            
            $
            2,607,000
            
            $
            1,585,000Contract
                backlog
            
            
            1-3
            
            
            325,200
            
            
            65,0002,932,200
            
            
            1,650,000Less
                accumulated amortization expense
            
            
            
            
            
            1,248,851
            
            
            785,612$
            1,683,349
            
            $
            864,388





Amortization
      expense for other intangible assts for the years ended April 30, 2007, 2006
      and
      2005 was approximately $463,000, $294,000 and $310,000
      respectively.





F-14
 **WPCS
          INTERNATIONAL INCORPORATED AND SUBSIDIARIES**
  NOTES
          TO CONSOLIDATED FINANCIAL
          STATEMENTS







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




Year
                  ending April 30,2008
              
              $
              472,5992009
              
              
              352,6652010
              
              
              301,8312011
              
              
              195,3532012
              
              
              138,965Thereafter
              
              
              221,936Total
              
              $
              1,683,349


***Revenue
      Recognition***





The
      Company generates its revenue by providing engineering and deployment services
      for wireless infrastructure services and specialty communication systems. The
      Company provides a range of services including site
      design, spectrum analysis, product integration, structured cabling, electrical
      work, trenching, construction, testing, project management and
      maintenance .
      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.





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, 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. For the year ended April 30, 2006, the Company had revenue from
      two separate customers totaling approximately $10.8 million and $7.6 million,
      which comprised 20.8% and 14.5% of total revenue, respectively. For the fiscal
      year ended April 30, 2005, the Company had revenue from one customer totaling
      $6.2 million, which comprised 15.5% 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 approximately 106 union employees. A contract with 15 union
      employees expires on May 31, 2007. A new contract with this union has been
      negotiated and is in the process of completion. A contract with six union
      employees expired on September 30, 2007. A contract with 85 union employees
      expires on November 30, 2008. At April 30, 2007, 29% of the Company’s labor
      force is subject to collective bargaining agreements, of which 6% will expire
      within one year.





F-15
 **WPCS
          INTERNATIONAL INCORPORATED AND SUBSIDIARIES**
  NOTES
          TO CONSOLIDATED FINANCIAL
          STATEMENTS


***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.





***Earnings
      (Loss) Per Share***





Earnings
      (loss) per common share is computed pursuant to SFAS No. 128, "Earnings Per
      Share" (“EPS”). Basic income (loss) per common share is computed as net income
      (loss) divided by the weighted average number of common shares outstanding
      for
      the period. Diluted EPS reflects the potential dilution that could occur from
      common stock issuable through stock options and warrants.




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, because the stock option exercise price exceeded
      the
      market price of common stock and, therefore, the effects would be antidilutive.
      The assumed conversion of the remaining 469,043 stock options and 1,883,796
      warrants resulted in a 636,910 share increase in weighted average shares for
      fully diluted earnings per common share.





At
      April
      30, 2006, 786,432 stock options and 2,017,453 warrants were not included in
      the
      computation of fully diluted earnings per share because the Company had a net
      loss and, therefore, the effects would be antidilutive.





At
      April
      30, 2005, 188,340 stock options and 2,572,171 warrants were not included in
      the
      computation of fully diluted earnings per share, because the stock option and
      warrant exercise prices exceeded the market price of the common stock and,
      therefore, the effects would be antidilutive. The assumed conversion of the
      remaining 266,556 stock options resulted in a 50,337 share increase in weighted
      average shares for fully diluted earnings per share in fiscal 2005.





***Stock-Based
      Compensation Plans***





Prior
      to
      May 1, 2006, the Company accounted for stock-based employee compensation under
      the recognition provisions of Accounting Principles Board Opinion No. 25
      (“APB 25”), *Accounting
      for Stock Issued to Employees* and
      related interpretations.





Effective
      May 1, 2006, the Company adopted the fair value recognition provisions of SFAS
      123(R) (revised December 2004), *Share-Based
      Payment* ,
      an
      amendment of SFAS 123, *Accounting
      for Stock-Based Compensation* ,
      for
      stock-based employee compensation, using the modified prospective transition
      method. In March 2005, the SEC issued Staff Accounting Bulletin No. 107 (SAB
      107), to provide guidance regarding the adoption of SFAS 123(R), and then
      amended the compliance date for SFAS 123R to begin with the first fiscal year
      beginning on or after December 15, 2005. Under SFAS 123(R), the Company is
      required to recognize compensation cost for share-based compensation issued
      to
      employees, net of estimated forfeitures, under share-based compensation plans
      using a fair value method. Using the modified prospective transition method,
      compensation expense recognized for the year ended April 30, 2007 includes
      (a)
      compensation cost for all share-based payments granted subsequent to May 1,
      2006, based on the grant date fair value estimated in accordance with the
      provisions of SFAS 123(R) and (b) compensation cost for all share-based payments
      granted prior to, but not yet vested as of, May 1, 2006, based on the intrinsic
      value method. Results for prior periods have not been restated.





As
      a
      result of adopting SFAS 123(R) on May 1, 2006, the Company’s income before
      income taxes and net income for the year ended April 30, 2007 were each
      approximately $38,000 lower than if it had continued to account for share-based
      compensation under APB 25. At April 30, 2007, 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 $61,000 and is expected
      to
      be recognized over a weighted-average period of 0.98 years. For the year ended
      April 30, 2007 and 2006, the weighted average fair value of stock options
      granted was $3.86 and $2.15, respectively.





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 year ended April 30, 2007:





F-16
 **WPCS
          INTERNATIONAL INCORPORATED AND SUBSIDIARIES**
  NOTES
          TO CONSOLIDATED FINANCIAL
          STATEMENTS





Risk-free
                interest rate
            4.73%
                to 4.96%Expected
                volatility
            61.0%
                to 62.4%Expected
                dividend yield
            0.0%Expected
                term ( in years)
            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 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.





Prior
      to
      May 1, 2006, the Company applied the intrinsic value method in accounting for
      its stock-based compensation plan. Had the Company measured compensation under
      the fair value-based method for stock options granted and amortized the cost
      over the related vesting period, the Company’s net income and net income per
      share would have been as follows:








**2006**
            
            **2005**Net
                income (loss), as reported
            
            
            ($1,624,120
            )
            $
            1,328,981Deduct
                total stock-based employee compensation expense determined under
                fair
                value based method for all awards, net of tax
            
            
            (453,092
            )
            
            (452,820
            )Pro
                forma net income (loss)
            
            
            ($2,077,212
            )
            $
            876,161Basic
                net income (loss) per shareAs
                reported
            
            
            ($0.40
            )
            
            $0.50Pro
                forma
            
            
            ($0.51
            )
            
            $0.33Diluted
                net income (loss) per shareAs
                reported
            
            
            ($0.40
            )
            
            $0.49Pro
                forma
            
            
            ($0.51
            )
            
            $0.32





The
      Company has elected to adopt the shortcut method provided in Staff Position
      No. FAS 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 No. 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 No. 123R requires that excess tax benefits related to share-based
      compensation be reflected as financing cash inflows.





***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 revenues 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, life 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.





***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


F-17
 **WPCS
          INTERNATIONAL INCORPORATED AND SUBSIDIARIES**
  NOTES
          TO CONSOLIDATED FINANCIAL
          STATEMENTS


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 Company has not yet determined the impact
      of FIN 48 on its 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. 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 Company is currently evaluating
      the potential impact, if any, of the adoption of SAB 108 on its consolidated
      financial position, results of operations and 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
      has
      not yet determined the impact SFAS 159 may have on our results of operations
      or
      financial position.





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.





***NECS***





Effective
      June 1, 2006, the Company acquired all of the issued and outstanding common
      stock of NECS. The aggregate consideration paid by the Company to the NECS
      selling shareholders, including acquisition transaction costs of $69,775, was
      $4,737,017, of which $4,333,987 was paid at closing. Additional purchase price
      adjustments of $189,077 were paid in October 2006 to settle working capital
      adjustments. In March 2007, aggregate additional consideration of $144,178
      was
      paid to the NECS selling shareholders based on the earnout settlement for the
      calendar year ending December 31, 2006. In connection with the acquisition,
      NECS
      entered into employment agreements with two of the shareholders, each for a
      period of two years and a consulting agreement with one of the shareholders
      for
      a period of seven years.





The
      acquisition of NECS provides the Company with additional project engineering
      expertise for specialty communication systems, broadens the Company’s customer
      base especially in the public safety and gaming markets, including the
      Massachusetts State Police, University of Connecticut and Foxwoods Resort
      Casino, and expands the Company’s geographic presence in New
      England.





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





F-18
 **WPCS
          INTERNATIONAL INCORPORATED AND SUBSIDIARIES**
  NOTES
          TO CONSOLIDATED FINANCIAL
          STATEMENTS


The
      purchase price allocation has been determined as follows:




Assets
                purchased:Cash
            
            
            
            
            $
            129,749Accounts
                receivable
            
            
            
            
            
            968,982Inventory
            
            
            
            
            
            348,579Prepaid
                expenses
            
            
            
            
            
            33,237Fixed
                assets
            
            
            
            
            
            244,740Other
                assets
            
            
            
            
            
            3,455Customer
                list
            
            
            
            
            
            570,000Goodwill
            
            
            
            
            
            3,380,1115,678,853Liabilities
                assumed:Accounts
                payable
            
            
            
            
            
            (611,862
            )Accrued
                expenses
            
            
            
            
            
            (199,681
            )Deferred
                revenue
            
            
            
            
            
            (94,802
            )Capital
                lease obligations
            
            
            
            
            
            (24,738
            )Accrued
                property taxes
            
            
            
            
            
            (10,753
            )(941,836
            )Purchase
                price
            
            
            
            
            $
            4,737,017





***SECS***





Effective
      July 19, 2006, the Company acquired all of the issued and outstanding common
      stock of SECS. The aggregate consideration paid by the Company to the SECS
      selling shareholders, including acquisition transaction costs of $21,833, was
      $3,482,346, of which $1,620,000 was paid at closing, and the Company issued
      200,288 shares of common stock valued at approximately $1,400,000. Additional
      purchase price adjustments of $440,513 were paid in November 2006, to settle
      working capital adjustments. The Company filed a registration statement with
      the
      SEC on August 14, 2006 to register the shares of common stock issued to the
      former SECS shareholders, which was declared effective by the SEC on August
      24,
      2006. In connection with the acquisition, SECS entered into employment
      agreements and a consulting agreement with certain officers or former officers
      of SECS.





The
      acquisition of SECS provides the Company with additional project engineering
      expertise for wireless infrastructure services, broadens the Company’s customer
      base of corporate, government and educational clients, including the National
      Oceanic and Atmospheric Administration (NOAA), Verizon, BellSouth, Comcast,
      Time
      Warner, University of Florida and Puerto Rico Telephone, and expands the
      Company’s geographic presence in the Southeastern United States.





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




F-19
 
 **WPCS
            INTERNATIONAL INCORPORATED AND SUBSIDIARIES**
  NOTES
            TO CONSOLIDATED FINANCIAL
            STATEMENTS
  The
            purchase price allocation has been determined as
            follows:


.


Assets
                purchased:Cash
            
            
            
            
            $
            200,012Accounts
                receivable
            
            
            
            
            
            1,945,618Inventory
            
            
            
            
            
            97,096Prepaid
                expenses
            
            
            
            
            
            54,186Costs
                in excess of billings
            
            
            
            
            
            421,616Fixed
                assets
            
            
            
            
            
            273,980Other
                assets
            
            
            
            
            
            400Backlog
            
            
            
            
            
            60,000Customer
                list
            
            
            
            
            
            320,000Goodwill
            
            
            
            
            
            1,823,2055,196,113Liabilities
                assumed:




Accounts
                  payable
              
              
              
              
              
              (727,612
              )Accrued
                  expenses
              
              
              
              
              
              (323,497
              )Pension
                  plan payable
              
              
              
              
              
              (75,000
              )Profit
                  sharing
              
              
              
              
              
              (40,056
              )Notes
                  payable
              
              
              
              
              
              (378,103
              )Billings
                  in excess of costs
              
              
              
              
              
              (169,499
              )(1,713,767
              )Purchase
                  price
              
              
              
              
              $
              3,482,346


***Voacolo***





On
      March
      30, 2007, the company acquired Voacolo. The aggregate consideration paid by
      the
      Company to the Voacolo selling shareholders, including acquisition transaction
      costs of $24,288, was $2,461,788 of which $1,187,500 was paid at closing, and
      the Company issued 113,534 shares of common stock valued at approximately
      $1,250,000. The purchase price is subject to adjustment for any excess or
      shortfall between the net tangible asset value of Voacolo as of the closing
      date
      and $1,200,000. In addition, the Company shall pay an additional $2,500,000
      in
      cash or Company common stock if Voacolo’s earnings before interest and taxes for
      the period ending twelve months from March 30, 2007 shall equal or exceed
      $1,100,000. Voacolo was acquired pursuant to a Stock Purchase Agreement among
      WPCS International Incorporated, 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.





Voacolo
      is an electrical contractor in the Mid-Atlantic area that specializes in both
      high and low voltage applications structured cabling and voice/data/video
      solutions, as well as beginning to expand its operations particularly in
      wireless video surveillance. The company is headquartered in Trenton, New Jersey
      and has completed many major projects for commercial and government
      entities.





Based
      on
      the preliminary information currently available, the acquisition resulted in
      goodwill and other intangible assets of approximately $1,345,000. Upon
      completion of a formal purchase price allocation, there may be a increase or
      decrease in the amount assigned to goodwill and a corresponding increase or
      decrease in tangible or other intangible assets.





The
      preliminary purchase price allocation has been determined as
      follows:




Assets
                purchased:Cash
            
            $
            584,094Accounts
                receivable
            
            
            2,119,362Inventory
            
            
            217,500Prepaid
                expenses
            
            
            55,788Costs
                in excess of billings
            
            
            215,143Fixed
                assets
            
            
            217,899Backlog
            
            
            200,200Customer
                list
            
            
            132,000Goodwill
            
            
            1,012,5934,754,579Liabilities
                assumed:Accounts
                payable
            
            
            (732,252
            )Accrued
                expenses
            
            
            (90,120
            )Payroll
                and other payable
            
            
            (80,672
            )Loan
                payable
            
            
            (602,984
            )Notes
                payable
            
            
            (100,436
            )Billings
                in excess of costs
            
            
            (686,327
            )(2,292,791
            )Purchase
                price
            
            $
            2,461,788


F-20
 **WPCS
            INTERNATIONAL INCORPORATED AND SUBSIDIARIES**
 NOTES
              TO CONSOLIDATED FINANCIAL
              STATEMENTS


***TAGS***





On
      April
      5, 2007, the company acquired a 60% Equity Interest and a 60% Profit
      Interest in TAGS from American Gas Services, Inc. (AGS) and American Gas
      Services, Inc. Consultants (AGS Consultants), respectively. The aggregate
      consideration paid by the Company to AGS and AGS Consultants, including
      acquisition transaction costs of $182,816, was $1,702,816 of which $800,000
      was
      paid at closing, and the Company issued 61,277 shares of common stock valued
      at
      approximately $720,000. The purchase price is subject to adjustment in an amount
      equal to 60% of any shortfall between the net tangible asset value of TAGS
      as of
      the closing date and $3,300,000. The Interest was acquired pursuant to a
      Interest Purchase Agreement among WPCS International Incorporated, AGS and
      AGS
      Consultants, dated and effective as of April 5, 2007.





Founded
      in 1997 and headquartered in the Province of Shandong, 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, which are two of the highest certifications
      achievable for engineering and construction based businesses in China. 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
      preliminary purchase price allocation has been determined as
      follows:




Assets
                purchased:Cash
            
            
            
            
            $
            141,564Accounts
                receivable
            
            
            
            
            
            1,699,320Inventory
            
            
            
            
            
            621,725Other
                current assets
            
            
            
            
            
            399,664Fixed
                assets
            
            
            
            
            
            3,415,0356,277,308Liabilities
                assumed:Accounts
                payable
            
            
            
            
            
            (72,710
            )Accrued
                expenses and other payable
            
            
            
            
            
            (714,126
            )Payroll
                and other payable
            
            
            
            
            
            (165,423
            )Dividends
                payable
            
            
            
            
            
            (312,724
            )Income
                tax payable
            
            
            
            
            
            (235,279
            )Notes
                payable
            
            
            
            
            
            (1,681,846
            )Deferred
                Revenue
            
            
            
            
            
            (61,519
            )Minority
                Interest
            
            
            
            
            
            (1,330,865
            )(4,574,492
            )Purchase
                 price
            
            
            
            
            $
            1,702,816





***Pro
      forma Information***





The
      following unaudited pro forma financial information presents the combined
      results of operations of the Company, NECS, SECS, Voacolo and TAGS for the
      year
      ended April 30, 2007, 2006 and 2005 as if the acquisitions had occurred at
      May
      1, 2004 , including the issuance of the Company’s common stock as consideration
      for the acquisitions of SECS, Voacolo, and TAGS. The pro forma financial
      information does not necessarily reflect the results of operations that would
      have occurred had the Company, NECS, SECS, Voacolo and TAGS been a single entity
      during this period.




**Consolidated
                  Pro Forma****2007**
              
              **2006**
              
              **2005**Revenues
              
              $
              81,176,137
              
              $
              76,551,105
              
              $
              68,248,366Net
                  income (loss)
              
              
              5,167,349
              
              
              (567,876
              )
              
              2,071,474Basic
                  weighted shares
              
              
              5,983,074
              
              
              4,439,847
              
              
              3,061,436Diluted
                  weighted shares
              
              
              6,620,059
              
              
              4,439,847
              
              
              3,111,774Basic
                  net income (loss) per share
              
              
              $0.86
              
              
              ($0.13
              )
              
              $0.68Diluted
                  net income (loss) per share
              
              
              $0.78
              
              
              ($0.13
              )
              
              $0.67


F-21
 **WPCS
          INTERNATIONAL INCORPORATED AND SUBSIDIARIES**
  NOTES
          TO CONSOLIDATED FINANCIAL
          STATEMENTS








**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:





**2007**
            
            **2006**Costs
                incurred on uncompleted contracts
            
            $
            39,431,006
            
            $
            24,694,056Estimated
                contract profit
            
            
            12,513,277
            
            
            6,593,21851,944,283
            
            
            31,287,274Less:
                billings to date
            
            
            51,717,031
            
            
            30,930,609Net
                excess of costs
            
            $
            227,252
            
            $
            356,665Costs
                and estimated earnings in excess of billings
            
            $
            2,499,940
            
            $
            1,441,977Billings
                in excess of costs and estimated earningson
                uncompleted contracts
            
            
            (2,272,688
            )
            
            (1,085,312
            )Net
                excess of costs
            
            $
            227,252
            
            $
            356,665





**NOTE
      5 - PROPERTY AND EQUIPMENT**





Property
      and equipment consist of the following at April 30:





**Estimated
                useful life (years)**
            
            **2007**
            
            **2006**Furniture
                and fixtures
            
            
            5
                - 7
            
            $
            222,963
            
            $
            135,383Computers
                and software
            
            
            2-3
            
            
            722,072
            
            
            476,342Office
                equipment
            
            
            5-7
            
            
            92,337
            
            
            55,612Vehicles
            
            
            5
                - 7
            
            
            1,903,142
            
            
            1,256,568Machinery
                and equipment
            
            
            5
            
            
            4,231,918
            
            
            393,436Leasehold
                improvements
            
            
            2-3
            
            
            436,477
            
            
            227,7747,608,909
            
            
            2,545,115Less
                accumulated depreciation and amortization expense
            
            
            
            
            
            2,119,989
            
            
            1,192,899$
            5,488,920
            
            $
            1,352,216





F-22
 **WPCS
          INTERNATIONAL INCORPORATED AND SUBSIDIARIES**
  NOTES
          TO CONSOLIDATED FINANCIAL
          STATEMENTS







**NOTE
      6 - LONG-TERM DEBT**





***Line
      of Credit***





On
      April
      10, 2007, WPCS International Incorporated (the “Company”), and each of its
      subsidiaries entered into a loan agreement with Bank of America, N.A. (“BOA”).
      The loan agreement (the “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 each entity granted a
      security interest to BOA in all of their 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. The Company 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. The Company has the option to elect to use the
      optional interest rate of LIBOR plus one hundred seventy-five basis points
      (5.32% LIBOR rate plus one and three quarters percent as of April 30, 2007).





The
      Company used the initial funds provided by the loan, in the gross amount of
      $4,454,217 to repay the existing credit agreement with Bank Leumi USA, which
      credit agreement was terminated in connection with the Loan Agreement.





***Loans
      Payable***





The
      Company’s long-term debt also consists of notes issued to the company or assumed
      in acquisitions related to the purchase of property and equipment in the
      ordinary course of business. At April 30, 2007, loans payable totaled
      approximately $2,882,888 with interest rates ranging from 0% to 9.49%.





The
      aggregate maturities of long-term debt, including the line of credit and loans
      payable are as follows:




Year
                ending April 30,2008
            
            $
            2,598,8722009
            
            
            128,8502010
            
            
            4,552,7482011
            
            
            28,2072012
            
            
            18,909Thereafter
            
            
            
            
            
            9,519Total
                long-term debt
            
            
            
            
            $
            7,337,105





**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, 2007 and 2006, the rent paid
      for this lease was $88,000.




In
      connection with the acquisition of Clayborn, an additional $1,100,000 is due
      by
      September 30, 2007, payable in quarterly distributions to the Clayborn former
      shareholders, by payment of 50% of the quarterly post tax profits, as defined,
      of Clayborn and the payment of the remainder on that date. Through April 30,
      2007, payments of $393,000 have been made to the former Clayborn shareholders
      and the total remaining due is $707,000.





In
      connection with the acquisition of Heinz, a $200,000 non-interest bearing
      promissory note was issued. Of the $200,000, $75,000 was paid in April 2005,
      $75,000 was paid in April 2006 and $50,000 was paid in April
      2007.


F-23
 **WPCS
          INTERNATIONAL INCORPORATED AND SUBSIDIARIES**
  NOTES
          TO CONSOLIDATED FINANCIAL
          STATEMENTS


In
      connection with the acquisition of Quality, approximately $758,000 of additional
      purchase price consideration was paid to the selling shareholders in June 2005
      for working capital adjustments and income tax reimbursements.





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 year ended April 30, 2007, the rent paid for
      this lease was $40,315.





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 year ended April 30,
      2007, the rent paid for this lease was $4,500.





**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 $241,000, $141,000, and $8,800 in contributions made
      for the years ended April 30, 2007, 2006, and 2005 respectively.





The
      Company also contributes to multi-employer pension plans which provide benefits
      to union employees covered by a collective bargaining agreement. Cost of revenue
      includes approximately $1,816,000, $2,050,000 and $2,178,000 for such costs
      for
      the years ended April 30, 2007, 2006 and 2005, respectively.





**NOTE
      9 - INCOME TAXES**





The
      provision for income taxes for the years ended at April 30, 2007, 2006 and
      2005
      is summarized as follows:




**2007**
            
            **2006**
            
            **2005**CurrentFederal
            
            $
            2,201,000
            
            $
            1,248,000
            
            $
            99,000State
                and foreign
            
            
            784,818
            
            
            310,773
            
            
            87,096DeferredFederal
            
            
            147,000
            
            
            (70,000
            )
            
            (76,000
            )State
            
            
            14,000
            
            
            27,000
            
            
            (58,000
            )Totals
            
            $
            3,146,818
            
            $
            1,515,773
            
            $
            52,096





The
      actual provision for income taxes reflected in the consolidated statements
      of
      operations for the years ended April 30, 2007, 2006 and 2005 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:




**2007**
            
            **2006**
            
            **2005**Expected
                tax (benefit) provision at statutory rate (34%)
            
            $
            2,631,742
            
            $
            (36,838
            )
            $
            469,566State
                and local taxes, net of federal tax benefit
            
            
            527,675
            
            
            205,530
            
            
            19,000Foreign
                income taxes
            
            
            30,117
            
            
            -
            
            
            -Loss
                (gain) on fair value of warrants
            
            
            -
            
            
            1,386,688
            
            
            (481,566
            )Other
            
            
            (42,716
            )
            
            (39,607
            )
            
            45,096Totals
            
            $
            3,146,818
            
            $
            1,515,773
            
            $
            52,096







F-24




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




**2007**
            
            **2006**Deferred
                tax assets:Allowance
                for doubtful accounts
            
            $
            27,000
            
            $
            33,000Reserve
                for loss on work-in-progress
            
            
            -
            
            
            31,000Net
                operating loss carryforward
            
            
            16,000
            
            
            -


Federal
                benefit of deferred state tax liabilities
            
            
            11,000
            
            
            14,000Deferred
                tax assets-current
            
            
            54,000
            
            
            78,000Customer
                lists
            
            
            111,000
            
            
            51,000Net
                operating loss carryforward
            
            
            154,000
            
            
            83,000Valuation
                allowance
            
            
            (154,000
            )
            
            (83,000
            )Deferred
                tax assets-long term
            
            
            111,000
            
            
            51,000Deferred
                tax liabilities:Inventory
            
            
            (14,000
            )
            
            (13,000
            )Federal
                benefit of deferred state tax liabilities
            
            
            (13,000
            )
            
            (8,000
            )Deferred
                tax liabilities-current
            
            
            (27,000
            )
            
            (21,000
            )Fixed
                assets
            
            
            (107,000
            )
            
            (126,000
            )Customer
                lists
            
            
            (90,000
            )
            
            (175,000
            )Goodwill
            
            
            (525,000
            )
            
            (230,000
            )Deferred
                tax liabilities-long term
            
            
            (722,000
            )
            
            (531,000
            )Net
                deferred tax liabilities
            
            $
            (584,000
            )
            $
            (423,000
            )





At
      April
      30, 2007, the Company has net operating loss carryforwards for state tax
      purposes approximating $1.4 million expiring through 2025. Due to the
      uncertainty of recognizing a tax benefit on these losses in certain states,
      the
      Company has provided a valuation allowance against the deferred tax asset
      related to these loss carryforwards.





**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, 2007, there were no stock options granted under this 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, 2007, options to purchase
      327,259 shares were outstanding at exercise prices ranging from $6.14 to $8.79.
      At April 30, 2007, there were 6,498 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, 2007, options to purchase 233,575 shares were outstanding at exercise prices
      ranging from $4.80 to $19.92. At April 30, 2007, there were 45,073 shares
      available for grant under the 2002 Plan.










F-25
 **WPCS
          INTERNATIONAL INCORPORATED AND SUBSIDIARIES**
  NOTES
          TO CONSOLIDATED FINANCIAL
          STATEMENTS






The following table summarizes stock option activity for
      the
      years ended April 30, 2007, 2006 and 2005:


2002
                Stock Option Plan
            
            2006
                Stock Option PlanNumber
                of Shares
            
            Weighted-average
                Exercise Price
            
            Number
                of Shares
            
            Weighted-average
                Exercise PriceOutstanding,
                May 1, 2004
            
            
            299,322
            
            
            12.49
            
            
            -
            
            
            -Granted
            
            
            266,890
            
            
            6.15
            
            
            -
            
            
            -Cancelled
            
            
            (111,585
            )
            
            6.58Outstanding,
                May 1, 2005
            
            
            454,627
            
            
            8.77
            
            
            -
            
            
            -Granted
            
            
            18,730
            
            
            6.94
            
            
            383,500
            
            
            6.16Cancelled
            
            
            (59,174
            )
            
            14.96
            
            
            -
            
            
            -Exercised
            
            
            (11,251
            )
            
            5.22
            
            
            -
            
            
            -Outstanding,
                May 1, 2006
            
            
            402,932
            
            
            7.87
            
            
            383,500
            
            
            6.16Granted
            
            
            -
            
            
            -
            
            
            11,252
            
            
            8.01Cancelled
            
            
            (42,589
            )
            
            6.46
            
            
            (1,250
            )
            
            6.15Exercised
            
            
            (126,768
            )
            
            9.00
            
            
            (66,243
            )
            
            7.22Outstanding,
                May 1, 2007
            
            
            233,575
            
            
            8.43
            
            
            327,259
            
            
            6.22





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





**Options
                Outstanding at April 30, 2007**
            
            **Options
                Exercisable at April 30, 2007**Exercise
                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








F-26
 **WPCS
          INTERNATIONAL INCORPORATED AND SUBSIDIARIES**
  NOTES
          TO CONSOLIDATED FINANCIAL
          STATEMENTS


The
        following table summarizes stock option activity for the year ended April
        30,
        2007, during which there were 193,011 options exercised under the Company’s
        stock option plans:


2002
                  Plan
              
              
              2006
                  PlanNumber
                  of Shares
              
              
              Weighted-average
                  Exercise Price
              
              
              Weighted-
                  average Remaining Contractual Term
              
              
              Aggregate
                  Intrinsic Value
              
              
              Number
                  of Shares
              
              
              Weighted-average
                  Exercise Price
              
              
              Weighted-average
                  Remaining Contractual Term
              
              
              Aggregate
                  Intrinsic ValueOutstanding,
                  May 1, 2006
              
              
              402,932
              
              $
              7.87
              
              
              
              
              
              
              
              
              383,500
              
              $
              6.16
              
              
              -
              
              
              -Granted
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              11,252
              
              $
              8.01
              
              
              -
              
              
              -Exercised
              
              
              (126,768
              )
              $
              6.46
              
              
              -
              
              
              -
              
              
              (66,243
              )
              $
              6.15
              
              
              -
              
              
              -Forfeited/Expired
              
              
              (42,589
              )
              $
              9.00
              
              
              -
              
              
              -
              
              
              (1,250
              )
              $
              7.22
              
              
              -
              
              
              -Outstanding,
                  April 30, 2007
              
              
              233,575
              
              $
              8.43
              
              
              2.1
              
              $
              1,200,630
              
              
              327,259
              
              $
              6.22
              
              
              3.5
              
              $
              2,366,810Vested
                  and expected to vested, April 30, 2007
              
              
              232,580
              
              $
              8.44
              
              
              2.1
              
              $
              1,194,301
              
              
              325,533
              
              $
              6.21
              
              
              3.5
              
              $
              2,357,062Exercisable,
                  April 30, 2007
              
              
              223,360
              
              $
              8.50
              
              
              2.0
              
              $
              1,134,453
              
              
              314,590
              
              $
              6.15
              
              
              3.5
              
              $
              2,296,929


**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” (“FAS 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.





On
      April
      12, 2006, the Company closed a purchase agreement with four selected
      institutional investors for the registered direct sale of 876,931 shares of
      common stock at an offering price of $7.00 per share. The Company paid the
      placement agent of the offering a cash fee of 6.5% of the proceeds of the
      offering. The Company received net proceeds of $5,528,166 from this offering.
      The Company made the sale pursuant to a registration statement declared
      effective by the Securities and Exchange Commission on April 11, 2006.





On
      November 16, 2004, the Company completed a private placement with certain
      investors for an aggregate of 2,083,887 shares of its common stock and 2,083,887
      common stock purchase warrants for $10,000,000. Under the terms of the sale,
      the
      investors were granted certain registration rights that provided for liquidated
      damages in the event the Company failed to timely perform under the registration
      rights agreements.




During
      the third quarter of fiscal 2006, the Company became aware that the SEC had
      recently announced its preferred interpretation of the accounting for common
      stock and warrants with registration rights under Emerging Issues Task Force
      (“EITF”) 00-19, “Accounting for Derivative Financial Instruments Indexed To, and
      Potentially Settled in the Company’s Own Stock,” and EITF
      05-04,


F-27
 **WPCS
          INTERNATIONAL INCORPORATED AND SUBSIDIARIES**
 NOTES
          TO CONSOLIDATED FINANCIAL
          STATEMENTS







“The
      Effect of a Liquidated Damages Clause on a Freestanding Financial Instrument
      Subject to EITF 00-19.” Although the EITF was still reviewing the guidance in
      EITF 05-04, the SEC concluded that under EITF 00-19, the common stock and
      warrants subject to registration rights where significant liquidated damages
      could be required to be paid to the holder of the instrument in the event the
      issuer fails to maintain the effectiveness of a registration statement for
      a
      preset time period does not meet the tests required for shareholders’ equity
      classification and, accordingly, must be reflected as temporary equity in the
      balance sheet until the conditions are eliminated. Additionally, the fair value
      of warrants should be recorded as a liability, with an offsetting reduction
      to
      shareholders’ equity, adjusted to market value at the end of each period. In
      analyzing instruments under EITF 00-19, the SEC concluded that the likelihood
      or
      probability related to the failure to maintain an effective registration
      statement was not a factor at that time.





During
      fiscal 2006, the warrant liability increased by $4,078,494, due to the increase
      in the market value of our common stock, resulting in us recording a net
      non-cash loss on fair value of warrants for the fiscal year ended April 30,
      2006. The non-cash loss on warrants had no effect on our cash flows or
      liquidity.





On
      April
      11, 2006, the Company entered into a waiver agreement with the institutional
      investors related to this private placement. Under the waiver, the parties
      agreed to modify the registration rights agreement associated with the common
      stock and warrants issued in November 2004 affected by EITF 00-19, thereby
      eliminating the penalty provisions that could have resulted from not maintaining
      an effective registration statement related to these common shares and shares
      underlying the warrants, and eliminating any similar non-cash charges in
      subsequent fiscal years and reclassified the amounts to permanent equity.





***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.





All
      unexercised warrants issued in connection with the company’s June 2003 private
      placement of common stock expired during fiscal year 2007.





The
      following table summarizes the activity of the common stock purchase warrants
      for the years ended April 30, 2007, 2006 and 2005:




Number
                of Shares
            
            Weighted
                Average Exercise PriceOutstanding,
                May 1, 2004
            
            
            425,784
            
            $
            10.57Granted
            
            
            2,146,387
            
            
            8.40Outstanding,
                May 1, 2005
            
            
            2,572,171
            
            
            8.76Granted
            
            
            -
            
            
            -Exercised
            
            
            (554,717
            )
            
            8.40Outstanding,
                May 1, 2006
            
            
            2,017,454
            
            
            8.62Granted
            
            
            320,741
            
            
            6.99Exercised
            
            
            (30,281
            )
            
            6.99Expired
            
            
            (424,118
            )
            
            10.57Outstanding,
                April 30, 2007
            
            
            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, 2007, 2006 and 2005 are as
      follows:


F-28
 **WPCS
          INTERNATIONAL INCORPORATED AND SUBSIDIARIES**
 NOTES
          TO CONSOLIDATED FINANCIAL
          STATEMENTS





**As
                of and for year ended April 30, 2007**Corporate
            
            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
            
            $
            -
            
            $
            4,319,071
            
            $
            16,150,537
            
            $
            20,469,608Total
                assets
            
            $
            10,419,087
            
            $
            10,878,557
            
            $
            50,394,026
            
            $
            71,691,670





**As
                of and for year ended April 30, 2006**Corporate
            
            Wireless
                Infrastructure
            
            Specialty
                Communication
            
            TotalRevenue
            
            $
            -
            
            $
            9,300,228
            
            $
            42,844,347
            
            $
            52,144,575Depreciation
                and amortization
            
            $
            59,474
            
            $
            103,264
            
            $
            675,051
            
            $
            837,789Income
                (loss) before income taxes
            
            $
            (5,615,080
            )
            $
            1,240,928
            
            $
            4,265,805
            
            $
            (108,347
            )Goodwill
            
            $
            -
            
            $
            2,482,085
            
            $
            11,757,833
            
            $
            14,239,918Total
                assets
            
            $
            10,627,658
            
            $
            6,531,651
            
            $
            26,963,009
            
            $
            44,122,318





**As
                of and for year ended April 30, 2005**Corporate
            
            Wireless
                Infrastructure
            
            Specialty
                Communication
            
            TotalRevenue
            
            $
            -
            
            $
            8,651,555
            
            $
            31,496,678
            
            $
            40,148,233Depreciation
                and amortization
            
            $
            20,423
            
            $
            161,485
            
            $
            500,489
            
            $
            682,397Income
                (loss) before income taxes
            
            $
            207,777
            
            $
            783,014
            
            $
            390,286
            
            $
            1,381,077Goodwill
            
            $
            -
            
            $
            2,479,410
            
            $
            11,482,232
            
            $
            13,961,642Total
                assets
            
            $
            1,169,887
            
            $
            4,604,335
            
            $
            24,402,489
            
            $
            30,176,711





F-29
 **WPCS
          INTERNATIONAL INCORPORATED AND SUBSIDIARIES**
 NOTES
          TO CONSOLIDATED FINANCIAL
          STATEMENTS







**NOTE
      13 - QUARTERLY RESULTS FOR 2007 AND 2006 (UNAUDITED)**





This
      table summarizes the unaudited results of operation for each quarter of fiscal
      2007 and 2006:





**Year
                Ended April 30, 2007**
            
            **1Q07**
            
            **2Q07**
            
            **3Q07**
            
            **4Q07**Revenue
            
            $
            16,436,278
            
            $
            17,753,044
            
            $
            18,121,405
            
            $
            17,689,343Operating
                income
            
            
            1,414,839
            
            
            1,815,102
            
            
            2,122,564
            
            
            2,381,819Net
                income
            
            $
            914,427
            
            $
            1,064,647
            
            $
            1,251,879
            
            $
            1,362,648Basic
                net income per common share
            
            $
            0.17
            
            $
            0.19
            
            $
            0.23
            
            $
            0.20Diluted
                net income per common share
            
            $
            0.16
            
            $
            0.18
            
            $
            0.20
            
            $
            0.18





**Year
                Ended April 30, 2006**
            
            **1Q06**
            
            **2Q06**
            
            **3Q06**
            
            **4Q06**Revenue
            
            $
            12,171,639
            
            $
            14,250,243
            
            $
            11,821,189
            
            $
            13,901,504Operating
                income
            
            
            563,378
            
            
            1,345,837
            
            
            1,140,776
            
            
            1,054,455Loss
                (gain) on change in fair value of warrants
            
            
            4,110,594
            
            
            (2,382,912
            )
            
            9,678,732
            
            
            (7,327,920
            )Net
                income ( loss)
            
            
            ($3,795,319
            )
            $
            3,167,717
            
            
            ($9,012,290
            )
            $
            8,015,769Basic
                net income (loss) per common share
            
            
            ($0.99
            )
            $
            0.82
            
            
            ($2.26
            )
            $
            1.75Diluted
                net income (loss) per common share
            
            
            ($0.99
            )
            $
            0.82
            
            
            ($2.26
            )
            $
            1.62





Earnings
      per share calculations for each of the quarters are based on the weighted
      average number of shares outstanding in each quarter. Therefore, the sum of
      the
      quarterly earnings per share does not necessarily equal the full year earnings
      per share disclosed on the consolidated statements of operations.





**NOTE
      14 - 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, 2007 are approximately $5,500,000.





***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
      we
      believe will have, individually or in the aggregate, a material adverse affect
      on our business, consolidated financial condition or operating
      results.





F-30
 **WPCS
          INTERNATIONAL INCORPORATED AND SUBSIDIARIES**
 NOTES
          TO CONSOLIDATED FINANCIAL
          STATEMENTS







***Lease
      Commitments***





The
      Company leases its office facilities pursuant to non-cancelable operating leases
      expiring through April 2014. The Company also has non-cancelable vehicle leases.
      The minimum rental commitments under these non-cancelable leases at April 30,
      2007 are summarized as follows:




Year
                ending April 30,2008
            
            $
            759,2452009
            
            
            469,0682010
            
            
            368,6682011
            
            
            251,7062012
            
            
            192,449Thereafter
            
            
            201,430Total
                minimum lease payments
            
            $
            2,242,566




Rent
      expense for all operating leases was approximately $559,000, $396,000 and
      $358,000 in 2007, 2006 and 2005, respectively.





**NOTE
      15 - SUBSEQUENT EVENTS**





The
      Company recently announced the signing of letters of intent to acquire two
      companies. These transactions are expected to close by August 1, 2007, subject
      to completion of due diligence and the execution of definitive
      agreements.





The
      Company intends to acquire 100% of Major Electric, Inc (Major) for $4 million
      in
      cash and stock at closing with additional purchase price to be paid upon the
      achievement of a certain earnings target for a period ending December 31, 2007.
      Founded in 1994, Major is headquartered in the Seattle area and is a wireless
      and electric contractor specializing in direct digital controls, security,
      wireless SCADA applications and wireless infrastructure services. Major Electric
      has completed many major projects for many commercial entities.





The
      Company intends to acquire 100% of Max Engineering LLC (Max) for $800,000 in
      cash and stock at closing with additional purchase price to be paid upon the
      achievement of a specific two-year earnings goal. Founded in 2000, Max is an
      engineering firm headquartered in Houston, Texas, specializing in the design
      of
      specialty communication systems and wireless infrastructure for
      telecommunications, oil, gas and wind energy.





F-31





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





None





**ITEM
      9A - CONTROLS AND PROCEDURES**





*(a)
      Evaluation of disclosure controls and procedures.*





Our
      management, with the participation of our chief executive officer and chief
      financial officer, evaluated the effectiveness of our disclosure controls and
      procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934
      as
      of April 30, 2007. In designing and evaluating the disclosure controls and
      procedures, management recognizes that any controls and procedures, no matter
      how well designed and operated, can provide only reasonable assurance of
      achieving the desired control objectives. In addition, the design of disclosure
      controls and procedures must reflect the fact that there are resource
      constraints and that management is required to apply its judgment in evaluating
      the benefits of possible controls and procedures relative to their costs.





Based
      on our evaluation, our chief executive officer and chief financial officer
      concluded that our disclosure controls and procedures were designed at a
      reasonable assurance level and were effective as of April 30, 2007 to provide
      reasonable assurance that information required to be disclosed in reports filed
      or submitted under the Exchange Act was recorded, processed, summarized and
      reported within the time periods specified in Securities and Exchange Commission
      rules and forms, and that such information was accumulated and communicated
      to
      our management, including our chief executive officer and chief financial
      officer, as appropriate, to allow timely decisions regarding required
      disclosure.





*(b)
      Changes in internal control over financial reporting.*





We regularly
      review our system of internal control over financial reporting and make changes
      to our processes and systems to improve controls and increase efficiency, while
      ensuring that we maintain an effective internal control environment. Changes
      may
      include such activities as implementing new, more efficient systems,
      consolidating activities, and migrating processes.





There
      were no changes in our internal control over financial reporting that occurred
      during the period covered by this Annual Report that have materially affected,
      or are reasonably likely to materially affect, our internal control over
      financial reporting.





**ITEM
      9B - OTHER INFORMATION**





None




30


**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
            
            51
            
            Chairman,
                Chief Executive Officer and DirectorJoseph
                Heater
            
            43
            
            Chief
                Financial OfficerDonald
                Walker
            
            44
            
            Executive
                Vice PresidentJames
                Heinz
            
            47
            
            Executive
                Vice PresidentRichard
                Schubiger
            
            42
            
            Executive
                Vice PresidentCharles
                Madenford
            
            44
            
            Executive
                Vice PresidentNorm
                Dumbroff
            
            46
            
            DirectorNeil
                Hebenton
            
            51
            
            DirectorGary
                Walker
            
            52
            
            President
                of Walker Comm, Inc and DirectorWilliam
                Whitehead
            
            51
            
            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 May 2002 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 an 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.





***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.


31





***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.





***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.





***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.


32


***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***




Based
      solely upon a review of Forms 3, 4 and 5, and amendments thereto, furnished
      to
      us during fiscal year 2007, we are not aware of any director, officer or
      beneficial owner of more than ten percent of our Common Stock that failed to
      file reports required by Section 16(a) of the Securities Exchange Act of 1934
      on
      a timely basis during fiscal year 2007.





***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.


33


**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, 2007 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.




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.


34


***Bonus.*** 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 the 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 an
      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 stock option grants to all 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
      four 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.









35


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
      $168,000 per annum through April 30, 2007. Effective May 1, 2007, the base
      salary under the agreement was amended to $250,000 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 $140,000 per annum
      through April 30, 2007. Effective May 1, 2007, the base salary under the
      agreement was amended to $195,000. 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
      December 30, 2002, we entered into a four-year employment contract with an
      option to renew for an additional year, with Donald Walker, who is an Executive
      Vice President, and also a Vice-President of Walker Comm. The base salary under
      the agreement was $140,000 per annum through January 31, 2007. Mr. Walker was
      also entitled to a quarterly bonus of 3.0% of the operating income of Walker
      Comm, prior to the deduction of interest, taxes, depreciation and amortization
      through January 31, 2007.





Effective
      February 1, 2007, we renewed the employment contract with Mr. Walker for three
      years 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
      the operating income of Walker Comm, prior to the deduction of interest and
      taxes.





***Contract
      with Gary Walker***





On
      December 30, 2002, we entered into a four-year employment contract with an
      option to renew for an additional year, with Gary Walker, the President of
      Walker Comm, who is also a Director. The base salary under the agreement was
      $140,000 per annum through January 31, 2007. Mr. Walker was also entitled to
      a
      quarterly bonus of 3.0% of the operating income of Walker Comm, prior to the
      deduction of interest, taxes, depreciation and amortization through January
      31,
      2007.





Effective
      February 1, 2007, we renewed the employment contract with Mr. Walker for three
      years 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
      taxes.





***Contract
      with James Heinz***





On
      April
      2, 2004, we entered into a three-year employment contract with James Heinz,
      who
      is an Executive Vice President. and also a Vice-President of Heinz, The base
      salary under the agreement was $140,000 per annum through March 31, 2007. Mr.
      Heinz was also entitled to receive an annual bonus of 3.0% of operating income,
      before the deduction of interest and income taxes of Heinz, WPCS Incorporated
      and Invisinet, Inc. through March 31, 2007.





Effective
      April 1, 2007, we renewed the 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.


36





***Contract
      with Richard Schubiger***





On
      August
      1, 2005, we entered into a three-year employment contract with Richard
      Schubiger, who is an Executive Vice President and also the President of Quality.
      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 $140,000 per annum through April 30, 2007.
      Effective May 1, 2007, the base salary under the agreement was amended to
      $195,000. 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 earnings before the deduction of interest and income taxes
      of
      designated subsidiaries assigned by us.





***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.





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.





**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 year 2007.




Name
                and Principal Position
            Year
            Salary
                ($)
            Bonus
                ($)
            All
                Other Compensation ($)
            
            Total
                ($)Andrew
                Hidalgo
            2007
            168,000
            60,000
            10,800 
                (7)
            
            238,800Chairman,
                Chief Executive Officer
            2006
            168,000
            -
            11,492 
                (7)
            
            179,492and
                Director (1)
            2005
            168,000
            -
            9,549
                 (7)
            
            177,549Joseph
                Heater
            2007
            140,000
            40,000
            -
            
            180,000Chief
                Financial Officer (2)
            2006
            139,333
            -
            -
            
            139,3332005
            132,000
            -
            -
            
            132,000Donald
                Walker
            2007
            145,000
            131,448
            13,200 
                (8)
            
            289,648Executive
                Vice President (3)
            2006
            140,000
            37,215
            -
            
            177,2152005
            140,000
            10,269
            -
            
            150,269-Gary
                Walker
            2007
            142,500
            131,448
            12,190 
                (8)
            
            286,138President-
                Walker and Director (4)
            2006
            140,000
            37,215
            -
            
            177,2152005
            140,000
            10,269
            -
            
            150,269Richard
                Schubiger
            2007
            140,000
            107,829
            -
            
            247,829Executive
                Vice President (5)
            2006
            140,000
            73,658
            -
            
            213,6582005
            50,000
            -
            -
            
            50,000James
                Heinz
            2007
            141,667
            33,577
            -
            
            175,244Executive
                Vice President (6)
            2006
            140,005
            31,985
            -
            
            171,9902005
            140,000
            -
            -
            
            140,000





(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 Novermber 24,
      2004.


(6)
      Mr.
      Heinz has served as Executive Vice President since April 2, 2004.


(7)  Represents
      lease payments for use of company-leased vehicle.


(8)
      Represents 401(k) matching contributions.





37


**GRANTS
      OF PLAN-BASED AWARDS**





There
      were no grants of plan-based awards to named officers in fiscal 2007 .





**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, 2007.





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
            
            
            10/13/2010Joseph
                Heater
            
            
            20,834
            
            
            -
            
            $
            9.00
            
            
            6/12/200812,500
            
            
            -
            
            $
            12.84
            
            
            8/6/20087,500
            
            
            -
            
            $
            6.60
            
            
            10/6/200963,345
            
            
            -
            
            $
            6.14
            
            
            10/13/2010James
                Heinz
            
            
            10,000
            
            
            -
            
            $
            5.25
            
            
            2/1/201038,007
            
            
            -
            
            $
            6.14
            
            
            10/13/2010Richard
                Schubiger
            
            
            10,000
            
            
            -
            
            $
            5.25
            
            
            2/1/201038,007
            
            
            -
            
            $
            6.14
            
            
            10/13/2010




***Option
      Exercises - Fiscal 2007***




The
      following table summarizes the options exercised by the named executives during
      the fiscal year ended April 30, 2007:





Option
                AwardsName
            
            Number
                of Shares Acquired on Exercise
            
            Value
                Realized Upon Exercise ($)Andrew
                Hidalgo
            
            
            81,121
            
            
            305,662Joseph
                Heater
            
            
            27,500
            
            
            120,833Donald
                Walker
            
            
            38,007
            
            
            157,181Gary
                Walker
            
            
            19,820
            
            
            10,136





***Director
      Compensation***




The
      following table sets forth summary information concerning the total compensation
      paid to our non-employee directors in 2007 for services to our
      company.





**Name**
            
            **Option
                Awards**
              **($)****(*)******
            
            **Total**
              **($)**JeNorm
                Dumbroff (1)
            
            
            8,762
            
            
            8,762Neil
                Hebenton (2)
            
            
            8,762
            
            
            8,762William
                Whitehead (3)
            
            
            8,762
            
            
            8,762**Total:**
            
            
            26,286
            
            
            26,286





*
            Amounts
                represent the aggregate grant date fair value of stock-based compensation
                expense for stock options granted in fiscal 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)
            23,988
                options were outstanding as of April 30, 2007, of which 21,904 were
                exercisable as of April 30, 2007.(2)
            13,988
                options were outstanding as of April 30, 2007, of which 11,904 were
                exercisable as of April 30, 2007.(3)
            23,988
                options were outstanding as of April 30, 2007, of which 21,904 were
                exercisable as of April 30, 2007.




*Cash
      Compensation.* Our
      non-employee directors serve without cash compensation and without other fixed
      remuneration. We reimburse our non-employee Directors for all reasonable
      out-of-pocket expenses incurred in the performance of their duties as Directors.
      Employee directors are not compensated for Board services in addition to their
      regular employee compensation.  38


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





The
      following table sets forth certain information regarding beneficial ownership
      of
      our common stock as of July 15, 2007:





•
            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.





**Number
                  of**
              
              **Percentage****Name
                  And Address Of Beneficial Owner (1)**
              
              **Shares
                  Owned (2)**
              
              **of
                  Class (3)**Andrew
                  Hidalgo
              
              
              403,953
              
              
              (4)
              
              
              5.63
              %Joseph
                  Heater
              
              
              104,179
              
              
              (4)
              
              
              1.47
              %Donald
                  Walker
              
              
              -
              
              
              
              
              
              -James
                  Heinz
              
              
              107,531
              
              
              (4)
              
              
              1.53
              %Richard
                  Schubiger
              
              
              48,007
              
              
              (4)
              
              
              *Charles
                  Madenford
              
              
              4,084
              
              
              (4)
              
              
              *Norm
                  Dumbroff
              
              
              94,822
              
              
              (4)
              
              
              1.36
              %Neil
                  Hebenton
              
              
              13,988
              
              
              (4)
              
              
              *Gary
                  Walker
              
              
              66,280
              
              
              (4)
              
              
              *William
                  Whitehead
              
              
              30,155
              
              
              (4)
              
              
              *All
                  Officers and Directors as a Group (10 persons)
              
              
              872,999
              
              
              (4)
              
              
              11.73
              %Special
                  Situations Private Equity Fund, L.P.
              
              
              1,045,466
              
              
              (5)
              
              
              13.95
              %153
                  E. 53rd Street, 55th FloorNew
                  York, NY 10022Special
                  Situations Fund III QP, L.P.
              
              
              1,442,666
              
              
              (5)
              
              
              18.88
              %527
                  Madison Avenue, Suite 2600New
                  York, NY 10022SF
                  Capital Partners Ltd.
              
              
              500,360
              
              
              (6)
              
              
              6.93
              %3600
                South Lake Dr.St.
                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 15, 2007 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 6,971,698 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 15, 2007 or become exercisable within 60 days of that
      date: Andrew Hidalgo, 199,736 shares; Joseph Heater, 104,179 shares; James
      Heinz, 48,007 shares; Richard Schubiger, 48,007 shares; Charles Madenford,
      4,084
      shares; Norm Dumbroff, 23,988 shares; Neil Hebenton, 13,988 shares; William
      Whitehead, 28,155 shares; and all officers and directors as a group, 470,144
      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
      15,
      2007 or become exercisable within 60 days of that date: Special Situations
      Private Equity Fund, L.P., 520,831 shares, and Special Situations Fund III
      QP,
      L.P., 670,402 shares, based on the information in the most recent Form 4 filed
      on July 11, 2007.


(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 15, 2007 or become exercisable within 60 days of that date: 250,360
      shares.


.




39


**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,
                warrants
                and rights
            
            (b)
              Weighted-average
                exercise price of outstanding options, warrants and rights
            
            (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)
            
            
            233,575
            
            $
            8.43
            
            
            45,073Equity
                compensation plan approved by security holders (2)
            
            
            327,259
            
            $
            6.22
            
            
            6,498Equity
                compensation plan approved by security holders (3)
            
            
            -
            
            
            -
            
            
            400,000Total
            
            
            560,834
            
            $
            7.14
            
            
            451,571





(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, 2007, included above in the
                2002
                Plan are 204,096 shares issuable upon exercise of options granted
                to
                employees and directors, and 29,334 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, 2007,
                383,500
                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, 2007,
                400,000
                shares were issuable upon exercise of options granted to employees
                and
                directors.




40


**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 $4,642, 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, 2007, 2006, and 2005, the rent paid for this lease was $88,000.
      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, 2007, payments of $393,000 have been
      made to the former Clayborn stockholders and the total remaining due is
      $707,000.





On
      April
      2, 2004, we acquired all of the issued and outstanding common stock of Heinz.
      We
      acquired all of the issued and outstanding shares of Heinz from James Heinz,
      our
      Executive Vice President, for $1,000,000, as follows: (1) $700,000 of our common
      stock, based on the closing price of our common stock on March 30, 2004 of
      $11.76 per share, for an aggregate of 59,524 newly issued shares of our common
      stock and (2) $300,000 total cash consideration, of which $100,000 was paid
      at
      closing and a $200,000 non-interest bearing promissory note was issued. Of
      the
      $200,000, $75,000 was paid in April 2005, $75,000 was paid in April 2006 and
      $50,000 was paid in April 2007.





On
      November 24, 2004, we acquired all of the issued and outstanding common stock
      of
      Quality, of which Richard Schubiger, our Executive Vice President, owned 33.33%.
      The aggregate consideration we paid to the Quality selling stockholders, net
      of
      acquisition transaction costs, was $7,457,913, of which $6,700,000 was paid
      pro
      rata to the Quality stockholders at closing. Additional purchase price
      adjustments of $757,913 were paid in June 2005 to settle working capital
      adjustments and income tax reimbursements related to our Internal Revenue Code
      Section 338(h)(10) election. For income tax purposes, this election results
      in a
      stepped up basis of assets and liabilities and will result in future income
      tax
      deductions.





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
      year ended April 30, 2007, the rent paid for this lease was $40,315.





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 year
      ended
      April 30, 2007, the rent paid for this lease was $4,500.





**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, 2007 and 2006, and for the reviews of the financial statements
      included in our Quarterly Reports on Form 10-Q or 10-QSB during the fiscal
      year
      were $278,471 and $250,161, respectively.





Audit
      Related Fees. We incurred fees to our independent auditors of $14,400 and
      $57,150, respectively, for audit related fees during the fiscal years ended
      April 30, 2007 and 2006. These fees were primarily 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, 2007 and 2006.





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.





41


**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.





4.4
            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.





4.5
            Form
                of 2003 Common Stock Purchase Warrant, incorporated by reference
                to
                Exhibit 4.5 of WPCS International Incorporated’s Annual Report on Form
                10-KSB, filed August 14, 2003.





4.6
            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.





4.7
            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.





10.1
            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
            Employment
                Agreement by and between Quality Communications & Alarm Company, Inc.
                and Richard Schubiger, dated as of August 1, 2005, incorporated by
                reference to Exhibit 10.6 of WPCS International Incorporated’s
                registration statement on Form SB-2, filed February 8,
                2006.





10.7
            Agreement
                and Plan of Merger by and among Phoenix Star Ventures, Inc., WPCS
                Acquisition Corp., a Delaware corporation, WPCS Holdings, Inc., a
                Delaware
                corporation, and Andy Hidalgo, dated as of May 17, 2002, incorporated
                by
                reference to Exhibit 1 of WPCS International Incorporated’s Current Report
                on Form 8-K/A, filed June 12,
                2002.


42





10.8
            Agreement
                and Plan of Merger by and among WPCS International Incorporated,
                Invisinet
                Acquisitions Inc., Invisinet, Inc., J. Johnson LLC and E. J. von
                Schaumburg made as of the 13th day of November, 2002, incorporated
                by
                reference to Exhibit 3 of WPCS International Incorporated’s Current Report
                on Form 8-K, filed November 27,
                2002.





10.9
            Amendment
                to Invisinet Bonus Agreement, dated as of May 27, 2003, incorporated
                by
                reference to Exhibit 10.8 of WPCS International Incorporated’s Annual
                Report on Form 10-KSB, filed August 14,
                2003.





10.10
            Agreement
                and Plan of Merger by and among WPCS International Incorporated,
                Walker
                Comm Merger Corp., Walker Comm, Inc., Donald C. Walker, Gary R. Walker,
                and Tanya D. Sanchez made as of the 30th day of December, 2002,
                incorporated by reference to Exhibit 10.10 of WPCS International
                Incorporated’s registration statement on Form SB-2, filed February 8,
                2006.





10.11
            Agreement
                and Plan of Merger by and among WPCS International Incorporated,
                Clayborn
                Contracting Acquisition Corp., Clayborn Contracting Group, Inc.,
                David G.
                Gove and Sharon Gove made as of the 22nd day of August, 2003, incorporated
                by reference to Exhibit 3 of WPCS International Incorporated’s Current
                Report on Form 8-K, filed August 29,
                2003.





10.12
            Agreement
                and Plan of Merger by and among WPCS International Incorporated,
                Heinz
                Acquisition Corp., Heinz Corporation and James Heinz made as of the
                2nd
                day of April, 2004, incorporated by reference to Exhibit 3 of WPCS
                International Incorporated’s Current Report on Form 8-K, filed April 9,
                2004.





10.13
            Stock
                Purchase Agreement by and among WPCS International Incorporated and
                Richard Schubiger, Matthew Haber and Brian Fortier, dated as of November
                24, 2004, incorporated by reference to Exhibit 10.1 of WPCS International
                Incorporated’s current report on Form 8-K, filed November 30,
                2004.





10.14
            Form
                of Securities Purchase Agreement, dated as of November 16, 2004,
                incorporated by reference to Exhibit 10.1 of WPCS International
                Incorporated’s current report on Form 8-K, filed November 19,
                2004.





10.15
            Form
                of Common Stock Purchase Warrant, dated as of November 16, 2004,
                incorporated by reference to Exhibit 10.2 of WPCS International
                Incorporated’s current report on Form 8-K, filed November 19,
                2004.





10.16
            Form
                of Registration Rights Agreement, dated as of November 16, 2004,
                incorporated by reference to Exhibit 10.3 of WPCS International
                Incorporated’s current report on Form 8-K, filed November 19,
                2004.





10.17
            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.





10.18
            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.





10.19
            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.





10.20
            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.





10.21
            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.





10.22
            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.





10.23
            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.


43





10.24
            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.





10.25
            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





10.26
            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.





10.27
            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.





10.28
            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.





10.29
            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.





10.30
            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.





10.31
            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.





10.32
            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.





10.33
            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.





10.34
            Non-binding
                letter of intent setting forth the agreement and understanding as
                to the
                terms of the acquisition of Major electric, Inc, dated June 14, 2007,
                filed herewith.





10.35
            Non-binding
                letter of intent setting forth the agreement and understanding as
                to the
                terms of the acquisition of Max Engineering LLC, dated June 25, 2007,
                filed herewith.





10.36
            Employment
                Agreement, effective as of April 1, 2007, between WPCS International
                Incorporated and Charles Madenford, 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.


44





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)








45





**SCHEDULE
      II**


**VALUATION
      AND QUALIFYING ACCOUNTS**


For **** the
      years
      ended April 30, 2007, 2006 and 2005





(A)
                  Description
              
              
              (B)
                    Balance
                at
                  Beginning of Period
              
              
              (C)
                  Additions Charged toCosts and Expenses
              
              
              (D)
                  Deductions
              
              
              
              
              
              (E)
                    Balance
                at
                  end of PeriodAllowance
                for
                  Doubtful AccountsApril
                  30, 2005
              
              $
              61,779
              
              $
              17,037
              
              
              ($3,030
              )
              
              (1)
              
              $
              75,786April
                  30, 2006
              
              
              75,786
              
              
              35,877
              
              
              (6,877
              )
              
              (1)
              
              
              104,786April
                  30, 2007
              
              $
              104,786
              
              
              -
              
              
              ($6,000
              )
              
              (1)
              
              $
              98,786





(1).
      Write-off of uncollectible accounts.


46


**SIGNATURES**





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






**WPCS INTERNATIONAL
              INCORPORATED**Date: July 30,
              2007
            By:
            /s/ ANDREW
              HIDALGOAndrew
                HidalgoChief
                Executive Officer (Principal Executive
                Officer)  Date: July 30,
              2007
            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
                30, 2007/s/
                NORM DUMBROFF
              Norm
                Dumbroff
            
            
            Director
            
            
            July
                30, 2007/s/
                NEIL HEBENTON
              
              Neil
                Hebenton
            
            
            Director
            
            
            July
                30, 2007/s/
                GARY WALKER
              Gary
                Walker
            
            
            Director
            
            
            July
                30, 2007/s/
                WILLIAM WHITEHEAD
              
              William
                Whitehead
            
            
            Director
            
            
            July
                30, 2007











47