UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-K





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





For
the Fiscal Year Ended April 30, 2009





Commission
File Number 000-262771





WPCS
INTERNATIONAL INCORPORATED


(Exact
name of registrant as specified in its charter)





Delaware
            98-0204758(State
      or other jurisdiction of incorporationor
      organization)
            (IRS
      Employer Identification No.)  One
      East Uwchlan Avenue, Suite 301
                      Exton,
      Pennsylvania
                      (Address
      of principal executive office)
                    19341
                      (Postal
      Code)
                    (610)
      903-0400
                      (Issuer's telephone
      number)


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:  None





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined by
Rule 405 of the Securities Act. Yeso   Nox





Indicate
by checkmark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Act. Yeso   Nox





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yesx    Noo





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes o   No
o





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





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





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





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).Yeso Nox





The
aggregate market value of the voting common equity held by non-affiliates as of
October 31, 2008, based on the closing sales price of the Common Stock as quoted
on the Nasdaq Global Market was $21,753,249. For purposes of this computation,
all officers, directors, and 5 percent beneficial owners of the registrant are
deemed to be affiliates.  Such determination should not be deemed an
admission that such directors, officers, or 5 percent beneficial owners are, in
fact, affiliates of the registrant.








As of July 17, 2009, there were
6,942,266 shares of
registrant’s common stock outstanding.








1








TABLE
OF CONTENTS





PAGEPART IItem 1.
                          
                          Description
      of Business
                          
                          3Item 1A.
                          
                          RiskFactors
                          
                          8Item1B.
                          
                          UnresolvedStaff Comments
                          
                          13Item 2.
                          
                          Properties
                          
                          13Item 3.
                          
                          Legal Proceedings
                          
                          13Item 4.
                          
                          Submission ofMatters to a Vote of Security
      Holders
                          
                          13PART IIItem 5.
                          
                          Market for Registrant’s CommonEquity, Related Stockholder Matters
      and Issuer Purchases ofEquity
      Securities
                          
                          14Item6.
                          
                          SelectedFinancial Data
                          
                          14Item 7.
                          
                          Management’s Discussion
      and Analysis of Financial Condition and Results of
      Operations
                          
                          15Item 7A.
                          
                          Quantitative and Qualitative Disclosures about
      Market Risk
                          
                          25Item 8.
                          
                          Financial Statementsand Supplementary Data
                          
                          F1-F31Item 9.
                          
                          Changes in and Disagreements with Accountants on
      Accounting and Financial Disclosures
                          
                          26Item 9A(T).
                          
                          Controls and Procedures
                          
                          26Item 9B.
                          
                          OtherInformation
                          
                          26PART IIIItem 10.
                          
                          Directors,Executive
      Officersand Corporate
      Governance
                          
                          27Item 11.
                          
                          Executive Compensation
                          
                          30Item 12.
                          
                          Security Ownership of Certain Beneficial Owners
      and Management and Related Stockholder Matters
                          
                          35Item 13.
                          
                          Certain Relationships and Related
      Transactions, and DirectorIndependence
                          
                          37Item 14.
                          
                          Principal AccountantFees
      and Services
                          
                          37PART IVItem 15.
                          
                          ExhibitsandFinancial Statement
      Schedules
                          
                          38Signatures
                          
                          42








2









PART
I





ITEM
1 - DESCRIPTION OF BUSINESS





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
and Recent Developments





We are a
global provider of design-build engineering services for communications
infrastructure, with over 500 employees in 20 locations on three
continents.  We provide our engineering capabilities including
wireless communication, specialty construction and electrical power to a
diversified customer base in the public services, healthcare, energy and
corporate enterprise markets worldwide.





Historically,
each of our wholly-owned subsidiaries has operated and was known primarily by
our customers and vendors through a variety of subsidiary legal names, while our
investors know us primarily by our “WPCS” name.  In order to better
serve our diversified customer base, we launched a key initiative in the third
and fourth quarter of fiscal 2009 to brand each of our subsidiaries with the
“WPCS” name.  We believe this branding strategy will position our
company to better pursue national contracts with existing customers, further
develop our relationships with technology providers, improve our purchasing
power and achieve certain cost reductions under one integrated
name.  This branding strategy has included, among other things,
changing our subsidiary’s legal names, company website, email, promotional and
advertising materials and signage.  However, our overall management
structure remains unchanged.  The total cost for the branding
initiative is expected to be approximately $100,000 of which approximately
$40,000 was incurred during the fiscal year ended April 30, 2009.





The
following table summarizes the new subsidiary legal names compared to the old
legal name, and their reference names that are used throughout the remainder of
this Annual Report on Form 10-K.








Legal
      Name
                    Old
      Name
                    Referred
      AsWPCS
      International – Auburn, Inc.
                    Clayborn
      Contracting Group, Inc.
                    Auburn
      OperationsWPCS
      International – Sacramento, Inc.
                    Gomes
      and Gomes, Inc. dba Empire Electric
                    Sacramento
      OperationsWPCS
      International – St. Louis, Inc.
                    Heinz
      Corporation
                    St. Louis
      OperationsWPCS
      International – Seattle, Inc.
                    Major
      Electric, Inc.
                    Seattle
      OperationsWPCS
      International – Houston, Inc.
                    Max
      Engineering LLC
                    Houston
      OperationsWPCS
      International – Portland, Inc.
                    Midway
      Electric Company
                    Portland
      OperationsWPCS
      International – Hartford, Inc.
                    New
      England Communications Systems, Inc.
                    Hartford
      OperationsWPCS
      International – Lakewood, Inc.
                    Quality
      Communications & Alarm Company, Inc.
                    Lakewood
      OperationsWPCS
      International – Sarasota, Inc.
                    Southeastern
      Communication Service, Inc.
                    Sarasota
      OperationsWPCS
      International – Trenton, Inc.
                    Voacolo
      Electric Incorporated
                    Trenton
      OperationsWPCS
      International – Suisun City, Inc.
                    Walker
      Comm, Inc.
                    Suisun
      City OperationsWPCS
      International – Brendale, Pty Ltd.
                    RL
      & CA MacKay Pty Ltd. dba Energize Electrical
                    Brendale
      OperationsWPCS
      International – Brisbane, Pty Ltd.
                    James
      Design Pty Ltd
                    Brisbane
      Operations








3








This Annual Report on Form 10-K
includes the accounts of WPCS International Incorporated, the subsidiaries
listed above which completed a legal name change, and the following wholly and
majority-owned subsidiaries that did not complete a legal name change and
includes WPCS Incorporated, Invisinet, Inc., WPCS Australia Pty Ltd, Taian AGS
Pipeline Construction Co. Ltd (Beijing Operations) and WPCS Asia Limited,
collectively “we”, “us”, as the “Company”.





Furthermore, as part of our branding
strategy and to better represent our comprehensive design-build engineering
capabilities, we have reorganized our operating segments to correspond to our
primary service lines:  wireless communication, specialty construction
and electrical power.  Accordingly, we are reporting our results under
these three business segments in this Form 10-K for the fiscal years ended April
30, 2009 and 2008.





The
global economy depends on efficient voice, data and video communication. Old
communication infrastructure needs to be replaced and new technology needs to be
implemented. We believe we have the design-build capabilities to address the
demand.   For communication infrastructure projects that are
significant in scope, we have the ability to offer wireless communication,
specialty construction and electrical power.  Because we are
technology independent, we can integrate multiple products and services across a
variety of communication requirements.  This gives our customers the
flexibility to obtain the most appropriate solution for their communication
needs on a cost effective basis.     In wireless
communication, we can design and deploy all types of wireless systems in a
variety of applications for mobile communications, asset tracking and video
surveillance. In specialty construction, we have provided building design
services for mechanical, electrical and hydraulic systems as well as
construction services for energy including solar power systems and wind
turbines. In specialty construction, we have installed traffic control systems
and smart message signs for transportation infrastructure. On the electrical
power side, we are capable of all types of commercial and industrial electrical
work including the integration of advanced building communications technology
for voice and data, life safety, security and HVAC.





Since our
inception in 2001, we have grown organically and through strategic acquisitions
to establish a presence in addressing the global needs of communications
technology.  For the fiscal year ended April 30, 2009, we generated
revenues of approximately $107 million, an increase of 5.6% from the fiscal year
ended April 30, 2008.  Our backlog at April 30, 2009 and 2008 was
approximately $38.4 million $59.8 million, respectively.





Industry
Trends





We have
chosen to offer our services in high growth markets that have shown some
resiliency during these challenging economic times.  We focus on
markets such as public services, healthcare, energy and international which
continue to show strong growth potential.








·
            Public
      services.  We provide communications infrastructure for
      public services (which includes police, fire and emergency systems),
      public utilities (which includes water treatment and sewage), education,
      military and transportation infrastructure.In the
      public services, according to a report from First Research, there are
      30,000 state and local municipalities in the U.S. that are scheduled to
      spend approximately $7 billion per year on communications infrastructure
      and it is a market that has received federal funding support through the
      fiscal stimulus package legislated in February
  2009.




·
            Healthcare.  We
      provide communications infrastructure for hospitals, medical centers and
      healthcare networks.In the
      healthcare market, according to a report from Market Research, the aging
      population and the need to reduce labor costs through the implementation
      of advanced communications technology is driving projected expenditures of
      $3 billion per year over the next few
years.




·
            Energy.  We
      provide communications infrastructure for petrochemical, natural gas,
      electric utilities and alternative energy (solar and wind).According
      to a report from the Energy Information Administration of the U.S.
      Department of Energy, the need to deliver more efficient basic energy and
      new alternative energy is creating communications infrastructure demand at
      an estimated $2 billion per year in
  expenditures.




·
            International.  We
      provide communications infrastructure internationally for a variety of
      companies and government entities.China
      is spending on building its internal infrastructure and Australia is
      upgrading their infrastructure.  Both countries are expecting
      positive GDP growth rates ranging from 2% to 6% over the next few years
      per China’s National Bureau of Statistics and Australia Department of
      Foreign Affairs and Trade.









4






Business
Strategy




Our goal
is to become the recognized design-build engineering leader for communications
infrastructure on a global scale. Our business strategy focuses on both organic
growth and the pursuit of acquisitions that add to our engineering capacity and
geographic coverage. We believe that our financial strength, geographic coverage
and repeat customer base presents the opportunity to grow the company
substantially from a revenue and earnings
perspective.   Specifically, we will endeavor to:




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




•
            Maintain and expand our focus
      in strategic markets.We have designed and deployed successful and
      innovative communications infrastructure solutions for multiple customers
      in a number of strategic markets, such as public services, healthcare,
      energy and corporate enterprise. We will continue to seek additional
      customers in these targeted markets and look for new ways in which we can
      design and deploy communications infrastructure for increased
      productivity.




•
            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. We have worked with these
      providers in testing new communications technology. Our technicians are
      trained and maintain certifications on a variety of leading communications
      technology products which exhibits our commitment in providing advanced
      solutions for our customers.




•
            Seek strategic
      acquisitions.  We will continue to look for additional
      acquisitions of compatible businesses that can be readily assimilated into
      our organization, increase our engineering capabilities, expand our
      geographic coverage and add accretive earnings to our business. Our
      preferred acquisition candidates will have experience in the wireless
      communication, specialty construction and/or electrical power markets. A
      specific goal is to expand our international operations, primarily in
      Australia and China.




Design-Build
Services





We
operate in three business segments which include wireless communication,
specialty construction and electrical power. For the fiscal year ended April 30,
2009, wireless communication represented approximately 31.9% of our total
revenue, specialty construction represented approximately 15.5% of our total
revenue and electrical power represented approximately 52.6% of our revenue. For
the fiscal year ended April 30, 2008, wireless communication represented
approximately 45.4% of our total revenue, specialty construction represented
approximately 12.9% of our total revenue and electrical power represented
approximately 41.7% of our revenue. See Note 12 to the Consolidated Financial
Statements for the financial results of each segment for the fiscal years ended
April 30, 2009 and 2008.




Wireless
Communication




Throughout
the community or around the world, in remote and urban locations, wireless
networks provide the connections that keep information flowing. The design and
deployment of a wireless network solution requires an in-depth knowledge of
radio frequency engineering so that wireless networks are free from interference
with other signals and amplified sufficiently to carry data, voice or video with
speed and accuracy. We have extensive experience and methodologies that are well
suited to address these challenges for our customers. We are capable of
designing wireless networks and providing the technology integration necessary
to meet goals for enhanced communication, increased productivity and reduced
costs. We have the engineering expertise to utilize all facets of wireless
technology or combination of various technologies to develop a cost effective
network for a customer's wireless communication requirements. This includes
Wi-Fi networks, WiMAX networks, point-to-point systems, mesh networks, microwave
systems, cellular networks, in-building systems and two-way communication
systems.









5






Specialty
Construction






We offer
specialty construction services for building design including the design and
integration of mechanical, electrical, hydraulic and life safety systems in an
environmentally safe manner. We work through all phases of the building design
and construction to evaluate the design for cost, flexibility, efficiency,
productivity and overall environmental impact.






We have
established capabilities in transportation infrastructure. In the developing
world, urbanization has created increased mobility, placing great demands on
transportation infrastructure. Governments are responding by making the
construction of safe and efficient roads a priority. New systems are needed for
traffic monitoring, traffic signaling, video surveillance and smart message
signs to communicate information advisories. We are  providing
design-build engineering services for these technologically advanced
systems.






As world
economies continue to grow and standards of living improve, energy supplies are
dwindling. It is a scenario that has accelerated the search for new energy
sources and better ways of delivery existing supply. We are contributing in both
of these critical areas. We design and deploy alternative energy solutions in
wind and solar power. Through a unique combination of scientific, geologic,
engineering and construction expertise, we offer solutions in site design, solar
installation, meteorological towers and wind turbine installation. In addition,
we support energy companies as they maximize the efficiency of their energy
supply infrastructure, by providing a range of services from pipeline trenching
to the deployment of wireless solutions.






Electrical
Power






Electrical
power transmission and distribution networks built years ago often cannot
fulfill the growing technological needs of today's end users. We provide
complete electrical contracting services to help commercial and industrial
facilities of all types and sizes to upgrade their power systems. Our
capabilities include power transmission, switchgear, underground utilities,
outside plant, instrumentation and controls. We provide an integrated approach
to project coordination that creates cost-effective solutions. In addition,
corporations, government entities, healthcare organizations and educational
institutions depend on the reliability and accuracy of voice, data and video
communications. However, the potential for this new technology cannot be
realized without the right electrical infrastructure to support the convergence
of technology.  In this regard, we create integrated building systems,
including the installation of advanced structured cabling systems and electrical
networks. We support the integration of telecommunications, fire protection,
security and HVAC in an environmentally safe manner and design for future growth
by building in additional capacity for expansion as new capabilities are
added.






Project
Characteristics




Our
contracts are primarily service-based projects providing installation and
engineering services, which include providing labor, materials and equipment for
a complete installation. The projects are generally staffed with a project
manager who manages multiple projects and a field supervisor who is responsible
for an individual project. Depending on the scope of the contract, project staff
size could range from two to four engineers to as high as 25 to 30 engineers. A
project may also include subcontracted services along with our direct labor. The
project manager coordinates the daily activities of direct labor and
subcontractors and works closely with our field supervisors. Project managers
are responsible for job costing, change order tracking, billing, and customer
relations. Executive management monitors the performance of all projects
regularly through work-in-progress reporting or percentage-of-completion, and
reviews this information with each project manager. Our projects are primarily
executed on a contract basis. These contracts can be awarded through a
competitive bidding process, an informal bidding process, or a simple quote
request. Upon award of a contract, there can be delays 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 public services, healthcare, energy and corporate enterprise
customers. For the fiscal years ended April 30, 2009 and 2008, there were no
customers which accounted for more than 10% of our revenue.






6









Sales
and Marketing




We have
dedicated sales and marketing resources that develop opportunities within our
existing customer base, and identify new customers through our strategic 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.




Backlog




As of
April 30, 2009, we had a backlog of unfilled orders of approximately $38.4
million compared to approximately $59.8 million at April 30, 2008. 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 an executed 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. 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
communications infrastructure market but we would classify Quanta Services, Inc.
(NYSE:PWR), Dycom Industries, Inc. (NYSE:DY) and Tetra Tech, Inc. (NASDAQ:TTEK)
as national competitors. The principal competitive advantage in these markets is
establishing a reputation of delivering projects on time and within budget.
Other factors of importance include accountability, engineering capability,
certifications, project management expertise, industry experience and financial
strength. We believe that the ability to provide comprehensive communications
infrastructure design-build services including wireless communication, specialty
construction and electrical power 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 communications infrastructure,
and can provide these services on an international basis. In addition, we offer
both a union and non-union workforce that allow us to bid on either labor
requirement, creating yet another competitive advantage. However, our ability to
compete effectively also depends on a number of additional factors that are
beyond our control. These factors include competitive pricing for similar
services and the ability and willingness of the competition to finance projects
on favorable terms.




Employees





As of
April 30, 2009, we employed 558 full time employees, of whom 311 are project
engineers, 80 are project managers, 66 are technicians, 94 are in administration
and sales and seven 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 217 union employees whom are covered by
contracts that expire at various times as follows:





Operations
              # of Employees
              Union Contract expiration
    dateSt.
      Louis
              1
              September
      1, 2009Portland
              2
              December
      31, 2009Suisun
      City
              8
              December
      31, 2009Suisun
      City
              69
              January
      1, 2010Trenton
              39
              May
      1, 2010St.
      Louis
              1
              May
      5, 2010Sacramento
              32
              May
      31, 2010Seattle
              62
              May
      31, 2010St.
      Louis
              3
              October
      31, 2010Total
      Union Employees
              217








7






ITEM
1A - RISK FACTORS




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
project 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 design-build services 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.








8






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 seventeen 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 six 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.




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




As of
April 30, 2009, we had a backlog of unfilled orders of approximately $38.4
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 could also have a negative impact on
the economy overall and on our ability to perform outdoor services in affected
regions or utilize equipment and crews stationed in those regions, which in turn
could significantly impact the results of any one or more of our reporting
periods.




If
we are unable to retain the services of Messrs. Hidalgo, Polulak, 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. Myron Polulak, 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. Polulak, Heinz, Walker, and Madenford
oversee the day-to-day operations of our operating subsidiaries. Loss of the
services of Messrs. Hidalgo, Polulak, 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, Polulak, Heinz,
Walker, or Madenford.








9






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 39% 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. Each of reporting units is subject to an annual review for
goodwill impairment. If impairment testing indicates that the carrying value of
a reporting unit exceeds its fair value, the goodwill of the reporting unit is
deemed impaired. Accordingly, an impairment charge would be recognized for that
reporting unit in the period identified, which could reduce our
profitability.




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 design-build projects and technology upgrades by our
      customers;




•
            fluctuations
      in demand for outsourced design-build
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 collectability
      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.




10









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, 2008 and April 30, 2009,
our common stock has traded as low as $1.32 and as high as $7.60 per share,
based upon information provided by the NASDAQ Global Market. Factors which could
have a significant impact on the market price of our common stock include, but
are not limited to, the following:




•
            quarterly
      variations in operating results;




•
            announcements
      of new services by us or our
competitors;




•
            the
      gain or loss of significant
customers;




•
            changes
      in analysts’ earnings estimates;




•
            rumors
      or dissemination of false
information;




•
            pricing
      pressures;




•
            short
      selling of our common stock;




•
            impact
      of litigation;




•
            general
      conditions in the market;




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




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




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




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.




If
we are unsuccessful in renewing our credit facility, we may not be able to
obtain additional financing if needed.




On April 10, 2007, we
entered into a loan agreement with Bank of America, N.A., as amended. The loan
agreement (Loan Agreement) provides for a revolving line of credit in an amount
not to exceed $15,000,000, together with a letter of credit facility not to
exceed $2,000,000. The loan commitment expires on April 10, 2010, and we may
prepay the loan at any time.   As of April 30, 2009, there was
approximately $5,626,000 of outstanding borrowings under the loan
agreement.  The recent tightening of the credit markets could make it
difficult for us to renew the Loan Agreement or obtain additional
financing.  We do not have any contracts or commitments
for  additional funding, and there can be no assurance that financing
will be available in amounts or  on terms acceptable to us, if at all.
The inability to obtain additional capital will restrict our ability to grow and
make strategic acquisitions and may reduce our ability to continue to conduct
our business operations as we currently operate, which could have a material
adverse impact on our business and results of operations.




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




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









11






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 (SOX), 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, including potential
increased audit fees for SOX compliance, and a diversion of management time and
attention from revenue-generating activities to compliance
activities.




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




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




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





As of
April 30, 2009, holders of our outstanding options and warrants have the right
to acquire 2,513,748 shares of common stock issuable upon the exercise of stock
options and warrants, at exercise prices ranging from $2.37 to $12.10 per share,
with a weighted average exercise price of $6.66. 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 Beijing Operations, 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;





•
            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.









12




ITEM
1B – UNRESOLVED STAFF COMMENTS





None.




ITEM
2 – PROPERTIES




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




Lease
                              
                              AnnualLocation
                              Operations
                              Expiration
      Date
                              
                              RentExton,
      Pennsylvania
                              WPCS
      Corporate headquarters
                              February
      1, 2011
                              
                              $
                              53,869Auburn,
      California (1)
                              Auburn
                              Month-to-month
                              
                              $
                              55,263West
      Sacramento, California
                              Sacramento
                              July
      31, 2010
                              
                              $
                              77,097Brendale,
      Queensland, Australia
                              Brendale
                              August
      17, 2011
                              
                              $
                              31,209St.
      Louis, Missouri
                              St.
      Louis
                              August
      31, 2010
                              
                              $
                              70,177Exton,
      Pennsylvania
                              St.
      Louis
                              July
      31, 2009
                              
                              $
                              2,268West
      Chester, Pennsylvania
                              St.
      Louis
                              May
      31, 2010
                              
                              $
                              14,850Buranda,
      Queensland,  Australia
                              Brisbane
                              July
      31, 2012
                              
                              $
                              57,940Woodinville,
      Washington
                              Seattle
                              May
      31, 2010
                              
                              $
                              9,720Houston,
      Texas
                              Houston
                              August
      31, 2009
                              
                              $
                              6,895Hempstead,
      Texas
                              Houston
                              March
      31, 2010
                              
                              $
                              8,250Moline,
      Illinois
                              Houston
                              October
      31, 2011
                              
                              $
                              32,000Windsor,
      Connecticut
                              Hartford
                              April
      30, 2014
                              
                              $
                              87,038Chicopee,
      Massachusetts
                              Hartford
                              August
      31, 2009
                              
                              $
                              3,000West
      Greenwich, Rhode Island
                              Hartford
                              November
      30, 2009
                              
                              $
                              10,153Lakewood,
      New Jersey
                              Lakewood
                              August
      31, 2010
                              
                              $
                              129,600Sarasota,
      Florida
                              Sarasota
                              July
      31, 2011
                              
                              $
                              55,714Trenton,
      New Jersey (2)
                              Trenton
                              April
      30, 2010
                              
                              $
                              66,000Suisun
      City, California (3)
                              Suisun
      City
                              February
      28, 2011
                              
                              $
                              93,660Lincoln,
      California
                              Suisun
      City
                              December
      31, 2011
                              
                              $
                              56,040Rocklin,
      California
                              Suisun
      City
                              January
      31, 2010
                              
                              $
                              23,355Reno,
      Nevada
                              Suisun
      City
                              May
      31, 2010
                              
                              $
                              4,290San
      Leandro, California
                              Suisun
      City
                              July
      31, 2011
                              
                              $
                              14,139St.
      Helens, Oregon
                              Portland
                              May
      11, 2010
                              
                              $
                              26,225







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






13








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.” For the period from May 1, 2007 to date, the following table sets forth
the high and low sale prices of our common stock as reported by NASDAQ Global
Market.




Period
                  
                  High
                  
                  
                  LowFiscal
      Year Ended April 30, 2009:First
      Quarter
                  
                  $
                  7.60
                  
                  
                  $
                  5.25Second
      Quarter
                  
                  
                  6.08
                  
                  
                  
                  2.05Third
      Quarter
                  
                  
                  3.38
                  
                  
                  
                  1.63Fourth
      Quarter
                  
                  
                  2.13
                  
                  
                  
                  1.32Fiscal
      Year Ended April 30, 2008:First
      Quarter
                  
                  $
                  14.25
                  
                  
                  $
                  11.14Second
      Quarter
                  
                  
                  12.37
                  
                  
                  
                  9.51Third
      Quarter
                  
                  
                  11.67
                  
                  
                  
                  8.05Fourth
      Quarter
                  
                  
                  8.96
                  
                  
                  
                  5.15





On July
17, 2009, the closing sale price of our common stock, as reported by the NASDAQ
Global Market, was $2.93 per share. On July 17, 2009, there were 63 holders of
record of our common stock.





On
November 24, 2008, we adopted a share repurchase program of up to 2,000,000
shares of our common stock until December 1, 2009.  The share
repurchase program authorizes us to repurchase shares, from time to time,
through open market or privately negotiated transactions.  Since
November 24, 2008, a total of 308,817 shares have been purchased and retired by
us under the share repurchase program, none of which occurred in the fourth
fiscal quarter.





Dividend
Policy





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




ITEM
6 – SELECTED FINANCIAL DATA





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




14







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 and Recent Developments





We are a
global provider of design-build engineering services for communications
infrastructure, with over 500 employees in 20 locations on three
continents.  We provide our engineering capabilities including
wireless communication, specialty construction and electrical power to a
diversified customer base in the public services, healthcare, energy and
corporate enterprise markets worldwide.





Historically,
each of our wholly-owned subsidiaries has operated and was known primarily by
our customers and vendors through a variety of subsidiary legal names, while our
investors know us primarily by our “WPCS” name.  In order to better
serve our diversified customer base, we launched a key initiative in the third
and fourth quarter of fiscal 2009 to brand each of our subsidiaries with the
“WPCS” name.  We believe this branding strategy will position our
company to better pursue national contracts with existing customers, further
develop our relationships with technology providers, improve our purchasing
power and achieve certain cost reductions under one integrated
name.  This branding strategy has included, among other things,
changing our subsidiary’s legal names, company website, email, promotional and
advertising materials and signage.  However, our overall management
structure remains unchanged. The total cost for the branding initiative is
expected to be approximately $100,000 of which approximately $40,000 was
incurred during the fiscal year ended April 30, 2009.





Furthermore, as part of our branding
strategy and to better represent our comprehensive design-build engineering
capabilities, we have reorganized our operating segments to correspond to our
primary service lines:  wireless communication, specialty construction
and electrical power.  Accordingly, we are reporting our results under
these three business segments in this Form 10-K for the fiscal years ended April
30, 2009 and 2008.




Wireless
Communication




Throughout
the community or around the world, in remote and urban locations, wireless
networks provide the connections that keep information flowing. The design and
deployment of a wireless network solution requires an in-depth knowledge of
radio frequency engineering so that wireless networks are free from interference
with other signals and amplified sufficiently to carry data, voice or video with
speed and accuracy. WPCS has extensive experience and methodologies that are
well suited to address these challenges for our customers. WPCS is capable of
designing wireless networks and providing the technology integration necessary
to meet goals for enhanced communication, increased productivity and reduced
costs. We have the engineering expertise to utilize all facets of wireless
technology or combination of various technologies to develop a cost effective
network for a customer's wireless communication requirements. This includes
Wi-Fi networks, WiMAX networks, point-to-point systems, mesh networks, microwave
systems, cellular networks, in-building systems and two-way communication
systems.






15







Specialty
Construction






We offer
specialty construction services for building design including the design and
integration of mechanical, electrical, hydraulic and life safety systems in an
environmentally safe manner. We work through all phases of the building design
and construction to evaluate the design for cost, flexibility, efficiency,
productivity and overall environmental impact.






Next, we
have established capabilities in transportation infrastructure. In the
developing world, urbanization has created increased mobility, placing great
demands on transportation infrastructure. Governments are responding by making
the construction of safe, efficient roads a priority. New systems are needed for
traffic monitoring, traffic signaling, video surveillance and smart message
signs to communicate information advisories. WPCS is a providing design-build
engineering services for these technologically advanced systems.






Lastly,
world economies are growing, standards of living are improving and energy
supplies are dwindling. It is a scenario that has accelerated the search for new
energy sources and better ways of delivery existing supply. WPCS is contributing
in both of these critical areas. We design and deploy alternative energy
solutions in wind and solar power. Through a unique combination of scientific,
geologic, engineering and construction expertise, we offer solutions in site
design, solar installation, meteorological towers and wind turbine installation.
In addition, we support energy companies as they maximize the efficiency of
their energy supply infrastructure, by providing a range of services from
pipeline trenching to the deployment of wireless solutions.




Electrical
Power






Electrical
power transmission and distribution networks built years ago often cannot
fulfill the growing technological needs of today's end users. We provide
complete electrical contracting services to help commercial and industrial
facilities of all types and sizes to upgrade their power systems. Our
capabilities include power transmission, switchgear, underground utilities,
outside plant, instrumentation and controls. We provide an integrated approach
to project coordination that creates cost-effective solutions. In addition,
corporations, government entities, healthcare organizations and educational
institutions depend on the reliability and accuracy of voice, data and video
communications. However, the potential for this new technology cannot be
realized without the right electrical infrastructure, to support the convergence
of technology.  In this regard, we create integrated building systems,
including the installation of advanced structured cabling systems and electrical
networks. We support the integration of telecommunications, fire protection,
security and HVAC in an environmentally safe manner and design for future growth
by building in additional capacity for expansion as new capabilities are
added.




For the
fiscal year ended April 30, 2009, wireless communication represented
approximately 31.9% of our total revenue, specialty construction represented
approximately 15.5% of our total revenue and electrical power represented
approximately 52.6% of our revenue. For the fiscal year ended April 30, 2008,
wireless communication represented approximately 45.4% of our total revenue,
specialty construction represented approximately 12.9% of our total revenue and
electrical power represented approximately 41.7% of our revenue.




Industry
Trends





We have
chosen to offer our services in high growth markets that have shown some
resiliency during these challenging economic times.  We focus on
markets such as public services, healthcare, energy and international which
continue to show strong growth potential.




·
            Public
      services.  We provide communications infrastructure for
      public services (which includes police, fire and emergency systems),
      public utilities (which includes water treatment and sewage), education,
      military and transportation infrastructure.In the
      public services, according to a report from First Research, there are
      30,000 state and local municipalities in the U.S. that are scheduled to
      spend approximately $7 billion per year on communications infrastructure
      and it is a market that has received Federal funding support through the
      fiscal stimulus package legislated in February
  2009.




·
            Healthcare.  We
      provide communications infrastructure for hospitals, medical centers and
      healthcare networks.In the
      healthcare market, according to a report from Market Research, the aging
      population and the need to reduce labor costs through the implementation
      of advanced communications technology is driving projected expenditures of
      $3 billion per year over the next few
years.




·
            Energy.  We
      provide communications infrastructure for petrochemical, natural gas,
      electric utilities and alternative energy (solar and wind).According
      to a report from the Energy Information Administration of the U.S.
      Department of Energy, the need to deliver more efficient basic energy and
      new alternative energy is creating communications infrastructure demand at
      an estimated $2 billion per year in
  expenditures.




·
            International.  We
      provide communications infrastructure internationally for a variety of
      companies and government entities.China
      is spending on building its internal infrastructure and Australia is
      upgrading their infrastructure.  Both countries are expecting
      positive GDP growth rates ranging from 2% to 6% over the next few years
      per China’s National Bureau of Statistics and Australia Department of
      Foreign Affairs and Trade.







16





Current
Operating Trends and Financial Highlights





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





·
              Over
      the past fiscal year, current economic conditions have adversely affected
      certain markets of our business, primarily related to the public services
      sector of our business.  General spending has temporarily slowed
      at the state and local government level due to a decrease in tax revenue
      and credit impediments as well as a pull back in bid solicitations due to
      uncertainty regarding Federal funding that would be made available through
      the legislation of the Federally funded stimulus package.  This
      slowdown has caused our revenue to be lower than expected, resulting in
      net income and earnings per share for the year to be lower than
      expected.·
              Although
      general spending is currently down at the state and local government level
      for public services projects, we believe the demand for communications
      infrastructure remains high, which is indicated by our backlog and bids
      discussed below.  Now that the new presidential administration
      has recently passed the Federally funded stimulus package, $90 billion has
      been set aside for public services, which includes transportation,
      education and communications infrastructure projects.  As a
      result, we are beginning to see an increase in bid solicitations based on
      the evidence of Federal government funding support.
                
                In
      the healthcare market, we continue to receive bid requests and complete
      new projects, as the primary drivers in this market continue to be the
      need to provide healthcare infrastructure for an aging population and to
      cut costs through healthcare reform.  The Federal stimulus
      package also provides $32 billion for healthcare infrastructure
      spending.
                
                In
      the energy market, we continue to receive bid solicitations and complete
      new projects as oil, gas, water and electric utility companies continue to
      upgrade their communications infrastructure, while in alternative energy
      the growth in wind and solar power development is expected to
      continue.  The Federal stimulus package also provides $20
      billion for energy infrastructure spending.
                
                Our
      opportunity to obtain work related to the Federal stimulus package depends
      on the timing of funding allocations and our ability to receive bid
      requests and be awarded new projects; however, we believe that our
      experience in performing work in each of these sectors will result in
      increased bid activity in the near future.   In this
      regard, we retained most of our project managers and engineers to respond
      to this expected increased bid activity.·
              We continue to focus on expanding
      our international presence in China and Australia, and we believe that
      these markets have not been as impacted by recent economic
      conditions.  In China, our focus is primarily in the energy
      market, and in Australia primarily on the corporate enterprise
      market.  Although our international operations represent
      approximately 6% of total revenue year-to-date, positive economic growth
      rate estimates for these countries may lead to a greater percentage of our
      future revenue being generated
  internationally.







·
              We
      believe our engineering service focus on public services, healthcare and
      energy infrastructure will create additional opportunities both
      domestically and internationally for us to design and deploy
      communications infrastructure solutions. We believe that the ability to
      provide comprehensive communications infrastructure design-build services
      including wireless communication, specialty construction and electrical
      power gives WPCS a competitive advantage.
                
                This
      trend is supported by our backlog and bid list, which are our two most
      important economic indicators for measuring our future revenue producing
      capability and demand for our services.  At April 30, 2009, our
      backlog of unfilled orders was approximately $38 million.  Of
      the backlog of projects awarded and in process, approximately 68%, 20% and
      3% were represented by the public services, healthcare, and energy
      markets, respectively, and the balance represented by corporate
      enterprise.  Our bid list, which represents project bids under
      proposal for new and existing customers, was approximately $169
      million.  With regards to the bid list, approximately 60%, 7%
      and 4% are represented by the public services, healthcare and energy
      markets, respectively.·
              Although
      we continue to search for acquisitions, our current goal is to identify
      smaller companies which are performing well financially which can enhance
      our existing engineering capabilities, and can be integrated easily within
      our existing subsidiaries.·
              We
      continue to maintain a healthy balance sheet with approximately $21.0
      million in working capital, net of credit facility borrowings of
      approximately $5.6 million. The ratio of credit facility borrowings to
      working capital is approximately 27%.  We believe this is an
      important measure of our current financial strength. We expect to use our
      working capital and availability under the credit facility to fund our
      continued growth.






17






Results
of Operations for the Fiscal Year Ended April 30, 2009 Compared to Fiscal Year
Ended April 30, 2008








This
Annual Report on Form 10-K includes the accounts of WPCS International
Incorporated (WPCS) and its wholly and majority-owned subsidiaries, WPCS
International – Suisun City, Inc. (Suisun City Operations), WPCS International –
Auburn, Inc. (Auburn Operations), WPCS International – St. Louis, Inc. (St.
Louis Operations), WPCS International – Lakewood, Inc. (Lakewood Operations),
WPCS International – Hartford, Inc. (Hartford Operations), WPCS International –
Sarasota, Inc. (Sarasota Operations), WPCS International – Trenton, Inc.
(Trenton Operations), Taian AGS Pipeline Construction Co. Ltd (Beijing
Operations), WPCS International – Seattle, Inc. (Seattle Operations), WPCS
International – Houston, Inc. (Houston Operations), WPCS International –
Sacramento, Inc (Sacramento Operations), WPCS International – Brisbane, Pty Ltd.
(Brisbane Operations), WPCS International – Brendale, Pty Ltd. (Brendale
Operations), WPCS International – Portland, Inc. (Portland Operations),
WPCS Incorporated, Invisinet Inc., WPCS Australia Pty Ltd and WPCS Asia Limited,
collectively “we”, “us” or the "Company".





Consolidated
results for the years ended April 30, 2009 and 2008 were as
follows.





Year
      EndedApril
      30,2009
                                                                                                  
                                                                                                  
                                                                                                  2008REVENUE
                                                                                                  
                                                                                                  $
                                                                                                  107,101,360
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  100.0
                                                                                                  %
                                                                                                  
                                                                                                  $
                                                                                                  101,431,128
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  100.0
                                                                                                  %COSTS
      AND EXPENSES:Cost
      of revenue
                                                                                                  
                                                                                                  
                                                                                                  78,334,115
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  73.2
                                                                                                  %
                                                                                                  
                                                                                                  
                                                                                                  73,084,310
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  72.0
                                                                                                  %Selling,
      general and administrative expenses
                                                                                                  
                                                                                                  
                                                                                                  23,052,464
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  21.5
                                                                                                  %
                                                                                                  
                                                                                                  
                                                                                                  19,302,773
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  19.0
                                                                                                  %Depreciation
      and amortization
                                                                                                  
                                                                                                  
                                                                                                  2,578,824
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  2.4
                                                                                                  %
                                                                                                  
                                                                                                  
                                                                                                  2,398,603
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  2.4
                                                                                                  %Total
      costs and expenses
                                                                                                  
                                                                                                  
                                                                                                  103,965,403
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  97.1
                                                                                                  %
                                                                                                  
                                                                                                  
                                                                                                  94,785,686
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  93.4
                                                                                                  %OPERATING
      INCOME
                                                                                                  
                                                                                                  
                                                                                                  3,135,957
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  2.9
                                                                                                  %
                                                                                                  
                                                                                                  
                                                                                                  6,645,442
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  6.6
                                                                                                  %OTHER
      EXPENSE (INCOME):Interest
      expense
                                                                                                  
                                                                                                  
                                                                                                  421,022
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  0.4
                                                                                                  %
                                                                                                  
                                                                                                  
                                                                                                  522,984
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  0.5
                                                                                                  %Interest
      income
                                                                                                  
                                                                                                  
                                                                                                  (53,947
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  (0.1
                                                                                                  %)
                                                                                                  
                                                                                                  
                                                                                                  (511,122
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  (0.5
                                                                                                  %)Minority
      interest
                                                                                                  
                                                                                                  
                                                                                                  108,228
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  0.1
                                                                                                  %
                                                                                                  
                                                                                                  
                                                                                                  (22,115
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  0.0
                                                                                                  %INCOME
      BEFORE INCOME TAX PROVISION
                                                                                                  
                                                                                                  
                                                                                                  2,660,654
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  2.5
                                                                                                  %
                                                                                                  
                                                                                                  
                                                                                                  6,655,695
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  6.6
                                                                                                  %Income
      tax provision
                                                                                                  
                                                                                                  
                                                                                                  989,027
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  0.9
                                                                                                  %
                                                                                                  
                                                                                                  
                                                                                                  2,577,348
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  2.5
                                                                                                  %NET
      INCOME
                                                                                                  
                                                                                                  $
                                                                                                  1,671,627
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  1.6
                                                                                                  %
                                                                                                  
                                                                                                  $
                                                                                                  4,078,347
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  4.1
                                                                                                  %







18








Revenue





Revenue
for the year ended April 30, 2009 was approximately $107,101,000, as compared to
$101,431,000 for the year ended April 30, 2008.  The increase in
revenue for the year was primarily attributable to the acquisitions of the
Seattle, Houston, Sacramento, Brisbane, Brendale and Portland
Operations.     For the years ended April 30, 2009 and
2008, there were no customers which comprised more than 10% of total
revenue.





Wireless
communication segment revenue for the years ended April 30, 2009 and 2008 was
approximately $34,161,000 or 31.9% and $46,021,000 or 45.4% of total revenue,
respectively. The decrease in revenue was due primarily to reductions, delays or
postponements of projects at the state and local government level for public
services projects.





Specialty
construction segment revenue for the years ended April 30, 2009 and 2008 was
approximately $16,581,000 or 15.5% and $13,059,000 or 12.9% of total revenue,
respectively. The increase in revenue was primarily attributable to the
acquisitions of the Brisbane and Houston Operations. Including the pro forma
revenue effect of these acquisitions as if they had occurred on May 1, 2007, the
pro forma organic revenue growth rate for specialty construction was
approximately 8% in fiscal 2009.





Electrical
power segment revenue for the years ended April 30, 2009 and 2008 was
approximately $56,359,000 or 52.6% and $42,351,000 or 41.7% of total revenue,
respectively.  The increase in revenue was due primarily to the
acquisition of the Seattle, Sacramento, Brendale and Portland Operations.
Including the pro forma revenue effect of these acquisitions as if they had
occurred on May 1, 2007, the pro forma organic revenue growth rate for
electrical power was approximately 5% in fiscal 2009.








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 $78,334,000 or 73.2% of
revenue for the year ended April 30, 2009, compared to $73,084,000 or 72.0% 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,
2009 as a result of the acquisitions of the Seattle, Houston, Sacramento,
Brisbane, Brendale and Portland Operations.  The increase in cost of
revenue as a percentage of revenue is due primarily to the revenue blend
attributable to our existing subsidiaries and recent acquisitions.





Wireless
communication segment cost of revenue and cost of revenue as a percentage of
revenue for the years ended April 30, 2009 and 2008 was approximately
$24,198,000 and 70.8% and $33,807,000 and 73.5%,
respectively.   The dollar decrease in our cost of revenue is due
to the corresponding decrease in revenue during the year ended April 30,
2009.  The decrease in cost of revenue as a percentage of revenue was
due primarily to the revenue blend attributable to our existing
subsidiaries.





Specialty
construction segment cost of revenue and cost of revenue as a percentage of
revenue for the years ended April 30, 2009 and 2008 was approximately
$12,449,000 and 75.1% and $9,554,000 and 73.2%, respectively.  As
discussed above, the dollar increase in our total cost of revenue is due to the
corresponding increase in revenue during the year ended April 30, 2009,
primarily attributable to the acquisitions completed within the last year. The
increase as a percentage of revenue is due primarily to the revenue blend
attributable to the St. Louis and Auburn Operations and the recent acquisitions
of the Houston and Brisbane Operations.





Electrical
power segment cost of revenue and cost of revenue as a percentage of revenue for
the years ended April 30, 2009 and 2008 was approximately $41,687,000 and 74.0%
and $29,723,000 and 70.2%, respectively.  The dollar increase in our
cost of revenue is due to the corresponding increase in revenue during the year
ended April 30, 2009, primarily attributable to the acquisitions of the Seattle,
Sacramento, Brendale and Portland Operations.   The increase as a
percentage of revenue is due primarily to the revenue blend attributable to the
Suisun City and Trenton Operations and the recent acquisitions of the Seattle,
Sacramento, Brendale and Portland Operations.








19








Selling,
General and Administrative Expenses





For the
year ended April 30, 2009, total selling, general and administrative expenses
were approximately $23,052,000, or 21.5% of total revenue compared to
$19,303,000, or 19.0% of revenue for the prior year. The dollar increase in the
selling, general and administrative expenses is due primarily to the
acquisitions of Seattle, Houston, Sacramento, Brisbane, Brendale and Portland
Operations. Included in selling, general and administrative expenses for the
year ended April 30, 2009 are $13,304,000 for salaries, commissions, payroll
taxes and other employee benefits. The $2,094,000 increase in salaries and
payroll taxes compared to the prior year is due primarily to the increase in
headcount as a result of the acquisitions of Seattle, Houston, Sacramento,
Brisbane, Brendale and Portland Operations. Professional fees were $1,402,000,
which include accounting, legal and investor relation fees. Insurance costs were
$2,559,000 and rent for office facilities was $988,000.  Automobile
and other travel expenses were $1,956,000 and telecommunication expenses were
$610,000. Other selling, general and administrative expenses totaled
$2,233,000.  For the year ended April 30, 2009, total selling, general
and administrative expenses for the wireless communication, specialty
construction and electrical power segments were approximately $8,307,000,
$3,220,000 and $8,511,000, respectively, with the balance of approximately
$3,014,000 pertaining to corporate expenses.





For the
year ended April 30, 2008, total selling, general and administrative expenses
were approximately $19,303,000, or 19.0% of total revenue. Included in selling,
general and administrative expenses for the year ended April 30, 2008 are
$11,210,000 for salaries, commissions, payroll taxes and other employee
benefits. Professional fees were $991,000, which include accounting, legal and
investor relation fees. Insurance costs were $2,163,000 and rent for office
facilities was $786,000.  Automobile and other travel expenses were
$1,820,000 and telecommunication expenses were $513,000. Other selling, general
and administrative expenses totaled $1,820,000.  For the year ended
April 30, 2008, total selling, general and administrative expenses for the
wireless communication, specialty construction and electrical power segments
were approximately $7,833,000, $2,939,000 and $6,189,000, respectively, with the
balance of approximately $2,342,000 pertaining to corporate
expenses.




Depreciation
and Amortization





For the
years ended April 30, 2009 and 2008, depreciation was approximately $1,783,000
and $1,539,000, respectively.  The increase in depreciation is due to
the purchase of property and equipment and the acquisition of fixed assets from
acquiring Seattle, Houston, Sacramento, Brisbane, Brendale and Portland
Operations. The amortization of customer lists and backlog for the year ended
April 30, 2009 was $796,000 as compared to $860,000 for the same period of the
prior year.  The net decrease in amortization was due primarily to
certain customer lists and backlog being fully amortized in the current year
from earlier acquisitions. All customer lists are amortized over a period of
five to nine years from the date of their acquisitions. Backlog is amortized
over a period of one to three years from the date of acquisition based on the
expected completion period of the related contracts.




Interest
Expense and Interest Income





For the
years ended April 30, 2009 and 2008, interest expense was approximately $421,000
and $523,000, respectively. The decrease in interest expense is due principally
to an increase in total borrowings on the line of credit, offset by a reduction
in interest rates on outstanding borrowings compared to the year ended April 30,
2008.





For the years ended April 30, 2009 and
2008, interest income was approximately $54,000 and $511,000, respectively. The
decrease in interest earned is due principally to the decrease in our cash and
cash equivalent balance and to a decrease in interest rates
compared to the same period in the prior year.





Net
Income





The net
income was approximately $1,672,000 for the year ended April 30, 2009. Net
income was net of Federal and state income tax expense of approximately
$989,000. The decrease in the effective tax rate is primarily the result of the
mix of pre-tax income generated by the various operating
subsidiaries.





The net
income was approximately $4,078,000 for the year ended April 30, 2008. Net
income was net of Federal and state income tax expense of approximately
$2,577,000.





Liquidity
and Capital Resources





At April
30, 2009, we had working capital of approximately $21,033,000, which consisted
of current assets of approximately $41,811,000 and current liabilities of
$20,778,000.  Our working capital needs are influenced by our level of
operations, and generally increase with higher levels of revenue.  Our
sources of cash have historically come from operating activities, equity
offerings, and credit facility borrowings.





Operating
activities provided approximately $5,038,000 in cash for the year ended April
30, 2009. The sources of cash from operating activities total approximately
$8,660,000, comprised of approximately $1,672,000 in net income, $2,868,000
in net non-cash charges, a $3,260,000 decrease in accounts receivable, a
$299,000 decrease in inventory and a $561,000 decrease in other assets. The uses
of cash from operating activities total approximately $3,622,000, comprised of
an approximately $1,393,000 increase in costs and estimated earnings in excess
of billings on uncompleted contracts, a $514,000 increase in prepaid expenses
and other current assets, a $295,000 decrease in accounts payable and accrued
expenses, a $1,148,000 decrease in billings in excess of costs and estimated
earnings on uncompleted contracts, a $95,000 decrease in deferred revenue and a
$177,000 decrease in income taxes payable.  Net earnings adjusted for
non-cash items provided cash of approximately $4,540,000 versus approximately
$6,498,000 in fiscal 2008.  Working capital provided cash of
approximately $498,000 in 2009 versus using cash of approximately $7,743,000 in
2008.  Working capital components provided cash in fiscal 2009
reflecting lower levels of accounts receivable and inventory in connection with
overall sales growth.






20







Our
investing activities utilized approximately $5,027,000 in cash during the year
ended April 30, 2009, which consisted of approximately $1,234,000 paid for
property and equipment, and approximately $3,793,000 paid for the acquisitions
of the Trenton, Seattle, Houston, Sacramento, Brisbane, Brendale and Portland
Operations net of cash received. The additional payment for the Trenton
Operations was funded from borrowings on the line of credit discussed below,
while the acquisition payments for all other operations were funded from working
capital.








Our
financing activities utilized cash of approximately $1,014,000 during the year
ended April 30, 2009.  Financing activities included the line of
credit borrowings of $3,250,000, repayment of the line of credit of $2,750,000,
repayment of loan payables and capital lease obligations of approximately
$1,361,000 and equity issuance costs of $5,000, offset by the repurchase of
common stock of $730,000, and $582,000 in net borrowings from
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), as
amended. The loan agreement (Loan Agreement) provides for a revolving line of
credit in an amount not to exceed $15,000,000, together with a letter of credit
facility not to exceed $2,000,000. We also entered into security agreements with
BOA, pursuant to which we granted a security interest to BOA in all of our
assets. The Loan Agreement contains customary covenants, including but not
limited to (i) funded debt to tangible net worth, and (ii) minimum interest
coverage ratio. The loan commitment shall expire on April 10, 2010, and we may
prepay the loan at any time.  Loans under the Loan Agreement bear
interest at a rate equal to BOA’s prime rate, minus one percentage point, or we
have the option to elect to use the optional interest rate of LIBOR plus one
hundred seventy-five basis points.  As of April 30, 2009, the interest
rate was 2.25% on outstanding borrowings of approximately $5,626,000 under the
Loan Agreement with BOA.





At April
30, 2009, we had cash and cash equivalents of approximately $6,397,000 and
working capital of approximately $21,033,000. With internally available funds
and funds available from the Loan Agreement, we believe that we have sufficient
capital to meet our short term needs.   The Loan Agreement
expires on April 10, 2010 and has  approximately
$5,626,000  currently outstanding that will need to be repaid by that
time, if not prepaid earlier. We believe that if we maintain our current
financial strength and working capital  levels over the next twelve
months, we should be able to either renew a Loan Agreement with BOA or obtain
other financing to repay the existing Loan Agreement. We expect that our
existing working capital will be sufficient if we are required to repay the Loan
Agreement.





The
Beijing Operations has outstanding loans due within the next twelve months to a
related party, Taian Gas Group (TGG), of approximately $2,950,000.  We
expect to repay these borrowings from working capital and for TGG to renew any
remaining unpaid loan balances in its continued support of  the
Beijing Operations. Our future operating results may be affected by a number of
factors including our success in bidding on future contracts and our continued
ability to manage controllable costs effectively. To the extent we grow by
future acquisitions that involve consideration other than stock, our cash
requirements may increase.





On March
30, 2007, we acquired Voacolo Electric Incorporated (Trenton Operations). The
aggregate consideration paid by us, including acquisition transaction costs of
$31,389, was $5,063,863 of which $3,781,389 was paid in cash, and we issued
116,497 shares of common stock valued at $1,282,474. Included in aggregate
purchase price consideration was additional cash consideration of $2,500,000
paid in June 2008 to the former shareholders regarding the earnout settlement
for the twelve months ended March 31, 2008. The acquisition of the Trenton
Operations expands our geographic presence in the Mid-Atlantic region and
provides additional  electrical contracting services  in
both high and low voltage applications, structured cabling and voice/data/video
solutions, as well as the expansion of our operations into wireless video
surveillance.




On August
1, 2007, we acquired Major Electric, Inc. (Seattle Operations). The aggregate
consideration paid by us, including acquisition transaction costs of $44,226,
was $6,292,151 of which $3,844,135 was paid in cash and we issued 242,776 shares
of common stock valued at $2,448,016.  In connection with the
additional purchase price adjustments to settle earnout and working capital
adjustments, we recorded a receivable from the former shareholders of $371,566.
Through April 30, 2009, we have received payments of $240,565 related to this
receivable with the remaining balance of $131,001 due by September 1, 2009. The
acquisition oftheSeattle
Operations expands our geographic presence in the Pacific Northwest region and
provides additional electrical contracting services in direct digital controls,
security, wireless SCADA applications and other communications
infrastructure.








21





On August 2, 2007, we acquired Max
Engineering LLC (Houston Operations). The aggregate consideration paid by us,
including acquisition transaction costs of $30,498, was $1,117,679, of which
$917,679 was paid in cash and we issued 17,007 shares of common stock valued at
$200,000. Included in aggregate purchase price consideration was additional cash
consideration of $287,181 paid to the former members regarding the earnout
settlement for the twelve months ended August 1, 2008. In addition, we shall pay
an additional $375,000 in cash or our common stock if the Houston Operations’
earnings before interest and taxes for the twelve months ending August 1, 2009
shall equal or exceed $375,000.  The acquisition of the Houston Operations expands our
geographic expansion into Texas and provides additional engineering services
that specialize in the design of communications infrastructure for the
telecommunications, oil, gas and wind energy markets.





On
November 1, 2007, we acquired Gomes and Gomes, Inc. dba Empire Electric
(Sacramento Operations). The aggregate consideration paid by us, including
acquisition transaction costs of $47,674, was $2,518,675 in cash. The
acquisition of the Sacramento Operations expands our geographic presence in
California and provides additional electrical contractor services that
specialize in low voltage applications for healthcare, state government and
military customers.





On
November 30, 2007, we acquired James Design Pty Ltd (Brisbane Operations). The
aggregate consideration paid by us, including acquisition transaction costs of
$81,153 was $1,562,879 in cash, and includes additional cash consideration of
$281,725 paid in May 2008 to the former shareholders for settlement of the net
tangible asset adjustment. The Brisbane Operations is a design engineering
services company specializing in building automation including mechanical,
electrical, hydraulic, fire protection,  security access and wireless
systems.  The acquisition of the Brisbane Operations provides us
international expansion into Australia consistent with our emphasis on
Australia, China and surrounding Pacific Rim countries.





On April
4, 2008, we acquired RL & CA MacKay Pty Ltd. dba Energize Electrical
(Brendale Operations). The aggregate consideration paid by us, including
acquisition transaction costs of $114,112 was $1,689,756 in cash, and includes
additional cash consideration of $32,522 paid in July 2008 to the former
shareholders for the settlement of the net tangible asset adjustment. The
Brendale Operations is an electrical contractor specializing in underground
utilities, maintenance and low voltage applications including voice, data and
video for commercial and building infrastructure companies, and is expanding its
wireless deployment capabilities.  The acquisition of the Brendale
Operations provides further international expansion into Australia.





On June
26, 2008, we acquired all the assets of Lincoln Wind LLC for aggregate
consideration of $422,359 in cash, including acquisition transaction costs of
$22,359.Lincoln Wind
LLC is part of our Houston Operations and is an engineering company focused on
the implementation of meteorological towers that measure the wind capacity of
geographic areas prior to the construction of a wind farm.  The
acquisition of Lincoln Wind LLC provides additional engineering services that
specialize in the design of communication systems for the wind energy
market.





Effective
November 30, 2008, we acquired all the assets of BRT Electrical PTY Ltd (BRT).
The aggregate consideration of paid by us, including acquisition transaction
costs of $59,712, was $170,653 in cash.BRT is part
of our Brendale Operations and is an electrical contractor specializing in low
voltage applications including voice, data, security and energy management for
commercial and building infrastructure companies.  The acquisition of
BRT provides further international expansion into Australia.





Effective March 9, 2009, we acquired
Midway Electric Company (Portland Operations). The aggregate consideration paid
by us, including acquisition transaction costs of $26,616, was $426,616 in
cash.  The acquisition of the Portland Operations expands our
geographic presence in the Pacific Northwest and provides additional electrical
contractor services in both high and low voltage applications for corporate
enterprise, healthcare, state and local government and educational
institutions.





On
November 24, 2008, we adopted a share repurchase program of up to 2,000,000
shares of our common stock until December 1, 2009.  The share
repurchase program authorizes us to repurchase shares, from time to time,
through open market or privately negotiated transactions. A Rule 10b5-1
repurchase plan will allow us to purchase our shares at times when we ordinarily
would not be in the market because of self-imposed trading blackout periods. The
number of shares to be purchased and the timing of the purchases will be based
on market conditions, share price and other factors. The stock repurchase
program does not require us to repurchase any specific dollar value or number of
shares and may be modified, extended or terminated by our Board of Directors at
any time.  Since November 24, 2008, we have purchased and retired a
total of 308,817 shares at a total cost of $729,730 including transaction costs,
or an average cost per common share of $2.36, leaving 1,691,183 shares remaining
to purchase under the share repurchase program. The stock repurchase program is
expected to be funded from working capital. Based on current market price we
believe our common stock is undervalued, so the stock repurchase program should
provide greater shareholder value.







22






Backlog




As of
April 30, 2009, we had a backlog of unfilled orders of approximately $38.4
million compared to approximately $59.8 million at April 30, 2008. 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 an executed written contract, purchase order, agreement or other
documentary evidence which represents a firm commitment by the customer to pay
us for the work to be performed. These backlog amounts are based on contract
values and purchase orders and may not result in actual receipt of revenue in
the originally anticipated period or at all. We have experienced variances in
the realization of our backlog because of project delays or cancellations
resulting from external market factors and economic factors beyond our control
and we may experience such delays or cancellations in the future. Backlog does
not include new firm commitments which may be awarded to us by our customers
from time to time in future periods. These new project awards could be started
and completed in this same future period. Accordingly, our backlog does not
necessarily represent the total revenue that could be earned by us in future
periods.




Off-Balance
Sheet Arrangements





We have
no off-balance sheet arrangements.





Critical
Accounting Policies





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





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





The
accounting policies identified as critical are as follows:





Use of
Estimates





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




Accounts
Receivable





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





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.






23







Our
annual review for goodwill impairment for the fiscal years 2009 and 2008 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 the Auburn, Brendale, Brisbane, Hartford, Houston,
Lakewood, Portland, Sacramento, Sarasota, Seattle, St. Louis, Suisun City
and  Trenton Operations.  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.





Additionally, we evaluated the
reasonableness of the estimated fair value of our reporting units by reconciling
to our market capitalization. This reconciliation allowed us to consider market
expectations in corroborating the reasonableness of the fair value of our
reporting units.    In addition, we compared our market
capitalization, including an estimated control premium that an investor would be
willing to pay for a controlling interest in the company and the discount our
common stock trades compared to our peer group of
companies.   The determination of a control premium and trading
discount requires the use of judgment and is based primarily on comparable
industry and deal-size transactions, related synergies and other
benefits. Our market capitalization declined during the third quarter of
fiscal 2009, and subsequently, as a result of market-driven declines in our
stock trading price. This decline is consistent with overall market conditions
and is not a result of changes in our expectations of future cash flows. Our
reconciliation of the gap between our market capitalization and the aggregate
fair value of us depends on various factors, some of which are qualitative and
involve management judgment, including high backlog coverage of future revenue
and experience in meeting operating cash flow targets.








Deferred Income
Taxes





We
determine deferred tax liabilities and assets at the end of each period based on
the future tax consequences that can be attributed to net operating loss
carryovers and differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases, using the tax
rate expected to be in effect when the taxes are actually paid or recovered. The
recognition of deferred tax assets is reduced by a valuation allowance if it is
more likely than not that the tax benefits will not be realized. The ultimate
realization of deferred tax assets depends upon the generation of future taxable
income during the periods in which those temporary differences become
deductible.





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





Revenue
Recognition





We
generate our revenue by providing design-build engineering services for
communications infrastructure. Our engineering services report revenue pursuant
to customer contracts that span varying periods of time. We report revenue from
contracts when persuasive evidence of an arrangement exists, fees are fixed or
determinable, and collection is reasonably assured.





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





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








24





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





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




Recently
Issued Accounting Pronouncements




In
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 adopted SFAS 159 effective May 1, 2008.  The
adoption of SFAS 159 did not have a material effect on our consolidated
financial position, results of operations, cash flows or financial statement
disclosures.





On
December 4, 2007, the FASB issued SFAS No. 141(R) “Business Combinations” (SFAS
141(R)), and SFAS No. 160 “Noncontrolling Interests in Consolidated Financial
Statements, an amendment of ARB No. 51” (SFAS 160).  These new standards
will significantly change the accounting for and reporting for business
combination transactions and noncontrolling (minority) interests in consolidated
financial statements. SFAS 141(R) and SFAS 160 are required to be adopted
simultaneously and are effective for the first annual reporting period beginning
on or after December 15, 2008. Earlier adoption is prohibited. We will
adopt and utilize the methods stipulated in SFAS 141(R) and SFAS 160 for
all future transactions of this nature effective May 1, 2009.





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





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





In
May 2009, the FASB issued SFAS 165, "Subsequent Events", which established
principles and requirements for subsequent events. SFAS 165 details the period
after the balance sheet date during which we should evaluate events or
transactions that may occur for potential recognition or disclosure in the
financial statements, the circumstances under which we should recognize events
or transactions occurring after the balance sheet date in its financial
statements and the required disclosures for such events. SFAS 165 is effective
for interim or annual reporting periods ending after June 15, 2009. We will
adopt SFAS 165 beginning in the first quarter of fiscal 2010.





In June
2009, the FASB issued SFAS 168, “Codification”, which confirmed that
the FASB Accounting Standards Codification will become the single official
source of authoritative U.S. Generally Accepted Accounting Principles
(GAAP) (other than guidance issued by the SEC), superseding existing FASB,
American Institute of Certified Public Accountants, Emerging Issues Task Force
("EITF"), and related literature. After that date, only one level of
authoritative US GAAP will exist. All other literature will be considered
non-authoritative. The Codification does not change US GAAP; instead, it
introduces a new structure that is organized in an easily accessible,
user-friendly online research system. The Codification becomes effective for
interim and annual periods ending on or after September 15, 2009. We will
apply the Codification beginning in the second quarter of fiscal
2010.




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.




ITEM
7A – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK





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














25




ITEM 8 - FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA





WPCS
INTERNATIONAL INCORPORATED AND SUBSIDIARIES











INDEX
TO FINANCIAL STATEMENTS





PageReport
      of Independent Registered Public Accounting Firm
                          
                          F-2Consolidated
      Balance Sheets as of April 30, 2009 and 2008
                          
                          F-3
      – F-4Consolidated
      Statements of Income for the years endedApril
      30, 2009 and 2008
                          
                          F-5Consolidated
      Statements of Shareholders' Equity for the years ended April 30, 2009 and
      2008
                          
                          F-6
      – F-7Consolidated
      Statements of Cash Flows for the years endedApril
      30, 2009 and 2008
                          
                          F-8
      – F-10Notes
      to Consolidated Financial Statements
                          
                          F-11
      –
F-31














WPCS
INTERNATIONAL INCORPORATED AND SUBSIDIARIES





REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM








The Board
of Directors and Shareholders


WPCS
International Incorporated





We have
audited the accompanying consolidated balance sheets of WPCS International
Incorporated and Subsidiaries as of April 30, 2009 and 2008, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the two years in the period ended April 30, 2009. Our audits also included
the consolidated financial statement schedule for the year ended April 30, 2009
and 2008 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. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.





In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the  financial position of WPCS
International Incorporated and Subsidiaries as of April 30, 2009 and 2008, and
their  results of operations and cash flows for each of the two years
in the period ended April 30, 2009, 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, 2009 and 2008, 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.














/s/
J.H. COHN LLP





July 24,
2009








F-2








WPCS
INTERNATIONAL INCORPORATED AND SUBSIDIARIES


CONSOLIDATED
BALANCE SHEETS








April
      30,
                    
                    
                    April
      30,ASSETS
                    
                    2009
                    
                    
                    2008CURRENT
      ASSETS:Cash
      and cash equivalents
                    
                    $
                    6,396,810
                    
                    
                    $
                    7,449,530Accounts
      receivable, net of allowance of $155,458 and $98,786 at April 30, 2009 and
      April 30, 2008, respectively
                    
                    
                    25,662,784
                    
                    
                    
                    29,092,488Costs
      and estimated earnings in excess of billings on uncompleted
      contracts
                    
                    
                    5,229,043
                    
                    
                    
                    3,887,152Inventory
                    
                    
                    2,481,383
                    
                    
                    
                    2,791,782Prepaid
      expenses and other current assets
                    
                    
                    1,674,952
                    
                    
                    
                    1,002,993Prepaid
      income taxes
                    
                    
                    295,683
                    
                    
                    
                    122,342Deferred
      tax assets
                    
                    
                    70,413
                    
                    
                    
                    35,939Total
      current assets
                    
                    
                    41,811,068
                    
                    
                    
                    44,382,226PROPERTY
      AND EQUIPMENT, net
                    
                    
                    6,668,032
                    
                    
                    
                    6,828,162OTHER
      INTANGIBLE ASSETS, net
                    
                    
                    1,983,879
                    
                    
                    
                    2,929,937GOODWILL
                    
                    
                    32,549,186
                    
                    
                    
                    28,987,501OTHER
      ASSETS
                    
                    
                    132,948
                    
                    
                    
                    820,315Total
      assets
                    
                    $
                    83,145,113
                    
                    
                    $
                    83,948,141







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








F-3







WPCS
INTERNATIONAL INCORPORATED AND SUBSIDIARIES


CONSOLIDATED
BALANCE SHEETS (CONTINUED)





LIABILITIES
      AND SHAREHOLDERS' EQUITY
                
                April
      30,
                
                
                April
      30,2009
                
                
                2008CURRENT
      LIABILITIES:Current
      portion of loans payable
                
                $
                89,210
                
                
                $
                1,272,112Borrowings
      under line of credit
                
                
                5,626,056
                
                
                
                750,000Current
      portion of capital lease obligations
                
                
                96,001
                
                
                
                91,491Accounts
      payable and accrued expenses
                
                
                8,997,296
                
                
                
                9,305,791Billings
      in excess of costs and estimated earnings on uncompleted
      contracts
                
                
                2,511,220
                
                
                
                3,602,422Deferred
      revenue
                
                
                507,650
                
                
                
                602,560Due
      to shareholders
                
                
                2,951,008
                
                
                
                2,300,083Total
      current liabilities
                
                
                20,778,441
                
                
                
                17,924,459Borrowings
      under line of credit
                
                
                -
                
                
                
                4,376,056Loans
      payable, net of current portion
                
                
                71,634
                
                
                
                156,978Capital
      lease obligations, net of current portion
                
                
                151,425
                
                
                
                215,780Deferred
      tax liabilities
                
                
                1,467,971
                
                
                
                1,173,786Total
      liabilities
                
                
                22,469,471
                
                
                
                23,847,059Minority
      interest in subsidiary
                
                
                1,440,078
                
                
                
                1,331,850COMMITMENTS
      AND CONTINGENCIESSHAREHOLDERS'
      EQUITY:Preferred
      stock - $0.0001 par value, 5,000,000 shares authorized, none
      issued
                
                
                -
                
                
                
                -Common
      stock - $0.0001 par value, 25,000,000 shares authorized, 6,942,266 and
      7,251,083 shares issued and outstanding at April 30, 2009 and April 30,
      2008, respectively
                
                
                694
                
                
                
                725Additional
      paid-in capital
                
                
                50,175,479
                
                
                
                50,775,938Retained
      earnings
                
                
                9,381,189
                
                
                
                7,709,562Accumulated
      other comprehensive (loss) income on foreign currency
      translation
                
                
                (321,798
                )
                
                
                283,007Total
      shareholders' equity
                
                
                59,235,564
                
                
                
                58,769,232Total
      liabilities and shareholders' equity
                
                $
                83,145,113
                
                
                $
                83,948,141










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








F-4








WPCS
INTERNATIONAL INCORPORATED AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF INCOME





Year
      EndedApril
      30,2009
                  
                  
                  2008REVENUE
                  
                  $
                  107,101,360
                  
                  
                  $
                  101,431,128COSTS
      AND EXPENSES:Cost
      of revenue
                  
                  
                  78,334,115
                  
                  
                  
                  73,084,310Selling,
      general and administrative expenses
                  
                  
                  23,052,464
                  
                  
                  
                  19,302,773Depreciation
      and amortization
                  
                  
                  2,578,824
                  
                  
                  
                  2,398,603Total
      costs and expenses
                  
                  
                  103,965,403
                  
                  
                  
                  94,785,686OPERATING
      INCOME
                  
                  
                  3,135,957
                  
                  
                  
                  6,645,442OTHER
      EXPENSE (INCOME):Interest
      expense
                  
                  
                  421,022
                  
                  
                  
                  522,984Interest
      income
                  
                  
                  (53,947
                  )
                  
                  
                  (511,122
                  )Minority
      interest
                  
                  
                  108,228
                  
                  
                  
                  (22,115
                  )INCOME
      BEFORE INCOME TAX PROVISION
                  
                  
                  2,660,654
                  
                  
                  
                  6,655,695Income
      tax provision
                  
                  
                  989,027
                  
                  
                  
                  2,577,348NET
      INCOME
                  
                  $
                  1,671,627
                  
                  
                  $
                  4,078,347Basic
      net income per common share
                  
                  $
                  0.23
                  
                  
                  $
                  0.58Diluted
      net income per common share
                  
                  $
                  0.23
                  
                  
                  $
                  0.52Basic
      weighted average number of common shares outstanding
                  
                  
                  7,131,967
                  
                  
                  
                  7,090,789Diluted
      weighted average number of common shares outstanding
                  
                  
                  7,154,285
                  
                  
                  
                  7,848,341










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








F-5




WPCS
INTERNATIONAL INCORPORATED AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY








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





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








F-6




WPCS
INTERNATIONAL INCORPORATED AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY – CONTINUED








AccumulatedOther
      Compre-
                
                
                TotalPreferred
      Stock
                
                
                Common
      Stock
                
                
                Additional
                
                
                Retained
                
                
                hensive
                
                
                Shareholders'Shares
                
                
                Amount
                
                
                Shares
                
                
                Amount
                
                
                Paid-In
      Capital
                
                
                Earnings
                
                
                Income
      (Loss)
                
                
                EquityBALANCE,
      MAY 1, 2008
                
                
                -
                
                
                $
                -
                
                
                
                7,251,083
                
                
                $
                725
                
                
                $
                50,775,938
                
                
                $
                7,709,562
                
                
                $
                283,007
                
                
                $
                58,769,232Fair
      value of stock options granted to employees
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                134,240
                
                
                
                -
                
                
                
                -
                
                
                
                134,240Equity
      issuance cost
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (5,000
                )
                
                
                -
                
                
                
                -
                
                
                
                (5,000
                )Repurchase
      of common stock
                
                
                -
                
                
                
                -
                
                
                
                (308,817
                )
                
                
                (31
                )
                
                
                (729,699
                )
                
                
                -
                
                
                
                -
                
                
                
                (729,730
                )Accumulated
      other comprehensive loss
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (604,805
                )
                
                
                (604,805
                )Net
      income
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                1,671,627
                
                
                
                -
                
                
                
                1,671,627BALANCE,
      APRIL 30, 2009
                
                
                -
                
                
                $
                -
                
                
                
                6,942,266
                
                
                $
                694
                
                
                $
                50,175,479
                
                
                $
                9,381,189
                
                
                $
                (321,798
                )
                
                $
                59,235,564





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






F-7




WPCS
INTERNATIONAL INCORPORATED AND SUBSIDIARIES




CONSOLIDATED
STATEMENTS OF CASH FLOWS








Year
      EndedApril
      30,2009
                
                
                2008OPERATING
      ACTIVITIES :Net
      income
                
                $
                1,671,627
                
                
                $
                4,078,347Adjustments
      to reconcile net income to net cash provided by (used in) operating
      activities:Depreciation
      and amortization
                
                
                2,578,824
                
                
                
                2,398,603Fair
      value of stock options granted to employees
                
                
                134,240
                
                
                
                51,717Provision
      for doubtful accounts
                
                
                131,743
                
                
                
                -Amortization
      of debt issuance costs
                
                
                12,266
                
                
                
                -Excess
      tax benefit from exercise of stock options
                
                
                -
                
                
                
                (16,000
                )Minority
      interest
                
                
                108,228
                
                
                
                (22,115
                )Loss
      (gain) on sale of fixed assets
                
                
                29,649
                
                
                
                (4,668
                )Deferred
      income taxes
                
                
                (126,583
                )
                
                
                11,668Changes
      in operating assets and liabilities, net of effects of
      acquisitions:Accounts
      receivable
                
                
                3,260,420
                
                
                
                (5,378,553
                )Costs
      and estimated earnings in excess of billings on uncompleted
      contracts
                
                
                (1,393,027
                )
                
                
                170,020Inventory
                
                
                299,260
                
                
                
                (397,020
                )Prepaid
      expenses and other current assets
                
                
                (514,494
                )
                
                
                (115,019
                )Other
      assets
                
                
                560,890
                
                
                
                (536,157
                )Accounts
      payable and accrued expenses
                
                
                (294,564
                )
                
                
                (452,234
                )Billings
      in excess of costs and estimated earnings on uncompleted
      contracts
                
                
                (1,148,341
                )
                
                
                (328,318
                )Deferred
      revenue
                
                
                (94,953
                )
                
                
                97,934Income
      taxes payable
                
                
                (176,998
                )
                
                
                (803,479
                )NET
      CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
                
                
                5,038,187
                
                
                
                (1,245,274
                )





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











F-8








WPCS
INTERNATIONAL INCORPORATED AND SUBSIDIARIES


CONSOLIDATING
STATEMENTS OF CASH FLOWS – CONTINUED











INVESTING
      ACTIVITIES:Acquisition
      of property and equipment, net
                    
                    
                    (1,233,829
                    )
                    
                    
                    (715,849
                    )Acquisition
      of Hartford Operations, net of cash received
                    
                    
                    -
                    
                    
                    
                    (3,534
                    )Acquisition
      of Sarasota Operations, net of cash received
                    
                    
                    -
                    
                    
                    
                    60,892Acquisition
      of Trenton Operations, net of cash received
                    
                    
                    (2,500,000
                    )
                    
                    
                    (69,601
                    )Acquisition
      of Seattle Operations, net of cash received
                    
                    
                    240,565
                    
                    
                    
                    (4,268,320
                    )Acquisition
      of Houston Operations, net of cash received
                    
                    
                    (709,540
                    )
                    
                    
                    (524,572
                    )Acquisition
      of Sacramento Operations, net of cash received
                    
                    
                    (7,521
                    )
                    
                    
                    (2,427,999
                    )Acquisition
      of Brisbane Operations, net of cash received
                    
                    
                    (287,735
                    )
                    
                    
                    (922,763
                    )Acquisition
      of Brendale Operations, net of cash received
                    
                    
                    (195,170
                    )
                    
                    
                    (1,605,868
                    )Acquisition
      of Portland Operations, net of cash received
                    
                    
                    (333,368
                    )
                    
                    
                    -NET
      CASH USED IN INVESTING ACTIVITIES
                    
                    
                    (5,026,598
                    )
                    
                    
                    (10,477,614
                    )FINANCING
      ACTIVITIES:Net
      proceeds from exercise of stock options
                    
                    
                    -
                    
                    
                    
                    60,532Repurchase
      of common stock
                    
                    
                    (729,730
                    )
                    
                    
                    -Excess
      tax benefit from exercise of stock options
                    
                    
                    -
                    
                    
                    
                    16,000Equity
      issuance costs
                    
                    
                    (5,000
                    )
                    
                    
                    (13,931
                    )Borrowings
      under lines of credit
                    
                    
                    3,250,000
                    
                    
                    
                    4,726,056Repayments
      under lines of credit
                    
                    
                    (2,750,000
                    )
                    
                    
                    (6,540,991
                    )Repayments
      under loans payable, net
                    
                    
                    (1,273,179
                    )
                    
                    
                    (921,779
                    )Borrowings
      of amounts due to shareholders
                    
                    
                    581,642
                    
                    
                    
                    350,259Repayments
      of capital lease obligations
                    
                    
                    (88,069
                    )
                    
                    
                    (107,558
                    )NET
      CASH USED IN FINANCING ACTIVITIES
                    
                    
                    (1,014,336
                    )
                    
                    
                    (2,431,412
                    )Effect
      of exchange rate changes on cash
                    
                    
                    (49,973
                    )
                    
                    
                    45,091NET
      DECREASE IN CASH AND CASH EQUIVALENTS
                    
                    
                    (1,052,720
                    )
                    
                    
                    (14,109,209
                    )CASH
      AND CASH EQUIVALENTS, BEGINNING OF YEAR
                    
                    
                    7,449,530
                    
                    
                    
                    21,558,739CASH
      AND CASH EQUIVALENTS, END OF YEAR
                    
                    $
                    6,396,810
                    
                    
                    $
                    7,449,530







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





F-9





WPCS
INTERNATIONAL INCORPORATED AND SUBSIDIARIES


CONSOLIDATING
STATEMENTS OF CASH FLOWS – CONTINUED








April
      30, 2009
                
                
                April
      30, 2008SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATION:Cash
      paid during the period for:Interest
                
                $
                408,752
                
                
                $
                522,984Income
      taxes
                
                
                1,284,710
                
                
                $
                2,049,667SCHEDULE
      OF NON-CASH INVESTING AND FINANCING ACTIVITIES:Issuance
      of common stock for net non-cash assets received in
      acquisition
                
                $
                0
                
                
                $
                2,760,489Issuance
      of notes for property and equipment
                
                $
                28,244
                
                
                $
                172,532




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








F-10






WPCS
INTERNATIONAL INCORPORATED AND SUBSIDIARIES
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





NOTE
1 - BASIS OF PRESENTATION





This
Annual Report on Form 10-K includes the accounts of WPCS International
Incorporated (WPCS) and its wholly and majority-owned subsidiaries, WPCS
International – Suisun City, Inc. (Suisun City Operations), WPCS
International – Auburn, Inc. (Auburn Operations), WPCS International –
St. Louis, Inc. (St. Louis Operations), WPCS International – Lakewood, Inc.
(Lakewood Operations), WPCS International – Hartford, Inc. (Hartford
Operations), WPCS International Sarasota, Inc. (Sarasota Operations), WPCS
International – Trenton, Inc. (Trenton Operations), Taian AGS Pipeline
Construction Co. Ltd (Beijing Operations), WPCS International – Seattle, Inc.
(Seattle Operations), WPCS International – Houston, Inc. (Houston Operations),
WPCS International – Sacramento, Inc (Sacramento Operations), WPCS International
– Brisbane, Pty Ltd. (Brisbane Operations), WPCS International – Brendale, Pty
Ltd. (Brendale Operations), WPCS International – Portland, Inc. (Portland
Operations), WPCS Incorporated, Invisinet Inc., WPCS Australia Pty Ltd, and WPCS
Asia Limited, collectively “we”, “us” or the "Company".





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





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 a 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 cash equivalents with major financial institutions.  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.
The Company does not require collateral in most cases, but may file claims
against the construction project if a default in payment occurs.




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 $3,499,161 and $2,626,788 at April 30, 2009 and 2008,
respectively.




Inventory





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








F-11




WPCS
INTERNATIONAL INCORPORATED AND SUBSIDIARIES
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


Property
and Equipment





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





Goodwill
and Other Intangible Assets





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




SFAS
No. 142 requires that goodwill be tested at least annually, utilizing a
two-step methodology. The initial step requires the Company to determine the
fair value of the business acquired (reporting unit) and compare it to the
carrying value, including goodwill, of such business (reporting unit). If the
fair value exceeds the carrying value, no impairment loss is recognized.
However, if the carrying value of the reporting unit exceeds its fair value, the
goodwill of the unit may be impaired. The amount, if any, of the impairment is
then measured in the second step, based on the excess, if any, of the reporting
unit’s carrying value of goodwill over its implied value.  The Company
performed its annual impairment test as of April 30, 2009 and 2008 and
determined that the goodwill was not impaired.




The
Company determines the fair value of the businesses acquired (reporting units)
for purposes of this test using the Income Approach, which utilizes a discounted
cash flow model, as the Company believes that this approach best approximates
the fair value of its reporting units. 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, 2009 and 2008.





Additionally,
the Company evaluated the reasonableness of the estimated fair value of its
reporting units by reconciling to its market capitalization. This reconciliation
allowed the Company to consider market expectations in corroborating the
reasonableness of the fair value of its reporting units.  In addition, the
Company compared its market capitalization, including an estimated control
premium that an investor would be willing to pay for a controlling interest in
the Company and the discount the Company’s common stock trades compared to its
peer group of companies.   The determination of a control premium
and trading discount requires the use of judgment and is based primarily on
comparable industry and deal-size transactions, related synergies and other
benefits. The Company’s market capitalization declined during the third
quarter of fiscal 2009, and subsequently, as a result of market-driven declines
in its stock trading price. This decline is consistent with overall market
conditions and is not a result of changes in its expectations of future cash
flows. The Company’s reconciliation of the gap between its market capitalization
and the aggregate fair value of the Company depends on various factors, some of
which are qualitative and involve management judgment, including high backlog
coverage of future revenue and experience in meeting operating cash flow
targets.





Goodwill
through the years ended April 30, 2009 and 2008 consisted of the
following:





Wireless
                  
                  
                  Specialty
                  
                  
                  ElectricalCommunication
                  
                  
                  Construction
                  
                  
                  Power
                  
                  
                  TotalBeginning
      balance, May 1, 2007
                  
                  $
                  10,926,178
                  
                  
                  $
                  4,320,115
                  
                  
                  $
                  5,223,315
                  
                  
                  $
                  20,469,608Trenton
      Operations acquisition
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  476,139
                  
                  
                  
                  476,139Hartford
      Operations acquisition
                  
                  
                  35,595
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  35,595Sarasota
      Operations acquisition
                  
                  
                  (39,775
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (39,775
                  )Seattle
      Operations acquisition
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  4,505,562
                  
                  
                  
                  4,505,562Houston
      Operations acquisition
                  
                  
                  -
                  
                  
                  
                  304,407
                  
                  
                  
                  -
                  
                  
                  
                  304,407Sacramento
      Operations acquisition
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,796,709
                  
                  
                  
                  1,796,709Brisbane
      Operations acquisition
                  
                  
                  -
                  
                  
                  
                  434,836
                  
                  
                  
                  -
                  
                  
                  
                  434,836Brendale
      Operations acquisition
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  961,200
                  
                  
                  
                  961,200Foreign
      currency translation adjustments
                  
                  
                  -
                  
                  
                  
                  27,557
                  
                  
                  
                  15,663
                  
                  
                  
                  43,220Beginning
      balance, May 1, 2008
                  
                  $
                  10,921,998
                  
                  
                  $
                  5,086,915
                  
                  
                  $
                  12,978,588
                  
                  
                  $
                  28,987,501Trenton
      Operations acquisition
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  2,500,000
                  
                  
                  
                  2,500,000Seattle
      Operations acquisition
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  6,353
                  
                  
                  
                  6,353Houston
      Operations acquisition
                  
                  
                  -
                  
                  
                  
                  539,570
                  
                  
                  
                  -
                  
                  
                  
                  539,570Sacramento
      Operations acquisition
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  81,366
                  
                  
                  
                  81,366Brisbane
      Operations acquisition
                  
                  
                  -
                  
                  
                  
                  522,866
                  
                  
                  
                  -
                  
                  
                  
                  522,866Brendale
      Operations acquisition
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  336,112
                  
                  
                  
                  336,112Portland
      Operations acquisition
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  17,888
                  
                  
                  
                  17,888Foreign
      currency translation adjustments
                  
                  
                  -
                  
                  
                  
                  (193,150
                  )
                  
                  
                  (249,320
                  )
                  
                  
                  (442,470
                  )Ending
      balance, April 30, 2009
                  
                  $
                  10,921,998
                  
                  
                  $
                  5,956,201
                  
                  
                  $
                  15,670,987
                  
                  
                  $
                  32,549,186






F-12




WPCS
INTERNATIONAL INCORPORATED AND SUBSIDIARIES
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





At April
30, 2009, the total amount of goodwill expected to be deducted for tax purposes
is $11,765,976 related to the Lakewood, Hartford, Sarasota and Houston
Operations acquisitions.





Other
intangible assets consist of the following at April 30:


Estimated
      useful life(years)
                
                
                2009
                
                
                2008Customer
      list
                
                
                3-9
                
                
                $
                3,969,240
                
                
                $
                4,119,269Less
      accumulated amortization expense
                
                
                
                
                
                
                (2,084,302
                )
                
                
                (1,614,851
                )$
                1,884,938
                
                
                $
                2,504,418Contract
      backlog
                
                
                1-3
                
                
                $
                893,009
                
                
                $
                919,722Less
      accumulated amortization expense
                
                
                
                
                
                
                (794,068
                )
                
                
                (494,203
                )$
                98,941
                
                
                $
                425,519








Amortization
expense for other intangible assets for the years ended April 30, 2009 and 2008
was approximately $796,000 and $860,000, respectively.





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





Year
      ending April 30,2010
                  
                  $
                  517,4392011
                  
                  
                  378,2182012
                  
                  
                  313,4972013
                  
                  
                  317,6122014
                  
                  
                  195,360Thereafter
                  
                  
                  261,753Total
                  
                  $
                  1,983,879





Revenue
Recognition





The
Company generates its revenue by providing design-build engineering services for
communications infrastructure. The Company’s design-build services report
revenue pursuant to customer contracts that span varying periods of time. The
Company reports revenue from contracts when persuasive evidence of an
arrangement exists, fees are fixed or determinable, and collection is reasonably
assured.





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






F-13






WPCS
INTERNATIONAL INCORPORATED AND SUBSIDIARIES
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


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





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





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





The
Company has 217 union employees.  A contract with 2 union employees
for the Portland Operations expires on December 31, 2009.  A contract
with 32 union employees for the Sacramento Operations expires on May 31, 2010.
Two contracts with 77 union employees for the Suisun City Operations expire from
December 31, 2009 to January 1, 2010. Three contracts with 5 union employees for
the St. Louis Operations expire from September 1, 2009 to October 31,
2010.  A contract with 39 union employees for the Trenton Operations
expires on May 1, 2010. A contract with 62 union employees for the Seattle
Operations expires on May 31, 2010. At April 30, 2009, 39% of the Company’s
labor force is subject to collective bargaining agreements, of which 37% will
expire within one year.





Income
Taxes





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





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




Earnings
Per Common Share





Earnings
per common share is computed pursuant to SFAS No. 128, "Earnings Per Share"
(EPS). Basic net income per common share is computed as net income divided by
the weighted average number of common shares outstanding for the period. Diluted
net income per common share reflects the potential dilution that could occur
from common stock issuable through stock options and warrants.  The
table below presents the computation of basic and diluted net income per common
share for the years ended April 30, 2009 and 2008, respectively:








F-14





WPCS
INTERNATIONAL INCORPORATED AND SUBSIDIARIES
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS







Basic
      earnings per share computation
                
                Year
      EndedApril
      30,Numerator:
                
                2009
                
                
                2008Net
      income
                
                $
                1,671,627
                
                
                $
                4,078,347Denominator:Basic
      weighted average shares outstanding
                
                
                7,131,967
                
                
                
                7,090,789Basic
      net income per common share
                
                $
                0.23
                
                
                $
                0.58Diluted
      earnings per share computation
                
                Year
      EndedApril
      30,Numerator:
                
                2009
                
                
                2008Net
      income
                
                $
                1,671,627
                
                
                $
                4,078,347Denominator:Basic
      weighted average shares outstanding
                
                
                7,131,967
                
                
                
                7,090,789Incremental
      shares from assumed conversion:Conversion
      of stock options
                
                
                22,318
                
                
                
                181,376Conversion
      of common stock warrants
                
                
                -
                
                
                
                576,176Diluted
      weighted average shares
                
                
                7,154,285
                
                
                
                7,848,341Diluted
      net income per common share
                
                $
                0.23
                
                
                $
                0.52





At April
30, 2009 and 2008, the Company had 629,952 and 645,818 stock options,
respectively, and 1,883,796 warrants outstanding which are potentially dilutive
securities. For the year ended April 30, 2009, 567,848 options and 1,883,796
warrants were not included in the computation of fully diluted earnings per
common share.  For the year ended April 30, 2008, 152,718
options  were not included in the computation of fully diluted
earnings per common share.  These potentially dilutive securities were
excluded because the stock option or warrant exercise prices exceeded the
average market price of the common stock, and therefore, the effects would be
antidilutive.





Stock-Based
Compensation Plans





In
accordance with SFAS 123(R) (revised December 2004), “Share-Based Payment, an
amendment of SFAS 123, Accounting for Stock-Based Compensation”, the Company
recognizes stock-based employee compensation expense. The Company recorded
stock-based compensation of $134,240 and $51,717 for the years ended April 30,
2009 and 2008, respectively.





At April
30, 2009, the total compensation cost related to unvested stock options granted
to employees under the Company’s stock option plans but not yet recognized was
approximately $253,000 and is expected to be recognized over a weighted-average
period of 2.27 years. For the years ended April 30, 2009 and 2008, the weighted
average fair value of stock options granted was $1.10 and $3.03,
respectively.





The
Company has elected to adopt the shortcut method provided in Staff Position
No. SFAS 123(R)-3, “Transition Election Related to Accounting for the
Tax Effects of Share-Based Payment Awards,” for determining the initial pool of
excess tax benefits available to absorb tax deficiencies related to stock-based
compensation subsequent to the adoption of SFAS 123(R). 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 123(R) requires that excess tax benefits related to share-based
compensation be reflected as financing cash inflows.






F-15




WPCS
INTERNATIONAL INCORPORATED AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


The
Company estimates the fair value of stock options granted using the
Black-Scholes-Merton option-pricing model. Compensation cost is then recognized
on a straight-line basis over the vesting or service period and is net of
estimated forfeitures.  The following assumptions were used to compute
the fair value of stock options granted during the years ended April 30, 2009
and 2008, respectively:





Year
      EndedApril
      30,2009
                  
                  
                  2008Risk-free
      interest rate
                  
                  
                  1.53
      - 2.84
                  %
                  
                  
                  1.65
      - 4.74
                  %Expected
      volatility
                  
                  
                  49.7-53.3
                  %
                  
                  
                  53.8
      - 58.3
                  %Expected
      dividend yield
                  
                  
                  0.00
                  %
                  
                  
                  0.00
                  %Expected
      term ( in years)
                  
                  
                  3.0-3.5
                  
                  
                  
                  3.25
      - 3.75





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





Other
Comprehensive Income





Other
comprehensive income consists of the following at April 30:





Year
      EndedApril
      30,2009
                    
                    
                    2008Net
      income
                    
                    $
                    1,671,627
                    
                    
                    $
                    4,078,347Other
      comprehensive (loss) income -foreign
      currency translation adjustments
                    
                    
                    (604,805
                    )
                    
                    
                    284,095Comprehensive
      income
                    
                    $
                    1,066,822
                    
                    
                    $
                    4,362,442




Use
of Estimates





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






F-16




WPCS
INTERNATIONAL INCORPORATED AND SUBSIDIARIES
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


Recently
Issued Accounting Pronouncements




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 adopted SFAS 159 effective May
1, 2008.  The adoption of SFAS 159 did not have a material effect
on the Company's consolidated financial position, results of
operations, cash flows or financial statement disclosures.





On
December 4, 2007, the FASB issued SFAS No. 141(R) “Business Combinations” (SFAS
141(R)), and SFAS No. 160 “Noncontrolling Interests in Consolidated Financial
Statements, an amendment of ARB No. 51” (SFAS 160).  These new standards
will significantly change the accounting for and reporting for business
combination transactions and noncontrolling (minority) interests in consolidated
financial statements. SFAS 141(R) and SFAS 160 are required to be adopted
simultaneously and are effective for the first annual reporting period beginning
on or after December 15, 2008. Earlier adoption is prohibited. The Company will
adopt and utilize the methods stipulated in SFAS 141(R) and SFAS 160 for all
future transactions of this nature effective May 1, 2009.





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





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





In May
2009, the FASB issued SFAS 165, "Subsequent Events", which established
principles and requirements for subsequent events. SFAS 165 details the period
after the balance sheet date during which the Company should evaluate events or
transactions that may occur for potential recognition or disclosure in the
financial statements, the circumstances under which the Company should recognize
events or transactions occurring after the balance sheet date in its financial
statements and the required disclosures for such events. SFAS 165 is effective
for interim or annual reporting periods ending after June 15, 2009. The
Company will adopt SFAS 165 beginning in the first quarter of fiscal
2010.





In June
2009, the FASB issued SFAS 168, “Codification”, which confirmed that
the FASB Accounting Standards Codification will become the single official
source of authoritative US GAAP (other than guidance issued by the SEC),
superseding existing FASB, American Institute of Certified Public Accountants,
Emerging Issues Task Force ("EITF") and related literature. After that date,
only one level of authoritative US GAAP will exist. All other literature
will be considered non-authoritative. The Codification does not change
US GAAP; instead, it introduces a new structure that is organized in an
easily accessible, user-friendly online research system. The Codification
becomes effective for interim and annual periods ending on or after
September 15, 2009. The Company will apply the Codification beginning in
the second quarter of fiscal 2010.





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.






F-17




WPCS
INTERNATIONAL INCORPORATED AND SUBSIDIARIES
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





Voacolo
Electric Incorporated (Trenton Operations)





On March
30, 2007, the Company acquired Voacolo Electric Incorporated (Trenton
Operations). The aggregate consideration paid by the Company, including
acquisition transaction costs of $31,389, was $5,063,863 of which $3,781,389 was
paid in cash and the Company issued 116,497 shares of common stock valued at
$1,282,474. Included in aggregate purchase price consideration was additional
cash consideration of $2,500,000 paid in June 2008 to the former shareholders
regarding the earnout settlement for the twelve months ended March 31, 2008. The
Trenton Operations was acquired pursuant to a Stock Purchase Agreement among the
Company, and the former Voacolo Electric Incorporated shareholders, dated and
effective as of March 30, 2007. The acquisition of the Trenton Operations
expands the Company’s geographic presence in the Mid-Atlantic region and
provides additional  electrical contracting services  in
both high and low voltage applications, structured cabling and voice/data/video
solutions, as well as the expansion of its operations into wireless video
surveillance.





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





The
purchase price allocation has been determined as follows:


Assets
      purchased:Cash
                    
                    $
                    584,094Accounts
      receivable
                    
                    
                    2,095,564Inventory
                    
                    
                    217,500Prepaid
      expenses
                    
                    
                    46,858Costs
      and estimated earnings in excess of billings
                    
                    
                    215,143Fixed
      assets
                    
                    
                    346,569Backlog
                    
                    
                    200,200Customer
      lists
                    
                    
                    132,000Goodwill
                    
                    
                    3,988,7327,826,660Liabilities
      assumed:Accounts
      payable
                    
                    
                    (732,252
                    )Accrued
      expenses
                    
                    
                    (102,832
                    )Payroll
      and other payables
                    
                    
                    (79,943
                    )Billings
      in excess of costs and estimated earnings
                    
                    
                    (935,179
                    )Deferred
      income tax payable
                    
                    
                    (181,000
                    )Income
      tax payable
                    
                    
                    (28,171
                    )Loan
      payable
                    
                    
                    (602,984
                    )Notes
      payable
                    
                    
                    (100,436
                    )(2,762,797
                    )Purchase
      price
                    
                    $
                    5,063,863





Major
Electric, Inc (Seattle Operations)





On August
1, 2007, the Company acquired Major Electric, Inc (Seattle Operations). The
aggregate consideration paid by the Company, including acquisition transaction
costs of $44,226, was $6,292,151 of which $3,844,135 was paid in cash and the
Company issued 242,776 shares of common stock valued at
$2,448,016.  In connection with the additional purchase price
adjustments to settle earnout and working capital adjustments, the Company
recorded a receivable from the former shareholders of $371,566. Through April
30, 2009, the Company has received payments of $240,565 related to this
receivable with the remaining balance of $131,001 due by September 1,
2009.





The
Seattle Operations was acquired pursuant to a Stock Purchase Agreement among the
Company and the former Major Electric, Inc shareholders, dated and effective as
of August 1, 2007. The acquisition oftheSeattle Operations expands
the Company’s geographic presence in the Pacific Northwest region and provides
additional electrical contracting services in direct digital controls, security,
wireless SCADA applications and other communications
infrastructure.






F-18




WPCS
INTERNATIONAL INCORPORATED AND SUBSIDIARIES
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


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





The
purchase price allocation has been determined as follows:





Assets
      purchased:Accounts
      receivable
                    
                    $
                    3,830,626Inventory
                    
                    
                    162,647Prepaid
      expenses
                    
                    
                    117,349Costs
      and estimated earnings in excess of billings
                    
                    
                    1,445,749Fixed
      assets
                    
                    
                    682,637Other
      assets
                    
                    
                    8,855Backlog
                    
                    
                    130,000Customer
      lists
                    
                    
                    390,000Goodwill
                    
                    
                    4,511,91511,279,778Liabilities
      assumed:Cash
      overdraft
                    
                    
                    (52,618
                    )Accounts
      payable
                    
                    
                    (424,513
                    )Accrued
      expenses
                    
                    
                    (12,788
                    )Payroll
      and other payable
                    
                    
                    (605,456
                    )Billings
      in excess of costs and estimated earnings
                    
                    
                    (1,059,123
                    )Deferred
      tax liabilities
                    
                    
                    (304,000
                    )Line
      of credit
                    
                    
                    (2,086,774
                    )Loan
      payable
                    
                    
                    (24,638
                    )Capital
      lease obligation
                    
                    
                    (242,297
                    )Shareholder
      loan
                    
                    
                    (175,420
                    )(4,987,627
                    )Purchase
      price
                    
                    $
                    6,292,151





Max
Engineering LLC and Lincoln Wind LLC (Houston Operations)





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





On June
26, 2008, the Company acquired all the assets of Lincoln Wind LLC for aggregate
consideration of $422,359 in cash, including acquisition transaction costs of
$22,359.The assets of
Lincoln Wind LLC were acquired pursuant to an Asset Purchase Agreement among the
Company, Lincoln Wind LLC and the former member. Lincoln Wind LLC is an
engineering company focused on the implementation of meteorological towers that
measure the wind capacity of geographic areas prior to the construction of a
wind farm.  The acquisition of Lincoln Wind LLC provides additional
engineering services that specialize in the design of communication systems for
the wind energy market.





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






F-19




WPCS
INTERNATIONAL INCORPORATED AND SUBSIDIARIES
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


The
purchase price allocation has been determined as follows:





Max Engineering LLC
                    
                    
                    Lincoln Wind
                      LLC
                    
                    
                    TotalAssets
      purchased:Cash
                    
                    $
                    105,926
                    
                    
                    $
                    -
                    
                    
                    $
                    105,926Accounts
      receivable
                    
                    
                    256,829
                    
                    
                    
                    -
                    
                    
                    
                    256,829Costs
      and estimate earnings in excess of billings
                    
                    
                    4,500
                    
                    
                    
                    -
                    
                    
                    
                    4,500Fixed
      assets
                    
                    
                    21,890
                    
                    
                    
                    139,970
                    
                    
                    
                    161,860Other
      Assets
                    
                    
                    1,950
                    
                    
                    
                    -
                    
                    
                    
                    1,950Customer
      lists
                    
                    
                    216,000
                    
                    
                    
                    30,000
                    
                    
                    
                    246,000Goodwill
                    
                    
                    591,588
                    
                    
                    
                    252,389
                    
                    
                    
                    843,9771,198,683
                    
                    
                    
                    422,359
                    
                    
                    
                    1,621,042Liabilities
      assumed:Accrued
      expenses
                    
                    
                    (59,186
                    )
                    
                    
                    -
                    
                    
                    
                    (59,186
                    )Payroll
      and other payable
                    
                    
                    (19,318
                    )
                    
                    
                    -
                    
                    
                    
                    (19,318
                    )Accrued
      tax payable
                    
                    
                    (2,500
                    )
                    
                    
                    -
                    
                    
                    
                    (2,500
                    )(81,004
                    )
                    
                    
                    -
                    
                    
                    
                    (81,004
                    )Purchase
      price
                    
                    $
                    1,117,679
                    
                    
                    $
                    422,359
                    
                    
                    $
                    1,540,038








Gomes
and Gomes, Inc dba Empire Electric (Sacramento Operations)





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





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





The
purchase price allocation has been determined as follows:


Assets
      purchased:Cash
                    
                    $
                    83,155Accounts
      receivable
                    
                    
                    2,313,633Inventory
                    
                    
                    124,983Prepaid
      expenses
                    
                    
                    6,569Prepaid
      income tax
                    
                    
                    76,426Costs
      and estimated earnings in excess of billings
                    
                    
                    72,518Fixed
      assets
                    
                    
                    284,451Backlog
                    
                    
                    344,900Customer
      lists
                    
                    
                    100,000Goodwill
                    
                    
                    1,878,0755,284,710Liabilities
      assumed:Accounts
      payable
                    
                    
                    (1,113,789
                    )Accrued
      expenses
                    
                    
                    (53,871
                    )Payroll
      and other payable
                    
                    
                    (327,112
                    )Billings
      in excess of costs and estimated earnings
                    
                    
                    (420,874
                    )Line
      of credit
                    
                    
                    (400,000
                    )Deferred
      tax liability
                    
                    
                    (235,000
                    )Notes
      payable
                    
                    
                    (47,024
                    )Shareholder
      loan
                    
                    
                    (168,365
                    )(2,766,035
                    )Purchase
      price
                    
                    $
                    2,518,675







F-20




WPCS
INTERNATIONAL INCORPORATED AND SUBSIDIARIES
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




James
Design Pty Ltd (Brisbane Operations)





On
November 30, 2007, the Company acquired James Design Pty Ltd (Brisbane
Operations).  The aggregate consideration paid by the Company,
including acquisition transaction costs of $81,153, was $1,562,879 in cash, and
also includes additional cash consideration of $281,725 paid in May 2008 to the
former shareholders for settlement of the net tangible asset
adjustment.   The Brisbane Operations was acquired pursuant to a
Share Purchase Agreement among the Company and the former shareholders of James,
dated as of November 30, 2007. The Brisbane Operations is a design engineering
services company specializing in building automation including mechanical,
electrical, hydraulic, fire protection, security access and wireless systems.
The acquisition of the Brisbane Operations provides the Company international
expansion into Australia consistent with our emphasis on Australia, China and
surrounding Pacific Rim countries.





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





The
purchase price allocation has been determined as follows:





Assets
      purchased:Cash
                    
                    $
                    231,386Accounts
      receivable
                    
                    
                    312,135Prepaid
      expenses
                    
                    
                    6,450Deferred
      tax assets
                    
                    
                    17,431Costs
      and estimated earnings in excess of billings
                    
                    
                    26,272Fixed
      assets
                    
                    
                    115,343Other
      assets
                    
                    
                    830Customer
      lists
                    
                    
                    270,748Backlog
                    
                    
                    112,369Goodwill
                    
                    
                    957,7022,050,666Liabilities
      assumed:Accounts
      payable
                    
                    
                    (26,288
                    )Accrued
      expenses
                    
                    
                    (74,510
                    )Payroll
      and other payable
                    
                    
                    (9,409
                    )Loan
      payable
                    
                    
                    (6,099
                    )Sales
      and use tax payable
                    
                    
                    (40,516
                    )Income
      tax payable
                    
                    
                    (216,826
                    )Deferred
      tax liabilities
                    
                    
                    (114,139
                    )(487,787
                    )Purchase
      price
                    
                    $
                    1,562,879





RL
&CA MacKay Pty Ltd dba Energize Electrical and BRT Electrical Pty Ltd
(Brendale Operations)





On April
4, 2008, the Company acquired Energize Electrical. The aggregate consideration
paid by the Company, including acquisition transaction costs of $114,112 was
$1,689,756 in cash. And also include additional cash consideration of $32,522
paid in July 2008 to the former shareholders for settlement of the net
tangible asset adjustment.  Energize Electrical was acquired pursuant
to a Share Purchase Agreement among the Company and the former shareholders
dated as of April 4, 2008. Energize Electrical is an electrical contractor
specializing in underground utilities, maintenance and low voltage applications
including voice, data and video for commercial and building infrastructure
companies, and is expanding its wireless deployment capabilities.






F-21




WPCS
INTERNATIONAL INCORPORATED AND SUBSIDIARIES
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


On
November 30, 2008, the Company acquired all the assets of BRT Electrical Pty Ltd
(BRT) for aggregate consideration of $170,653 in cash, including acquisition
transaction costs of $59,712. The assets of BRT were acquired pursuant to an
Asset Purchase Agreement among Energize Electrical, the Company, BRT and the
former shareholder. BRT is an electrical contractor specializing in low voltage
applications including voice, data, security and energy management for
commercial and building infrastructure companies. The aquisition of the
Brendale operations provides further international expansion into
Australia.





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








The
purchase price allocation has been determined as follows:





Energize Electrical
                      
                      
                      BRT
                      
                      
                      TotalAssets
      purchased:Cash
                      
                      $
                      21,429
                      
                      
                      $
                      -
                      
                      
                      $
                      21,429Accounts
      receivable
                      
                      
                      189,197
                      
                      
                      
                      -
                      
                      
                      
                      189,197Inventory
                      
                      
                      55,084
                      
                      
                      
                      4,328
                      
                      
                      
                      59,412Costs
      and estimated earnings in excess of billings
                      
                      
                      415
                      
                      
                      
                      7,775
                      
                      
                      
                      8,190Fixed
      assets
                      
                      
                      106,165
                      
                      
                      
                      37,820
                      
                      
                      
                      143,985Deferred
      tax assets
                      
                      
                      2,108
                      
                      
                      
                      -
                      
                      
                      
                      2,108Customer
      lists
                      
                      
                      509,740
                      
                      
                      
                      -
                      
                      
                      
                      509,740Goodwill
                      
                      
                      1,176,582
                      
                      
                      
                      120,730
                      
                      
                      
                      1,297,3122,060,720
                      
                      
                      
                      170,653
                      
                      
                      
                      2,231,373Liabilities
      assumed:Accounts
      payable
                      
                      
                      (69,562
                      )
                      
                      
                      -
                      
                      
                      
                      (69,562
                      )Accrued
      expenses
                      
                      
                      (7,444
                      )
                      
                      
                      -
                      
                      
                      
                      (7,444
                      )Payroll
      and other payable
                      
                      
                      (37,175
                      )
                      
                      
                      -
                      
                      
                      
                      (37,175
                      )Sales
      and use tax payable
                      
                      
                      (12,449
                      )
                      
                      
                      -
                      
                      
                      
                      (12,449
                      )Income
      tax payable
                      
                      
                      (91,412
                      )
                      
                      
                      -
                      
                      
                      
                      (91,412
                      )Deferred
      tax liabilities
                      
                      
                      (152,922
                      )
                      
                      
                      -
                      
                      
                      
                      (152,922
                      )(370,964
                      )
                      
                      
                      -
                      
                      
                      
                      (370,964
                      )Purchase
      price
                      
                      $
                      1,689,756
                      
                      
                      $
                      170,653
                      
                      
                      $
                      1,860,409











Midway
Electric Company (Portland Operations)





On March 9, 2009, the Company acquired
Midway Electric Company (Portland Operations).  The aggregate
consideration of paid by us, including acquisition transaction costs of $26,616,
was $426,616 in cash.  Portland Operations was acquired pursuant to a
Stock Purchase Agreement among us and the former shareholders of Midway Electric
Company, dated as of March 9, 2009. The acquisition of the Portland Operations
expands our geographic presence in the Pacific Northwest and provides additional
electrical contractor services in both high and low voltage applications for
corporate enterprise, healthcare, state and local government and educational
institutions.





The
preliminary purchase price allocation has been made resulting in goodwill and
other intangible assets of approximately $18,000.  Upon completion of
a final purchase price allocation, there may be an increase or decrease in the
amount of goodwill and a corresponding increase or decrease in other intangible
assets.






F-22


WPCS
INTERNATIONAL INCORPORATED AND SUBSIDIARIES
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





The
preliminary purchase price allocation has been determined as
follows:





Assets
      purchased:Cash
                    
                    $
                    93,248Accounts
      receivable
                    
                    
                    86,555Inventory
                    
                    
                    64,164Prepaid
      expenses
                    
                    
                    13,469Costs
      and estimated earnings in excess of billings
                    
                    
                    10,182Fixed
      assets
                    
                    
                    205,615Goodwill
      and other intangible assets
                    
                    
                    17,888491,121Liabilities
      assumed:Accounts
      payable
                    
                    
                    (30,842
                    )Accrued
      expenses
                    
                    
                    (2,189
                    )Payroll
      and other payable
                    
                    
                    (23,292
                    )Billings
      in excess of costs and estimated earnings
                    
                    
                    (3,249
                    )Capital
      lease obligation
                    
                    
                    (4,933
                    )(64,505
                    )Purchase
      price
                    
                    $
                    426,616





Pro
forma Information





The
following unaudited pro forma financial information presents the combined
results of operations of the Company, Seattle, Houston, Sacramento, Brisbane,
Brendale and Portland Operations for the years ended April 30, 2009 and 2008 as
if the acquisitions had occurred at May 1, 2007, including the issuance of the
Company’s common stock as consideration for the acquisition of Seattle. The pro
forma financial information does not necessarily reflect the results of
operations that would have occurred had the Company, Seattle, Houston,
Sacramento, Brisbane, Brendale and Portland Operations been a single entity
during these periods.


Year
      EndedApril
      30,2009
                  
                  
                  2008Revenues
                  
                  $
                  109,083,083
                  
                  
                  $
                  116,742,878Net
      income
                  
                  
                  1,718,808
                  
                  
                  
                  5,025,162Basic
      weighted average shares
                  
                  
                  7,131,967
                  
                  
                  
                  7,251,083Diluted
      weighted average shares
                  
                  
                  7,154,285
                  
                  
                  
                  8,008,635Basic
      net income per share
                  
                  $
                  0.24
                  
                  
                  $
                  0.69Diluted
      net income per share
                  
                  $
                  0.24
                  
                  
                  $
                  0.63








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








F-23


WPCS
INTERNATIONAL INCORPORATED AND SUBSIDIARIES
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





2009
                
                
                2008Costs
      incurred on uncompleted contracts
                
                $
                66,056,622
                
                
                $
                66,331,553Estimated
      contract profit
                
                
                21,903,172
                
                
                
                20,900,50987,959,794
                
                
                
                87,232,062Less:
      billings to date
                
                
                85,241,971
                
                
                
                86,947,332Net
      excess of costs
                
                $
                2,717,823
                
                
                $
                284,730Costs
      and estimated earnings in excess of billings
                
                $
                5,229,043
                
                
                $
                3,887,152Billings
      in excess of costs and estimated earningson
      uncompleted contracts
                
                
                (2,511,220
                )
                
                
                (3,602,422
                )Net
      excess of costs
                
                $
                2,717,823
                
                
                $
                284,730








NOTE
5 - PROPERTY AND EQUIPMENT





Property
and equipment consist of the following at April 30:





Estimated
      useful life (years)
                
                
                2009
                
                
                2008Furniture
      and fixtures
                
                
                5 –
      7
                
                
                $
                290,942
                
                
                $
                249,426Computers
      and software
                
                
                2 –
      3
                
                
                
                1,103,795
                
                
                
                938,370Office
      equipment
                
                
                5 –
      7
                
                
                
                176,020
                
                
                
                157,092Vehicles
                
                
                5 –
      7
                
                
                
                3,953,395
                
                
                
                3,335,752Machinery
      and equipment
                
                
                5
                
                
                
                5,833,969
                
                
                
                5,212,807Leasehold
      improvements
                
                
                2 –
      3
                
                
                
                397,525
                
                
                
                354,62611,755,646
                
                
                
                10,248,073Less
      accumulated depreciation and amortization expense
                
                
                
                
                
                
                5,087,614
                
                
                
                3,419,911$
                6,668,032
                
                
                $
                6,828,162





Depreciation
expense for property and equipment for the years ended April 30, 2009 and 2008
was approximately $1,783,000 and $1,539,000, respectively.





NOTE
6 – LONG-TERM DEBT





Lines
of Credit





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





Loans
under the Loan Agreement bear interest at a rate equal to BOA’s prime rate,
minus one percentage point, or the Company has the option to elect to use the
optional interest rate of LIBOR plus one hundred seventy-five basis
points.  As of April 30, 2009, the interest rate was 2.25% on
outstanding borrowings of approximately $5,626,000 under the Loan
Agreement.




Loans
Payable





The
Company’s long-term debt also consists of notes issued by the Company or assumed
in acquisitions related to working capital funding and the purchase of property
and equipment in the ordinary course of business. At April 30, 2009, loans
payable and capital lease obligations totaled $408,270 with interest rates
ranging from 0% to 12.67%.






F-24




WPCS
INTERNATIONAL INCORPORATED AND SUBSIDIARIES
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


Due
to Shareholders




As of
April 30, 2009, the Beijing Operations had outstanding loans due to a related
party, Taian Gas Group (TGG), totaling $2,951,008, of which $2,638,152 matures
on December 31, 2009, and bears interest at 6.83%. The remaining balance of
$312,856 represents working capital loans from TGG to the Beijing Operations in
the normal course of business.





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





Year
      ending April 30,Loans
      Payable
                  
                  
                  Capital
      Lease
                  
                  
                  Due
      to Shareholders
                  
                  
                  Line
      of Credit
                  
                  
                  Total2010
                  
                  $
                  89,210
                  
                  
                  $
                  96,001
                  
                  
                  $
                  2,951,008
                  
                  
                  $
                  5,626,056
                  
                  
                  $
                  8,762,2752011
                  
                  
                  42,138
                  
                  
                  
                  81,928
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  124,0662012
                  
                  
                  19,976
                  
                  
                  
                  54,281
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  74,2572013
                  
                  
                  9,520
                  
                  
                  
                  15,216
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  24,7362014
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Total
      long-term debt
                  
                  $
                  160,844
                  
                  
                  $
                  247,426
                  
                  
                  $
                  2,951,008
                  
                  
                  $
                  5,626,056
                  
                  
                  $
                  8,985,334




NOTE
7 - RELATED PARTY TRANSACTIONS





In
connection with the acquisition of the Suisun City Operations, the Company
assumed a ten-years lease with a trust, of which, a certain officer of the
Company is the trustee, for a building and land located in Suisun City,
California, which is occupied by its Suisun City Operations.  For the
years ended April 30, 2009 and 2008, the rent paid for this lease was $93,660
and $90,943, respectively.




In
connection with the acquisition of the Sarasota Operations in fiscal 2007, the
Company leases its Sarasota, Florida location from a trust, of which one of the
former shareholders of the Sarasota Operations is the trustee. For the years
ended April 30, 2009 and 2008, the rent paid for this lease was $54,091 and
$52,516, respectively.




In
connection with the acquisition of the Trenton Operations in fiscal 2007, the
Company leases its Trenton, New Jersey location from Voacolo Properties LLC, of
which the former shareholders of Voacolo Electric Incorporated  are
the members. For the years ended April 30, 2009 and 2008, the rent paid for this
lease was $60,000 and $54,500, respectively.






F-25




WPCS
INTERNATIONAL INCORPORATED AND SUBSIDIARIES
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




In
connection with the acquisition of the Beijing Operations in fiscal 2007, the
Company’s joint venture partner provided the office building for Beijing
Operations rent free during fiscal year 2009.  The Company expects to
enter into a lease with the joint venture partner in fiscal 2010. The Beijing
Operations revenue from a related party is $76,210 and $236,323 for the years
ended April 30, 2009 and 2008, respectively. The Beijing Operations accounts
receivable from a related party is $171,393 and $95,182 as of the years ended
April 30, 2009 and 2008, respectively.




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 no contributions made for the year ended April 30, 2009. There was
approximately $15,000 in contributions made for the year ended April 30,
2008.





The
Company also contributes to multi-employer pension plans which provide benefits
to union employees covered by a collective bargaining
agreement.   The Company incurred total costs under such
agreements of approximately $3,933,000 and $1,798,000 for the years ended April
30, 2009 and 2008, respectively.





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




NOTE
9 - INCOME TAXES





The
provision for income taxes for the years ended April 30, 2009 and 2008 is
summarized as follows:





Provision
      for income taxes:2009
                    
                    
                    2008CurrentFederal
                    
                    $
                    537,000
                    
                    
                    $
                    1,846,000State
                    
                    
                    223,084
                    
                    
                    
                    649,717Foreign
                    
                    
                    233,317
                    
                    
                    
                    98,207DeferredFederal
                    
                    
                    15,000
                    
                    
                    
                    126,832State
                    
                    
                    (29,000
                    )
                    
                    
                    (101,000
                    )Foreign
                    
                    
                    9,626
                    
                    
                    
                    (42,408
                    )Totals
                    
                    $
                    989,027
                    
                    
                    $
                    2,577,348





The
actual provision for income taxes reflected in the consolidated statements of
income for the years ended April 30, 2009 and 2008 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:





Reconciliation
      of statutory income tax rate:2009
                  
                  
                  2008Expected
      tax (benefit) provision at statutory rate (34%)
                  
                  $
                  904,403
                  
                  
                  $
                  2,262,936State
      and local taxes, net of Federal tax benefit
                  
                  
                  127,157
                  
                  
                  
                  428,813Foreign
      income taxes
                  
                  
                  (36,283
                  )
                  
                  
                  55,799Section
      199 permanent difference
                  
                  
                  (119,000
                  )
                  
                  
                  (85,000
                  )Other
                  
                  
                  112,750
                  
                  
                  
                  (85,200
                  )Totals
                  
                  $
                  989,027
                  
                  
                  $
                  2,577,348









F-26




WPCS
INTERNATIONAL INCORPORATED AND SUBSIDIARIES
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





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





Deferred
      taxes:2009
                        
                        
                        2008Deferred
      tax assets:Allowance
      for doubtful accounts
                        
                        $
                        38,000
                        
                        
                        $
                        27,000Net
      operating loss carryforward
                        
                        
                        32,000
                        
                        
                        
                        122,000Federal
      benefit of deferred state tax liabilities
                        
                        
                        19,000
                        
                        
                        
                        15,000Foreign
      deferred tax benefits
                        
                        
                        78,066
                        
                        
                        
                        84,731Deferred
      tax assets-current
                        
                        
                        167,066
                        
                        
                        
                        248,731Customer
      lists
                        
                        
                        187,000
                        
                        
                        
                        143,000Net
      operating loss carryforward
                        
                        
                        322,000
                        
                        
                        
                        126,000Valuation
      allowance
                        
                        
                        (268,000
                        )
                        
                        
                        (126,000
                        )Federal
      benefit of deferred state tax liabilities
                        
                        
                        86,000
                        
                        
                        
                        77,000Foreign
      deferred tax benefits
                        
                        
                        5,634Deferred
      tax assets-long term
                        
                        
                        332,634
                        
                        
                        
                        220,000Deferred
      tax liabilities:Inventory
                        
                        
                        -
                        
                        
                        
                        (14,000
                        )Federal
      benefit of deferred state tax liabilities
                        
                        
                        (44,000
                        )
                        
                        
                        (53,000
                        )Foreign
      deferred tax liabilities
                        
                        
                        (52,653
                        )
                        
                        
                        (145,792
                        )Deferred
      tax liabilities-current
                        
                        
                        (96,653
                        )
                        
                        
                        (212,792
                        )Fixed
      assets
                        
                        
                        (265,000
                        )
                        
                        
                        (210,000
                        )Backlog
                        
                        
                        (43,000
                        )
                        
                        
                        (139,000
                        )Customer
      lists
                        
                        
                        (165,000
                        )
                        
                        
                        (110,000
                        )Goodwill
                        
                        
                        (1,161,000
                        )
                        
                        
                        (912,000
                        )Foreign
      deferred tax liabilities
                        
                        
                        (166,605
                        )
                        
                        
                        (22,786
                        )Deferred
      tax liabilities-long term
                        
                        
                        (1,800,605
                        )
                        
                        
                        (1,393,786
                        )Net
      deferred tax liabilities
                        
                        $
                        (1,397,558
                        )
                        
                        $
                        (1,137,847
                        )








At April
30, 2009, the Company has net operating loss carryforwards for state tax
purposes approximating $4.3 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 on the available net operating loss
carryforwards of approximately $3,000,000 at April 30, 2009.  The
income tax effect of the change in valuation allowance amounted to an expense of
$142,000 and a benefit of $28,000 for the years ended April 30, 2009 and 2008,
respectively.





Undistributed
earnings of the Company’s foreign subsidiaries were approximately $345,000 and
$41,000 for the years ended April 30, 2009 and 2008, respectively. These
earnings, which reflect full provision for foreign income taxes, are considered
to be indefinitely reinvested in foreign operations or will be reinvested
substantially free of additional tax. Accordingly, no provision for Federal
income taxes has been provided thereon. Upon repatriation of these earnings, in
the form of dividends or otherwise, the Company will be subject to both Federal
income taxes (subject to an adjustment for foreign tax credits) and withholding
taxes payable to the various foreign countries. Determination of the amount of
the unrecognized deferred income tax liability versus current income tax payable
is not practicable due to the complexities associated with its hypothetical
calculation. However, unrecognized foreign tax credit carryforwards would become
available to reduce some portion of the Federal liability.





Deferred
taxes have not been provided on the excess book basis in the shares of the
Company’s foreign subsidiaries because these basis differences are not expected
to reverse in the foreseeable future. These basis differences could reverse
through a sale of the subsidiaries, the receipt of dividends from the
subsidiaries, as well as various other events. It is not practical to calculate
the residual income taxes that would result if these basis differences reversed
due to the complexities of the income tax law and the hypothetical nature of
these calculations.









F-27




WPCS
INTERNATIONAL INCORPORATED AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


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.  These shares were registered under
Form S-8. At April 30, 2009, options to purchase 180,000 shares were outstanding
at exercise prices ranging from $2.37 to $6.33. At April 30, 2009, there were
220,000 options available for grant under the 2007 Incentive Stock
Plan.





In
September 2005, the Company adopted the 2006 Incentive Stock Plan, under which
officers, directors, key employees or consultants may be granted
options.  Under the 2006 Incentive Stock Plan, 400,000 shares of
common stock were reserved for issuance upon the exercise of stock options,
stock awards or restricted stock.  These shares were registered under
Form S-8. Under the terms of the 2006 Incentive Stock Plan, stock options are
granted at exercise prices equal to the fair market value of the common stock at
the date of grant, and become exercisable and expire in accordance with the
terms of the stock option agreement between the optionee and the Company at the
date of grant.  These options generally vest based on between one to
three years of continuous service and have five-year contractual terms. At April
30, 2009, options to purchase 288,602 shares were outstanding at exercise prices
ranging from $6.14 to $12.10. At April 30, 2009, there were 39,822 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,
2009, options to purchase 161,350 shares were outstanding at exercise prices
ranging from $2.37 to $12.10. At April 30, 2009, there were 112,800 shares
available for grant under the 2002 Plan.





The
following is a summary of information with respect to stock options granted
under the 2002 Plan, 2006 Incentive Stock Plan and 2007 Incentive Stock Plan at
April 30, 2009 and April 30, 2008:





Options
      Outstanding at April 30, 2009
                              
                              
                              Options
      Exercisable at April 30, 2009Exercise
      prices
                              
                              
                              Shares
      under option
                              
                              
                              Weighted-average
      remaining life in years
                              
                              
                              Weighted-average
      Exercise Price
                              
                              
                              Shares
      under option
                              
                              
                              Weighted-average
      Exercise Price$
                              2.37
      - $4.80
                              
                              
                              
                              123,866
                              
                              
                              
                              4.15
                              
                              
                              $
                              2.59
                              
                              
                              
                              9,966
                              
                              
                              $
                              4.80$
                              5.25
      - $7.27
                              
                              
                              
                              485,484
                              
                              
                              
                              1.78
                              
                              
                              $
                              6.24
                              
                              
                              
                              405,571
                              
                              
                              $
                              6.24$
                              8.79
      - $12.10
                              
                              
                              
                              20,602
                              
                              
                              
                              2.91
                              
                              
                              $
                              10.65
                              
                              
                              
                              11,035
                              
                              
                              $
                              9.95Totals
                              
                              
                              
                              629,952
                              
                              
                              
                              2.29
                              
                              
                              $
                              5.67
                              
                              
                              
                              426,572
                              
                              
                              $
                              6.30








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






F-28




WPCS
INTERNATIONAL INCORPORATED AND SUBSIDIARIES
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





The
following table summarizes stock option activity for the year ended April 30,
2009, during which there were no options exercised under the Company’s stock
option plans:





2002
      PlanNumber
      of Shares
                
                
                Weighted-average
      Exercise Price
                
                
                Weighted-
      average Remaining Contractual Term
                
                
                Aggregate Intrinsic ValueOutstanding,
      May 1, 2008
                
                
                238,092
                
                
                $
                8.21Granted
                
                
                25,900
                
                
                $
                4.56Exercised
                
                
                -
                
                
                
                -Forfeited/Expired
                
                
                (102,642
                )
                
                $
                10.32Outstanding,
      April 30, 2009
                
                
                161,350
                
                
                $
                6.28
                
                
                
                1.5
                
                
                $
                0Vested
      and expected to vested, April 30, 2009
                
                
                156,028
                
                
                $
                6.30
                
                
                
                1.4
                
                
                $
                0Exercisable,
      April 30, 2009
                
                
                125,086
                
                
                $
                6.42
                
                
                
                0.8
                
                
                $
                0







2006
      PlanNumber
      of Shares
                
                
                Weighted-average
      Exercise Price
                
                
                Weighted-average
      Remaining Contractual Term
                
                
                Aggregate
      Intrinsic ValueOutstanding,
      May 1, 2008
                
                
                327,726
                
                
                $
                6.32Granted
                
                
                -
                
                
                
                -Exercised
                
                
                -
                
                
                
                -Forfeited/Expired
                
                
                (39,124
                )
                
                $
                6.17Outstanding,
      April 30, 2009
                
                
                288,602
                
                
                $
                6.34
                
                
                
                1.5
                
                
                $
                0Vested
      and expected to vested, April 30, 2009
                
                
                288,025
                
                
                $
                6.33
                
                
                
                1.5
                
                
                $
                0Exercisable,
      April 30, 2009
                
                
                282,742
                
                
                $
                6.25
                
                
                
                1.5
                
                
                $
                0








2007
      PlanNumber
      of Shares
                
                
                Weighted-average
      Exercise Price
                
                
                Weighted-average
      Remaining Contractual Term
                
                
                Aggregate
      Intrinsic ValueOutstanding,
      May 1, 2008
                
                
                80,000
                
                
                $
                6.33Granted
                
                
                105,000
                
                
                $
                2.40Exercised
                
                
                -
                
                
                
                -Forfeited/Expired
                
                
                (5,000
                )
                
                $
                6.33Outstanding,
      April 30, 2009
                
                
                180,000
                
                
                $
                4.04
                
                
                
                4.2
                
                
                $
                0Vested
      and expected to vested, April 30, 2009
                
                
                158,812
                
                
                $
                4.02
                
                
                
                4.2
                
                
                $
                0Exercisable,
      April 30, 2009
                
                
                18,750
                
                
                $
                6.33
                
                
                
                3.8
                
                
                $
                0









F-29




WPCS
INTERNATIONAL INCORPORATED AND SUBSIDIARIES
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE
11 - SHAREHOLDERS' 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.  At April 30,
2009, 1,883,796 warrants were outstanding at an exercise price of $6.99, and
expire on November 16, 2009. The exercise price of the warrants is subject to
customary adjustment provisions for stock splits, combinations, dividends and
the like. In April 2009, the Company and its warrant holders amended the warrant
agreement to eliminate any adjustment provisions for lower price issuances. The
warrants are callable by the Company, upon 30 days notice, should the common
stock trade at or above $25.20 per share for 25 out of 30 consecutive trading
days. A maximum of 20% of the warrants may be called in any three-month
period.  There were no grants, exercises or expirations  for
the years ended April 30, 2009 and 2008.




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 three reportable segments: wireless
communications, specialty construction and electrical
power.  Management evaluates performance based upon income (loss)
before income taxes. Corporate includes corporate salaries and external
professional fees, such as accounting, legal and investor relations costs which
are not allocated to the other subsidiaries.  Corporate assets
primarily include cash and prepaid expenses.  Segment results for the
years ended April 30, 2009 and 2008 are as follows:








As
      of and for the Year Ended April 30, 2009Corporate
                
                
                Wireless Communication
                
                
                Specialty Construction
                
                
                Electrical
                  Power
                
                
                TotalRevenue
                
                $
                -
                
                
                $
                34,161,061
                
                
                $
                16,581,079
                
                
                $
                56,359,220
                
                
                $
                107,101,360Depreciation
      and amortization
                
                $
                31,683
                
                
                $
                714,497
                
                
                $
                966,058
                
                
                $
                866,586
                
                
                $
                2,578,824Income
      (loss) before income taxes provision
                
                $
                (1,212,711
                )
                
                $
                276,731
                
                
                $
                (623,812
                )
                
                $
                4,220,446
                
                
                $
                2,660,654Goodwill
                
                $
                -
                
                
                $
                10,921,998
                
                
                $
                5,956,201
                
                
                $
                15,670,987
                
                
                $
                32,549,186Total
      assets
                
                $
                6,182,006
                
                
                $
                21,643,805
                
                
                $
                18,597,669
                
                
                $
                36,721,633
                
                
                $
                83,145,113








As
      of and for the Year Ended April 30, 2008Corporate
                
                
                Wireless
                  Communication
                
                
                Specialty
                  Construction
                
                
                Electrical
                  Power
                
                
                TotalRevenue
                
                $
                -
                
                
                $
                46,021,381
                
                
                $
                13,058,528
                
                
                $
                42,351,219
                
                
                $
                101,431,128Depreciation
      and amortization
                
                $
                36,186
                
                
                $
                676,933
                
                
                $
                905,277
                
                
                $
                780,207
                
                
                $
                2,398,603Income
      (loss)  before income taxes provision
                
                $
                (583,467
                )
                
                $
                2,994,963
                
                
                $
                (793,934
                )
                
                $
                5,038,133
                
                
                $
                6,655,695Goodwill
                
                $
                -
                
                
                $
                10,921,998
                
                
                $
                5,086,916
                
                
                $
                12,978,587
                
                
                $
                28,987,501Total
      assets
                
                $
                5,457,038
                
                
                $
                26,024,048
                
                
                $
                16,975,472
                
                
                $
                35,491,583
                
                
                $
                83,948,141





As of and for the years ended April 30, 2009 and 2008, the
specialty construction segment includes approximately $3,008,000 and $1,740,000
in revenue and $1,853,000 and $1,748,000 of net assets held in China related to
the Company’s 60% interest in the Beijing Operations, respectively. As of and
for the years ended April 30, 2009 and 2008, the specialty construction segment
includes approximately $1,397,000 and $678,000 in revenue and $1,540,000 and
$1,165,000 of net assets held in Australia related to the Company’s 100%
ownership in the Brisbane Operations. As of and for the years ended April 30,
2009 and 2008, electrical power segment includes approximately $2,025,000 and
$136,000 in revenue and $1,961,000 and $1,659,000 of net assets held in
Australia related to the Company’s 100% ownership in the Brendale
Operations.






F-30




WPCS
INTERNATIONAL INCORPORATED AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE
13 - COMMITMENTS AND CONTINGENCIES





Employment
Agreements




The
Company has entered into employment contracts ranging from one to three years
with certain of its employees.  The aggregate base salary commitments
under these contracts at April 30, 2009 are summarized as follows:







Year
      ending April 30,2010
                    
                    $
                    2,862,2572011
                    
                    
                    1,446,8792012
                    
                    
                    731,575Total
      aggregate base salary commitments
                    
                    $
                    5,040,711








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 its business, consolidated financial condition or operating
results.





Lease
Commitments





The
Company leases its office facilities pursuant to noncancelable operating leases
expiring through April 2014. The Company also has noncancelable vehicle
leases.  The minimum rental commitments under these noncancelable
leases at April 30, 2009 are summarized as follows:





Year
      ending April 30,2010
                  
                  $
                  1,283,5592011
                  
                  
                  790,9732012
                  
                  
                  356,4492013
                  
                  
                  161,2702014
                  
                  
                  109,943Thereafter
                  
                  
                  234Total
      minimum lease payments
                  
                  $
                  2,702,428


Rent
expense for all operating leases was approximately $988,000 and $786,000 in 2009
and 2008, respectively.






F-31




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





None.





ITEM
9A(T) – CONTROLS AND PROCEDURES





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




As of April 30, 2009, we carried out an evaluation, under the
supervision and with the participation of our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures. Based on this evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures were effective in ensuring that information required to
be disclosed by us in our periodic reports is recorded, processed, summarized
and reported, within the time periods specified for each report and that such
information is accumulated and communicated to our management, including our
principal executive and principal financial officers, or persons performing
similar functions, as appropriate to allow timely decisions regarding required
disclosure.




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




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





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





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





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




Management
has conducted, with the participation of our Chief Executive Officer and our
Chief Financial Officer, an assessment, including testing of the effectiveness
of our internal control over financial reporting as of April 30,
2009.  Management’s assessment of internal control over financial
reporting was based on the framework in Internal Control over Financial
Reporting – Guidance for Smaller Public Companiesissued by the
Committee of Sponsoring Organizations of the Treadway Commission. Based on this
evaluation, Management concluded that our system of internal control over
financial reporting was effective as of April 30, 2009.





The
effectiveness of our internal control over financial reporting as of April 30,
2009 has not been audited by J.H. Cohn, LLP, an independent registered public
accounting firm. Management’s report was not subject to attestation by the
Company’s registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit the Company to provide only
management’s report in this annual report.





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







ITEM
9B – OTHER INFORMATION




None




26








PART
III





ITEM
10 – DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE





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





NAME
              
              AGE
              
              OFFICES
      HELDAndrew
      Hidalgo
              
              53
              
              Chairman,
      Chief Executive Officer and DirectorJoseph
      Heater
              
              45
              
              Chief
      Financial OfficerDonald
      Walker
              
              46
              
              Executive
      Vice PresidentJames
      Heinz
              
              49
              
              Executive
      Vice PresidentMyron
      Polulak
              
              55
              
              Executive
      Vice PresidentCharles
      Madenford
              
              46
              
              Executive
      Vice PresidentNorm
      Dumbroff
              
              48
              
              DirectorNeil
      Hebenton
              
              53
              
              DirectorGary
      Walker
              
              54
              
              President
      of Suisun City Operations and DirectorWilliam
      Whitehead
              
              53
              
              DirectorMichael
      Doyle
              
              54
              
              Director





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





Andrew
Hidalgo, Chairman, Chief Executive Officer and Director





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







Joseph
Heater, Chief Financial Officer





Mr.
Heater has been Chief Financial Officer since July 2003. From November 2001 to
June 2003, Mr. Heater was the Controller for Locus Pharmaceuticals, Inc., a
development stage pharmaceutical company. Prior to that, from April 1999 to
September 2001, Mr. Heater was Director of Finance and Corporate Controller for
esavio Corporation, an information technology consulting company providing
application development, network design, integration, and managed services.
Prior to that, from March 1995 to November 1998, Mr. Heater was Director of
Financial Planning and Assistant Corporate Controller for Airgas, Inc. Mr.
Heater holds a B.S. from the University of Nebraska and 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. (Suisun City Operations) 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 (St. Louis Operations) and its President since January 1994
until its acquisition by WPCS in April 2004. Mr. Heinz has over twenty years of
project engineering experience in civil and commercial engineering projects with
over ten years specifically dedicated to wireless infrastructure services. Mr.
Heinz is the Chairman of the Construction Advisory Board for Southern Illinois
University and a general advisory member of the School of Engineering. He holds
a B.S. degree in construction management from Southern Illinois
University.








27








Myron
Polulak, Executive Vice President





Mr.
Polulak has been Executive Vice President since December 2008.  Mr. Polulak
was the principal founder of New England Communications Systems, Inc. ( Hartford
Operations) and its president since acquisition by WPCS in June 2006.  Mr.
Polulak has over thirty years experience in the wireless industry with 30
years including state and local government system design and sales. 
Mr. Polulak is a committee member of the Eastern Regional Motorola Service
Station board, member of Associated Public Communications Organization and
recent past chairman of Motorola National Service Advisory Council.  Mr.
Polulak holds a B.S. degree in marketing and business management from Seton Hall
University, Orange, NJ.





Charles
Madenford, Executive Vice
President





Mr.
Madenford has been Executive Vice President since April 2007.  He is
also currently president of the Auburn Operations, a position he has held since
September 2005.  From May 2003 to August 2005, Mr. Madenford was a
Vice President for Auburn Operations.  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 Suisun City Operations and Director





Mr.
Walker became a director of WPCS in December 2002. He is currently the president
of the Suisun City Operations, a position he has held since November 1996. Prior
to his involvement with the Suisun City Operations, Mr. Walker had a
distinguished career with the U.S. Navy and also held an elected political
position in Suisun City, 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.





Michael
Doyle, Director





Mr. Doyle
became a director of WPCS in November 2008. He is the Founder and President of
Broader Vision LLC. Mr. Doyle also serves as a member of the Board of Directors
of RCH Cable (since February 2009), and non-profit Mommy’s Light Lives on Fund
(since 2003). Mr. Doyle has served as a key executive for Comcast Corporation
from November 1983 until his retirement in July 2008. He was most recently
president of Comcast’s Eastern Division, the largest division of Comcast Cable
group from November 1983 until his retirement in July 2008.  Mr. Doyle
received a B.S. from Drew University.





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








28





Audit
Committee




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





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





Executive
Committee





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





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







Section
16(a) Beneficial Ownership Reporting Compliance




Section 16(a)
of the Securities Exchange Act of 1934, as amended, requires our directors,
executive officers and holders of more than 10% of our common stock to file with
the SEC reports regarding their ownership and changes in ownership of our
securities. Except as disclosed below, we believe that, during fiscal 2009, our
directors, executive officers and 10% stockholders complied with all
Section 16(a) filing requirements.




Form 4 reports were not filed by Andrew
Hidalgo, Joseph Heater, James Heinz, Charles Madenford, Donald Walker, Norm
Dumbroff, Neil Hebenton, Gary Walker and William Whitehead relating to stock
options granted in the amounts of 25,000, 12,500, 12,500, 12,500, 12,500, 5,000,
5,000, 5,000 and 5,000, respectively.  The options vest 50% on October
10, 2009 and 50% on October 10, 2010 at an exercise price of $2.37 per
share.




Code
of Ethics





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





29







ITEM
11 - EXECUTIVE COMPENSATION





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





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





Submitted
by the Executive Committee


Michael
Doyle, Chairman


Norm
Dumbroff


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, 2009 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 our achievements
result from the combined and coordinated efforts of all employees working toward
common goals and objectives in a competitive, evolving market place. The goals
of our compensation program are to align remuneration with business objectives
and performance and to enable us to retain and competitively reward executive
officers and employees who contribute to our long-term success.  In
making executive compensation and other employment compensation decisions, the
Executive Committee considers achievement of certain criteria, some of which
relate to our performance and others of which relate to the performance of the
individual employee. Awards to executive officers are based on our
achievement  and individual performance criteria.





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





Compensation
Program & Forms of Compensation





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





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





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






30







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





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





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





Executive
Equity Ownership





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





Performance-Based
Compensation and Financial Restatement





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





Tax
and Accounting Considerations





Compliance with
Internal Revenue Code Section 162(m). Section 162(m) of the Internal
Revenue Code of 1986, as amended, restricts deductibility of executive
compensation paid to our Chief Executive Officer and each of the 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.




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






31







Contract
with Andrew Hidalgo





On
February 1, 2004, 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. Effective June 1, 2008, the base salary
under the agreement was $325,000 per annum. In addition, Mr. Hidalgo is entitled
to participate in any and all benefit plans, from time to time, in effect for
our employees, along with vacation, sick and holiday pay in accordance with our
policies established and in effect from time to time.




Contract
with Joseph Heater





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




Contract
with Donald Walker





On
February 1, 2007, we entered into a three-year employment contract with Mr.
Walker with a base salary of $160,000 per annum. Effective May 1, 2009, the base
salary under the agreement was amended to $165,000. 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 before the deduction of interest and taxes
of designated subsidiaries assigned by us.




Contract
with Gary Walker




On
February 1, 2007, we entered into a three-year employment contract with Mr.
Walker with a base salary of $150,000 per annum. Effective May 1, 2009, the base
salary under the agreement was amended to $155,000. 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 the Suisun City Operations prior to the
deduction of interest and taxes.




Contract
with James Heinz




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




Contract
with Myron Polulak




On
December 1, 2008, we entered into a three-year employment contract with Mr.
Polulak 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. Polulak 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.
Polulak 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.









32






Contract
with Charles Madenford




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




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




The
following table sets forth in summary form the compensation received during the
fiscal years ended April 30, 2009 and 2008 by the Company's Chief Executive
Officer, Chief Financial Officer and each of the Company’s four other most
highly compensated executive officers based on salary and bonus earned during
the 2009 and 2008 fiscal years.








Summary Compensation
Table





The
following table provides certain summary information concerning compensation
awarded to, earned by or paid to our Chief Executive Officer, Chief, Financial
Officer and four other highest paid executive officers whose total annual salary
and bonus exceeded $100,000 (collectively, the “named executive officers”) for
fiscal years 2009 and 2008.




Name
      and Principal Position
                                      Year
                                      
                                      Salary
      ($)
                                      
                                      
                                      Bonus
      ($)
                                      
                                      
                                      Option
      Awards ($) (7)
                                      
                                      
                                      All
      Other Compensation ($)
                                      
                                      
                                      
                                      
                                      
                                      Total ($)Andrew
      Hidalgo
                                      2009
                                      
                                      
                                      318,750
                                      
                                      
                                      
                                      50,400
                                      
                                      
                                      
                                      5,927
                                      
                                      
                                      
                                      11,359
                                      
                                      
                                      
                                      (8
                                      )
                                      
                                      
                                      386,435Chairman,
      Chief Executive Officer and Director (1)
                                      2008
                                      
                                      
                                      225,000
                                      
                                      
                                      
                                      70,000
                                      
                                      
                                      
                                      1,087
                                      
                                      
                                      
                                      9,466
                                      
                                      
                                      
                                      (8
                                      )
                                      
                                      
                                      305,553Joseph
      Heater
                                      2009
                                      
                                      
                                      245,417
                                      
                                      
                                      
                                      36,000
                                      
                                      
                                      
                                      2,963
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      284,380Chief
      Financial Officer (2)
                                      2008
                                      
                                      
                                      195,000
                                      
                                      
                                      
                                      50,000
                                      
                                      
                                      
                                      652
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      245,652Donald
      Walker
                                      2009
                                      
                                      
                                      160,000
                                      
                                      
                                      
                                      86,116
                                      
                                      
                                      
                                      2,963
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      249,079Executive
      Vice President (3)
                                      2008
                                      
                                      
                                      160,000
                                      
                                      
                                      
                                      64,671
                                      
                                      
                                      
                                      217
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      224,888Gary
      Walker
                                      2009
                                      
                                      
                                      150,000
                                      
                                      
                                      
                                      79,819
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      229,819President-
      Walker and Director (4)
                                      2008
                                      
                                      
                                      150,000
                                      
                                      
                                      
                                      68,067
                                      
                                      
                                      
                                      217
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      218,284Richard
      Schubiger
                                      2009
                                      
                                      
                                      114,500
                                      
                                      
                                      
                                      24,415
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      142,725
                                      
                                      
                                      
                                      (9
                                      )
                                      
                                      
                                      281,640Executive
      Vice President (5)
                                      2008
                                      
                                      
                                      195,000
                                      
                                      
                                      
                                      120,428
                                      
                                      
                                      
                                      217
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      315,645James
      Heinz
                                      2009
                                      
                                      
                                      160,000
                                      
                                      
                                      
                                      66,461
                                      
                                      
                                      
                                      2,963
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      229,424Executive
      Vice President (6)
                                      2008
                                      
                                      
                                      160,000
                                      
                                      
                                      
                                      50,623
                                      
                                      
                                      
                                      217
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      210,840




(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 the Suisun City Operations and as a
      Director since December 30, 2002.




(5)
            Mr.
      Schubiger served as Executive Vice President from November 24, 2004 until
      October 31, 2008 pursuant to an employment agreement that paid him
      $225,000 annually, at which time the Company and Mr. Schubiger entered
      into a separation agreement to which the Company paid Mr. Schubiger a
      severance payment of $125,000 on November 10,
  2008.




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




(7)
              Represents
      the dollar amount of compensation expense recognized in fiscal 2009 and
      2008 for financial reporting purposes related to stock option awards
      granted in fiscal 2009 and 2008under
      SFAS 123R, as discussed in Note 2, "Summary of Significant
      Accounting Policies” of the Notes to Consolidated Financial Statements
      included elsewhere in this Annual Report on Form 10-K.(8)
              Represents
      lease payments for use of company-leased vehicle.(9)
              Represents
      severance and vehicle payments.












33






GRANTS
OF PLAN-BASED AWARDS





The
following table sets forth information regarding the number of stock options
granted to named executive officers during fiscal 2009.




Name
              
              Grant
      Date
              
              All
      Other Option Awards: Number of Securities Underlying Options
      (#)
              
              Exercise
      or Base Price of Option Awards ($/Sh)
              
              Grant
      Date Fair Value of Stock and Option Awards ($)Andrew
      Hidalgo
              
              10/10/08
              
              25,000
              
              2.37
              
              22,996Joseph
      Heater
              
              10/10/08
              
              12,500
              
              2.37
              
              11,498James
      Heinz
              
              10/10/08
              
              12,500
              
              2.37
              
              11,498Donald
      Walker
              
              10/10/08
              
              12,500
              
              2.37
              
              11,498Gary
      Walker
              
              10/10/08
              
              5,000
              
              2.37
              
              4,599








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, 2009.





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
                  
                  10/13/20106,250
                  
                  
                  
                  18,750
                  
                  
                  $
                  6.33
                  
                  3/14/2013-
                  
                  
                  
                  25,000
                  
                  
                  $
                  2.37
                  
                  10/10/2013Joseph
      Heater
                  
                  
                  7,500
                  
                  
                  
                  -
                  
                  
                  $
                  6.60
                  
                  10/6/200963,345
                  
                  
                  
                  -
                  
                  
                  $
                  6.14
                  
                  10/13/20103,750
                  
                  
                  
                  11,250
                  
                  
                  $
                  6.33
                  
                  3/14/2013-
                  
                  
                  
                  12,500
                  
                  
                  $
                  2.37
                  
                  10/10/2013James
      Heinz
                  
                  
                  10,000
                  
                  
                  
                  -
                  
                  
                  $
                  5.25
                  
                  2/1/201038,007
                  
                  
                  
                  -
                  
                  
                  $
                  6.14
                  
                  10/13/20101,250
                  
                  
                  
                  3,750
                  
                  
                  $
                  6.33
                  
                  3/14/2013-
                  
                  
                  
                  12,500
                  
                  
                  $
                  2.37
                  
                  10/10/2013Donald
      Walker
                  
                  
                  1,250
                  
                  
                  
                  3,750
                  
                  
                  $
                  6.33
                  
                  3/14/2013-
                  
                  
                  
                  12,500
                  
                  
                  $
                  2.37
                  
                  10/10/2013Gary
      Walker
                  
                  
                  1,250
                  
                  
                  
                  3,750
                  
                  
                  $
                  6.33
                  
                  3/14/2013-
                  
                  
                  
                  5,000
                  
                  
                  $
                  2.37
                  
                  10/10/2013








34




Director
Compensation




The
following table sets forth summary information concerning the total compensation
paid to our non-employee directors in 2009 for services to our
company.


Name
                
                Fees
      Earned or Paid in Cash
                
                
                Option
      Awards
                  ($)
                
                
                Total
      ($)Norm
      Dumbroff (1)
                
                
                10,000
                
                
                
                4,600
                
                
                
                14,600Neil
      Hebenton  (2)
                
                
                10,000
                
                
                
                4,600
                
                
                
                14,600William
      Whitehead  (3)
                
                
                10,000
                
                
                
                4,600
                
                
                
                14,600Michael
      Doyle (4)
                
                
                -
                
                
                
                9,480
                
                
                
                9,480Total:
                
                
                30,000
                
                
                
                23,280
                
                
                
                53,280





*
            Amounts
      represent the amount of compensation expense recognized in fiscal 2009 for
      awards granted in fiscal 2009 and 2008  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)
            33,988
      options were outstanding as of April 30, 2009, of which 25,238 were
      exercisable as of April 30, 2009.(2)
            21,904
      options were outstanding as of April 30, 2009, of which 13,154 were
      exercisable as of April 30, 2009.(3)
            28,988
      options were outstanding as of April 30, 2009, of which 25,238 were
      exercisable as of April 30, 2009.




(4)
            10,000
      options were outstanding as of April 30, 2009, of which none were
      exercisable as of April 30, 2009.





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 17, 2009:




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




•
            by
      each of our officers and directors;
and




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




Name And Address Of Beneficial
      Owner (1)
                      
                      Number
      of
                        Shares Owned (2)
                      
                      
                      
                      
                      
                      Percentage
                        of Class
    (3)Andrew
      Hidalgo
                      
                      
                      416,203
                      
                      
                      
                      (4
                      )
                      
                      
                      5.82
                      %Joseph
      Heater
                      
                      
                      74,595
                      
                      
                      
                      (4
                      )
                      
                      
                      1.06
                      %Donald
      Walker
                      
                      
                      1,250
                      
                      
                      
                      (4
                      )
                      
                      
                      *James
      Heinz
                      
                      
                      108,781
                      
                      
                      
                      (4
                      )
                      
                      
                      1.56
                      %Charles
      Madenford
                      
                      
                      3,250
                      
                      
                      
                      (4
                      )
                      
                      
                      *Myron
      Polulak
                      
                      
                      250
                      
                      
                      
                      (4
                      )
                      
                      
                      *Michael
      Doyle
                      
                      
                      -
                      
                      
                      
                      
                      
                      
                      
                      *Norm
      Dumbroff
                      
                      
                      93,988
                      
                      
                      
                      (4
                      )
                      
                      
                      1.35
                      %Neil
      Hebenton
                      
                      
                      11,070
                      
                      
                      
                      (4
                      )
                      
                      
                      *Gary
      Walker
                      
                      
                      68,814
                      
                      
                      
                      (4
                      )
                      
                      
                      *William
      Whitehead
                      
                      
                      27,154
                      
                      
                      
                      (4
                      )
                      
                      
                      *All
      Officers and Directors as a Group (11 persons)
                      
                      
                      805,355
                      
                      
                      
                      (4
                      )
                      
                      
                      10.98
                      %Special
      Situations Private Equity Fund, L.P.
                      
                      
                      1,148,518
                      
                      
                      
                      (5
                      )
                      
                      
                      15.18
                      %153
      E. 53rd Street, 55th FloorNew
      York, NY 10022Special
      Situations Fund III QP, L.P.
                      
                      
                      1,546,439
                      
                      
                      
                      (5
                      )
                      
                      
                      19.96
                      %527
      Madison Avenue, Suite 2600New
      York, NY 10022


___________




*
            Less
      than 1%.




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


(2)
            Beneficial
      ownership is determined in accordance with the rules of the Securities and
      Exchange Commission and generally includes voting or investment power with
      respect to securities. Shares of common stock subject to options or
      warrants currently exercisable or convertible, or exercisable or
      convertible within 60 days of July 17, 2009 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 6,942,266 shares of common stock
  outstanding.


(4)
            Includes
      the following number of shares of common stock which may be acquired by
      certain officers and directors through the exercise of stock options which
      were exercisable as of July 17, 2009 or become exercisable within 60 days
      of that date: Andrew Hidalgo, 205,986 shares; Joseph Heater, 74,595
      shares; Donald Walker, 1,250 shares; James Heinz, 49,257 shares; Charles
      Madenford, 3,250 shares; Myron Polulak, 250 shares; Norm Dumbroff, 23,154
      shares; Neil Hebenton, 11,070 shares; Gary Walker, 1,250 shares; William
      Whitehead, 23,154 shares; and all officers and directors as a group,
      393,216 shares.


(5)
            Includes
      the following number of shares of common stock which may be acquired
      through the exercise of common stock purchase warrants which were
      exercisable as of July 17, 2009 or become exercisable within 60 days of
      that date: Special Situations Private Equity Fund, L.P., 625,883 shares,
      and Special Situations Fund III QP, L.P., 805,620
  shares.




35








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)
              
              
              161,350
              
              
              $
              6.28
              
              
              
              112,800Equity
      compensation plan approved by security holders (2)
              
              
              288,602
              
              
              $
              6.33
              
              
              
              39,822Equity
      compensation plan  approved by security holders
    (3)
              
              
              180,000
              
              
              $
              4.04
              
              
              
              220,000Total
              
              
              629,952
              
              
              $
              5.67
              
              
              
              372,622





(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, 2009, included above
      in the 2002 Plan are 161,350 shares issuable upon exercise of options
      granted to employees and directors.





(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,
      2009, 288,602 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,
      2009, 180,000 shares were issuable upon exercise of options granted to
      employees and directors.














36







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 the Suisun City Operations, 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 Suisun City, California, which is occupied by
our Suisun City Operations. The lease calls for monthly rental payments of
$7,805, with annual increases, calculated using the San Francisco-Oakland-San
Jose Consolidated Metropolitan Statistical Area Consumer Price Index. For each
of the fiscal years ended April 30, 2009 and 2008, the rent paid for this lease
was $93,660 and $90,943, respectively.  We believe the terms of this
lease are no less favorable than those which could have been obtained between
unrelated parties for similar transactions acting at arm’s length.




On July
19, 2006, we acquired the Sarasota Operations and we lease our Sarasota, Florida
location from a trust, of which one of the former shareholders of the Sarasota
Operations, is the trustee. For the year ended April 30, 2009 and 2008, the rent
paid for this lease was $54,091 and $52,516, respectively.  We believe
the terms of this lease are no less favorable than those which could have been
obtained between unrelated parties for similar transactions acting at arm’s
length.






We lease
our Trenton, New Jersey location from Voacolo Properties LLC, of which the
former shareholders of the Trenton Operations are the members. For the year
ended April 30, 2009 and 2008, the rent paid for this lease was $60,000 and
$54,500, respectively.   We believe the terms of this lease are
no less favorable than those which could have been obtained between unrelated
parties for similar transactions acting at arm’s length.




In
connection with the acquisition of the Beijing Operations in fiscal 2007, our
joint venture partner provided the office building for the Beijing Operations
rent free during fiscal year 2009.  We expect to enter into a lease
with the joint venture partner in fiscal 2010.




As of
April 30, 2009, the Beijing Operations had outstanding loans due to a related
party, Taian Gas Group (TGG), totaling $2,951,008, of which $2,638,152 matures
on December 31, 2009, and bears interest at 6.83%. The remaining balance of
$312,856 represents working capital loans from TGG to the Beijing Operations in
the normal course of business. The Beijing Operations revenue from a related
party is $76,210 and $236,323 for the years ended April 30, 2009 and 2008,
respectively. The Beijing Operations accounts receivable from a related party is
$171,393 and $95,182 as of the years ended April 30, 2009 and 2008,
respectively.





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, 2009 and 2008, and
for the reviews of the financial statements included in our Quarterly Reports on
Form 10-Q during the fiscal years were $423,464 and $320,975,
respectively.





Audit Related Fees. We incurred fees
to our independent auditors of $12,100 and $6,000, respectively, for audit
related fees during the fiscal years ended April 30, 2009 and
2008.  These fees were related to the review of our registration
statements prior to filing with the SEC.





Tax and  Other Fees. We did
not incur fees to our independent auditors for tax compliance services during
the fiscal years ended April 30, 2009 and 2008.





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.








37





PART
IV





ITEM
15 - EXHIBITS AND FINANCIAL STATEMENT SCHEDULES





Exhibits:





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





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





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





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





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





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








10.2
              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.





10.3
              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.





10.4
              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.





10.5
              Employment
      Agreement, effective as of April 1, 2007, between WPCS International
      Incorporated and Charles Madenford, incorporated by reference to Exhibit
      10.36 of WPCS International Incorporated’s annual report on Form 10-K,
      filed July 30, 2007.




38







10.6
              Stock Purchase Agreement, dated
      as of August 1, 2007, by and among WPCS International Incorporated, Major
      Electric, Inc., Frank Mauger, James Jordan and Todd Kahl, incorporated by
      reference to Exhibit 10.1 of WPCS International Incorporated’s current
      report on Form 8-K, filed August 7,
2007.





10.7
              Registration Rights Agreement,
      dated as of August 1, 2007, by and among WPCS International Incorporated,
      Major Electric, Inc., Frank Mauger, James Jordan and Todd Kahl,
      incorporated by reference to Exhibit 10.2 of WPCS International
      Incorporated’s current report on Form 8-K, filed August 7,
      2007.





10.8
              Escrow Agreement, dated as of
      August 1, 2007, by and among WPCS International Incorporated, Major
      Electric, Inc., Frank Mauger, James Jordan, Todd Kahl and Sichenzia Ross
      Friedman Ference LLP, incorporated by reference to Exhibit 10.3 of WPCS
      International Incorporated’s current report on Form 8-K, filed August 7,
      2007.





10.9
              Employment Agreement, dated as of
      August 1, 2007, between Major Electric, Inc. and Frank Mauger,
      incorporated by reference to Exhibit 10.4 of WPCS International
      Incorporated’s current report on Form 8-K, filed August 7,
      2007.





10.10
              Employment Agreement, dated as of
      August 1, 2007, between Major Electric, Inc. and James Jordan,
      incorporated by reference to Exhibit 10.5 of WPCS International
      Incorporated’s current report on Form 8-K, filed August 7,
      2007.





10.11
              Membership Interest Purchase
      Agreement, dated as of August 2, 2007, by and among WPCS International
      Incorporated, Max Engineering LLC, Hak-Fong Ma and Robert Winterhalter,
      incorporated by reference to Exhibit 10.6 of WPCS International
      Incorporated’s current report on Form 8-K, filed August 7,
      2007.





10.12
              Registration Rights Agreement,
      dated as of August 2, 2007, by and among WPCS International Incorporated,
      Max Engineering LLC, Hak-Fong Ma and Robert Winterhalter, incorporated by
      reference to Exhibit 10.7 of WPCS International Incorporated’s current
      report on Form 8-K, filed August 7,
2007.





10.13
              Escrow Agreement, dated as of
      August 2, 2007, by and among WPCS International Incorporated, Max
      Engineering LLC, Hak-Fong Ma, Robert Winterhalter and Sichenzia Ross
      Friedman Ference LLP, incorporated by reference to Exhibit 10.8 of WPCS
      International Incorporated’s current report on Form 8-K, filed August 7,
      2007.





10.14
              Employment Agreement, dated as of
      August 2, 2007, between Max Engineering LLC and Hak-Fong Ma, incorporated
      by reference to Exhibit 10.9 of WPCS International Incorporated’s current
      report on Form 8-K, filed August 7,
2007.





10.15
              Employment Agreement, dated as of
      August 2, 2007, between Max Engineering LLC and Robert Winterhalter,
      incorporated by reference to Exhibit 10.10 of WPCS International
      Incorporated’s current report on Form 8-K, filed August 7,
      2007.





10.16
              Stock Purchase Agreement, dated
      as of November 1, 2007, by and among WPCS International Incorporated,
      Gomes and Gomes, Inc. dba Empire Electric, Harold L. Gomes and Judy L.
      Gomes, incorporated by reference to Exhibit 10.1 of WPCS International
      Incorporated’s current report on Form 8-K, filed November 2,
      2007.





10.17
              Escrow Agreement, dated as of
      November 1, 2007, by and among WPCS International Incorporated, Gomes and
      Gomes, Inc. dba Empire Electric, Harold L. Gomes, Judy L. Gomes and
      Sichenzia Ross Friedman Ference LLP, incorporated by reference to Exhibit
      10.2 of WPCS International Incorporated’s current report on Form 8-K,
      filed November 2,
2007.





10.18
              Employment Agreement, dated as of
      November 1, 2007, between Gomes and Gomes, Inc. dba Empire Electric and
      Harold L. Gomes, incorporated by reference to Exhibit 10.3 of WPCS
      International Incorporated’s current report on Form 8-K, filed November 2,
      2007.





10.19
              Employment Agreement, dated as of
      November 1, 2007, between Gomes and Gomes, Inc. dba Empire Electric and
      Judy L. Gomes, incorporated by reference to Exhibit 10.4 of WPCS
      International Incorporated’s current report on Form 8-K, filed November 2,
      2007.





10.20
              Form of Share Purchase Agreement,
      dated as of November 30, 2007, by and among WPCS Australia Pty Ltd., James
      Design Pty Ltd., Steven Peter James, Annette Beryl James, Adrian Kent
      Ferris, Lionel John Ferris, Margo Donoghue, David Arthur Hunter and Leonne
      Rosslyn Whibley, incorporated by reference to Exhibit 10.1 of WPCS
      International Incorporated’s current report on Form 8-K, filed December 5,
      2007.





10.21
              Form of Escrow Agreement, dated
      as of November 30, 2007, by and among WPCS Australia Pty Ltd., James
      Design Pty Ltd., Steven Peter James, Annette Beryl James, Adrian Kent
      Ferris, Lionel John Ferris, Margo Donoghue, David Arthur Hunter, Leonne
      Rosslyn Whibley and Gilshenan & Luton Legal Group, incorporated by
      reference to Exhibit 10.2 of WPCS International Incorporated’s current
      report on Form 8-K, filed December 5,
  2007.






39







10.22
              Form of Employment Agreement,
      dated as of November 30, 2007, by and between WPCS Australia Pty Ltd and
      Steven Peter James, incorporated by reference to Exhibit 10.3 of WPCS
      International Incorporated’s current report on Form 8-K, filed December 5,
      2007.





10.23
              Asset
      Purchase Agreement, dated as of June 26, 2008 by and among Max Engineering
      LLC, Lincoln Wind LLC and Matthew Cumberworth, incorporated by reference
      to Exhibit 10.1 of WPCS International Incorporated’s current report on
      Form 8-K, filed July 1, 2008.





10.24
              Assignment and Lease Assumption
      Agreement, dated as of June 26, 2008 by between among Max Engineering LLC,
      Lincoln Wind LLC, incorporated by reference to Exhibit 10.2 of WPCS
      International Incorporated’s current report on Form 8-K, filed July 1,
      2008.





10.25
              Employment
      Agreement, dated as of June 26, 2008 by and between Max Engineering LLC
      and Matthew Cumberworth, incorporated by reference to Exhibit 10.3 of WPCS
      International Incorporated’s current report on Form 8-K, filed July 1,
      2008.





10.26
              Escrow
      Agreement, dated as of June 26, 2008 by between among Max Engineering LLC,
      Lincoln Wind LLC, incorporated by reference to Exhibit 10.4 of WPCS
      International Incorporated’s current report on Form 8-K, filed July 1,
      2008.





10.27
              Escrow
      Agreement, dated as of June 26, 2008 by between among Max Engineering LLC,
      Lincoln Wind LLC, incorporated by reference to Exhibit 10.5 of WPCS
      International Incorporated’s current report on Form 8-K, filed July 1,
      2008.





10.28
              2002
      Employee Stock Option Plan, incorporated by reference to Exhibit 4.4 of
      WPCS International Incorporated’s Annual Report on Form 10-KSB, filed
      August 14, 2003.





10.29
              2006
      Incentive Stock Plan, incorporated by reference to Exhibit 4.2 of WPCS
      International Incorporated’s registration statement on Form S-8, filed
      September 21, 2005.





10.30
              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.





10.31
              Amendment
      to Employment Agreement, dated as of June 1, 2008, by and between WPCS
      International Incorporated and Andrew Hidalgo, incorporated by reference
      to Exhibit 10.49 of WPCS International Incorporated’s Annual Report on
      Form 10-K, filed July 29,
2008.





10.32
              Amendment
      to Employment Agreement, dated as of June 1, 2008, by and between WPCS
      International Incorporated and Joseph Heater, incorporated by reference to
      Exhibit 10.50 of WPCS International Incorporated’s Annual Report on Form
      10-K, filed July 29, 2008.





10.33
              Amendment
      to Employment Agreement, dated as of May 1, 2009 by and between WPCS
      International Incorporated and Donald
Walker.





10.34
              Amendment
      to Employment Agreement, dated as of May 1, 2009 by and between WPCS
      International –Suisun City, Inc. and Gary
  Walker.





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.





31.01
              Certification
      of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and
      15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002.





31.02
              Certification
      of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and
      15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002.





32.01
              Certifications
      of Chief Executive Officer and Chief Financial Officer pursuant to
      18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.








40








SCHEDULE
II


VALUATION
AND QUALIFYING ACCOUNTS


Forthe years ended April
30, 2009, 2008 and 2007





(A)
      Description
                
                (B)
      Balance
                
                
                (C)
      Additions
                
                
                (D)
      Deductions
                
                
                
                
                
                (E)
      Balanceat
      Beginning of Period
                
                
                Charged
      to Costs and Expenses
                
                
                
                
                
                
                
                
                at
      end of PeriodAllowancefor
      Doubtful AccountsApril
      30, 2007
                
                
                104,786
                
                
                
                -
                
                
                
                (6,000
                )
                
                
                (1
                )
                
                
                98,786April
      30, 2008
                
                
                98,786
                
                
                
                -
                
                
                
                -
                
                
                
                (1
                )
                
                
                98,786April
      30, 2009
                
                
                98,786
                
                
                
                148,796
                
                
                
                (92,124
                )
                
                
                (1
                )
                
                
                155,458





(1).
Write-off of uncollectible accounts.








41










SIGNATURES





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





WPCS INTERNATIONAL
INCORPORATED





Date:  July
      29, 2009
            By:/s/ ANDREW HIDALGOAndrew
      HidalgoChief
      Executive Officer (Principal Executive Officer)Date:  July
      29, 2009
            By:/s/ JOSEPH HEATERJoseph
      HeaterChief
      Financial Officer (Principal Accounting
Officer)





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





Name
                        Position
                        Date/s/ ANDREW HIDALGO
                          
                          Andrew
      Hidalgo
                        Chairman
      of the Board
                        July
      29, 2009/s/ MICHAEL DOYLE
                          
                          Michael
      Doyle
                        Director
                        July
      29, 2009/s/ NORM DUMBROFF
                          
                          Norm
      Dumbroff
                        Director
                        July
      29, 2009/s/ NEIL HEBENTON
                          
                          Neil
      Hebenton
                        Director
                        July
      29, 2009/s/ GARY WALKER
                          
                          Gary
      Walker
                        Director
                        July
      29, 2009/s/ WILLIAM WHITEHEAD
                          
                          William
      Whitehead
                        Director
                        July
      29,
2009